CONTRACT REPORT - Vodafone Kabel Deutschland · Vodafone Vierte Verwaltungs AG announced its...

NON-BINDING ENGLISH TRANSLATION

CONTRACT REPORT

Joint Report

of the management board of

Vodafone Vierte Verwaltungs AG, Düsseldorf,

and

the management board of

Kabel Deutschland Holding AG, Unterföhring,

pursuant to Section 293a German Stock Corporation Act

concerning the Domination and Profit and Loss Transfer Agreement

between Vodafone Vierte Verwaltungs AG

and Kabel Deutschland Holding AG

20 December 2013


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Table of Contents

Section Page

(A) INTRODUCTION ................................................................................................................... 6

(B) THE PARTIES ....................................................................................................................... 7

1 KDH AG ................................................................................................................................. 7

1.1 Structure of KDH Group ........................................................................................................ 7

1.1.1 Overview of KDH Group............................................................................................ 7

1.1.2 Operative foundations ............................................................................................... 8

1.1.3 TV business segment ................................................................................................ 8

1.1.4 Internet and phone business segment ...................................................................... 8

1.1.5 Consolidated financial statements of KDH AG ......................................................... 9

1.1.6 Material participations of KDH AG ............................................................................ 9

1.1.7 Financing ................................................................................................................... 9

1.1.8 Tax situation of KDH AG............................................................................................ 9

1.2 Corporate history and development .................................................................................... 10

1.3 The cable network ............................................................................................................... 10

1.4 Legal foundations of KDH AG ..............................................................................................11

1.5 Capital, trading on the stock exchange, KDH Shareholders ................................................11

1.5.1 Share capital ............................................................................................................11

1.5.2 Authorized capital .....................................................................................................11

1.5.3 Conditional capital and authorization to issue convertible bonds and bonds with

warrants .................................................................................................................. 12

1.5.4 KDH Shares held as treasury shares ...................................................................... 12

1.5.5 Trading on the stock exchange ............................................................................... 13

1.5.6 KDH Shareholders .................................................................................................. 13

1.6 Corporate bodies of KDH AG .............................................................................................. 15


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1.6.1 Management board ................................................................................................. 15

1.6.2 Supervisory board ................................................................................................... 16

1.7 Employees of KDH Group ................................................................................................... 17

1.8 Development of the business, earnings situation and financial position of KDH Group ..... 17

1.8.1 Key numbers for the fiscal years 2010/2011 to 2012/2013 ..................................... 17

1.8.2 Other key numbers of KDH Group .......................................................................... 18

1.8.3 Financial position .................................................................................................... 18

1.8.4 First half of the fiscal year 2013/2014 ..................................................................... 18

1.8.5 Outlook .................................................................................................................... 19

2 Vodafone Group .................................................................................................................. 20

2.1 Overview ............................................................................................................................. 20

2.2 Corporate history and development of Vodafone Group Plc .............................................. 20

2.3 Legal foundations of Vodafone Group Plc .......................................................................... 21

2.4 Capital, trading on the stock exchange, shareholders of Vodafone Group Plc .................. 21

2.4.1 Share capital ........................................................................................................... 21

2.4.2 Trading on the stock exchange ............................................................................... 21

2.4.3 Shareholders and treasury shares .......................................................................... 22

2.5 Structure of the Vodafone Group ........................................................................................ 22

2.5.1 Operative and legal structure .................................................................................. 22

2.5.2 Participations ........................................................................................................... 22

2.5.3 Tax situation of Vodafone Group Plc ....................................................................... 22

2.6 Overview of the business strategy “Vodafone 2015” .......................................................... 22

2.7 Corporate bodies of Vodafone Group Plc ........................................................................... 23

2.7.1 Board ....................................................................................................................... 23

2.7.2 Executive Committee .............................................................................................. 23


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2.8 Employees........................................................................................................................... 24

2.9 Development of the business and earnings situation ......................................................... 24

2.9.1 Key numbers for the fiscal years 2010/2011 to 2012/2013 ..................................... 25

2.9.2 Development of the business in the fiscal year 2012/2013 .................................... 25

2.9.3 Key numbers by segments ..................................................................................... 26

2.9.4 First half year in business year 2013/2014 ............................................................. 27

2.10 Vodafone Germany ............................................................................................................. 28

2.10.1 Overview ............................................................................................................... 28

2.10.2 Corporate history of Vodafone Germany .............................................................. 28

2.10.3 Structure of Vodafone Germany ........................................................................... 29

2.10.4 Overview of the business activities of Vodafone Germany ................................... 30

3 Vodafone Vierte Verwaltungs AG ........................................................................................ 31

3.1 Overview ............................................................................................................................. 31

3.2 Legal form, registered office, fiscal year and corporate purpose ........................................ 31

3.3 Corporate history and development .................................................................................... 32

3.3.1 Foundation .............................................................................................................. 32

3.3.2 Capital increase, economic re-establishment, change of legal form and change of

the corporate purpose ............................................................................................. 32

3.3.3 Transfer of shares to Vodafone GmbH ................................................................... 32

3.3.4 Post-formation ......................................................................................................... 33

3.3.5 Domination and profit and loss transfer agreement with Vodafone GmbH ............. 33

3.4 Capital and shareholder ...................................................................................................... 33

3.5 Corporate bodies of Vodafone Vierte Verwaltungs AG ....................................................... 34

3.5.1 Management board ................................................................................................. 34

3.5.2 Supervisory board ................................................................................................... 34


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3.6 Business activities and participations ................................................................................. 34

3.7 Earnings situation and financial position of Vodafone Vierte Verwaltungs AG ................... 35

3.7.1 Assets...................................................................................................................... 35

3.7.2 Equity and liabilities ................................................................................................. 35

3.8 Employees and employee representation ........................................................................... 35

3.9 Financial funding of Vodafone Vierte Verwaltungs AG........................................................ 35

4 Takeover Offer by Vodafone Vierte Verwaltungs AG, further purchases of shares ............ 37

4.1 Takeover Offer and additional purchases of shares ............................................................ 37

4.2 Possible purchases outside of the cash buyout offer ......................................................... 38

(C) DOMINATION AND PROFIT AND LOSS TRANSFER AGREEMENT .............................. 38

1 Reasons for the conclusion of the Domination and Profit and Loss Transfer Agreement .. 38

1.1 Economic, legal and tax reasons ........................................................................................ 38

1.1.1 Economic and legal reasons ................................................................................... 38

1.1.2 Tax reasons ............................................................................................................. 44

1.2 Alternatives to concluding the Domination and Profit and Loss Transfer Agreement ......... 45

1.2.1 Conclusion of an isolated domination agreement or an isolated profit and loss

transfer agreement ................................................................................................. 45

1.2.2 Exclusion of the minority shareholders (squeeze-out) ............................................ 45

1.2.3 Absorption or merger .............................................................................................. 46

1.2.4 Change of legal form ............................................................................................... 46

1.2.5 Conclusion .............................................................................................................. 47

1.3 Costs of the Domination and Profit and Loss Transfer Agreement ..................................... 47

2 Content and effects of the Domination and Profit and Loss Transfer Agreement ............... 47

2.1 Explanation of the content of the contract ........................................................................... 47

2.1.1 Management control and instructions (clause 1 of the Domination and Profit and

Loss Transfer Agreement) ...................................................................................... 47


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2.1.2 Transfer of profit (clause 2 of the Domination and Profit and Loss Transfer

Agreement) ............................................................................................................. 49

2.1.3 Assumption of losses (clause 3 of the Domination and Profit and Loss Transfer

Agreement) ............................................................................................................. 51

2.1.4 Recurring Compensation Payment (clause 4 of the Domination and Profit and Loss

Transfer Agreement) ............................................................................................... 52

2.1.5 Compensation (clause 5 of the Domination and Profit and Loss Transfer

Agreement) ............................................................................................................. 58

2.1.6 Coming into effect, term and termination of the contract (clause 6 of the Domination

and Profit and Loss Transfer Agreement) ............................................................... 61

2.1.7 Final provisions of the contract (clause 8 of the Domination and Profit and Loss

Transfer Agreement) ............................................................................................... 64

2.1.8 Comfort letter by Vodafone Group Plc .................................................................... 65

2.2 Technical processing of the Domination and Profit and Loss Transfer Agreement by the

banks ................................................................................................................................... 65

2.3 Explanation of the effects of the Domination and Profit and Loss Transfer Agreement ..... 66

2.3.1 Effects under corporate law .................................................................................... 66

2.3.2 Protection of the outside KDH Shareholders .......................................................... 67

2.3.3 Tax effects for KDH Shareholders in Germany ....................................................... 71

2.3.4 Tax effects on KDH AG ........................................................................................... 79

3 Type and amount of the Recurring Compensation Payment and the compensation

under Sections 304, 305 AktG ........................................................................................... 80

3.1 Overview ............................................................................................................................. 80

3.2 Determination and setting of the amount of the reasonable Recurring Compensation

Payment under Section 304 AktG ....................................................................................... 82

3.3 Determination and setting of the amount of the reasonable compensation under Section

305 AktG.............................................................................................................................. 83

3.4 Contract audit ...................................................................................................................... 84


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The management board of Kabel Deutschland Holding AG (“KDH AG”) and the management

board of Vodafone Vierte Verwaltungs AG (“Vodafone Vierte Verwaltungs AG”) are jointly issuing

the following report (the “Contract Report”) pursuant to Section 293a German Stock Corporation

Act (Aktiengesetz – “AktG”) concerning the Domination and Profit and Loss Transfer Agreement

dated 20 December 2013 (the “Domination and Profit and Loss Transfer Agreement”) between

KDH AG as the controlled company and Vodafone Vierte Verwaltungs AG as the controlling

company (together also the “Parties”).

(A) INTRODUCTION

On 30 July 2013, Vodafone Vierte Verwaltungsgesellschaft mbH (now following the change

of legal form into a German stock corporation: “Vodafone Vierte Verwaltungs AG”) has

made a voluntary public takeover offer (“Takeover Offer”) to all shareholders of KDH AG

(“KDH Shareholders”) for the acquisition of all no-par value bearer shares (“KDH

Shares”). The Takeover Offer was accepted for approximately 72.21% of the KDH Shares

by the expiration of the acceptance period on 11 September 2013 at 24:00 hours. The

overall participation in KDH Shares which was held by Vodafone Vierte Verwaltungs AG

and persons acting in concert with Vodafone Vierte Verwaltungs AG within the meaning of

Section 2 para. 5 of the German Securities Acquisition and Takeover Act

(Wertpapiererwerbs- und Übernahmegesetz – “WpÜG”) on 11 September 2013 at 24:00

hours as well as those KDH Shares for which the Takeover Offer had been accepted was

approximately 76.48% at the end of the acceptance period. Included therein were

3,782,719 KDH Shares that were held by Vodafone Group Plc (“Vodafone Group Plc” and

together with its subsidiaries “Vodafone Group”) and for which Vodafone Group Plc has

accepted the Takeover Offer during the additional acceptance period. At the end of the

additional acceptance period within the meaning of Section 16 para. 2 WpÜG on

30 September 2013 at 24:00 hours, the Takeover Offer had been accepted for

approximately 76.57% of KDH Shares (see Section B.4.1).

Following settlement of the Takeover Offer, Vodafone Vierte Verwaltungs AG holds

67,780,374 KDH Shares at the time of signing of this Contract Report. This corresponds to

a shareholding of 76.57% in the share capital and the voting rights in KDH AG.

Vodafone Vierte Verwaltungs AG announced its intention to enter into a Domination and

Profit and Loss Transfer Agreement with KDH AG after settlement of the Takeover Offer in

a press release dated 12 September 2013. On 20 September 2013 Vodafone Vierte

Verwaltungs AG published the fulfilment of all completion conditions of the Takeover Offer.

The Takeover Offer has been settled on 14 October 2013.

In response to identical requests of KDH AG and Vodafone Vierte Verwaltungs AG, the

District Court (Landgericht) Munich I by order dated 25 October 2013 selected and

appointed Wedding & Cie. GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, with

the participation of the publicly appointed and sworn in business-evaluation expert

Dr. Anke Nestler, as joint contract auditor (the “Contract Auditor”) for the examination of

the Domination and Profit and Loss Transfer Agreement.

The Parties concluded the Domination and Profit and Loss Transfer Agreement on

20 December 2013. The supervisory board of KDH AG had previously approved the

conclusion of the Domination and Profit and Loss Transfer Agreement in its meeting on

20 December 2013. At the time of adopting the resolution, the final draft of the Domination

and Profit and Loss Transfer Agreement, a final draft of this Contract Report and the

signed version of the expert opinion (the “Valuation Report”) of Warth & Klein Grant


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Thornton AG, Wirtschaftsprüfungsgesellschaft, Düsseldorf, (the “Valuation Expert”) dated

19 December 2013 as well as a final draft of the report by the Contract Auditor concerning

the examination of the Domination and Profit and Loss Transfer Agreement dated

18 December 2013 (the “Audit Report”) were available to the supervisory board.

Vodafone Group Plc has issued a comfort letter regarding the Domination and Profit and

Loss Transfer Agreement to Kabel Deutschland Holding AG on 18 December 2013.

The Domination and Profit and Loss Transfer Agreement requires the approval of the

general shareholders’ meeting of KDH AG in accordance with Section 293 para. 1 AktG as

well as the approval of the general shareholders’ meeting of Vodafone Vierte Verwaltungs

AG in accordance with Section 293 para. 2 AktG. The general shareholders’ meeting of

Vodafone Vierte Verwaltungs AG resolved on its approval of the Domination and Profit and

Loss Transfer Agreement on 19 December 2013. The approving resolution of the general

shareholders’ meeting of KDH AG shall be adopted at the extraordinary general

shareholders’ meeting of KDH AG on 13 February 2014. The Domination and Profit and

Loss Transfer Agreement will become effective upon registration in the commercial register

(Handelsregister) at the seat of KDH AG.

(B) THE PARTIES

1 KDH AG

1.1 Structure of KDH Group

1.1.1 Overview of KDH Group

The structure chart below shows operational participations of KDH Group as well

as the participations in the respective personally liable shareholders if applicable.


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A list of the participations of KDH AG as of 20 December 2013 is attached as

Annex 1 to this Contract Report.

1.1.2 Operative foundations

KDH AG is the management and holding company of Kabel Deutschland group

(“KDH Group”) and is, in particular, responsible for the strategic development of

KDH Group and the provision of services and financing to the members of KDH

Group. The business activities of KDH Group are primarily conducted by KDH AG’s

operating subsidiaries, in particular by Kabel Deutschland Vertrieb und Service

GmbH, a wholly-owned subsidiary of KDH AG, and Kabel Deutschland

Kundenbetreuung GmbH, a wholly-owned subsidiary of Kabel Deutschland

Vertrieb und Service GmbH. KDH Group has bundled its customer service centres

and its technical service centres in Kabel Deutschland Kundenbetreuung GmbH.

KDH Group offers a variety of television and telecommunication services, including

analogue TV, digital and high definition TV, video on demand (VoD), digital video

recording (DVR), pay TV, broadband internet and phone services via TV-cable as

well as mobile services by a partner. According to its own estimate, KDH Group is

the largest cable network provider in the Federal Republic of Germany in terms of

housing units that can be connected to a cable network. With more than 15 million

housing units that can be connected to the cable network, the cable network of

KDH AG could be considered to be the largest within a country in Europe. KDH

Group has two operative segments, TV business and internet and phone business,

both of which report separately and are managed separately.

1.1.3 TV business segment

KDH Group’s TV business segment provides to its customers basic cable and

premium TV products and services. The basic cable products comprise analogue

and digital TV and radio services, which are provided primarily via individual

customer contracts or collective contracts with landlords or housing associations as

well as contracts with level 4 network operators. Revenue is primarily generated

from subscription fees. The premium TV products and services generate revenues

primarily from monthly subscription fees for pay TV, digital video recorders as well

as from technical access fees for encrypted high definition channels which are sold

as additional services to basic cable customers. In addition, KDH Group’s TV

business segment generates revenue from the feed-in and signal transportation

services with free TV and pay TV providers.

In the financial year ended on 31 March 2013, KDH Group’s TV business segment

generated revenues of approximately EUR 1,191.6 million representing

approximately 65.1% of KDH Group’s total revenues.

1.1.4 Internet and phone business segment

KDH Group’s internet and phone business segment comprises broadband internet

access, fixed-line phone services, mobile voice and data services as well as

supplementary options. Broadband internet access and fixed-line phone services

are offered to customers who can be connected to KDH Group’s network upgraded

for bidirectional services. A large part of the new customers in the internet and

phone business segment subscribe combination products that include both

services. The mobile voice and data services are offered by KDH Group on the


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basis of a contractual relationship with a mobile network operator in the Federal

Republic of Germany. Revenues are generated in the internet and phone business

segment mainly by reoccurring fees, such as in particular the monthly fee for

telephone and internet flat rates.

In the financial year ending 31 March 2013, KDH Group’s internet and phone

business segment generated revenues of approximately EUR 638.3 million,

representing approximately 34.9% of KDH Group’s total sales revenues.

1.1.5 Consolidated financial statements of KDH AG

Pursuant to Section 315a para. 1 German Commercial Code (Handelsgesetzbuch

– "HGB"), the consolidated financial statements of KDH AG for the fiscal year

2012/2013 that ended on 31 March 2013 were prepared as in the previous year in

accordance with the International Financial Reporting Standards of the

International Accounting Standards Board (IASB) as they must be applied pursuant

to the regulation no. 1606/2002 of the European Parliament and the Council on the

application of International Accounting Standards in the European Union (“IFRS”)

and show revenue in the amount of EUR 1,829.9 million, earnings before interest,

taxes, depreciation and amortisation (adjusted EBITDA) in the amount of

EUR 862.3 million and a consolidated profit of EUR 246.8 million.

1.1.6 Material participations of KDH AG

KDH AG held 18 direct and indirect corporate participations in Germany as of

31 March 2013. 16 companies (including KDH AG) were fully consolidated in the

consolidated financial statements 2012/2013.

A list of the direct and indirect participations of KDH AG as of 20 December 2013 is

attached as Annex 1 to this Contract Report.

1.1.7 Financing

KDH has issued an unsecured, fixed interest bearer bond of EUR 400 million. The

bond has a interest rate of 6.5% and is due on 31 July 2017. Its subsidiary, Kabel

Deutschland Vertrieb und Service GmbH, has issued a senior, fixed interest bearer

bond of EUR 700 million with an interest rate of 6.5%, due on 29 June 2018. Both

bonds can be repaid with advanced repayment. In October 2013 investment grade

ratings have been published. The conditions of the bonds allow the conclusion of a

Domination and Profit and Loss Transfer Agreement.

Kabel Deutschland Vertrieb und Service GmbH has a line of credit of EUR 2.15

billion with a duration until June 2020 and a revolving line of credit of EUR 300

million with a duration until March 2019 each granted by Vodafone Investments

Luxembourg S.a.r.l. Both of these granted lines of credit have replaced bank

financing as of 15 October 2013, which have become due for repayment with

completion of the Takeover Offer.

1.1.8 Tax situation of KDH AG

KDH AG generally has the policy of establishing a consolidated tax group

(Organschaft) for income tax purposes with all of its domestic corporations in which

it directly holds a participation of 100% with KDH AG as the parent company

(Organträgerin). As parent company, all profits are generally attributable to KDH


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AG for purposes of income tax in Germany and are subject to corporate income tax

and trade tax at the level of KDH AG.

1.2 Corporate history and development

KDH AG was established on 29 November 2004 under the name Kabel Deutschland

Holding GmbH & Co. KG. On 19 January 2005, the legal form of the company was

changed into a German limited liability company (Gesellschaft mit beschränkter Haftung).

On 19 February 2010, the shareholders’ meeting resolved upon the change of legal form

into a German stock corporation (Aktiengesellschaft) with the name Kabel Deutschland

Holding AG. Upon registration in the commercial register (Handelsregister) on 4 March

2010, such change of legal form became effective. On 22 March 2010, KDH AG launched

an initial public offering. Since then, KDH Shares have been listed on the regulated market

(Prime Standard) of the Frankfurt Stock Exchange under ISIN DE000KD88880 /

WKN KD8888. In June 2010, the shares were admitted to the MDAX. Following settlement

of the Takeover Offer, Vodafone Vierte Verwaltungs AG holds 67,780,374 KDH Shares at

the time of signing of this Contract Report. This corresponds to a shareholding of 76.57%

in the share capital and the voting rights in KDH AG. The website of KDH AG can be

accessed at http://www.kabeldeutschland.com.

The broadband cable business, in particular the TV cable network, of KDH Group was

originally operated by Deutsche Telekom, which had emerged out of the German Federal

Mail (Bundespost). In the late 1990s, the EU Commission requested the separation of

telecommunication and cable TV networks in order to create a greater level of competition.

Hence, Deutsche Telekom had to sell its TV cable networks. For this purpose, the

networks were transferred to a Telekom subsidiary and thereafter regionalised. The

regional companies were then offered for sale to financial investors and strategic investors

individually or in packages. In 2003, Deutsche Telekom sold a large package of regional

companies which encompassed all federal states (Bundesländer) in Germany except for

the states of North Rhine-Westfalia (Nordrhein-Westfalen), Baden-Württemberg and Hesse

to an international group of financial investors. KDH Group derived from this transaction.

Following this transaction, KDH Group acquired additional networks, in particular level 4

networks (Netzebene 4) (cable networks within residential complexes).

1.3 The cable network

The cable network of KDH Group was established by Deutsche Telekom and its legal

predecessor, the German Federal Mail (Deutsche Bundespost), according to high

standards characterized by a homogenous design, a high degree of reliability and low

maintenance requirements. The network reaches more than 15 million housing units as of

30 September 2013 and positions KDH Group, in the regions it serves, as the sole

competitor of Deutsche Telekom with end-to-end infrastructure. Since April 2006, KDH

Group has been investing in an upgrade of its broadband network for interactive services.

As of 30 September 2013, 91.4% of the network had been upgraded to a backchannel-

ready HFC structure (hybrid fibre coaxial cabling using both coaxial as well as optical fibre

cables). This corresponds to approximately 13.86 million housing units that can be

connected to the network, of which as of 30 September 2013 approximately 11.57 million

housing units are marketed housing units. At the same time, KDH Group has invested in

the further technological development of the customer end products (customer premise

equipment – “CPE”). That way, KDH Group can offer its customers broadband internet

access, phone services and modern TV services that are market-leading in KDH Group’s


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view. Over the coming years, KDH Group will upgrade further networks for interactive

services that can then also be used for offering high internet bandwidths through a use of

DOCSIS 3.0. As of 30 September 2013 DOCSIS 3.0 products were offered in 89.9% of the

upgraded network. In April 2013, KDH Group kicked off an additional investment program

of EUR 300 million, that shall be implemented in the fiscal years 2013/2014 and

2014/2015. Such program aims at an enhancement of growth and efficiency improvements

of the network infrastructure. In order to strengthen and promote growth, further broadband

networks, not insignificantly also in rural areas, are upgraded for interactive services. The

consistent proseqution of the almost nationwide conversion of the KDH Group networks

into the transmission standart DOCSIS 3.0 allows to offer internet broadbands to up to

400 Mbit/s. The major focus of these efficiency improvement activities is the redemption of

leased lines and the replacement by owned optical fibre infrastructure. This enables KDH

Group to respond effectively to the continuous increase of rental costs and to significantly

reduce reaction times for network capacity requirements. Such investment also forms the

basis for the realisation of future broadband-intensive services and products.

1.4 Legal foundations of KDH AG

The KDH AG is a German stock corporation (Aktiengesellschaft) having its seat in

Unterföhring and being registered in the commercial register (Handelsregister) of the local

court (Amtsgericht) of Munich under number HRB 184452. The corporate purpose of KDH

AG comprises the provision of television, telecommunication, multimedia and other related

services. KDH AG is entitled to perform all acts and take all steps and conduct all kinds of

transactions which are appropriate to directly or indirectly facilitate the attainment of its

corporate purpose. KDH AG may also establish, acquire or hold participations in other

companies of the same or a similar kind in Germany or abroad and may manage such

companies or limit itself to the management of its investment. It is entitled to outsource its

business activities in whole or in part to affiliated companies. KDH AG may also set up

branches and permanent establishments in Germany and abroad (see Section 2 of the

articles of association of KDH AG (“KDH Articles of Association”)). The fiscal year of

KDH AG begins on 1 April of each calendar year and ends on 31 March of the following

calendar year.

1.5 Capital, trading on the stock exchange, KDH Shareholders

1.5.1 Share capital

At the time of signing of this Contract Report, the share capital of KDH AG is

EUR 88,522,939.00 and is divided into 88,522,939 no-par value ordinary bearer

shares, each representing a pro rata amount of the share capital of EUR 1.00 per

share.

1.5.2 Authorized capital

The management board is authorized according to the shareholders resolution as

of 19 February 2010 to increase the share capital of the company, subject to the

approval of the supervisory board, in the time period until 18 February 2015 by

issuing up to 45,000,000 ordinary bearer shares in exchange for cash contributions

and/or contributions in kind once or several times up to a total of EUR 45 million

(“Authorized Capital 2010/I”). As a general rule, the shareholders shall be granted

subscription rights to the new shares. The new shares may also be subscribed by

banks or institutions within the meaning of Section 186 para. 5 sentence 1 AktG


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under the obligation to offer such shares for subscription to the shareholders. The

subscription right of the shareholders, may, however, be excluded in total or in part.

The management board is authorised, subject to the approval of the supervisory

board, to determine the further details of capital increases from Authorised Capital

2010/I and their implementation.

1.5.3 Conditional capital and authorization to issue convertible bonds and bonds with

warrants

The registered share capital of KDH AG has been increased conditionally by

resolution of the annual meeting as of 15 March 2010 by issuing 45,000,000 new

non-par value bearer shares by EUR 45 million (“Authorized Capital 2010/I”). The

Authorized Capital 2010/I serves the purpose of granting bearer shares to the

holders or creditors of convertible bonds and bonds with warrants according to the

authorisation as of 15 March 2010.

1.5.4 KDH Shares held as treasury shares

By a resolution of the Shareholders’ Meeting dated 15 March 2010, the

management board is authorized to purchase treasury shares on or before

14 March 2015, subject to supervisory board consent, in a volume of up to 10% of

the share capital existing at the time the resolution was adopted (corresponding to

9,000,000 KDH Shares). Acquisition for purposes of trading in treasury shares is

not permitted. The shares acquired on the basis of this authorization, together with

other shares of the company acquired by the company and still in its possession at

the time of acquisition, may not represent more than 10% of the share capital.

The authorization may be used by the company in its entirety or in several

instalments, on one or more occasions, and may also be used by the company’s

subsidiaries or companies under majority ownership of the company or by third

parties acting on behalf of the company or its subsidiaries or companies under

majority ownership of the company.

Purchases may be made over the stock exchange or through a public offer to all

shareholders. For acquisition via the stock exchange, the purchase price

(excluding incidental acquisition costs) may not be more than 20% above or below

the share price as determined by the opening auction in XETRA trading (or a

corresponding successor system) on the trading date.

In the fiscal year ended 31 March 2012, the management board, with consent of

the supervisory board, repurchased on the stock exchange a total of 1,477,061

no par value shares, with a pro rata amount of share capital equal to EUR

1,477,061 at a total purchase price of approximately EUR 60,000 (excluding

transaction costs) and retired these treasury shares with a corresponding reduction

in the share capital. As of 20 December 2013 KDH AG does not hold treasury

shares.

At this time, the authorization of the shareholders’ meeting of 15 March 2010 still

encompasses the repurchase of up to 8.36% of the share capital existing at the

time the resolution was adopted (corresponding to 7,522,939 KDH Shares).


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1.5.5 Trading on the stock exchange

The KDH Shares are admitted to trading on the regulated market of the Frankfurt

Stock Exchange (Prime Standard) and are traded on the regulated unofficial

market (Freiverkehr) of the stock exchanges in Berlin, Düsseldorf, Hamburg,

Hanover, Munich and Stuttgart. The KDH Shares are, inter alia, included in the

MDAX share index, and as per 23 September 2013 they were weighted at

1.9264% of the MDAX.

1.5.6 KDH Shareholders

As of the time of signing of this Contract Report, Vodafone Vierte Verwaltungs AG

directly holds a total of 67,780,374 KDH Shares, corresponding to 76.57% of the

voting rights and of the share capital of KDH AG.

Apart from Vodafone Vierte Verwaltungs AG and its controlling direct and indirect

shareholders at the time of signing of this Contract Report the following

participiations in KDH AG had been known by KDH AG according to the voting

rights notifications in accordance with Sections 21 et seq. of the German Securities

Trading Act (Wertpapierhandelsgesetz – “WpHG”) received until signing of this

Contract Report:

Shareholder

Voting rights

participation

(total) in %

Attribution Date (reaching,

crossing or

falling below

threshold)

Elliott total 11.09

Braxton Associates,

Inc., Wilmington,

Delaware, USA

10.91 9.61 % (Section 22

para. 1 sentence 1

no. 1 WpHG);

1.30% (Section 22

para. 1 sentence 1

no. 2, sentence 2

WpHG);

06.09.2013

Paul E. Singer, USA 10.91 9.61 % (Section 22

para. 1 sentence 1

no. 1 WpHG);

1.30% (Section 22

para. 1 sentence 1

no. 2, sentence 2

WpHG);

10.46% (Section 22

para. 1 sentence 1

no. 6)

06.09.2013

Elliott Asset

Management LLC,

Wilmington,

10.91 9.61 % (Section 22

para. 1 sentence 1

no. 1 WpHG);

06.09.2013


14

Delaware, USA 1.30% (Section 22

para. 1 sentence 1

no. 2, sentence 2

WpHG);

Elliott Capital

Advisors, L.P.,

Wilmington,

Delaware, USA

10.91 9.61 % (Section 22

para. 1 sentence 1

no. 1 WpHG);

1.30% (Section 22

para. 1 sentence 1

no. 2, sentence 2

WpHG);

06.09.2013

Elliott International

Capital Advisors

Inc.,

Wilmington,

Delaware, USA

10.46 10.46% (Section 22

para. 1 sentence 1

no. 6 WpHG)

06.09.2013

Hambledon Inc.,

Grand Cayman,

Cayman Islands

10.46 9.61% (Section 22

para. 1 sentence 1

no. 1 WpHG);

0.84% (Section 22

para. 1 sentence 1

no. 2 WpHG)

06.09.2013

Elliott International,

L.P. Grand Cayman,

Cayman Islands

10.46 9.61% (Section 22

para. 1 sentence 1

no. 1 WpHG);

0.84% (Section 22

para. 1 sentence 1

no. 2 WpHG)

06.09.2013

Elliott International

Limited, Grand

Cayman,

Cayman Islands

11.09 11.09% (Section 22

para. 1 sentence 1

no. 1 WpHG)

11.09.2013

Maidenhead LLC,

Wilmington,

Delaware, USA

11.09 11.09% (Section 22

para. 1 sentence 1

no. 1 WpHG)

11.09.2013

Wolverton

(Luxembourg)

S.à r.l.,

Luxembourg,

Luxembourg

11.09 11.09% (Section 22

para. 1 sentence 1

no. 1 WpHG)

11.09.2013

Cornwall

(Luxembourg)

S.à r.l.,

11.09 11.09.2013


15

Luxembourg,

Luxembourg

Blackrock total 4.30

Blackrock Holdco 2,

Inc., Wilmington,

Delaware, USA

4.21 4.21% (Section 22

para. 1 sentence 1

no. 6, sentence 2

WpHG)

20.09.2013

Blackrock, Inc., New

York, New York,

USA

4.30 4.30% (Section 22

para. 1 sentence 1

no. 6, sentence 2

WpHG)

20.09.2013

Blackrock Financial

Management, Inc.,

New York, New

York, USA

4.21 4.21% (Section 22

para. 1 sentence 1

no. 6, sentence 2

WpHG)

20.09.2013

Barclays total 5.04

Barclays Plc,

London, United

Kingdom

5.04 5.04% (Section 22

para. 1 sentence 1

no. 1 WpHG)

30.08.2013

Barclays Bank Plc,

London, United

Kingdom

5.04 4.43% (Section 22

para. 1 sentence 1

no. 1 WpHG)

30.08.2013

Barclays Capital

Securities Ltd,

London, United

Kingdom

4.43 30.08.2013

To the extent no further voting rights obligations have been triggered, these actual

participation quotas could have changed.

1.6 Corporate bodies of KDH AG

1.6.1 Management board

Pursuant to Section 5 para. 1 sentence 1 of the KDH Articles of Association, the

management board (Vorstand) of KDH AG is composed of one or several persons.

The supervisory board (Aufsichtsrat) determines the number of members of the

management board according to Section 5 para. 1 sentence 2 of the KDH Articles

of Association. At the time of signing of this Contract Report, the management

board of KDH AG is composed of the following individuals:

• Dr. Adrian v. Hammerstein

Chief Executive Officer


16

• Dr. Manuel Cubero del Castillo-Olivares

Chief Operating Officer

• Erik Adams

Chief Marketing Officer

• Dr. Andreas Siemen

Chief Financial Officer

Pursuant to Section 6 para. 2 of the KDH Articles of Association, KDH AG is

represented by one member of the management board alone, as long as only one

person has been appointed as member of the management board. If the

management board consists of several persons, the company is represented by

two members of the management board or one member of the management board

acting jointly with a holder of registered signing authority (Prokurist).

1.6.2 Supervisory board

Pursuant to Section 96 para. 1 AktG, Section 7 para. 1 sentence 1 no. 1 of the

German Co-Determination Act (Mitbestimmungsgesetz – “MitbestG”) as well as

Section 7 para. 1 of the KDH Articles of Association, the supervisory board of KDH

AG is composed of twelve members. Half of the members is elected by the general

shareholders’ meeting of KDH AG and the other half of the members is elected in

accordance with the provisions of the MitbestG. At the time of signing this Contract

Report, the supervisory board of KDH AG is composed of the following individuals:

• Philipp Humm

Chairman

• Joachim Pütz, representative of the employees

Vice-Chairman

• Susanne Aichinger, representative of the employees

• Annet Aris

• Dirk Barnard

• Petra Ganser, representative of the employees

• Irena Gruhne, representative of the employees

• Ronald Hofschläger, representative of the employees

• Florian Landgraf, representative of the employees

• Dr. Thomas Nowak

• Karsten Pradel

• Jens Schulte-Bockum

Upon request of the management board in accordance with Section 104 AktG, the

supervisory board members Philipp Humm, Dirk Barnard, Dr. Thomas Nowak,

Karsten Pradel and Jens Schulte-Bockum were appointed by order of the local

court (Amtsgericht) of Munich dated 31 October 2013 with effect as of 1 November

2013 after the former members Tony Ball, Catherine Mühlemann, Martin David

Stewart, Paul Stodden and Torsten Winkler, which had been elected by the general


17

shareholders’ meeting of KDH AG, had resigned from their offices with effect as of

the expiration of 31 October 2013.

1.7 Employees of KDH Group

As of 31 March 2013, KDH Group had 3,567 employees. 1,054 of these employees were

working in the “technics and IT” division, 1,297 in the “customer and technical service

centre” division, 727 in the “sales and marketing” division and 489 in the “administration”

division. In comparison with the numbers as of 31 March 2012, this reflects an increase in

personnel by a total of 741 employees. Such increase results primarily from the permanent

employment of approximately 600 former temporary staff members in the customer and

technical service division of Kabel Deutschland Kundenbetreuung GmbH and from the

building up of own personnel in the technics division for the coverage of underground

construction and other services by Kabel Deutschland Field Services GmbH in Western

and Southern Bavaria, but also from organizational employee growth.

1.8 Development of the business, earnings situation and financial position of KDH Group

The revenues of KDH Group amounted to EUR 1,829.9 million in the fiscal year 2012/2013

and the consolidated profit was EUR 246.8 million.

The following table provides an overview of the main financial numbers for the fiscal years

2010/2011, 2011/2012 and 2012/2013 in KDH Group. The financial information for the

fiscal years 2010/2011, 2011/2012 and 2012/2013 has been taken from the audited

consolidated financial statements of KDH AG for the respective fiscal years ending

31 March 2011, 31 March 2012 and 31 March 2013. These consolidated financial

statements were prepared in accordance with IFRS pursuant to Section 315a para. 1 HGB.

Aside from this, reference is made to the information on the development of the business

and the earnings situation described in the published annual financial reports of KDH AG

for the fiscal years 2010/2011, 2011/2012 and 2012/2013.

Unless stated otherwise, the values have been rounded in accordance with commercial

principles. The figures included in this Contract Report are rounded for better clarity, even

if they have been calculated with several decimal places. For this reason, adding up the

figures in the table can result in deviations from the listed subtotals or total amounts.

1.8.1 Key numbers for the fiscal years 2010/2011 to 2012/2013

KDH Group (in EUR million) 2010/2011 2011/2012 2012/2013

Revenue TV business 1,132.9 1,158.4 1,191.6

Revenue internet and phone business 466.0 541.4 638.3

Revenue 1,598.9 1,699.7 1,829.9

Costs for achieving revenue -801.5 -784.3 -835.6

Other operating income 12.3 12.1 12.6

Distribution costs -467.4 -424.7 -414.2

General administrative expenses -135.4 -130.0 -166.8

Operating profit 207.0 372.9 426

Interest earnings 4.3 2.9 3.3

Interest expenditures -272.7 -201.6 -206.0


18

KDH Group (in EUR million) 2010/2011 2011/2012 2012/2013

Revenue from affiliated companies 4.1 1.6 2.3

Earnings before taxes -57.3 175.8 225.6

Revenue (+) / expenditures (-) from income

tax

12.0 -16.4 21.2

Consolidated profits (+) / losses (-) -45.3 159.4 246.8

1.8.2 Other key numbers of KDH Group

Key numbers 2010/2011 2011/2012 2012/2013

EBITDA (adjusted), (in EUR million) 729.1 795.5 862.3

EBITDA margin (adjusted), (in %) 45.6 46.8 47.1

CAPEX (in EUR million) 337.0 391.2 472.3

ARPU (in EUR / customer) 13.40 14.44 15.87

Total of customers (connected housing

units) (in thousands)

8,745 8,545 8,473

RGUs1 in total (in thousands) 12,698 13,449 14,348

* RGU refers to the so-called Revenue Generating Unit. It is a common figure used in the cable industry, which in addition to customer numbers provides information on the quantity of services sold and hence, on the economical development of the company. Each service that goes beyond an analogue TV connection (e.g. digital TV or internet access) is accounted for as a RGU.

1.8.3 Financial position

(i) Assets (main line items)

KDH Group in EUR million 31/3/2012 31/3/2013

Noncurrent assets 1,877.5 2,035.5

Current assets 282,3 823,0

- of which cash and cash equivalents 133.8 609.5

Total assets 2,159.8 2,858.5

(ii) Equity and liabilities (main line items)

KDH Group in EUR million 31/3/2012 31/3/2013

Total equity (deficit) -1,576.8 -1,470.9

Current liabilities 282.3 822.9

Non-current liabilities 3,000.3 3,588.5

Total equity and liabilities 2,159.8 2,858.5

1.8.4 First half of the fiscal year 2013/2014

Total revenue for the six months period ended on 30 September 2013 was

increased by EUR 38.75 million or 4.3%, respectively, to EUR 935.53 million,

compared to EUR 896.78 million for the six-months-period ended on 30 September

2012. This results from continuous strong growth in the internet and phone


19

segment, to which in particular products based on the technological standard

DOCSIS 3.0 with a transmission speed of up to 100 Mbit/s contributed significantly.

The TV business segment of KDH Group generated revenue amounting to EUR

580.23 million in the six months period ended on 30 September 2013. This

corresponds to 62% of the total revenues of KDH Group. In comparison to that,

during the six months period that ended on 30 September 2012, revenue

amounting to EUR 590.75 million was generated, corresponding to 65.9% of the

total revenues. The decline of revenue in the TV business segment primarily

results from the decrease of feed-in tariffs by public service channel providers,

which were decreased by EUR 13.80 million. An increase of revenue resulting from

Premium-TV-services, in particular in connection with DVR and extended HD

subscription packages as for example “Kabel Premium HD”, could only partially

compensate such decline in feed-in tariffs. In the internet and phone business

segment, total revenue in the six months period ending on 30 September 2013 was

increased by EUR 49.28 million or 16.1%, respectively, to EUR 355.30 million

(previous year: EUR 306.03 million). This results substantially from an increase of

recurring fees. The continuous strong growth is primarily due to an increase of

internet and phone customers of KDH Group. In proportion to total revenue

numbers, the internet and phone business generated 38.0% of revenue in the six

months period ended on 30 September 2013 compared to 34.1% of total revenue

for the six months period ended on 30 September 2012.

For the six months period ended on 30 September 2013, a consolidated loss

amounting to EUR 100 million was incurred, compared to a consolidated profit of

EUR 126.82 million for the six months period ended on 30 September 2012. The

consolidated group results in particular decreased due to non-recurring

expenditures (depreciation and amortisation of capitalised deferred tax assets for

losses carried forward on level of KDH AG, advisor fees and non-liquidity-related

amortization of capitalised financing and transaction costs) amounting to

EUR 205.64 million in connection with the takeover by Vodafone Vierte

Verwaltungs AG.

1.8.5 Outlook

KDH Group anticipates that the business will continue to develop robustly in the

current fiscal year and beyond. In the previous years, KDH Group has

implemented a comprehensive investment program to upgrade its network, has

launched new services and strengthened marketing and sales capabilities. This

allowed for the sale of new products such as broadband internet access, fixed-line

phone services and premium TV services like DVR or pay TV. In the context of the

investments made, KDH Group benefited from its existing network, economies of

scale due to a partially fixed cost structure and from performance-related customer-

oriented investments. This strategy has lead to substantial organic growth of

revenues and EBITDA over the past years.

(i) TV business

KDH Group anticipates that the basic cable business will continue to

generate reliable revenues and cash flows in the future, despite the on-

going decline in basic cable customers. As in past years, this decline in

customers will presumably occur primarily in the segment of indirect

customers with low monthly turnover, which is caused by further


20

cancellations of cable subscriptions by operators of level 4 cable networks.

Possible further acquisitions of small level 4 network operators in the KDH

network area could increase again the share of direct customer relations.

The increasing popularity of and demand for digital TV services should

furthermore enhance more innovation opportunities of KDH Group to

supply basic cable customers with additional premium TV services. KDH

Group intends to further increase the distribution of digital video recorders

and digital receivers among existing customers and to expand HDTV offers

within the next two years. In addition, KDH Group plans to distribute the

interactive VoD service that was introduced in March 2011 in further

upgraded networks over the coming years. KDH Group expects that the

marketing of these new services – either as individual products or as a

product package together with the existing pay TV offers – will generate

further growth in the TV business.

(ii) Internet and phone business

According to the plans of KDH Group, the internet and phone business will

continue to be the main driver of revenue and EBITDA growth of KDH

Group which it has been over the past years. While in Germany, there has

been a slow-down in the growth of the overall market, with view to an

increasing internet penetration, KDH Group nevertheless expects growth of

internet customers and internet revenues for KDH Group. Cable network

operators have gained market shares from DSL operators and KDH

Group’s growth has gained increasing support through DSL customers

which are willing to change, which KDH Group can attrac by product

differentiation and the best price-performance ratio in cable technologies.

KDH Group will be able to further expand this leadership in technology with

increasing availability of DOCSIS 3.0 services with speeds of up to 100

Mbit/s or even more.

2 Vodafone Group

2.1 Overview

Vodafone Group Plc is one of the world's largest mobile communications companies by

revenue with approximately 411 million customers in its controlled and jointly controlled

markets as of 30 September 2013. It generates turnover from mobile voice, messaging

and data communications services, fixed-line services, so-called business managed

services and the wholesale of access to mobile virtual network operators.

For the fiscal year that ended on 31 March 2013, Vodafone Group generated revenue of

approximately GBP 44.4 billion and an operating profit of approximately GBP 4.7 billion,

with profit before taxes of approximately GBP 3.3 billion.

The website of Vodafone Group Plc can be accessed at http://www.vodafone.com.

2.2 Corporate history and development of Vodafone Group Plc

Vodafone Group Plc was incorporated under the laws of England and Wales under the

name Racal Strategic Radio Limited (register number 1833679). Following several

changes of the company name, 20% of the share capital of the company meanwhile

named Racal Telecom Plc were offered for sale to the public in October 1988. In


21

September 1991, the spin-off from Racal Electronics Plc was completed and the name was

changed to Vodafone Group Plc. Since then, the Vodafone Group Plc has increased its

international presence due to a large number of transactions. The following table sets out

major milestones in corporate history:

Year Milestone

1999 Merger with AirTouch Communications, Inc. and change of name into

Vodafone AirTouch Plc with subsequent (re-)change of name into

Vodafone Group Plc

2000 Acquisition of Mannesmann AG: Entry into the German and Italian

telecommunications market as well as increase of the indirect

participation in SFR (French telecommunication provider)

1999 – 2004 Successive acquisition of shares in Vodafone Japan with subsequent

sale of all shares in 2006

2007 Acquisition of companies with controlling majority interests in

Vodafone India Limited (formerly Vodafone Essar Limited)

2009 Additional acquisition of 15.0% interest in Vodacom

2010 Disposal of interest in China Mobile Limited amounting to 3.2%

2011 Disposal of shares in SFR amounting to 44%

2011 Disposal of shares in Polkomtel amounting to 24.4%

2012 Acquisition of Cable & Wireless Worldwide Plc

2.3 Legal foundations of Vodafone Group Plc

Vodafone Group Plc is a public limited company, incorporated under the laws of England

and Wales, with its registered office in Newbury, Great Britain (Vodafone House, The

Connection, RG14 2FN Newbury, Berkshire). It is registered in England and Wales under

the name Vodafone Group Public Limited Company with register no. 1833679.

2.4 Capital, trading on the stock exchange, shareholders of Vodafone Group Plc

2.4.1 Share capital

On 29 November 2013 Vodafone’s registered share capital amounted to

GBP 3,685,335,743 and was divided into 52,821,686,866 shares (“Vodafone

Shares”).

2.4.2 Trading on the stock exchange

The Vodafone Shares are listed on the London Stock Exchange under

ISIN GB00B16GWD56. As of 30 November 2013, the market capitalization of

Vodafone Group Plc was approximately GBP 109.9 billion. Apart from the London

Stock Exchange, Vodafone Shares are traded in NASDAQ in the form of American

Depositary Receipts (ADR).


22

2.4.3 Shareholders and treasury shares

As of 6 December 2013, BNY Mellon as ADR custodian of Vodafone Group Plc

held approximately 20.36% of the Vodafone Shares, Black Rock Inc held at that

point in time approximately 7.49% of Vodafone Shares and The Capital Group

Companies Inc held at that point in time approximately 4.03% of Vodafone Shares.

On 29 November 2013, Vodafone Group Plc held 4,357,681,799 treasury shares.

The rest of the Vodafone Shares were held in free float.

2.5 Structure of the Vodafone Group

2.5.1 Operative and legal structure

Vodafone Group Plc has equity interests in telecommunication operations in nearly

30 countries across five continents, has more than 91,000 employees and has

around 50 partner networks worldwide. In fiscal year ended on 31 March 2013, the

operative business of the Vodafone Group was divided into three regions: Northern

and Central Europe, Southern Europe as well as Africa, Middle East and Asia-

Pacific (AMAP). As of 1 October 2013 the Vodafone Group Plc has merged

Northern and Central Europe and Southern Europe regions to form the Europe

region and has assigned the entity operating in Turkey to the Africa, Middle East,

Asia-Pacific (AMAP) region. On 2 September 2013 Vodafone Group Plc

announced, that it has agreed to dispose of its US Group whose principal asset is

its 45% interest in Verizon Wireless.

For the fiscal year that ended on 31 March 2013, GBP 18.8 billion (45.8%) of the

service revenues of Vodafone Group are assigned to the Northern and Central

Europe region, GBP 12.3 billion (30.2%) to the Africa, Middle East, Asia-Pacific

(AMAP) region and GBP 9.6 billion (23.5%) to the Southern Europe region.

2.5.2 Participations

As of 29 November 2013, Vodafone Group Plc held approximately 640 direct and

indirect participations in other companies in Germany and abroad.

A list of the material direct and indirect participations of Vodafone Group Plc as of

31 March 2013 is attached to this Contract Report as Annex 2.

2.5.3 Tax situation of Vodafone Group Plc

Vodafone Group Plc is a UK tax resident company. In the UK there is no system of

tax consolidation and as such, Vodafone Group Plc is subject to tax in the UK on a

standalone basis. However, UK companies can surrender current year losses to

other profitable UK tax resident companies which are members of the same 75%

group. Furthermore, the Vodafone Group operates through separate legal entities

in the countries where it provides telecommunication services and those entities

are subject to tax in their own territory. In case there is more than one legal entity in

one country, it is the Vodafone Group’s policy to form a tax group if local law allows

it and any conditions are met.

2.6 Overview of the business strategy “Vodafone 2015”

In 2012, Vodafone Group Plc presented a new strategy entitled “Vodafone 2015”, which

comprises four core areas: (i) Consumer 2015 – a new approach for pricing for and


23

bundling of private customers in Europe with the aim of offering customers more utilisation

flexibility while at the same time stabilizing average revenue per customer; (ii) Enterprise

2015 – a plan to strengthen the leading position regarding offers for business customers;

(iii) Network 2015 – continuous focus on the provision of high speed data services and the

procurement of a permanently excellent data experience based on a widespread

availability of 3G, 4G and a high backhaul-capacity as well as (iv) Operations 2015 –

usage of advantages arising out of the global coverage and size of Vodafone Group in

order to standardize and simplify business processes within Vodafone Group aiming at

improving cost efficiency and the period of time that lapses prior to the introduction of new

products.

2.7 Corporate bodies of Vodafone Group Plc

2.7.1 Board

The board of Vodafone Group Plc is composed of the following members:

• Gerard Kleisterlee, Chairman

• Vittorio Colao, Chief Executive – Executive Director

• Andy Halford, Chief Financial Officer – Executive Director

• Stephen Pusey, Chief Technology Officer – Executive Director

• Renee James, Non-executive Director

• Alan Jebson, Non-executive Director

• Samuel Jonah, Non-executive Director

• Omid Kordestani, Non-executive Director

• Nick Land, Non-executive Director

• Anne Lauvergeon, Non-executive Director

• Luc Vandevelde, Senior Independent Director

• Anthony Watson, Non-executive Director

• Philip Yea, Non-executive Director

Vodafone Group Plc has announced on 3 October 2013, that Nick Read has been

appointed as Executive Director and Chief Financial Officer as of 1 April 2014

replacing Andy Halford. Vodafone Group Plc has announced on 3 December 2013,

that Val Gooding has been appointed as further Non-executive Director as of 1

February 2014.

2.7.2 Executive Committee

The Executive Committee of Vodafone Group Plc is composed of the following

members:

• Vittorio Colao, Chief Executive

• Andy Halford, Chief Financial Officer

• Stephen Pusey, Chief Technology Officer


24

• Paolo Bertoluzzo, Chief Executive Officer, Southern Europe

• Warren Finegold, Group Strategy and Business Development Director

• Philipp Humm, Chief Executive Officer, Northern and Central Europe

• Nick Jeffery, Group Enterprise Director

• Matthew Kirk, Group External Affairs Director

• Rosemary Martin, Group General Counsel and Company Secretary

• Nick Read, Chief Executive Officer, Africa, Middle East and Asia Pacific

region

• Ronald Schellekens, Group Human Resources Director

With effect from 1 January 2014 Serpil Timuray will join the Executive Committee.

Andy Halford will resign from the Executive Committee as of 1 April 2014.

2.8 Employees

Vodafone Group has more than 91,000 employees worldwide in over 30 countries, 13%

thereof in India, 12% in Germany, 9% in Great Britain, 6% in Italy, 5% in Spain and 8% in

Vodafone Group’s Vodacom subsidiaries in Africa. Whilst the average number of

employees worldwide was still at 83,862 in fiscal year 2010/2011, it increased to 91,272

employees in fiscal year 2012/2013.

2.9 Development of the business and earnings situation

Vodafone Group generated revenues amounting to GBP 44.445 billion, an operating profit

of GBP 4.728 billion and an annual profit before tax of GBP 3.255 billion during the fiscal

year 2012/2013.

The following table provides an overview of the main financial numbers for the fiscal years

2010/2011, 2011/2012 and 2012/2013 of Vodafone Group Plc. The financial information for

the fiscal years 2010/2011, 2011/2012 and 2012/2013 has been taken from the audited

consolidated financial statements of Vodafone Group Plc for the respective fiscal years

ended 31 March 2011, 31 March 2012 and 31 March 2013. These consolidated financial

statements were prepared in accordance with the International Financial Reporting

Standards (IFRS) as issued by the International Accounting Standards Board (IASB). In

addition, the consolidated financial statements were prepared in accordance with the IFRS

as declared applicable by the European Union, the Companies Act 2006 and Article 4 of

the European IAS Regulation.

Aside from this, reference is made to the information on the development of the business

and the earnings situation described in the published annual reports of Vodafone Group

Plc for the fiscal years 2010/2011, 2011/2012 und 2012/2013 as well as to the discharging

group reports according to Section 291 HGB.

Unless stated otherwise, the values have been rounded in accordance with commercial

principles.


25

2.9.1 Key numbers for the fiscal years 2010/2011 to 2012/2013

Vodafone Group Plc in GBP million 2010/2011 2011/2012 2012/2013

Revenue 45,884 46,417 44,445

Gross profit 15,070 14,871 13,940

Operating profit 5,596 11,187 4,728

Working Capital 566 206 318

Profit before tax 9,498 9,549 3,255

Operating free cash flow 9,785 8,518 7,685

Profit for the financial year 7,870 7,003 673

Free cash flow 7,049 6,105 5,608

EBITDA1 14,670 14,475 13,275

Dividends 4,468 6,654 4,801

Total dividend per share in Pence 8.90 9.52

(+4.00 special

dividend)

10.19

Total assets 151,220 139,576 142,698

Total equity 87,561 78,202 72,488

Equity ratio 57.9% 56% 50.8%

Net debt -29,858 -24,425 -26,958

Research and development

expenditure

287 304 307

Employees

(average number)

83,862 86,373 91,272

1 Operating profit excluding share in results of associates, depreciation and amortisation, gains/losses on

the disposal of fixed assets, impairment losses and other operating income and expense.

2.9.2 Development of the business in the fiscal year 2012/2013

(i) Earnings

Vodafone Group Plc in GBP million 2011/2012 2012/2013 Changes

Revenue 46,417 44,445 -4.2%

EBITDA1 14,475 13,275 -8.3%

Profit before tax 9,549 3,255 -65.9%

Profit for the financial year 7,003 673 -90.4%

1 Operating profit excluding share in results of associates, depreciation and amortisation,

gains/losses on the disposal of fixed assets, impairment losses and other operating income

and expense.


26

(ii) Financial position

(a) Assets (main line items)

Vodafone Group Plc in GBP million 31/03/2012 31/03/2013

Goodwill 38,350 30,372

Other intangible assets 21,164 22,025

Property, plant and equipment 18,655 20,331

Shareholding in associates 35,108 38,635

Total assets 139,576 142,698

(b) Equity and liabilities (main line items)

Vodafone Group Plc in GBP million 31/03/2012 31/03/2013

Total equity 78,202 72,488

Current liabilities 24,025 31,224

Non-current liabilities 37,349 38,986

Total equity and liabilities 139,576 142,698

The consolidated total assets have been increased as of 31 March 2013 in

comparison with 31 March 2013 by approximately 2.2%.

2.9.3 Key numbers by segments

The business segments of Vodafone Group are primarily conducted on a

geographical basis. On this basis, selected financial numbers are presented below.

Vodafone Group has one single group of communications services and products.

Revenues are allocated to a country or a region based on the location of the group

company that has reported the revenue. Revenues between the segments are

shown at prices corresponding to the arms length amounts.

(i) Northern and Central Europe

In GBP million 2011/2012 2012/2013 Changes

Revenue 19,536 20,062 2.7%

EBITDA1 5,934 5,713 -3.7%

(a) Thereof allocated to Germany


Revenue 8,188 7,824 -4.4%

EBITDA 2,965 2,735 -7.8%

(b) Thereof allocated to Great Britain


Revenue 5,354 5,116 -4.4%

EBITDA 1,294 1,209 -6.6%


27

(ii) Southern Europe


Revenue 12,438 10,459 -15.9%

EBITDA1 4,438 3,483 -21.5%

(iii) Africa, Middle East and Asia-Pacific


Revenue 13,831 13,443 -2.8%

EBITDA1 4,115 4,178 1.5%

1 Vodafone Group’s meassure of segment profit, EBITDA, excludes Vodafone Group’s share

of results in associates.

2.9.4 First half year in business year 2013/2014

On 12 November 2013, Vodafone Group Plc announced its half year results for the

six month period ended 30 September 2013. According to that Vodafone Group

Plc’s emerging markets continue to deliver strong results, with growing revenue

and increasing margins. The environment in Europe remains challenging, resulting

in intense macroeconomic, regulatory and competitive pressures during the six

months ended 30 September 2013. Overall, Vodafone Group continued to make

progress in that period. Group revenue for the six months ended 30 September

2013 was GBP 22.0 billion and group service revenue was GBP 20.0 billion. Group

service revenue decreased by 4.2%∗, or 1.5%∗ excluding the impact of mobile

termination rate cuts. Enterprise service revenue decreased 4.5%∗ following

intense price competition across a number of Vodafone’s markets. Group EBITDA∗∗

fell 4.1%∗ to GBP 6.6 billion. The Group EBITDA margin fell 0.8 percentage points,

or 0.31 percentage points on an organic basis. Adjusted operating profit∗∗ fell 8.3%

due to lower EBITDA and higher depreciation and amortisation. Additionally, only

five months of profit contribution from Verizon Wireless is included in the six

months ended 30 September 2013. On an organic basis, adjusted operating profit

increased by 0.5%∗. Free cash flow was with GBP 2.0 billion by GBP 0.2 billion

lower than the prior year due to principally lower EBITDA as well as increased

taxation and investment expenditures, contravened partially by reverse effects of

lower working capital as well as higher dividends received. Net debt at 30

September 2013 was GBP 25.7 billion which includes the GBP 2.1 billion dividend

received from Verizon Wirelessin the period reported on.

∗ Amounts represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. There have been two one-off items impacting organic growth rates in the six month period.

∗∗ Now reported excluding restructuring costs and significant one-off items of GBP 121 million (2012: GBP 63 million) and GBP 107 million respectively in the six months ended 30 September 2013.

The following table provides an overview over the profit situation of Vodafone

Group in first half of the business year 2013/2014. The figures have been taken

from the unaudited, shortened group interim annual report of Vodafone Group Plc

from their half year financial statement for the first half of the business year


28

2013/2014. The unaudited, shortened group interim annual report has been

prepared in accordance with the IAS 34 issued by International Accounting

Standards Board (IASB) and declared applicable by the European Union.

Unless stated otherwise, the values have been rounded in accordance with

commercial principles.

Vodafone Group in GBP billion H1

2012/2013 H1

2013/2014 Changes

Revenue 18,598 19,061 2.5%

Service-revenue 17,197 17,532 2.0%

- from that fixed-line revenue 1,710 2,395 40.1%

- from that mobile in-bundle revenue 6,332 6,978 10.2%

- from that mobile out-of-bundle

revenue

6,443 5,874 -8.8%

Gross profit 5,698 5,444 -4.5%

Operating profit -3,215 2,196

Profit before tax -3,881 1,514

Income tax credit /expense -371 14,197

Profit for the financial period -1,892 18,064

EBITDA 5,596 5,576 -0.4%

2.10 Vodafone Germany

2.10.1 Overview

Vodafone GmbH (until 27 November 2013 Vodafone Holding GmbH) is an affiliated

company of Vodafone Group Plc. Until 27 November 2013, Vodafone GmbH

performed the tasks of an intermediate holding company (Vodafone GmbH and its

direct and indirect subsidiaries “Vodafone Germany”). Until that day, the operative

business of Vodafone Germany was primarily conducted by Vodafone GmbH, a

wholly owned subsidiary of former Vodafone GmbH, with its registered seat in

Düsseldorf. Upon registration in the commercial register on 27 November 2013, the

merger of former Vodafone GmbH into Vodafone Holding GmbH has become

effective. In the course of this merger, Vodafone Holding GmbH has been renamed

into Vodafone GmbH, registered in the commercial register (Handelsregister) of the

local court (Amtsgericht) of Düsseldorf under commercial register no. HRB 38062

(“Vodafone GmbH”). Since the merger has become effective on 27 November

2013, Vodafone GmbH has primarily conducted the operative business of

Vodafone Germany in the “private customer (consumer)”, the “business customer

(enterprise)” and the “wholesale” segments. Apart from that, Vodafone Germany’s

business operations are conducted by Vodafone Group Services GmbH,

Düsseldorf, a wholly-owned subsidiary of Vodafone GmbH.

The website of Vodafone GmbH can be accessed at http://www.vodafone.de.

2.10.2 Corporate history of Vodafone Germany

Vodafone Germany’s current business activities have their origin in Mannesmann

Mobilfunk GmbH, which was established in 1989. The licenses for the


29

implementation and the operation of a GSM mobile radio network was granted in

1989. In August 2000, a UMTS license was acquired in the course of an auction

procedure. This UMTS license allows for the operation of transmission paths for

the provision of mobile phone services of the third generation within the Federal

Republic of Germany until the end of 2020 and thereby facilitates broadband

mobile multimedia applications. In May 2010, Vodafone Germany, again in the

course of an auction, acquired a license that is valid until 31 December 2025

allowing for the implementation and the operation of a LTE network, a mobile radio

standard of the fourth generation, which can achieve very high download rates of

up to 150 Mbit per second. In the fixed-line segment, Vodafone Germany is one of

the major competitors of Deutsche Telekom. Following the foundation of Arcor by a

merger of the former Deutsche Bahn subsidiary DBKom and Mannesmann-

Gesellschaft Communications Network International (CNI) in 1996, over the

subsequent years and under Arcor’s management, one of the largest nationwide

networks competing with Deutsche Telekom was formed. Today, 70% of all

German homes can be reached by own infrastructure with the support of the

customer subscriber line owned by Deutsche Telekom. Together with the density of

the network, the spectrum of products offered grew, including voice services,

broadband internet and digital TV services. In 2009, Arcor was integrated into

Vodafone Germany and the products have been continued as part of the Vodafone

product spectrum.

2.10.3 Structure of Vodafone Germany

(i) Operative und legal structure

Vodafone GmbH conducts the operative business of Vodafone Germany in

the segments “private customers (consumer)”, “business customers

(enterprise)” and “wholesale”. One of the tasks of Vodafone GmbH as the

parent company of Vodafone Germany is in particular the consolidation of

operating results for tax purposes. Further group-wide functions such as

cash pooling and Euro cash management were transferred to the Vodafone

owned shared services centre in Hungary in 2012.

(ii) Participations

Vodafone GmbH holds direct and indirect participations in companies with

their registered office in Germany and abroad, which are primarily active in

the telecommunications sector (mobile services, fixed line services,

internet) as well as in information technologies. At the time of signing this

Contract Report, Vodafone GmbH holds the following direct capital

participations:

Vodafone Group Services GmbH, Düsseldorf, Germany (100%), Vodafone

Vierte Verwaltungs AG, Düsseldorf, Germany (100%), Vodafone Fünfte

Verwaltungsgesellschaft mbH, Düsseldorf, Germany (100%), Vodafone 1

Beteiligungs-AG, Frankfurt a.M., Germany (100%), Vodafone Stiftung

Deutschland gGmbH, Düsseldorf, Deutschland (100%), Vodafone Institut

für Gesellschaft und Kommunikation GmbH, Düsseldorf, Deutschland

(100%), MNP Deutschland GbR, Köln, Deutschland (17%), Arcor-

Beteiligungs-GmbH, Eschborn, Deutschland (100%), Vodafone Finance

Luxembourg Ltd., Newbury, Great Britain (100%).


30

At the time of signing of this Contract Report, Vodafone GmbH holds no

further indirect participations apart from the indirect participation in

KDH AG.

(iii) Tax situation of Vodafone GmbH

Vodafone GmbH generally has the policy of establishing a consolidated tax

group (Organschaft) for income tax purposes with all of its domestic

corporations in which it directly holds a participation of 100% and with

Vodafone GmbH as the parent company (Organträgerin). As the parent

company of the consolidated tax group, generally all profits are attributed to

Vodafone GmbH for purposes of income tax in Germany and are subject to

corporate income tax and trade tax at the level of Vodafone Holding GmbH.

2.10.4 Overview of the business activities of Vodafone Germany

The business activities of Vodafone Germany are divided into the segments

“private customers (consumer)”, “business customers (enterprise)” and

“wholesale”.

(i) Segment private customers (consumer)

The segment „Private Customers (Consumer)“ is divided into two large

parts, Pre-paid and Post-paid. Pre-Paid customers are mainly young users

which send many SMS each day as well as older users which use mobile

communication less frequently. Post-paid customers are private as well as

business customers which enter into a long-term agreement, buy services

on credit and pay them monthly. Business customers use their telephone

often and regularly and use mobile data services on the way. In contrast,

large enterprises buy mobile communication services via individual tenders.

The product range for private customers encompasses Vodafone

Superflats, the carefree Vodafone Red Tariffs, Vodafone at home, Vodafone

live!, LTE-mobile phones, free roaming in all Vodafone networks worldwide,

free customer hotline, flat rate in the whole German fixed line network,

broadband services such as DSL, Vodafone TV, Vodafone Surf-Sofort-

Packet and data services such as Turbo Internet LTE, Vodafone USB-Stick,

LTE Sticks, Netbooks, Apps and Connected Home.

(ii) Segment business customers (enterprise)

The segment “Enterprise (Geschäftskunden)” covers all customers with a

trade licence and at least five connections. Business customers have

framework agreements. These agreements have individually defined,

customer specific and tailor-made tariffs with individual terms, individual

discounts, methods of payments, pricing details, tariff structures, prices for

hardware and repair conditions, delivery conditions, as well as individual

service level arrangements. The business customer sales and distribution

is nationwide establishes in eight decentralised regions and divided

according to the following:

− VGE (Vodafone Global Enterprise): enterprises with more than 500

employees, among others large DAX-corporations and customers

with a large part of their revenue abroad, such as VW, BMW, Metro;


31

− Public & Health with non-profit and public accounts: more than 500

employees as well, however with a focus on public clients, media

and health, such as State of Bavaria with Bay-KOM, ARD Hypnet;

− Regional Sales covers customers with small and mid-size

enterprises, e.g. small customers with up to 50 employees as well as

mid-size customers with up to 499 employees;

Vodafone Germany offers business customers in its core activities

integrated communication solutions, e.g. mobile broadband (LTE), ISDN,

SIP Trunk, Service numbers, pre-select, internet connect, ADSL, SDSL,

VDSL and convergent tariffs.

(iii) Segment wholesale

The segment wholesale covers the business activities with service

providers such as Mobilcom Debitel, Phone House and the core partners

1&1 and Drillisch as well as the mobile communications discount stores

and reseller. Vodafone Germany offers its partners, depending on existing

telecommunication know-how, different types of partnership. These types

are divided into Full-MVNO, Light-MVNO, service provider and branded

reseller. At the Full-MVNO-model, the technical infrastructure, except the

Radio-Access-Networks (RAN), is set up and provided almost completely

by the partner. Accordingly the proportion of technical infrastructure

provided moves across these different types of models up to the Branded

Reseller model, where almost the whole technical infrastructure is provided

by Vodafone Germany. Furthermore the second brand Otelo is

merchandised. This second brand aims at price sensitive pre- and post-

paid customers and is promoted outside the own Vodafone shops.

3 Vodafone Vierte Verwaltungs AG

3.1 Overview

Vodafone Vierte Verwaltungs AG is an indirect subsidiary of Vodafone Group Plc. The

registered share capital of Vodafone Vierte Verwaltungs AG is EUR 50,000.00 and is

completely held by Vodafone GmbH.

3.2 Legal form, registered office, fiscal year and corporate purpose

Vodafone Vierte Verwaltungs AG is a German stock corporation (Aktiengesellschaft) with

its registered office in Düsseldorf, Germany, registered in the commercial register

(Handelsregister) of the local court (Amtsgericht) of Düsseldorf under commercial register

no. HRB 70886.

The fiscal year of Vodafone Vierte Verwaltungs AG begins on 1 September of each

calendar year and ends on 31 August of the subsequent calendar year. The time period

starting on 1 April 2013 and ending on 31 August 2013 constitutes a short fiscal year

(Rumpfgeschäftsjahr).

The corporate purpose of Vodafone Vierte Verwaltungs AG, according to the articles of

association is the activity in all areas of the TV, telecommunications and multimedia

sectors and the provision of services relating to these sectors. The company is entitled to

conduct all actions and to carry out all measures and business transactions which are


32

directly or indirectly suitable to serve the corporate purpose of the company. For this

purpose, the company may establish, acquire or hold participations in other companies of

the same or a similar kind in Germany or abroad and may manage such companies or limit

itself to the management of its investment. It is entitled to outsource its business activities

in whole or in part to affiliated companies. The company may also set up branches and

permanent establishments in Germany and abroad.

3.3 Corporate history and development

3.3.1 Foundation

Vodafone Vierte Verwaltungs AG was established on 18 March 2003 under the

name Vodafone Vierte Verwaltungsgesellschaft mbH with its registered office in

Düsseldorf, with a share capital of EUR 25,000 and was registered in the

commercial register (Handelsregister) of the local court (Amtsgericht) of Düsseldorf

under commercial register no. HRB 47879 on 23 April 2003.

3.3.2 Capital increase, economic re-establishment, change of legal form and change of

the corporate purpose

On 2 July 2013, Vodafone Group Plc and Vodafone GmbH as the sole

shareholders of Vodafone Vierte Verwaltungsgesellschaft mbH at that time passed

a resolution on the change of the legal form of Vodafone Vierte

Verwaltungsgesellschaft mbH into a stock corporation (Aktiengesellschaft) under

German law with the name Vodafone Vierte Verwaltungs AG. In connection

therewith, an increase of Vodafone Vierte Verwaltungs AG’s share capital from

EUR 25,000.00 by EUR 25,000.00 to EUR 50,000.00 was resolved and the

economic re-establishment (wirtschaftliche Neugründung) of Vodafone Vierte

Verwaltungsgesellschaft mbH was filed with the commercial register

(Handelsregister) of the local court (Amtsgericht) of Düsseldorf. The capital

increase and the change of the legal form have been registered in the commercial

register (Handelsregister) of the local court (Amtsgericht) of Düsseldorf on

20 August 2013 and have thereby become effective. In the context of the change of

the legal form, the corporate purpose of Vodafone Vierte

Verwaltungsgesellschaft mbH stated in the articles of association has been

amended as well. The former corporate purpose which was the holding of

participations and the management of the company’s own assets has been

replaced by the corporate purpose described in section 3.2 above with effect as of

the time the change of the legal form became effective. At the time the change of

the legal form became effective, the statutory share capital of Vodafone Vierte

Verwaltungs AG was EUR 50,000.00 and was divided into 50,000 no-par value

registered shares (nennwertlose auf den Namen lautende Stückaktien) of which

Vodafone Group Plc held 42,500 shares and Vodafone GmbH held 7,500 shares.

3.3.3 Transfer of shares to Vodafone GmbH

By share purchase agreement dated 21 August 2013, Vodafone Group Plc sold

and transferred all 42,500 shares held by it in Vodafone Vierte Verwaltungs AG to

Vodafone GmbH. Since 21 August 2013, all 50,000 shares in Vodafone Vierte

Verwaltungs AG have therefore been held by Vodafone GmbH alone.


33

3.3.4 Post-formation

On 26 September 2013, Vodafone Vierte Verwaltungs AG and Vodafone

Group Plc, which was one of the shareholders of Vodafone Vierte

Verwaltungsgesellschaft mbH prior to the change of the legal form and which is

thus a founder of Vodafone Vierte Verwaltungs AG, entered into an agreement on

the post-formation (Nachgründungsvertrag) in the form of an agreement pursuant

to which Vodafone Group Plc and Vodafone Vierte Verwaltungs AG agreed that

Vodafone Group Plc would accept the Takeover Offer within the additional

acceptance period pursuant to Section 16 para. 2 sentence 1 WpÜG for the

3,782,179 KDH Shares held in total by Vodafone Group Plc and that it would sell

the KDH Shares to Vodafone Vierte Verwaltungs AG in accordance with the

provisions of the offer document dated 29 July 2013. The general shareholders’

meeting of Vodafone Vierte Verwaltungs AG has approved this agreement on the

post-formation (Nachgründungsvertrag) by resolution dated 8 November 2013. The

agreement on the post-formation (Nachgründungsvertrag) has been registered in

the commercial register (Handelsregister) of the local court (Amtsgericht) of

Düsseldorf on 15 November 2013 and the sale and transfer of the 3,782,179 KDH

Shares has thereby finally become effective.

3.3.5 Domination and profit and loss transfer agreement with Vodafone GmbH

A domination and profit and loss transfer agreement was concluded on 22 August

2013 between Vodafone Vierte Verwaltungs AG as the controlled company and

Vodafone GmbH as the controlling company (“VF Domination and Profit and

Loss Transfer Agreement”). The VF Domination and Profit and Loss Transfer

Agreement has become effective upon registration in the commercial register on

24 September 2013. As a result of the VF Domination and Profit and Loss Transfer

Agreement, Vodafone Vierte Verwaltungs AG is subject to the management control

of Vodafone GmbH and is required to comply with the instructions of Vodafone

GmbH and to transfer its entire profit to Vodafone GmbH. In exchange, during the

term of the contract Vodafone GmbH is required to compensate for any annual

losses of Vodafone Vierte Verwaltungs AG which would have occurred without the

loss compensation under the VF Domination and Profit and Loss Transfer

Agreement being in place. The VF Domination and Profit and Loss Transfer

Agreement has been concluded for an indefinite period of time. Upon termination

of the VF Domination and Profit and Loss Transfer Agreement, Vodafone GmbH

would have to provide security to the creditors of Vodafone Vierte Verwaltungs AG

pursuant to Section 303 AktG.

3.4 Capital and shareholder

At the time of signing of this Contract Report, the share capital of Vodafone Vierte

Verwaltungs AG amounts to EUR 50,000.00 and is divided into a total of 50,000 no-par

value registered shares (nennwertlose auf den Namen lautende Stückaktien) each

representing a pro rata amount of the share capital of EUR 1.00 per share.

Sole shareholder of Vodafone Vierte Verwaltungs AG is Vodafone GmbH with its seat in

Düsseldorf, registered in the commercial register (Handelsregister) of the local court

(Amtsgericht) of Düsseldorf under commercial register no. HRB 38062.


34

3.5 Corporate bodies of Vodafone Vierte Verwaltungs AG

3.5.1 Management board

Pursuant to Section 6 para. 1 of the articles of association of Vodafone Vierte

Verwaltungs AG (“Vodafone Vierte Articles of Association”), the management

board of Vodafone Vierte Verwaltungs AG is composed of one or more members.

According to Section 6 para. 2 sentence 1 of the Vodafone Vierte Articles of

Association, the supervisory board determines the number of members of the

management board. At the time of signing of this Contract Report, the

management board is composed of the following individuals:

• Dr. Joachim Peters

• Dr. Thomas Wandres

Pursuant to Section 7 para. 2 sentence 2 of the Vodafone Vierte Articles of

Association, Vodafone Vierte Verwaltungs AG is represented by two members of

the management board or one member of the management board acting jointly

with a holder of registered signing authority (Prokurist). According to Section 7

para. 2 sentence 3, the supervisory board may determine that certain members of

the management board are authorised to represent the company alone. The

supervisory board of Vodafone Vierte Verwaltungs AG has made use of this

authority with regard to the members of the management board Dr. Joachim Peters

and Dr. Thomas Wandres.

3.5.2 Supervisory board

Pursuant to Section 96 para. 1 AktG, Section 8 para. 1 of the Vodafone Vierte

Articles of Association, the supervisory board of Vodafone Vierte Verwaltungs AG is

composed of three members, all of which are elected by the shareholders of

Vodafone Vierte Verwaltungs AG. At the time of signing of this Contract Report, the

supervisory board of Vodafone Vierte Verwaltungs AG is composed of the following

members:

• Philipp Humm

Chairman

• Jens Schulte-Bockum

Vice-Chairman

• Dr. Thomas Nowak

3.6 Business activities and participations

Prior to 24 June 2013, Vodafone Vierte Verwaltungsgesellschaft mbH (since 20 August

2013 Vodafone Vierte Verwaltungs AG) had not taken up any business activity which went

beyond the management of the company’s own assets. On 24 June 2013, Vodafone Vierte

Verwaltungsgesellschaft mbH (since 20 August 2013 Vodafone Vierte Verwaltungs AG)

announced its decision to make the Takeover Offer and has taken all necessary and useful

measures in relation thereto. With the offer document dated 29 July 2013, Vodafone Vierte

Verwaltungsgesellschaft mbH (since 20 August 2013 Vodafone Vierte Verwaltungs AG)

has published the Takeover Offer. Since the closing of the Takeover Offer on 14 October

2013, Vodafone Vierte Verwaltungs AG carries out the tasks of an intermediate holding

company in the Vodafone Group. At the time of signing of this Contract Report, Vodafone


35

Vierte Verwaltungs AG holds 67,780,374 KDH Shares, corresponding to a shareholding of

76.57% of the share capital and the voting rights of KDH AG. Furthermore Vodafone Vierte

Verwaltung AG has entered into a purchase agreement with Cable & Wireless Europe

Holdings Limited for the purchase of all shares in Cable & Wireless Telecommunication

Services GmbH.

3.7 Earnings situation and financial position of Vodafone Vierte Verwaltungs AG

The following tables provide an overview of the financial situation of Vodafone Vierte

Verwaltungsgesellschaft mbH (since 20 August 2013 Vodafone Vierte Verwaltungs AG) as

of 31 March 2012 and 31 March 2013. The information has been taken from the audited

annual financial statements of Vodafone Vierte Verwaltungsgesellschaft mbH (since 20 Au-

gust 2013 Vodafone Vierte Verwaltungs AG). These annual financial statements were pre-

pared in accordance with HGB for small corporations and the special provisions contained

in the German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit

beschränkter Haftung – “GmbHG”) using the simplifications stipulated in Section 288

para. 2 sentence 2 HGB.

3.7.1 Assets

Vodafone Vierte Verwaltungsgesellschaft mbH (since 20.8.2013 Vodafone Vierte Verwaltungs AG) in EUR 31.3.2012 31.3.2013

Receivables from affiliated companies 29,790.83 29,632.66

Total assets 29,790.83 29,632.66

3.7.2 Equity and liabilities

Vodafone Vierte Verwaltungsgesellschaft mbH (since 20.8.2013 Vodafone Vierte Verwaltungs AG) in EUR 31.3.2012 31.3.2013

Subscribed capital 25,000.00 25,000.00

Capital reserves 55,915.95 55,915.95

Loss carry forward 50,915.95 51,125.12

Net loss for the year 209.17 217.61

Trade liabilities 0.00 59.44

Total equity and liabilities 29,790.83 29,632.66

After the Domination and Profit and Loss Transfer Agreement becomes effective,

Vodafone Vierte Verwaltungs AG will primarily generate revenues and earnings

from the transfer of profits of KDH AG.

3.8 Employees and employee representation

Vodafone Vierte Verwaltungs AG does not have any employees. No employee

representation exists.

3.9 Financial funding of Vodafone Vierte Verwaltungs AG

Prior to the conclusion of the Domination and Profit and Loss Transfer Agreement, the

management board of KDH AG and the management board of Vodafone Vierte


36

Verwaltungs AG examined whether Vodafone Vierte Verwaltungs AG would be able to fulfil

its payment obligations under the Domination and Profit and Loss Transfer Agreement.

Based on the current economic, financial and contractual situation at Vodafone Vierte

Verwaltungs AG, the management board of KDH AG and the management board of

Vodafone Vierte Verwaltungs AG have concluded that Vodafone Vierte Verwaltungs AG will

be able to fulfil its obligations resulting under the Domination and Profit and Loss Transfer

Agreement.

The management board of KDH AG and the management board of Vodafone Vierte

Verwaltungs AG have based this conclusion on the following aspects:

For the future payment obligations of Vodafone Vierte Verwaltungs AG after the obligation

to transfer profits under the Domination and Profit and Loss Transfer Agreement takes

effect (see on this point, section C.2.1.2), the profit of KDH AG will be available, whereas

Vodafone Vierte Verwaltungs AG will be required under § 302 AktG to compensate for any

annual loss of KDH AG arising during the term of the contract. There are no indications for

any threatening loss situation at KDH AG in its current fiscal year. KDH AG generated an

annual profit of EUR 246.8 million in fiscal year ended on 31 March 2013. Though in the

first six month of the current fiscal year a consolidated loss of EUR 100 million was

recorded, compared to a consolidated profit of EUR 126.82 million in the first six month as

to 30 September 2012. However this performance was caused by non-reoccurring

expenses and one-time issues of EUR 205.64 million in connection with the takeover by

Vodafone Vierte Verwaltungs AG (see section B.4).

Finally, Vodafone Vierte Verwaltungs AG as controlled company concluded the

VF Domination and Profit and Loss Transfer Agreement with Vodafone GmbH as the

controlling company on 22 August 2013, as a result of which Vodafone GmbH is required

under § 302 AktG to compensate for any annual loss of Vodafone Vierte Verwaltungs AG

occurring during the term of the contract. The VF Domination and Profit and Loss Transfer

Agreement could be terminated by either of the parties by regular notice of termination as

of the end of the fiscal year of Vodafone Vierte Verwaltungs AG with three month notice

period, at first however to the end of the fiscal year of Vodafone Vierte Verwaltungs AG

ending at least five years after the beginning of the business year or short fiscal year of

Vodafone Vierte Verwaltungs AG in which the agreement has become effective.

Furthermore, the VF Domination and Profit and Loss Transfer Agreement could be

terminated by extraordinary notice of termination by one party if the required reasons

justifying such termination exist, or the parties could agree to cancel the VF Domination

and Profit and Loss Transfer Agreement. However, according to statements by Vodafone

Vierte Verwaltungs AG and Vodafone, this is currently not intended. Furthermore, both the

outside KDH Shareholders as well as KDH AG would be protected by the provisions on the

termination of corporate group contracts in the case of any termination of the

VF Domination and Profit and Loss Transfer Agreement during the term of the Domination

and Profit and Loss Transfer Agreement. Vodafone GmbH would have to provide security

to them for their claims for the Recurring Compensation and the Cash Compensation and

the claim for compensation for losses in case of termination of the VF Domination and

Profit and Loss Transfer Agreement in accordance with the detailed provisions in § 303

AktG.

Furthermore, without joining the Domination and Profit and Loss Transfer Agreement as a

contracting party, Vodafone Group Plc has issued a comfort letter to KDH AG which is


37

attached together with the Domination and Profit and Loss Transfer Agreement to this

Contract Report as Annex 3.

Vodafone Group Plc undertakes in the comfort letter to ensure that Vodafone Vierte

Verwaltungs AG is managed and financed in such a manner that Vodafone Vierte

Verwaltungs AG will always be able to fulfil all its liabilities under or in connection with the

Domination and Profit and Loss Transfer Agreement completely and in a timely manner.

This in particular applies to the obligation to compensate for any annual loss according to

§ 302 AktG. In addition, Vodafone Group Plc undertakes without limitation and irrevocably

vis-à-vis the outside shareholders of KDH AG, in in case Vodafone Vierte Verwaltungs AG

is not able to fulfil all its liabilities under or in connection with the Domination and Profit and

Loss Transfer Agreement completely and in a timely manner and Vodafone Group Plc does

not comply with its aforesaid obligation to equip Vodafone Vierte Verwaltungs AG, that

Vodafone Vierte Verwaltungs AG fulfils all its obligations towards them arising from or in

connection with the Domination and Profit and Loss Transfer Agreement, in particular

regarding the Recurring Compensation and the Cash Compensation completely and in

time. To that extent the outside shareholders of KDH AG have an own claim according to

section 328 para. 1 German Civil Code (Bürgerliches Gesetzbuch – BGB) directed at

payment to Vodafone Vierte Verwaltungs AG (see Section C.2.1.8).

4 Takeover Offer by Vodafone Vierte Verwaltungs AG, further purchases of

shares

4.1 Takeover Offer and additional purchases of shares

On 30 July 2013, Vodafone Vierte Verwaltungsgesellschaft mbH (today: Vodafone Vierte

Verwaltungs AG) published its Takeover Offer to the KDH Shareholders for the acquisition

of their KDH Shares for an offer price of EUR 84.50 per share of KDH AG. The Takeover

Offer stipulated that in addition to the offer price, the KDH Shareholders were supposed to

benefit from the dividend for the financial year ended on 31 March 2013 in the amount of

EUR 2.50 per KDH Share as proposed by KDH AG. If the settlement of the Takeover Offer

had occurred prior to the day on which KDH AG’s general shareholders’ meeting resolved

on the distribution of profits for the financial year ended on 31 March 2013, the offer

consideration would have been increased accordingly by EUR 2.50 per KDH Share to

EUR 87.00 per KDH Share. However, the Takeover Offer was closed on 14 October 2013

and thus after the general shareholders’ meeting of KDH AG on 10 October 2013. The

KDH Shareholders received a dividend in the amount of EUR 2.50 per KDH Share already

prior to the closing of the Takeover Offer and the offer price remained at EUR 84.50 per

KDH Share. In addition to regulatory closing conditions, the Takeover Offer also provided

for a minimum acceptance threshold of 75% of the KDH Shares as a closing condition.

After the announcement of the Takeover Offer, Vodafone Group Plc, the indirect sole

shareholder of Vodafone Vierte Verwaltungs AG, acquired a total of 3,782,179 KDH

Shares, which corresponds to a shareholding of 4.27%, and has accepted the Takeover

Offer for these KDH Shares during the additional acceptance period.

In their reasoned statement as of 1 August 2013 management board and supervisory

board of KDH AG have recommended shareholders to accept the Takeover Offer. The

acceptance period (Section 16 para. 1 sentence 1 WpÜG) for the Takeover Offer ended on

11 September 2013 at 24:00 hours. Prior to the expiration of the acceptance period the

Takeover Offer had been accepted for a total of 63,919,924 KDH Shares, which


38

corresponds to 72.21% of the voting rights and the share capital of KDH AG. The total

number of KDH Shares which were held by Vodafone Vierte Verwaltungs AG and persons

acting in concert with it on 11 September 2013, plus the KDH Shares for which the

Takeover Offer had been accepted during the acceptance period, amounted to 67,702,103

KDH Shares, which corresponds to 76.48% of the voting rights and the share capital of

KDH AG. Thus, the minimum acceptance threshold of 75% was exceeded during the

acceptance period and the corresponding offer condition has been fulfilled.

The additional acceptance period (Section 16 para. 2 sentence 1 WpÜG) for the Takeover

Offer ended on 30 September 2013 at 24:00 hours. Prior to the expiration of the additional

acceptance period, the Takeover Offer had been accepted for a total of 67,780,374 KDH

Shares, which corresponds to 76.57% of the voting rights and the share capital of

KDH AG.

4.2 Possible purchases outside of the cash buyout offer

Vodafone Vierte Verwaltungs AG reserves the right to purchase at any time additional KDH

Shares directly or indirectly on or off the stock exchange outside of the offer for

Compensation provided for in Section 5 of the Domination and Profit and Loss Transfer

Agreement to the extent legally permitted.

(C) DOMINATION AND PROFIT AND LOSS TRANSFER AGREEMENT

1 Reasons for the conclusion of the Domination and Profit and Loss Transfer

Agreement

1.1 Economic, legal and tax reasons

1.1.1 Economic and legal reasons

(i) Goal of creating an integrated telecommunications group

By concluding the Domination and Profit and Loss Transfer Agreement,

KDH AG and Vodafone Vierte Verwaltungs AG, together with Vodafone

Group, are taking a further step on the path towards creating an integrated

telecommunications group consisting of KDH AG as well as other

companies of the Vodafone Group and KDH Group. The aim of this step is

to facilitate closer cooperation between all companies involved. The

successful closing of the Takeover Offer of Vodafone Vierte Verwaltungs

AG has been an important milestone on the way towards achieving such

strategic cooperation.

KDH Group possesses a highly attractive business offering a broadband-

based high-speed network which allows for access to 15.293 million

households in 13 out of the 16 German federal states (Bundesländer). As

of 31 March 2013, KDH Group had 7.6 million direct customers,

approximately 60% of which are bound mostly under long-term contracts

with institutional housing clients. As a result of its continuous cross-selling

and up-selling, KDH Group has been able to significantly increase revenue

as well as adjusted EBITDA (earnings before interest, taxes, depreciation

and amortisation) by approximately 8% between fiscal years 2011/12 and

2012/13. With regard to broadband and pay-tv, KDH Group’s customer


39

base has a penetration rate of only 16% and 12%, respectively, and thus

offers further growth opportunities in the future.

The network infrastructures of Vodafone Group and KDH Group are

complimentary to a large degree. To the extent possible, Vodafone Group

intends to migrate its DSL fixed-line customers to the cable network of KDH

Group, which would lead to cost reductions from shutting down DSL central

offices, lower maintenance costs and an elimination of ULL and bitstream

fees.

The creation of an integrated communications provider can effectively only

be achieved by concluding a Domination and Profit and Loss Transfer

Agreement between Vodafone Vierte Verwaltungs AG and KDH AG.

KDH AG has explored providing wholesale access to its cable network on

several occasions and always concluded that it would not be economically

attractive. In addition, Vodafone Group is unwilling to take the risk of

migrating its customer base to KDH AG’s network without absolute certainty

of pricing and supply. For these reason, the migration of Vodafone Group

fixed-line customers would only be possible when a Domination and Profit

and Loss Transfer Agreement is in place. Outside the scope of coverage of

KDH Group, Vodafone Group will continue to offer to its consumer and

business customers broadband access via DSL or on the basis of the

VDSL bitstream agreement recently concluded with Deutsche Telekom.

Vodafone’s mobile business will benefit from KDH AG’s network, which can

provide transmission capacity for Vodafone’s base stations at prices that

are lower than current market prices for leased capacities. Furthermore,

there is an additional cost saving potential based on the consolidation of

national and regional networks (so-called backbones) of both companies.

Vodafone Group’s transmission network comprises a combination of own

infrastructure and leased capacity based on optimised arms’ length

agreements with external transmission providers. Transmission cost

efficiencies can only be generated through deeper and longterm

infrastructure integration with KDH Group requiring significant investment,

long-term planning and mutual dependency, only achievable with the


Other cost synergies will accrue in the area of purchasing, through

simplifications of the IT and billing systems and by removing overlaps in

customer care and administrative functions. Vodafone Group and KDH

Group consider IT and billing systems as being an integral part of their

businesses (as genuinely interlinked with their respective products) As such

they cannot be outsourced. Central functions are also considered as critical

organisational elements and cannot be externalised. Synergies in customer

care would require consolidating customer bases of both companies, which

would legally require a Domination and Profit and Loss Transfer

Agreement.

As long as no Domination and Profit and Loss Transfer Agreement is in

place, Vodafone Group would continue to market its own IPTV and

broadband propositions, including in KDH Group’s footprint. Vodafone


40

Group also has no intention to provide wholesale mobile services to KDH

Group other than potentially for the replacement of the existing contract

with a mobile telecommunication partner on identical terms, nor to provide

access to its distribution network to KDH Group with a competing mobile

proposition.

Other potential synergies also cannot be realised in a legally reliable

manner without the Domination and Profit and Loss Transfer Agreement.

The system of the de facto corporate group with its inherent limitations and

disadvantages would preclude the exploitation of synergies. For example,

an integration of IT or billing systems or customer centres would, from a

stand-alone perspective, be risky, irreversible and disadvantageous for

KDH Group in each individual case and could not be implemented without

compensation. In the Offer Document for the Takeover Offer, Vodafone

Group had therefore already announced its intention to conclude a

Domination and Profit and Loss Transfer Agreement in order to be able to

realise synergies.

(ii) Limits and restrictions on cooperation in the current de facto corporate

group

Due to the majority participation of Vodafone Vierte Verwaltungs AG, a so-

called de facto corporate group exists between KDH AG and Vodafone

Vierte Verwaltungs AG at the present time. This also applies indirectly with

regard to the relationship of KDH AG to Vodafone GmbH as Vodafone

GmbH holds a participation of 100% of the shares in Vodafone Vierte

Verwaltungs AG and a domination and profit and loss transfer agreement

also exists between Vodafone GmbH and Vodafone Vierte Verwaltungs AG

under which Vodafone GmbH has management control rights and rights to

issue instructions to Vodafone Vierte Verwaltungs AG. In this de facto

corporate group, Vodafone Vierte Verwaltungs AG and Vodafone GmbH

can exercise factual controlling influence over KDH AG. However, the

management board of KDH AG continues to be under an obligation to

manage the company on its own responsibility in accordance with Section

76 para. 1 AktG. The management board must examine in each individual

case all measures or transactions taken or omitted on the initiative or in the

interest of Vodafone Vierte Verwaltungs AG or one of its affiliated

companies in the Vodafone Group with regard to whether it has adverse

effects for KDH AG. If such transactions or measures are adverse, they

may only be implemented if the adverse effect linked to the relevant

transaction or measure is compensated. The compensation for the adverse

effect must either actually occur by the end of the fiscal year in which the

adverse effect is incurred, i.e. in a short period of time, or the compensation

must occur by granting a corresponding legal claim (Section 311 para. 2

AktG). Due to this legal situation all measures and transactions of KDH AG

taken or omitted on the initiative or in the interest of Vodafone Vierte

Verwaltungs AG or one of its affiliated companies in the Vodafone Group

must be examined in the individual case with regard to their exact effects

on KDH AG and potential harm to be incurred and with regard to a duty to

compensate.


41

Furthermore, in a de facto corporate group, all measures and transactions

which are taken with the controlling company or one of its affiliates or on

initiative or in the interest of the controlling company or one of its affiliates

must be documented in detail individually. Such measures and transactions

must especially be reported on annually in a so-called control report

(Abhängigkeitsbericht) by the management board of the controlled

company and the adverse effects must be quantified (Section 312 AktG).

The control report must be examined both by the supervisory board as well

as by the auditor of the controlled company (Sections 313, 314 AktG).

These principles applicable to the de facto corporate group lead to a

substantial expenditure of time and resources, especially on the side of the

factually controlled company. Both the management board as well as other

departments in KDH AG (e.g. the legal department and the finance and

accounting department) must be involved in every measure and every

transaction of KDH AG taken or omitted on the initiative or in the interest of

Vodafone Vierte Verwaltungs AG or one of its affiliated companies in the

Vodafone Group, regardless of whether the respective transaction is with

Vodafone Vierte Verwaltungs AG or with a third party, in order to assure

compliance with the rules applicable to a de facto corporate group. This not

only ties up resources on the side of KDH AG as the controlled company,

but also leads to substantial delays in the intended cooperation between

KDH Group and the rest of the Vodafone Group. As a result, the fast and

efficient implementation of management decisions that are in the common

interest is impeded.

In addition, the quantification and compensation of any adverse effect on

the controlled company results in great difficulties in de facto corporate

groups. Such difficulties arise regularly in the context of transactions and

measures which go beyond the mere exchange of performance and

consideration (e.g. purchasing goods or rendering services) or for which a

market price cannot be determined. Such measures can, for example,

involve the exchange of know-how and business information in the context

of jointly developing products and integrated systems solutions. In practice

it is difficult in these situations, if not often impossible, to quantify and

compensate any adverse effects or corresponding benefits of the controlled

company. The consequence is that such measures are not possible with

sufficient legal certainty in a de facto corporate group and can only be

carried out with substantial effort for the examination and documentation or

may have to be avoided completely.

The implementation of extensive cooperation and an intensive exchange of

information, however, is necessary in order to realize the intended benefits

from further cooperation in the activities of KDH AG and the rest of the

Vodafone Group described in section C. 1.1.1(i). Without the conclusion of

a domination and profit and loss transfer agreement, these benefits can not

or only inadequately be realized.

(iii) Creation of a contractual corporate group by concluding the Domination

and Profit and Loss Transfer Agreement


42

These difficulties existing in a de facto corporate group are avoided if there

is a domination and profit and loss transfer agreement because this creates

a contractual basis for the intended close cooperation. In a contractual

corporate group, the provisions regarding specific compensation for

adverse transactions and measures initiated by the controlling company or

one of its affiliates or taken or omitted in their interest do not apply. In

particular, the controlling party to the agreement has the right under the

domination agreement to directly issue instructions to the management

board of the controlled company to take measures or engage in

transactions in the interest of the controlling party to the contract or one of

its affiliated companies even if they might be adverse for the controlled

company when viewed on a stand-alone basis (Section 308 AktG) and if

the adverse effect cannot be compensated within the same fiscal year or if

an exact quantification of the adverse effect is not possible. This allows for

a more efficient use of resources and for the implementation of those

cooperation measures for which the quantification of potential adverse

effects and possible corresponding benefits is not possible with legal

certainty. Measures by the management can accordingly be focused

towards the common interest of the affiliated enterprises without great effort

being required to control every measure and its effects on the controlled

company. In addition, the expenses for preparing and examining the control

report are avoided because such a report does not have to be prepared in

a contractual corporate group.

The Domination and Profit and Loss Transfer Agreement enables Vodafone

Vierte Verwaltungs AG and Vodafone GmbH to better control the intended

cooperation with KDH Group in the common interest of the entire corporate

group. A domination agreement will also facilitate the unhindered exchange

of information with regard to best practice policies between KDH AG and

the rest of the Vodafone Group.

The conclusion of a domination agreement accordingly is the appropriate

legal means to implement the intended comprehensive cooperation of the

involved companies and is also used by other companies in comparable

cases and is specifically intended by law to be used for this purpose.

As a result of the combination of the domination agreement with a profit

and loss transfer agreement, Vodafone Vierte Verwaltungs AG also obtains

a claim for transfer of profit against KDH AG starting on 1 April 2014. In

exchange, KDH AG receives a claim for the assumption of losses under the

Domination and Profit and Loss Transfer Agreement in the event that an

annual loss of KDH AG arises during the term of the contract. Contrary to

the situation in a merely de facto corporate group, after the conclusion of

the Domination and Profit and Loss Transfer Agreement, KDH AG is no

longer forced to rely on individual compensation for potentially adverse

impact suffered as a result of the exercise of influence and but rather

receives by force of law a claim for full compensation of losses from

Vodafone Vierte Verwaltungs AG regardless of questions on the exercise of

influence or other factors (see Section 302 AktG).


43

After the conclusion of the Domination and Profit and Loss Transfer

Agreement, the interests of KDH AG are furthermore protected by the fact

that the right to issue instructions does not exist without any limitation (see

section C.2.1.1). KDH AG especially may not be deprived of the ability to

continue to exist as a result of adverse instructions because the statutory

provisions are based on the assumption of a continuing existence of the

controlled company, also for the time after termination of a domination

agreement. Adverse instructions are also impermissible and do not trigger

any duty to comply with them if they obviously do not serve the interests of

the controlling company or any companies affiliated with the controlling

company or the controlled company.

The Domination and Profit and Loss Transfer Agreement establishes

special protective mechanisms for outside KDH Shareholders which are not

available in a de facto corporate group: They receive a claim against

Vodafone Vierte Verwaltungs AG for a reasonable annual Recurring

Compensation Payment (see section C.2.1.4) or they can transfer their

KDH Shares to Vodafone Vierte Verwaltungs AG and cease to be

shareholders in KDH AG in exchange for payment of a reasonable

Compensation if they want to dispose of their KDH Shares in light of the

Domination and Profit and Loss Transfer Agreement (see section C.2.1.5).

These claims of the outside KDH Shareholders are secured indirectly by

the duties of Vodafone GmbH resulting from the VF Domination and Profit

and Loss Transfer Agreement, especially the duty to compensate for any

annual losses of Vodafone Vierte Verwaltungs AG (Section 302 AktG) and

the posting of security for the benefit of the creditors of Vodafone Vierte

Verwaltungs AG in case of a termination of the domination and profit and

loss transfer agreement between Vodafone GmbH and Vodafone Vierte

Verwaltungs AG (Section 303 AktG) (see section B.3.3.5). Additional

security results from the comfort letter which Vodafone Group Plc has

issued to KDH AG.

(iv) Conclusion

KDH AG and Vodafone Vierte Verwaltungs AG are of the opinion that only

after the Domination and Profit and Loss Transfer Agreement has become

effective, meaningful synergies can be generated through a close

cooperation of the involved companies.

Overall, it is apparent that the creation of a contractual corporate group by

means of the Domination and Profit and Loss Transfer Agreement expands

and reinforces the possibilities for cooperation. In particular, the usage of

KDH Group’s high-speed network at conditions that are economical for

Vodafone Group is only possible on the basis of a domination and profit

and loss transfer agreement. Cost savings by combining functions in

central units are further consequences. This is complemented by greater

flexibility and more rapid and efficient decision making processes arising

from an elimination of the duties for examination and documentation

existing in the context of the current de facto corporate group.


44

1.1.2 Tax reasons

The conclusion of a profit and loss transfer agreement within the meaning of

Section 291 AktG is a prerequisite for establishing a consolidated tax group for

purposes of corporate income tax and trade tax (ertragsteuerliche Organschaft)

between Vodafone Vierte Verwaltungs AG (as the parent company) and KDH AG

(as the subordinate company). The consolidated tax group for purposes of income

tax also requires that the parent company holds a participation in the subordinate

company from the beginning of the subordinate company’s fiscal year without

interruption to such an extent that it has the majority of the voting rights arising out

of the shares in the subordinate company (Section 14 para. 1 sentence 1 no. 1

sentence 1 German Corporate Income Tax Act (Körperschaftsteuergesetz –

"KStG")) and that the participation is attributable to a domestic permanent

establishment of the parent company in the group without interruption for the entire

duration of the consolidated tax group (Section 14 para. 1 sentence 1 no. 2

sentence 2 KStG). The validity of the consolidated tax group for purposes of

income tax also requires that the profit and loss transfer agreement is concluded

for a period of at least five years (60 months) (Section 14 para. 1 sentence 1 no. 3

sentence 1 KStG) and is actually implemented during the entire term of its validity.

Subject to the other conditions being fulfilled, the consolidated tax group for

purposes of income tax will exist starting on 1 April 2014 if the Domination and

Profit and Loss Transfer Agreement is registered in the commercial register of

KDH AG prior to the end of the fiscal year 2014/2015. If the Domination and Profit

and Loss Transfer Agreement is only registered at a subsequent point in time, the

consolidated tax group for purposes of income tax will only be established –

provided that all other conditions are satisfied – as of the beginning of that fiscal

year in which the registration takes place.

The consolidation does not have the effect that the general tax obligations of

KDH AG are eliminated. KDH AG must in principle determine its taxable profit

under the general provisions separately from Vodafone Vierte Verwaltungs AG as

in the past. For purposes of corporate income tax, the income of KDH AG will be

separately and uniformly determined with binding effect for Vodafone Vierte

Verwaltungs AG and KDH AG. As a consequence of the creation of the

consolidated tax group for purposes of income tax, however, the entire taxable

income of KDH AG – taking into account certain statutory restrictions – will be

attributed to Vodafone Vierte Verwaltungs AG and will be taxed at the level of

Vodafone GmbH due to the consolidated tax group for income tax purposes

existing between Vodafone Vierte Verwaltungs AG and Vodafone GmbH.

Nevertheless, KDH AG is obliged to pay taxes starting in that fiscal year in which

the tax consolidation first exists according to current tax laws 20/17 of the

payments rendered to the outside KDH Shareholders as its own income for

corporate income tax purposes (Section 16 KStG).

The establishment of the consolidated tax group for purposes of income tax has a

positive liquidity effect for Vodafone Vierte Verwaltungs AG as contrary to

distributions of profit, transfers of profit of KDH AG to Vodafone Vierte Verwaltungs

AG under commercial law are not subject to withholding tax on investment income

plus the solidarity surcharge. If no profit and loss transfer agreement were

concluded and the profits were distributed in the form of dividends, a crediting or

reimbursement of the withholding tax on investment income plus the solidarity


45

surcharge would generally only occur in the context of the assessment of corporate

income tax after filing the tax declaration for the tax period in which the dividend

was received. Furthermore, a transfer of profit under commercial law, contrary to

the distribution of a dividend, does not result in a prohibition on deducting operating

expenses under Section 8b para. 5 KStG in the amount of notional 5% of the

dividend distribution.

The above mentioned tax effects do not apply for excess transfers which have their

basis in the time prior to the consolidated tax group (Section 14 para. 3 KStG).

1.2 Alternatives to concluding the Domination and Profit and Loss Transfer Agreement

The management board of Vodafone Vierte Verwaltungs AG and the management board of

KDH AG have examined alternatives to concluding the Domination and Profit and Loss

Transfer Agreement. They have concluded that none of the examined alternatives has the

same capacity for achieving the above described goals. In particular, the following other

options have been examined:

1.2.1 Conclusion of an isolated domination agreement or an isolated profit and loss

transfer agreement

The conclusion of an isolated domination agreement only is legally permissible, but

no consolidated tax group for corporate income tax and trade tax purposes

(steuerliche Organschaft) can be established on the basis of only a domination

agreement.

The intended tax benefits would accordingly not be achievable with just a

domination agreement.

The conclusion of an isolated profit and loss transfer agreement only would also be

legally permissible. However, this would not be a sufficient legal basis for the

intended comprehensive cooperation between KDH AG and the Vodafone Group.

As has been described, close cooperation in a legally safe manner is only possible

if the existing de facto corporate group is placed on a contractual basis by means

of a domination agreement in addition to a profit and loss transfer agreement (see

section C.1.1.1). An optimized structure of the corporate group in terms of the tax

situation and the control structures can only be achieved when both elements are

combined.

1.2.2 Exclusion of the minority shareholders (squeeze-out)

Excluding the minority shareholders of KDH AG pursuant to Sections 327a et seq.

AktG (so-called squeeze-out under Stock Corporation Act, aktienrechtlicher

Squeeze-out) would not be possible at the present time because the participation

of Vodafone Vierte Verwaltungs AG in KDH AG does not reach the required

statutory level of at least 95% of the share capital.

This applies correspondingly to an exclusion of minority shareholders pursuant to

Section 62 para. 5 German Transformation Act (Umwandlungsgesetz – “UmwG”) in

connection with Sections 327a et seq. AktG after a merger (so-called squeeze-out

under the Transformation Act, umwandlungsrechtlicher Squeeze-out) which would

require a participation of 90% of the share capital.


46

A so-called squeeze-out under the Takeover Act (übernahmerechtlicher Squeeze-

out) pursuant to Sections 39a et seq. WpÜG would also require a participation of

Vodafone Vierte Verwaltungs AG in the amount of 95% of the share capital in KDH

AG.

Furthermore, the legal restrictions described in section C.0 resulting from a de

facto corporate group would also exist in the case of a 100% shareholding of

Vodafone Vierte Verwaltungs AG in KDH AG without the Domination and Profit and

Loss Transfer Agreement as long as KDH AG has the legal form of a stock

corporation (or a European Company (Societas Europaea)). A consolidated tax

group for purposes of corporate income tax and trade tax purposes could also not

be established without concluding a profit and loss transfer agreement.

1.2.3 Absorption or merger

Integration into a corporate group by way of absorption (Sections 319 et seq. AktG)

(Eingliederung) is precluded in the present case. Vodafone Vierte Verwaltungs AG

does not have the level of shareholding required for an absorption of at least 95%

of the share capital in KDH AG (Section 320 para. 1 sentence 1 AktG).

A merger of Vodafone Vierte Verwaltungs AG into KDH AG (so-called

"downstream merger") is also precluded as an alternative structure, just as a

merger of KDH AG into Vodafone Vierte Verwaltungs AG ("upstream merger") is

precluded.

The downstream merger of Vodafone Vierte Verwaltungs AG into KDH AG is an

inappropriate alternative because Vodafone Vierte Verwaltungs AG would cease to

exist as a separate legal entity. Such a measure would also not change the

requirement for a domination and profit and loss transfer agreement in order to

implement the desired integration of KDH AG into the Vodafone Group. KDH AG

would then have to conclude a domination and profit and loss transfer agreement

with Vodafone GmbH. The domination and profit and loss transfer agreement

existing between Vodafone GmbH and Vodafone Vierte Verwaltungs AG would

cease to exist as a result of the downstream merger and would not be continued as

a domination and profit and loss transfer agreement between Vodafone GmbH and

KDH AG.

An upstream merger is also not an appropriate alternative. In this situation, the

outside KDH Shareholders would obtain a participation in Vodafone Vierte

Verwaltungs AG. Since a listing on the stock exchange is not intended for the

shares in Vodafone Vierte Verwaltungs AG, this would result in the loss of the

listing of the KDH Shares on the stock exchange, which would substantially

adversely affect the ability to trade the KDH Shares and, thus, would harm the

interests of the KDH Shareholders.

1.2.4 Change of legal form

A transformation of KDH AG into a different corporate form or a partnership is also

not an appropriate alternative because the corporate constitution of KDH as a

stock corporation shall be maintained.

A change in corporate form would not help to establish the desired consolidated tax

group (see section C.1.1.2). Furthermore, even a transformation into a limited

partnership based on shares (Kommanditgesellschaft auf Aktien) would not affect


47

the applicability of the rules on the de facto corporate group and accordingly, would

not change the disadvantages existing compared to a situation with a domination

and profit and loss transfer agreement (see sections C.1.1.1(ii) and C.1.1.1(iii)).

After a transformation into a limited liability company (Gesellschaft mit

beschränkter Haftung) or a partnership (Personengesellschaft), instructions in the

interest of the corporate group would still have to be examined in the individual

case with regard to whether they have an adverse impact on KDH AG as described

in section C.1.1.1(ii). The fiduciary duty of the controlling company existing as a

result of membership would also have to be observed in the relationship to a

limited liability company or a partnership so that the implementation of adverse

measures would be problematic.

Furthermore, a change of the legal form would involve additional expenses and

delay. A legal obligation to change the legal form in connection with the conclusion

of a domination and profit and loss transfer agreement does not exist.

1.2.5 Conclusion

In light of the above, only the conclusion of a domination and profit and loss

transfer agreement will provide a sufficient legal basis for the intended integration

of KDH AG into the Vodafone Group. The restrictions of a de facto corporate group

can only be overcome (see section C.1.1.1) and the status of a consolidated tax

group for purposes of corporate income tax and trade tax can only be established

(see section C.1.1.2) by concluding a domination and profit and loss transfer

agreement.

1.3 Costs of the Domination and Profit and Loss Transfer Agreement

The conclusion of the Domination and Profit and Loss Transfer Agreement caused one-

time costs. These costs were in particular caused by mandating the Valuation Expert (see

section C.3.1), the issuance of the Audit Report by the court appointed Contract Auditor

(see section C.2.3.2(ii) and section C.3.4), as well as by obtaining legal advice. Vodafone

Vierte Verwaltungs AG and KDH AG each bear one half of the costs for the preparation of

the expert opinion on the enterprise value prepared by the Valuation Expert as well as the

costs for the preparation of the report by the Contract Auditor. All other costs incurred by

the parties, including costs of external advisers, are borne by the respective party alone.

External costs to be borne by KDH AG in a range of approximately EUR 1.5 million are

expected overall. The external costs to be born by Vodafone Vierte Verwaltungs AG are

expected to amount to approximately EUR 1 million.

2 Content and effects of the Domination and Profit and Loss Transfer

Agreement

2.1 Explanation of the content of the contract

Individual provisions of the Domination and Profit and Loss Transfer Agreement are

explained below.

2.1.1 Management control and instructions (clause 1 of the Domination and Profit and

Loss Transfer Agreement)

Clause 1 of the Domination and Profit and Loss Transfer Agreement contains the

constitutive provision for a domination agreement under which KDH AG, as the


48

controlled company, submits the management of its company to Vodafone Vierte

Verwaltungs AG as the controlling company. Vodafone Vierte Verwaltungs AG is

accordingly entitled to issue instructions to the management board of KDH AG with

regard to the management of the company (clause 1.1 sentence 2 of the

Domination and Profit and Loss Transfer Agreement). Notwithstanding this right of

management control and right to issue instructions, KDH AG will continue to be a

legally independent company with its own corporate bodies. The management

board of KDH AG accordingly continues to be responsible for the management and

the representation of the company. To the extent no instructions have been issued,

the management board of KDH AG is entitled to and must manage the company on

its own responsibility.

The scope of the right of management control and the right to issue instructions is

governed primarily by Section 308 AktG. The management board of KDH AG is

required to comply with the permissible instructions of Vodafone Vierte

Verwaltungs AG (clause 1.1 sentence 3 of the Domination and Profit and Loss

Transfer Agreement). Pursuant to Section 308 para. 1 sentence 2 AktG,

instructions which are disadvantageous for KDH AG can also be issued if they

serve the interests of Vodafone Vierte Verwaltungs AG or the companies affiliated

with Vodafone Vierte Verwaltungs AG and KDH AG in the corporate group. The

management board of KDH AG is not entitled to refuse to comply with an

instruction unless the instruction obviously does not serve these interests. The

management board does not have to follow any impermissible instructions, e.g.

instructions which would violate statutory provisions or provisions in the articles of

association of KDH AG. Instructions which endanger the existence of KDH AG are

impermissible, in any event. A controlled company is also not required to comply

with instructions if and as long as the controlling company does not fulfil its

obligations under the domination and profit and loss transfer agreement, in

particular the obligations to assume losses and to pay the Recurring Compensation

Payment as well as the cash compensation to the outside shareholders (Sections

304, 305 AktG) or to the extent that the controlling company will most likely not be

able to comply with these obligations (with regard to the right of the controlled

company to terminate see section C.2.1.6(iii)). Furthermore, instructions to amend,

maintain or terminate the Domination and Profit and Loss Transfer Agreement can

also not be issued pursuant to Section 299 AktG (clause 1.2 of the Domination and

Profit and Loss Transfer Agreement).

The right of management control and the right to issue instructions exist only

towards the management board but not towards the supervisory board, the general

shareholders’ meeting or employees of KDH AG and also not towards corporate

bodies and employees of any subsidiary of KDH AG. If the management board of

KDH AG is instructed to engage in a transaction which requires the consent of the

supervisory board of KDH AG and if the supervisory board does not consent or if

the consent is not issued within a reasonable period of time, the consent of the

supervisory board can be substituted in accordance with Section 308 para. 3 AktG

by repeating the instruction. The participation rights of the general shareholders’

meeting of KDH AG are not affected by the Domination and Profit and Loss

Transfer Agreement.

Any instruction to the management board of KDH AG must be issued in text form

(Section 126b German Civil Code (Bürgerliches Gesetzbuch – “BGB”), e.g. by


49

telefax or email; an oral instruction must be confirmed in text form without undue

delay (clause 1.3 of the Domination and Profit and Loss Transfer Agreement).

Pursuant to Section 294 para. 2 AktG, clause 6.1 sentence 2 of the Domination

and Profit and Loss Transfer Agreement, the right of Vodafone Vierte Verwaltungs

AG to issue instructions and the corresponding duty of KDH AG to comply under

clause 1 of the Domination and Profit and Loss Transfer Agreement exist only after

the point in time when the Domination and Profit and Loss Transfer Agreement has

become effective as a result of registration in the commercial register of KDH AG

(see section C.2.1.6(i)(a)).

2.1.2 Transfer of profit (clause 2 of the Domination and Profit and Loss Transfer

Agreement)

Clause 2 of the Domination and Profit and Loss Transfer Agreement contains the

constitutive provision for a profit and loss transfer agreement under which KDH AG

is required to transfer its entire profit to Vodafone Vierte Verwaltungs AG during the

term of the contract (clause 2.1 of the Domination and Profit and Loss Transfer

Agreement). With regard to the scope of the profit to be transferred under clause

2.1 of the Domination and Profit and Loss Transfer Agreement and subject to an

establishment or a dissolution of reserves under clause 2.2 and clause 2.3 of the

Domination and Profit and Loss Transfer Agreement, reference is made to the

statutory provision in Section 301 AktG in its respectively valid version. Based on

the current version of Section 301 AktG, that profit must be transferred which would

arise as annual profit if no profit transfer arrangements were in place, as reduced

by any loss carry forward from the previous year and by the amount which must be

allocated to the statutory reserve pursuant to Section 300 AktG and the amount

which is blocked from distribution under Section 268 para. 8 HGB.

The amount which must be allocated to the statutory reserve is assessed in

accordance with Section 300 no. 1 AktG and depends on the amount of the share

capital, the annual profit and the amount already allocated to the statutory reserve.

At the present time, the statutory reserve of KDH AG has been established in the

full amount. The allocation of additional amounts under Section 300 no. 1 AktG is

not required when the statutory reserve has been fully established.

The block on distribution pursuant to Section 268 para. 8 sentence 1 HGB applies

if intangible assets created by the company itself are capitalized as fixed assets in

the balance sheet (Section 248 para. 2 sentence 1 HGB). In this event, profits can

only be distributed to the extent that freely available reserves plus a profit carry

forward and minus any loss carry forward remain after the distribution in an amount

which corresponds at least to the total capitalized amounts minus the deferred tax

liabilities established for this purpose. If deferred tax assets are capitalized in the

balance sheet (Section 274 para. 1 sentence 2 HGB), the block on distribution

exists to the extent that these deferred tax assets exceed the deferred tax liabilities

(Section 268 para. 8 sentence 2 HGB). Furthermore, the block on distribution

applies in the case of assets which cannot be accessed by any creditor and which

serve exclusively to fulfil pension obligations or comparable long-term due

obligations (Section 246 para. 2 sentence 2 HGB). In this event, the block on

distribution exists pursuant to Section 268 para. 8 sentence 3 HGB in the amount

of the difference between the total of the present value (Zeitwerte) for these assets

shown in the balance sheet minus the deferred tax liabilities established therefor


50

and the procurement costs of these assets. The term "freely available reserves"

includes both profit reserves as well as specific capital reserves. Profit reserves

which can be distributed without any statutory provisions or provisions in the

articles of association limiting such distribution as well as the freely available

capital reserve under Section 272 para. 2 no. 4 HGB must be taken into account

accordingly when determining the maximum amount that can be distributed. The

block on distribution above all serves to protect creditors. Its purpose is to ensure

that no higher distributions of profits are permissible beyond those which would be

possible without capitalizing the line items designated in Section 268 para. 8 HGB.

The amount to be transferred as profit under clause 2.1 of the Domination and

Profit and Loss Transfer Agreement is reduced under clause 2.2 of the Domination

and Profit and Loss Transfer Agreement if and to the extent KDH AG, with the

approval of Vodafone Vierte Verwaltungs AG, allocates amounts from the annual

profit without the transfer of profit to other profit reserves (Section 272 para. 3

sentence 2 HGB). In the context of the recognition as a consolidated tax group for

income tax purposes (see section C.1.1.2), however, an allocation to these other

profit reserves is only permissible to the extent that there is economic justification

for this under a reasonable commercial assessment (Section 14 para. 1 sentence 1

no. 4 KStG). Clause 2.2 of the Domination and Profit and Loss Transfer Agreement

takes this standard into account.

Vodafone Vierte Verwaltungs AG can demand (in writing) under clause 2.3

sentence 1 of the Domination and Profit and Loss Transfer Agreement that other

profit reserves established during the term of the Domination and Profit and Loss

Transfer Agreement (Section 272 para. 3 sentence 2 HGB) are dissolved again

and transferred as profit (Section 301 sentence 2 AktG) or are used to offset any

annual loss (Section 302 para. 1 AktG).

Clause 2.3 sentence 2 of the Domination and Profit and Loss Transfer Agreement

provides that other reserves or a profit carry forward resulting from the time prior to

the beginning of the Domination and Profit and Loss Transfer Agreement cannot be

transferred or used to offset any annual loss. This provision corresponds with the

requirements of Section 301 AktG and the decisions of the highest courts on the

use of reserves in the context of a domination and profit and loss transfer

agreement. The term "other reserves" includes all reserves under Section 272

HGB except for the other profit reserves established during the term of the

contract. Therefore, the statutory reserve, reserves in accordance with the articles

of association as well as the capital reserves are excluded from contractual

transfer regardless of when they were established. Furthermore, the other profit

reserves within the meaning of Section 272 para. 3 sentence 2 HGB that have

been established in the time prior to the beginning of the Domination and Profit and

Loss Transfer Agreement are excluded from transfer.

The obligation to transfer profit applies for the first time for the entire profit

generated in the fiscal year beginning on 1 April 2014 or in such subsequent fiscal

year in which the Domination and Profit and Loss Transfer Agreement becomes

effective pursuant to clause 6.1 sentence 2 (clause 2.4 sentence 1 of the

Domination and Profit and Loss Transfer Agreement).

The Domination and Profit and Loss Transfer Agreement will take effect upon

registration in the commercial register of KDH AG after approval by the general


51

shareholders’ meeting of KDH AG and the general shareholders’ meeting of

Vodafone Vierte Verwaltungs AG (Section 294 para. 2 AktG, clause 6.1 sentence 2

of the Domination and Profit and Loss Transfer Agreement). The management

control as well as the obligation to transfer profit and the obligation to compensate

losses will, however, apply for the first time for the fiscal year of KDH AG which

begins on 1 April 2014 or for such subsequent fiscal year of KDH AG in which the

agreement becomes effective.

The claim of Vodafone Vierte Verwaltungs AG for a transfer of profit is due upon

expiration of the last day of a fiscal year of KDH AG for which the respective claim

exists. The claim must be fulfilled within four weeks after the assessment of the

annual financial statements of KDH AG for the relevant fiscal year. Interest in the

respective statutory amount is owed for the period of time between the due date

and actually fulfilling the claim for transfer of profit, i.e. in the amount of the

statutory rate of interest that applies between commercial parties (currently 5%

annually, Section 352 para. 1 sentence 1 HGB). This provision corresponds with

the statutory requirements and the requirements under the case law of the highest

courts.

Claims resulting from any default in payment are not affected under clause 2.4 of

the Domination and Profit and Loss Transfer Agreement. The relevant claims

accordingly exist in accordance with the statutory provisions; especially the legally

established default interest rate applies.

2.1.3 Assumption of losses (clause 3 of the Domination and Profit and Loss Transfer

Agreement)

Clause 3.1 of the Domination and Profit and Loss Transfer Agreement regulates

the obligation of Vodafone Vierte Verwaltungs AG to assume the losses of KDH AG

pursuant to Section 302 AktG in its respectively valid version. This means that

Vodafone Vierte Verwaltungs AG must compensate for every annual loss that

"otherwise" arises during the term of the contract i.e. that would arise if no

obligation to cover the loss was in existence. The obligation to compensate for loss

does not exist to the extent that the annual loss is offset by amounts being

withdrawn from the other profit reserves (Section 272 para. 3 sentence 2 HGB)

which have been allocated to the profit reserves during the term of the Domination

and Profit and Loss Transfer Agreement.

The obligation to compensate for losses assures that the accounted equity capital

of KDH AG existing at the time the contract becomes effective is not reduced

during the term of the contract. The duty to assume losses serves to secure the

financial interests of KDH AG and of the KDH Shareholders and the creditors of

KDH AG during the existence of the Domination and Profit and Loss Transfer

Agreement.

Pursuant to clause 3.2 of the Domination and Profit and Loss Transfer Agreement,

the obligation to assume losses applies for the first time for the entire fiscal year in

which the Domination and Profit and Loss Transfer Agreement has become

effective upon registration in the commercial register of KDH AG (see on this point,

clause 6.1 sentence 2 of the Domination and Profit and Loss Transfer Agreement),

however, at the earliest for the fiscal year of KDH AG beginning on 1 April 2014. If

the Domination and Profit and Loss Transfer Agreement is registered prior to


52

31 March 2014, the obligation does therefore not exist for any potential loss in the

fiscal year 2013/2014. The obligation to assume losses is due in each case upon

expiration of the last day of a fiscal year of KDH AG. The obligation must be fulfilled

within four weeks after the assessment of the annual financial statements of

KDH AG for the relevant fiscal year. Interest in the respective statutory amount is

owed for the period between the due date and actually fulfilling the claim to

compensate for losses, i.e. in the amount of the statutory interest rate applicable

between commercial parties (currently 5% annually, Section 352 para. 1 sentence

1 HGB). This provision corresponds with the statutory requirements and the

requirements under the case law of the highest courts.


claims resulting from any default in payment are not affected. The relevant claims

accordingly exist in accordance with the statutory provisions; especially the legally

established default interest rate applies.

2.1.4 Recurring Compensation Payment (clause 4 of the Domination and Profit and Loss

Transfer Agreement)

A duty to compensate the outside KDH Shareholders comes into existence under

Section 304 para. 1 AktG when the Domination and Profit and Loss Transfer

Agreement becomes effective. In order to fulfil this duty of compensation, Vodafone

Vierte Verwaltungs AG undertakes towards the outside KDH Shareholders to pay a

recurring compensation (the "Recurring Compensation Payment").

(i) Recurring Compensation Payment (clause 4.2 of the Domination and Profit

and Loss Transfer Agreement)

After the obligation to transfer profit under clause 2 of the Domination and

Profit and Loss Transfer Agreement becomes effective, i.e. for the first time

for the fiscal year of KDH AG beginning on 1 April 2014 or any subsequent

fiscal year in which the Domination and Profit and Loss Transfer Agreement

is registered in the commercial register of KDH AG, KDH AG will generally

no longer show any balance sheet profit for the corresponding fiscal year

and subsequent fiscal years. The right of the KDH Shareholders to decide

about the use of any balance sheet profit generally ceases to exist as of

that point in time. As compensation for the loss of the claim for a dividend,

the obligation of Vodafone Vierte Verwaltungs AG to pay a reasonable

Recurring Compensation Payment is granted to the outside KDH

Shareholders according to clause 4.2 of the Domination and Profit and

Loss Transfer Agreement. This Recurring Compensation Payment exists as

of the fiscal year of KDH AG for which the claim of Vodafone Vierte

Verwaltungs AG under clause 2 of the Domination and Profit and Loss

Transfer Agreement for the transfer of profit takes effect and is in place for

the duration of the Domination and Profit and Loss Transfer Agreement.

The Recurring Compensation Payment is due on the first banking day after

the ordinary general shareholders’ meeting of KDH AG for the previous

fiscal year, but at the latest eight months after expiration of that fiscal year

of KDH AG.

(ii) Type and amount of the Recurring Compensation Payment


53

The following applies to the reasonable, respective Recurring

Compensation Payment:

(a) Legal basis

A domination and profit and loss transfer agreement must provide for

a reasonable recurring compensation for the outside shareholders of

the controlled company, in this case KDH AG (Section 304 para. 1

sentence 1 and sentence 2 AktG). The recurring compensation must

consist of a recurring payment of money to the outside shareholders

for each share (Section 304 para. 1 sentence 1 and sentence 2

AktG). The AktG differentiates between two types of recurring

compensation (see sections C.2.1.4(ii)(b) and C.2.1.4(ii)(c)).

(b) Fixed recurring compensation

Annually recurring payments of a fixed amount of money can be

warranted as recurring compensation in any event. If the domination

and profit and loss transfer agreement provides for a fixed recurring

compensation, the recurring compensation payment must

correspond to the amount which could most likely be allocated to the

individual share as an average share in the profits, i.e. as profit able

to be distributed under commercial law (Section 304 para. 2

sentence 1 AktG).

(c) Variable recurring compensation

If the other contracting party, i.e. the controlling company, is a

European Company (Societas Europaea), a stock corporation or a

limited partnership based on shares, variable recurring

compensation which is based on the profit of the other contracting

party can alternatively be promised. In that case, the variable

recurring compensation must correspond to the amount which

accrues to shares of the controlling company as a share in the profit

based on the establishment of a reasonable conversion ratio

(Section 304 para. 2 sentences 2 and 3 AktG).

Even if a variable recurring compensation was legally possible in

general in the specific case, the domination and profit and loss

transfer agreement does not have to provide for a fixed recurring

compensation and in the alternative an additional variable recurring

compensation. The contracting parties can rather decide in favour of

one or the other type of recurring compensation in this situation.

(d) Reasons for determining a fixed Recurring Compensation Payment

The Domination and Profit and Loss Transfer Agreement between

Vodafone Vierte Verwaltungs AG and KDH AG provides for a fixed

annual Recurring Compensation Payment. The reasons for this are

primarily as follows:

Since Vodafone Vierte Verwaltungs AG as the controlling company

has the legal form of a stock corporation, in principle, a variable

recurring compensation based on the profit of Vodafone Vierte


54

Verwaltungs AG could have been provided for. However, such a

compensation based on the profit of Vodafone Vierte Verwaltungs

AG would not be suitable to ensure the outside KDH Shareholders’

right to receive reasonable compensation, as the participation in

KDH is Vodafone Vierte Verwaltungs AG’s by far the most valuable

current asset and thus, the KDH Shareholders would economically

receive a compensation that is based on KDH AG’s profit only.

Vodafone Vierte Verwaltungs AG could in fact exercise its

management control over KDH AG on the basis of the Domination

and Profit and Loss Transfer Agreement in a way that reduces profits

of KDH AG. This would in consequence also lead to a lower

compensation for the outside KDH Shareholders.

(e) Determination of the Recurring Compensation Payment as gross

payment, amount of the Recurring Compensation Payment

Pursuant to clause 4 of the Domination and Profit and Loss Transfer

Agreement, Vodafone Vierte Verwaltungs AG grants to the outside

KDH Shareholders an annual Recurring Compensation Payment for

the term of the Domination and Profit and Loss Transfer Agreement.

The amount as well as the determination of the Recurring

Compensation Payment is explained and reasoned in more detail

below as well as in section C.3.2.

(I) Amount of the Recurring Compensation Payment

Clause 4.3 of the Domination and Profit and Loss Transfer

Agreement provides for the payment of an annual Recurring

Compensation Payment in the amount of EUR 3.17

(corresponding to an amount of EUR 3.77 before current

corporate income tax and the solidarity surcharge) per KDH

Share to the outside KDH Shareholders for the first time for

the fiscal year of KDH AG beginning on 1 April 2014 or

starting with the subsequent fiscal year in which the

Domination and Profit and Loss Transfer Agreement

becomes effective. This amount will be due in full annually

because no balance sheet profit will be shown any longer

after the obligation to transfer profit has become effective,

and the right of the KDH Shareholders to decide about the

use of the balance sheet profit will no longer exist.

(II) Adjustment mechanism for the Recurring Compensation

Payment

When determining the Recurring Compensation Payment,

the contracting parties took into account the case law of the

Federal Supreme Court of Justice (Bundesgerichtshof –

"BGH") (order of 21 July 2003, case no. II ZB 17/01 –

"Ytong"). The BGH decided in this order that the outside

shareholders must be granted a recurring compensation for

purposes of Section 304 para. 1 sentence 1 and sentence 2,

para. 2 sentence 1 AktG which corresponds to the gross


55

share in the profit per share which will most likely be able to

be distributed when viewed at the starting point and from

which the burden of corporate income tax in the respective

statutory amount must be deducted. This shall ensure that a

decrease in the corporate income tax rate compared to the

rate at the time of the effective date of the valuation will not

lead to an unjustified benefit of the other contracting party at

the expense of the outside shareholders. On the other hand,

the situation under which the provision on the recurring

compensation leads to an unjustified benefit for the outside

shareholders at the expense of the other contracting party in

the case of an increase in tax is also supposed to be

avoided. These principles are also applicable accordingly to

the solidarity surcharge levied as a surtax on the corporate

income tax.

Based on the case law of the BGH described above, the

fixed Recurring Compensation Payment must be determined

by the average share in the gross profit per KDH Share that

will most likely arise, of which the corporate income tax and

the solidarity surcharge must be deducted at the respective

rates that are applicable for the fiscal year for which a

Recurring Compensation Payment is paid. This ensures that

any change in the corporate income tax rate or the solidarity

surcharge will result in a corresponding adjustment of the net

Recurring Compensation Payment. The provision made in

clause 4.2 of the Domination and Profit and Loss Transfer

Agreement accordingly contains a variable provision with

regard to corporate income tax and the solidarity surcharge.

Based on the circumstances at the time of signing the

Domination and Profit and Loss Transfer Agreement and this

Contract Report, a total of EUR 3.77 per KDH Share

corresponding to the 15.0% corporate income tax plus 5.5%

solidarity surcharge must be deducted from the Recurring

Compensation Payment with the amount of EUR 0.60 per

KDH Share. This results to a Recurring Compensation

Payment in the net amount of EUR 3.17 per KDH Share for

each full fiscal year results based on the circumstances

existing at the time of signing the Domination and Profit and

Loss Transfer Agreement.

The mechanism for the potential adjustment of the Recurring

Compensation Payment in the case of future changes of the

tax rate will be explained using the following example: If the

corporate income tax, for example, decreases by one

percentage point (from 15.0% to 14.0%), the provision in

clause 4.2 of the Domination and Profit and Loss Transfer

Agreement has the effect that the deduction of currently

EUR 0.60 for corporate income tax and the solidarity

surcharge will be reduced by an amount of around EUR 0.04


56

(1.0% plus 5.5% solidarity surcharge thereon and together

1.055% of the amount of the Recurring Compensation

Payment of EUR 3.77 resulting from income subject to

corporate income tax). This increases the net Recurring

Compensation Payment in the amount of EUR 3.17 by an

amount of EUR 0.04 to EUR 3.21. On the other hand, an

increase in the corporate income tax by one percentage point

would lead to a reduction of the net Recurring Compensation

Payment from EUR 3.17 to EUR 3.13.

(iii) Additional explanations on clause 4 of the Domination and Profit and Loss

Transfer Agreement

The Recurring Compensation Payment is granted for the first time for the

entire fiscal year of KDH AG for which the obligation to transfer profit to

Vodafone Vierte Verwaltungs AG becomes effective pursuant to clause 2 of

the Domination and Profit and Loss Transfer Agreement (clause 4.3

sentence 2 of the Domination and Profit and Loss Transfer Agreement).

This is the case for the first time under clause 2.4 of the Domination and

Profit and Loss Transfer Agreement for the entire profit for the fiscal year of

KDH AG beginning on 1 April 2014 or a subsequent fiscal year of KDH AG

in which the Domination and Profit and Loss Transfer Agreement becomes

effective. If the Domination and Profit and Loss Transfer Agreement takes

effect prior to 31 March 2014, the obligation to transfer profit exists as of

1 April 2014 for the fiscal year 2014/2015. If the Domination and Profit and

Loss Transfer Agreement becomes effective during the fiscal year

2014/2015, the obligation to transfer profit also applies starting with the

fiscal year 2014/2015. If the Domination and Profit and Loss Transfer

Agreement takes effect only in a subsequent fiscal year, the obligation to

transfer profit applies only as of the start of the relevant, subsequent fiscal

year.

Once the obligation regarding the transfer of profit contained in the

Domination and Profit and Loss Transfer Agreement becomes effective, the

outside KDH Shareholders have no claim for a dividend unless a balance

sheet profit exists resulting from reserves or a profit carry forward from the

time prior to the beginning of the Domination and Profit and Loss Transfer

Agreement and the general shareholders’ meeting resolves a distribution of

such balance sheet profit.

If the Domination and Profit and Loss Transfer Agreement ends during the

course of a fiscal year of KDH AG or if a Recurring Compensation Payment

must be paid for a partial fiscal year that lasts for less than twelve months,

the Recurring Compensation Payment for this fiscal year is reduced

proportionately according to time (clause 4.4 of the Domination and Profit

and Loss Transfer Agreement). This takes into account the circumstance

that the fixed amount of the Recurring Compensation Payment is assessed

on the basis of a period of twelve months, i.e. a full fiscal year.

Clause 4.1 sentence 2 of the Domination and Profit and Loss Transfer

Agreement stipulates the due date for the Recurring Compensation

Payment. The Recurring Compensation Payment to be paid by Vodafone


57

Vierte Verwaltungs AG is due in each case on the first banking day after the

ordinary general shareholders’ meeting of KDH AG for the respective

previous fiscal year, but at the latest eight months after the end of the fiscal

year.

Clause 4.5 of the Domination and Profit and Loss Transfer Agreement

governs the adjustment of the Recurring Compensation Payment in the

case of a capital increase using corporate funds. If new KDH Shares are

issued on the occasion of a capital increase using corporate funds, the

Recurring Compensation Payment per KDH Share is reduced to such an

extent that the total amount of the Recurring Compensation Payment

remains the same. The change in the number of KDH Shares held by an

outside KDH Shareholder resulting from a capital increase using corporate

funds, therefore, does not affect the total amount of the Recurring

Compensation Payment to which this KDH shareholder is entitled. This is

appropriate because a capital increase using corporate funds, i.e. the

conversion of profit or certain capital reserves into share capital, does not

influence the value and the earning power of the company, and because

the new KDH Shares resulting from the capital increase using corporate

funds are issued to the KDH Shareholders without consideration. This also

corresponds to the statutory provision in Section 216 para. 3 AktG under

which the economic content of contractual relationships of the company to

third parties is not affected by a capital increase using corporate funds. If

no new KDH Shares are issued in the context of the capital increase using

corporate funds, an adjustment of the Recurring Compensation Payment is

not required.

If the share capital of KDH AG is increased by issuing new KDH Shares in

exchange for cash contributions or contributions in kind with a subscription

right being granted to the outside KDH Shareholders, the claim of the

outside KDH Shareholders to the Recurring Compensation Payment also

extends to the newly created KDH Shares resulting from the capital

increase. Clause 4.5 of the Domination and Profit and Loss Transfer

Agreement ensures that not only the claims to Recurring Compensation

Payments of the previous outside KDH Shareholders remain the same but

that also new outside KDH Shareholders are treated equally in the case of

such increases in the share capital of KDH AG.


serves to protect the non-discriminatory treatment of all outside KDH

Shareholders. If a KDH Shareholder claims that the offered Recurring

Compensation Payment is set too low, the shareholder can request from

the court in appraisal proceedings (Spruchverfahren) pursuant to Sections

1 et seq. German Act on Appraisal Proceedings (Spruchverfahrensgesetz –

"SpruchG") that the court determines the reasonable Recurring

Compensation Payment. The provision in clause 4.6 of the Domination and

Profit and Loss Transfer Agreement grants to all outside KDH Shareholders

a claim for an increase of the Recurring Compensation Payment if

appraisal proceedings take place and if the court sets a higher Recurring

Compensation Payment in an order which can no longer be appealed

(rechtskräftig). The same applies, if the Vodafone Vierte Verwaltungs AG


58

commits itself against an outside KDH Shareholder in a court settlement

(gerichtlicher Vergleich) to pay a higher compensation payment in order to

avoid or to end a proceeding according to the German Act on Appraisal

Proceedings. These claims also exists for those KDH Shareholders who

have accepted the compensation offer under clause 5 of the Domination

and Profit and Loss Transfer Agreement in the meantime (see below on

clause 5.5 of the Domination and Profit and Loss Transfer Agreement).

Furthermore, these claims also exists without regard to whether the KDH

Shareholder was involved in any appraisal proceedings (see Section 13

sentence 2 SpruchG).

2.1.5 Compensation (clause 5 of the Domination and Profit and Loss Transfer

Agreement)

(i) Type of compensation

In addition to the obligation to pay the Recurring Compensation Payment

under Section 304 AktG, the Domination and Profit and Loss Transfer

Agreement must contain an obligation of Vodafone Vierte Verwaltungs AG

to purchase the KDH Shares upon request of an outside KDH Shareholder

in exchange for the reasonable compensation determined in the

Domination and Profit and Loss Transfer Agreement (Section 305 para. 1

AktG). Vodafone Vierte Verwaltungs AG offers to the outside KDH

Shareholders who would like to leave the company due to the Domination

and Profit and Loss Transfer Agreement a cash compensation within the

meaning of Section 305 para. 2 no. 3 AktG in the amount of EUR 84.53 per

KDH Share in accordance with Section 305 para. 1 AktG (clause 5.1 of the


(ii) Alternative types of compensation compared to cash compensation

Section 305 para. 2 no. 2 AktG entitles the contracting parties to freely

choose between a compensation in shares and a cash compensation. The

parties have exercised this right of election in favour of a cash

compensation. The decision for granting a cash compensation was

primarily based on the following reasons: A compensation in shares of a

controlling company or a company which has a majority participation in the

other contracting party would have required a valuation of this company.

This would have led to a substantial additional effort in the preparation and

to a further delay in concluding the Domination and Profit and Loss

Transfer Agreement.

As a result of the aforementioned reasons, the Domination and Profit and

Loss Transfer Agreement provides for an offer of a cash compensation.

(iii) Amount of the compensation

In accordance with Section 305 para. 1 AktG, Vodafone Vierte Verwaltungs

AG is offering a cash compensation within the meaning of Section 305

para. 2 no. 3 AktG in an amount of EUR 84.53 per KDH Share to the

outside KDH Shareholders who would like to leave the company due to the

Domination and Profit and Loss Transfer Agreement (clause 5.1 of the

Domination and Profit and Loss Transfer Agreement). The details about the


59

amount and determination of the reasonable cash compensation are

explained in section C.3.3.

(iv) Other explanations on clause 5 of the Domination and Profit and Loss

Transfer Agreement

The obligation of Vodafone Vierte Verwaltungs AG to purchase the KDH

Shares of the outside KDH Shareholders in exchange for the compensation

is limited by time according to clause 5.2 of the Domination and Profit and

Loss Transfer Agreement. The deadline ends two months after the date on

which the registration of the existence of the Domination and Profit and

Loss Transfer Agreement in the commercial register of KDH AG is publicly

announced pursuant to Section 10 HGB. The time limit on the offer for the

compensation is common and is permitted under Section 305 para. 4 AktG.

The provision of a two month deadline (clause 5.2 of the Domination and

Profit and Loss Transfer Agreement) corresponds to the statutory provision

in Section 305 para. 4 sentence 2 AktG.

Under Section 4 para. 1 no. 1 SpruchG, outside KDH Shareholders can file

a request for a court decision about the compensation to be granted within

three months after the date on which the registration of the existence of the

Domination and Profit and Loss Transfer Agreement in the commercial

register of KDH AG has been publicly announced pursuant to Section 10

HGB. Section 305 para. 4 sentence 3 AktG stipulates that in case of an

application to the court to determine the recurring compensation or the

compensation, the deadline for accepting the offer for transfer of the shares

to the controlling company in exchange for payment of a reasonable

compensation ends at the earliest two months after the date on which the

decision about the most recently decided request of a shareholder has

been published in the Federal Gazette (Bundesanzeiger). Clause 5.2 of the

Domination and Profit and Loss Transfer Agreement clarifies that this

statutory provision applies without any restriction. If appraisal proceedings

are initiated, the deadline for accepting the offer accordingly ends two

months after the date on which the decision about the most recently

decided request of a KDH Shareholder has been published in the Federal

Gazette.

The declaration of the outside KDH Shareholders that they want to accept

the offer for the compensation from Vodafone Vierte Verwaltungs AG must

be received within the deadline that is determined as explained above.

After expiration of the deadline, an acceptance of the offer for the

compensation is no longer possible.

The outside KDH Shareholders can decide to leave the company after

registration of the existence of the Domination and Profit and Loss Transfer

Agreement in the commercial register and receive the offered

compensation or they can instead decide to remain KDH Shareholders and

receive the Recurring Compensation Payment offered in clause 4 of the


Accepting the offer for the Compensation is free of costs for the outside

KDH Shareholders under clause 5.3 of the Domination and Profit and Loss


60

Transfer Agreement. This assures that the outside KDH Shareholders are

not burdened with fees, commissions or other processing fees of the banks

and that they receive the compensation without any reduction. Taxes which

accrue on any capital gain for an outside KDH Shareholder are not affected

by this. The respective KDH Shareholder must bear these taxes himself.

Reference is made to section C.2.3.3 with regard to the tax effects for the

outside KDH Shareholders.


takes into account the principles already explained above with regard to

clause 4.5 of the Domination and Profit and Loss Transfer Agreement in the

event of an increase of the share capital using corporate funds or for

contributions. Reference is made to the corresponding explanations in

section C.2.1.4(iii).

Clause 5.5 of the Domination and Profit and Loss Transfer Agreement, in

turn, serves the purpose of protecting and treating all outside KDH

Shareholders equally. The provision grants to all outside KDH Shareholders

a claim for an additional payment to the compensation in the event of any

appraisal proceedings pursuant to Sections 1 et seq. SpruchG if the court

sets forth a higher compensation in an order which can no longer be

appealed (rechtskräftig) or in the event of Vodafone Vierte Verwaltungs AG

committing itself in a court settlement (gerichtlicher Vergleich) against an

outstanding KDH shareholder to pay a higher compensation payment to

avoid or end a proceeding according to the German Act on Appraisal

Proceedings. This claim also exists if the outside KDH Shareholder has

already received the compensation without regard to whether the outside

KDH Shareholder participated in any appraisal proceedings.

The Domination and Profit and Loss Transfer Agreement can be terminated

by either party in accordance with clauses 6.2 and 6.3. If the termination

occurs at a time when the deadline for accepting the offer for the

compensation under clause 5.2 of the Domination and Profit and Loss

Transfer Agreement has already expired, every outside KDH Shareholder

at that time is granted the right under clause 5.6 of the Domination and

Profit and Loss Transfer Agreement to sell the KDH Shares held by that

shareholder at the time of termination to Vodafone Vierte Verwaltungs AG

for an amount of EUR 84.53. This amount corresponds to the amount of

the cash compensation set out in clause 5.1 of the Domination and Profit

and Loss Transfer Agreement. If this amount of the compensation is

increased by a decision in appraisal proceedings which can no longer be

appealed (rechtskräftig) or in a court settlement (gerichtlicher Vergleich) to

avoid or end an appraisal proceeding the outside KDH Shareholders are

entitled to exercise the right to sell for the corresponding increased amount.

The outside KDH Shareholders who have initially decided not to accept the

offer for the cash compensation from Vodafone Vierte Verwaltungs AG but

to remain KDH Shareholders and receive the Recurring Compensation

Payment are granted additional protection with this right to sell. In case of

the termination of a domination and profit and loss transfer agreement, no

statutory obligation for such a renewed offer to sell exists.


61

This renewed right to sell is also limited by time. It can be exercised within

two months after the date on which the registration of the termination of the

Domination and Profit and Loss Transfer Agreement in the commercial

register of KDH AG has been publicly announced pursuant to Section 10

HGB. The sale of KDH Shares under clause 5.6 in connection with

clause 5.3 of the Domination and Profit and Loss Transfer Agreement is

also free of costs for the outside KDH Shareholders. The corresponding

application of clause 5.4 of the Domination and Profit and Loss Transfer

Agreement takes into account potential increases in the share capital of

KDH AG using corporate funds or in exchange for contributions (see on this

point above, section C.2.1.4(iii)).

The aforementioned right to sell applies both in the case of a termination by

Vodafone Vierte Verwaltungs AG as well as in the case of termination by

KDH AG. It should be noted that a regular notice of termination of the

Domination and Profit and Loss Transfer Agreement during the fixed term

of the contract is precluded under clause 6.2 of the Domination and Profit

and Loss Transfer Agreement (see section C.2.1.6(iii)).

A payment of interest on the amount to be paid under clause 5.6 of the

Domination and Profit and Loss Transfer Agreement is not provided for by a

corresponding application of Section 305 para. 3 sentence 3 AktG.

2.1.6 Coming into effect, term and termination of the contract (clause 6 of the Domination

and Profit and Loss Transfer Agreement)

(i) Coming into effect

In accordance with the statutory requirements for approval under Section

293 AktG, clause 6.1 sentence 1 of the Domination and Profit and Loss

Transfer Agreement stipulates that the Domination and Profit and Loss

Transfer Agreement requires the consent of the general shareholders’

meeting of Vodafone Vierte Verwaltungs AG as well as of the general

shareholders’ meeting of KDH AG in order to be valid. The general

shareholders’ meeting of Vodafone Vierte Verwaltungs AG has approved

the Domination and Profit and Loss Transfer Agreement as on

19 December 2013. The general shareholders’ meeting of KDH AG is

supposed to vote on the consent to the Domination and Profit and Loss

Transfer Agreement on 13 February 2014.

According to Section 294 para. 2 AktG the Domination and Profit and Loss

Transfer Agreement only becomes effective upon its registration in the

commercial register at the registered office of KDH AG. Clause 6.1

sentence 2 of the Domination and Profit and Loss Transfer Agreement only

reflects this provision.

(a) Coming into effect of the right of management control and the right to

issue instructions under clause 1 of the Domination and Profit and

Loss Transfer Agreement

The right of management control and the right to issue instructions

under clause 1 of the Domination and Profit and Loss Transfer

Agreement applies as of 1 April 2014, provided that the Domination


62

and Profit and Loss Transfer Agreement has become effective until

then. Alternatively, the right of management control and the right to

issue instructions will apply as of that point in time when the

Domination and Profit and Loss Transfer Agreement becomes

effective by registration in the commercial register.

(b) Coming into effect of the obligation to transfer profit under clause 2 of

the Domination and Profit and Loss Transfer Agreement

The obligation to transfer profit under clause 2 of the Domination and

Profit and Loss Transfer Agreement applies for the first time for the

entire profit of the fiscal year of KDH AG beginning on 1 April 2014 or

the subsequent fiscal year of KDH AG in which the Domination and

Profit and Loss Transfer Agreement becomes effective. If the

Domination and Profit and Loss Transfer Agreement takes effect only

during a subsequent year, e.g. if the registration is delayed due to

appeal proceedings, the obligation to transfer profit applies

accordingly only as of the beginning of this subsequent fiscal year in

which the Domination and Profit and Loss Transfer Agreement takes

effect.

(c) Coming into effect of the obligation to assume losses under clause 3

of the Domination and Profit and Loss Transfer Agreement

Pursuant to clause 3.2 of the Domination and Profit and Loss

Transfer Agreement, the obligation to assume losses applies for the

first time for the entire fiscal year of KDH AG in which the Domination

and Profit and Loss Transfer Agreement becomes effective, but not

before the fiscal year 2014/2015, even if the registration takes place

before 1. April 2014.

(ii) Duration of the Domination and Profit and Loss Transfer Agreement,

minimum term

The Domination and Profit and Loss Transfer Agreement is concluded for

an indefinite period of time (clause 6.2 sentence 1 of the Domination and

Profit and Loss Transfer Agreement). According to clause 6.2 sentence 2,

the Domination and Profit and Loss Transfer Agreement has a fixed

minimum term of five successive years as of the beginning of the fiscal

year in which the obligation to transfer profit under clause 2 of the

Domination and Profit and Loss Transfer Agreement becomes effective. In

the event that the Domination and Profit and Loss Transfer Agreement has

been registered in the commercial register prior to 31 March 2015, the

obligation to transfer profit under clause 2 of the Domination and Profit and

Loss Transfer Agreement begins (if applicable, retroactively) on 1 April

2014. The contractual minimum term accordingly lasts until 31 March 2019.

This fixed minimum term is required under Section 14 para. 1 sentence 1

no. 3 KStG in order to be able to establish the consolidation group for

purposes of corporate income tax and trade tax between Vodafone Vierte

Verwaltungs AG and KDH AG intended with the conclusion of the


(iii) Termination of the Domination and Profit and Loss Transfer Agreement


63

During the fixed minimum term of five consecutive years as of the

beginning of the fiscal year in which the obligation to transfer profit under

clause 2 of the Domination and Profit and Loss Transfer Agreement takes

effect as established in clause 6.2 sentence 2 of the Domination and Profit

and Loss Transfer Agreement, the right to give regular notice of termination

is excluded. The Domination and Profit and Loss Transfer Agreement can

accordingly be terminated for the first time by giving three months' notice as

of the end of the last fiscal year of the minimum term and it can

subsequently be terminated by regular notice of termination in accordance

with this notice period in each case as of the end of a fiscal year (clause

6.2 sentence 3 of the Domination and Profit and Loss Transfer Agreement).

The notice of termination must be given in writing (clause 6.4 of the


In accordance with clause 6.3 of the Domination and Profit and Loss

Transfer Agreement, this provision does not affect the right of the

contracting parties to terminate the Domination and Profit and Loss

Transfer Agreement for just cause (aus wichtigem Grund) without

compliance with a notice period. The right of termination for just cause

exists by force of law and cannot be excluded by contract. Just cause for

termination generally exists if a continuation of the contractual relationship

can no longer be expected of the party giving notice of termination after

weighing all circumstances. For example, a deterioration in the financial or

earning position of the controlled company can entitle the controlling

company to give notice of termination if the risks for the controlling

company are no longer acceptable and the controlling company is not

responsible for this situation. The controlled company can, in turn, give

notice of termination, for example, if the controlling company will most likely

not be able to fulfil its obligations existing under the Domination and Profit

and Loss Transfer Agreement (assumption of losses, recurring

compensation and compensation).

Pursuant to clause 6.3 sentence 1 of the Domination and Profit and Loss

Transfer Agreement, both parties are entitled to give notice of termination

for just cause (aus wichtigem Grund). Just cause within the meaning of

clause 6.3 sentence 2 in particular exists, if just cause for termination within

the meaning of tax law (wichtiger Grund im steuerlichen Sinn) exists. The

provision contained in clause 6.3 sentence 2 of the Domination and Profit

and Loss Transfer Agreement must be seen in light of applicable tax law.

The conclusion of a profit transfer agreement is necessary in order to be

able to establish the indented status of a consolidated tax group between

Vodafone Vierte Verwaltungs AG and KDH AG for purposes of corporate

income tax and trade tax. The prerequisite for this status of a consolidated

tax group for purposes of corporate income tax and trade tax, in addition to

the minimum term of the contract under Section 14 para. 1 sentence 1

no. 3 KStG is, among others, that KDH AG, as the controlled company, is

financially integrated into Vodafone Vierte Verwaltungs AG as the

controlling company in such a manner that the controlling company has the

majority of the voting rights in the controlled company. Furthermore, the

profit and loss transfer agreement must be entered into for a minimum term


64

of five years and must actually be performed during its term. A termination

of the profit and loss transfer agreement prior to the expiration of the

minimum term pursuant to Section 14 para. 1 sentence 1 no. 3 KStG

generally leads to the non-recognition of the status of a consolidated tax

group for tax purposes from the very beginning. Only a termination for just

cause does not affect the status of a consolidated tax group for fiscal years

that have already been completed, even if the termination occurs within the

minimum term of the profit and loss transfer agreement established under

tax law, to the extent that the just cause is recognized for tax purposes.

The disposal or the contribution of the participation can generally constitute

just cause within the meaning of Section 14 para. 1 no. 3 KStG for early

termination of a domination and profit and loss transfer agreement by the

controlling company which does not affect the recognition of the status of a

consolidated tax group for the past. This applies accordingly in case of a

merger, spin-off or liquidation of one of the two contracting parties.

Accordingly, Clause 6.3 sentence 2 of the Domination and Profit and Loss

Transfer Agreement is supposed to allow for a termination for just cause

under corporate law in case one of the instances of termination for just

cause recognized under tax law is given.

In case of a termination of the Domination and Profit and Loss Transfer

Agreement, the statutory provision in Section 303 AktG also applies: If a

domination agreement or a profit and loss transfer agreement ends, the

controlling company must provide security to the creditors of the controlled

company if they make a corresponding request for this purpose to the

controlling company within six months after the publication of the

registration. However, this obligation under Section 303 para. 1 and 2 AktG

exists only with regard to those creditors whose claims were established

before the registration of the termination of a domination or a profit and loss

transfer agreement in the commercial register has been publicly announced

pursuant to Section 10 HGB, and only to the benefit of those creditors

which, in case of insolvency proceedings, would not have a right for

preferred satisfaction from an insolvency estate which is established and

publicly monitored for the protection of such preferred creditors under

statutory law. The controlling company can issue a surety for the claim

instead of posting security, whereby Section 349 HGB concerning the

exclusion of the defence of requiring that a complaint first be filed against

the primary obligor does not apply in this situation (Section 303 para. 3

AktG).

If the Domination and Profit and Loss Transfer Agreement is terminated by

one of the contracting parties after expiration of the deadline for the

compensation offer under clause 5.2 of the Domination and Profit and Loss

Transfer Agreement, the outside KDH Shareholders again have the right

under clause 5.6 of the Domination and Profit and Loss Transfer

Agreement to sell their KDH Shares to Vodafone Vierte Verwaltungs AG

(see section C.2.1.5(iv)).

2.1.7 Final provisions of the contract (clause 8 of the Domination and Profit and Loss

Transfer Agreement)


65

Clause 8.1 of the Domination and Profit and Loss Transfer Agreement determines,

that the applicable law is German law.

Clause 8.2 of the Domination and Profit and Loss Transfer Agreement (severability

clause) shall secure the survival of the main content of the Domination and Profit

and Loss Transfer Agreement if individual contractual provisions turn out to be

completely or partially invalid, unenforceable or if there are gaps, contrary to

expectations. This is a typical provision contained in domination and profit and loss

transfer agreements.

2.1.8 Comfort letter by Vodafone Group Plc

Clause 7 of the Domination and Profit and Loss Transfer Agreement indicates that

Vodafone Group Plc has without joining this Agreement as a party provided a

comfort letter in a separate declaration. The comfort Letter is attached to this

Report together with the Domination and Profit and Loss Transfer Agreement as

Annex 3.

In this comfort letter Vodafone Group Plc undertakes without limitation and irrevo-

cably to ensure, that Vodafone Vierte Verwaltungs AG will be managed and finan-

cially equipped in a way that Vodafone Vierte Verwaltungs AG is at all times able to

fulfil all its obligations arising from or in connection with the Domination and Profit

and Loss Transfer Agreement completely and in time. This applies in particular to

the obligation to compensate losses pursuant to Section 302 AktG.

In addition, Vodafone Group Plc undertakes without limitation and irrevocably vis-à-

vis the outside shareholders of KDH that Vodafone Vierte Verwaltungs AG fulfils all

its obligations towards them arising from or in connection with the Domination and

Profit and Loss Transfer Agreement, in particular regarding the Recurring

Compensation and the Cash Compensation completely and in time. To that extent

the outside shareholders of KDH have an own claim according to Section 328

para. 1 German Civil Code (Bürgerliches Gesetzbuch – BGB) directed at payment

to Vodafone Vierte Verwaltungs AG. Vodafone Group Plc’s liability pursuant to the

two preceding sentences does, however, only apply if Vodafone Vierte Verwaltungs

AG does not fulfil its obligations towards the outside shareholders of KDH arising

from or in connection with the Domination and Profit and Loss Transfer Agreement

completely and in time and Vodafone Group Plc does not comply with its obligation

to equip Vodafone Vierte Verwaltungs AG as described above.

By way of this obligation Vodafone Vierte Verwaltungs AG’s ability to fulfil all

potential claims for Compensation and Recurring Compensation Payment of the

outside KDH Shareholders pursuant to the Domination and Profit and Loss

Transfer Agreement shall be strengthened in addition to the claims based on the

VF Domination and Profit and Loss Transfer Agreement between Vodafone Vierte

Verwaltungs AG and Vodafone GmbH.

2.2 Technical processing of the Domination and Profit and Loss Transfer Agreement by the

banks

Vodafone Vierte Verwaltungs AG will mandate Commerzbank Aktiengesellschaft, Frankfurt

am Main, Germany, as the central processor for the technical handling of the payment of

the compensation under clause 5 of the Domination and Profit and Loss Transfer

Agreement. The KDH Shareholders who want to make use of the offer for the


66

compensation must instruct their securities account bank to make available their KDH

Shares to the central processor via the collective custody system for the purpose of

receiving the compensation. Simultaneously with (Zug um Zug) proper transfer of the KDH

Shares, the cash compensation will then be paid out. The processing of the cash

compensation is free of any commissions and fees for the KDH Shareholders (see section

C.2.1.5(iv)). The compensation will be offered to all outside KDH Shareholders. Details

about the processing will be announced without undue delay after registration of the

Domination and Profit and Loss Transfer Agreement in the commercial register.

The Recurring Compensation Payment under clause 4 of the Domination and Profit and

Loss Transfer Agreement will be processed in the same manner as dividend payments.

2.3 Explanation of the effects of the Domination and Profit and Loss Transfer Agreement

2.3.1 Effects under corporate law

Once the right of management control for Vodafone Vierte Verwaltungs AG and the

right to issue instructions to KDH AG under clause 1 of the Domination and Profit

and Loss Transfer Agreement takes effect, i.e. upon registration of the Domination

and Profit and Loss Transfer Agreement in the commercial register of KDH AG

after the approval of the general shareholders’ meeting of KDH AG and the general

shareholders’ meeting of Vodafone Vierte Verwaltungs AG, not before 1 April 2014

at the earliest, KDH AG will submit the management control of its company to

Vodafone Vierte Verwaltungs AG and Vodafone Vierte Verwaltungs AG will obtain

the right to issue instructions to the management board of KDH AG with regard to

the management of KDH AG. The management board of KDH AG is required to

comply with the instructions of Vodafone Vierte Verwaltungs AG. Vodafone Vierte

Verwaltungs AG can also issue disadvantageous instructions to the management

board of KDH AG if these instructions serve the interest of Vodafone Vierte

Verwaltungs AG or Vodafone GmbH including the affiliated companies of Vodafone

GmbH. Such disadvantageous instructions can have substantial negative effects

on the financial situation and earnings position of KDH AG despite the Vodafone

Vierte Verwaltungs AG’s obligation to assume the losses and these effects can also

continue to exist after the Domination and Profit and Loss Transfer Agreement has

been terminated. Upon the termination of the Domination and Profit and Loss

Transfer Agreement based on a notice of termination by Vodafone Vierte

Verwaltungs AG or KDH AG, the outside KDH Shareholders obtain the right under

clause 5.6 of the Domination and Profit and Loss Transfer Agreement, explained in

more detail in section C.2.1.5(iv), to sell the KDH Shares they hold at the time of

the termination of the Domination and Profit and Loss Transfer Agreement to

Vodafone Vierte Verwaltungs AG.

The outside KDH Shareholders will be adversely affected in their control rights and

possibly in their financial rights as a result of the right of management control of

Vodafone Vierte Verwaltungs AG and the right to issue instructions to KDH AG

agreed upon in the Domination and Profit and Loss Transfer Agreement. In

exchange for these adverse effects, the outside KDH Shareholders are

compensated by the obligation of Vodafone Vierte Verwaltungs AG to pay an

annual Recurring Compensation Payment (see section C.2.1.4).

Aside from this, the conclusion of the Domination and Profit and Loss Transfer

Agreement has no legal effects on the shareholdings of the outside KDH


67

Shareholders. In particular the voting rights and other participation rights linked to

their KDH Shares continue to be governed by the articles of association of KDH AG

and the statutory provisions after the registration of the Domination and Profit and

Loss Transfer Agreement in the commercial register.

The stock exchange listing of the KDH Shares will not be affected by the

registration of the Domination and Profit and Loss Transfer Agreement in the

commercial register. However, the possibility cannot be excluded that a large

portion of the outside KDH Shareholders will accept the offer for the compensation

and that the number of the KDH Shares held in free float will decrease further. This

can have the consequence that a normal trading of KDH Shares on the stock

exchange is no longer assured. The resulting further reduction of the liquidity of the

KDH stock could lead to greater fluctuations in the price of the KDH stock than in

the past under certain circumstances.

The number of the KDH Shares held in free float will decrease to the extent the

offer for the compensation under the Domination and Profit and Loss Transfer

Agreement is accepted. As a result, KDH AG might no longer fulfil the respective

criteria for remaining in stock exchange indices currently containing the KDH

Shares. This applies especially for the KDH stock remaining in the MDAX, an index

calculated by Deutsche Börse AG which consists of 50 of the companies traded on

the Frankfurt Stock Exchange. A removal from a stock exchange index can have

the consequence, among others, that institutional investors which reflect the

relevant index in their portfolio will dispose of KDH Shares and refrain from any

future purchases of KDH Shares. An increased offer of KDH Shares combined with

a lower demand for KDH Shares can adversely influence the stock exchange price

for the KDH Shares.

2.3.2 Protection of the outside KDH Shareholders

Protection of the interests of the outside KDH Shareholders in connection with the

conclusion of the Domination and Profit and Loss Transfer Agreement, as is

described below, is secured by granting a compensation and a Recurring

Compensation Payment, the reasonableness of which is examined by the Contract

Auditor (see sections C.2.3.2(ii) and C.3.4). If outside KDH Shareholders are of the

opinion that the compensation and/or the Recurring Compensation Payment

established in the Domination and Profit and Loss Transfer Agreement are not

reasonable, they can have the reasonableness examined in appraisal proceedings.

(i) Recurring Compensation Payment and compensation

After the contractually stipulated obligation to transfer profit under clause 2

of the Domination and Profit and Loss Transfer Agreement has become

effective, i.e. at the earliest as of the fiscal year 2014/2015 if the

Domination and Profit and Loss Transfer Agreement is registered in the

commercial register of KDH AG by the end of the fiscal year 2014/2015 or

in a relevant subsequent fiscal year if the registration occurs only in a

subsequent fiscal year (see section C.2.1.6), KDH AG will not show any

annual profit and also no balance sheet profit, aside from any earnings

resulting from the dissolution of reserves which are not subject to transfer

of profit under the contract or a balance sheet profit resulting from any profit

carry forward from the time before the contract. This means that the outside


68

KDH Shareholders will generally not receive any dividends after the

obligation to transfer profit takes effect. Their right to decide about the use

of any balance sheet profit arising after that point in time will generally

cease to exist.

Instead, there is a claim of the outside KDH Shareholders against

Vodafone Vierte Verwaltungs AG for a full economic compensation in terms

of an annual Recurring Compensation Payment under Section 304 AktG.

The annual Recurring Compensation Payment to be paid in accordance

with clause 4 of the Domination and Profit and Loss Transfer Agreement

will be paid to the outside KDH Shareholders without undue delay after the

due date established in clause 4.1 sentence 2 of the Domination and Profit

and Loss Transfer Agreement. The technical processing of the payment will

be through the respective securities account banks just as in the case of a

dividend payment (see section C.2.2).

The contracting parties have set a fixed annual Recurring Compensation

Payment in a gross amount of EUR 3.77 on the basis of the Valuation

Report. Corporate income taxes as well as the solidarity surcharge must be

deducted from this amount. According to the situation at the time of

conclusion of the contract, 15% corporate income tax plus 5.5% solidarity

surcharge for a total of EUR 0.60 will be deducted from the Recurring

Compensation Payment in the amount of EUR 3.77 per KDH Share. This

results, based on the circumstances existing at the time of signing, in a

Recurring Compensation Payment in the amount of EUR 3.17 per KDH

Share for each full fiscal year (see with regard to the legal basis of the

Recurring Compensation Payment section C.2.3.2(i), and on the calculation

of the Recurring Compensation Payment sections C.3.1 and C.3.2).

As an alternative to receiving the annual Recurring Compensation

Payment, the outside KDH Shareholders can make use of the offer for the

compensation by Vodafone Vierte Verwaltungs AG under Section 305 AktG

and leave KDH AG as shareholders in exchange for the compensation set

out in clause 5.1 of the Domination and Profit and Loss Transfer

Agreement. The situation of KDH AG existing at the time of adopting the

resolution in the planned general shareholders’ meeting of KDH AG on

13 February 2014 constitutes the basis for assessing the compensation in

the amount of EUR 84.53 per KDH Share set out in clause 5.1 of the

Domination and Profit and Loss Transfer Agreement (see the

comprehensive discussion and the reasons for the reasonableness of the

cash compensation in section C.3.3).

The outside KDH Shareholders do not lose the right to the compensation

as a result of the fact that they have already received the Recurring

Compensation Payment. If the offer for the compensation is only accepted

after the Recurring Compensation Payment has been paid, which can be

the case especially if the offer for the compensation is accepted during or

after conclusion of appraisal proceedings (see Section 305 para. 4

sentence 3 AktG and clause 5.2 of the Domination and Profit and Loss

Transfer Agreement), Recurring Compensation Payments that have already

been received will be credited against the claim for interest on the


69

compensation under Section 305 para. 3 sentence 3 AktG. This crediting

will be in accordance with reference periods, normally fiscal years, whereby

the KDH Shareholder entitled to the compensation is entitled to the

corresponding difference between the Recurring Compensation Payment

and the interest on the compensation for the respective reference period if

Recurring Compensation Payments that have been received are lower than

the interest on the compensation and also if the interest for the

compensation in the reference period falls short of the higher Recurring

Compensation Payments. The crediting of the Recurring Compensation

Payment with the interest on the compensation to be paid only occurs with

regard to the Recurring Compensation Payment which relates to the period

of time after registration of the Domination and Profit and Loss Transfer

Agreement in the commercial register. Recurring Compensation Payment

that has already been received will not be credited against the payment of

the compensation itself. This corresponds to the statutory provisions, taking

into account the case law of the BGH (judgment dated 16 September 2002,

case no. II ZR 284/01 – "Rütgers"; judgment dated 2 June 2003 case no. II

ZR 85/02; judgment dated 10 December 2007, case no. II ZR 199/06).

The obligation of Vodafone Vierte Verwaltungs AG to purchase the KDH

Shares of the outside KDH Shareholders in exchange for payment of the

compensation set out in clause 5.1 of the Domination and Profit and Loss

Transfer Agreement comes into existence with effectiveness of the

Domination and Profit and Loss Transfer Agreement. As of that point in

time, the outside KDH Shareholders can make use of their right to transfer

their KDH Shares to Vodafone Vierte Verwaltungs AG in exchange for

payment of the compensation set out in the Domination and Profit and Loss

Transfer Agreement by declaration to Vodafone Vierte Verwaltungs AG or

to their respective securities account bank. Those KDH Shareholders that

do not make use of their right to transfer their KDH Shares to Vodafone

Vierte Verwaltungs AG continue to be KDH Shareholders and receive the

annual Recurring Compensation Payment.

Immediately after registration of the Domination and Profit and Loss

Transfer Agreement in the commercial register of KDH AG, further details

about the procedure will be published in the Federal Gazette and will be

communicated to the outside KDH Shareholders via the respective

securities account banks. The processing of the transfer of the KDH Shares

to Vodafone Vierte Verwaltungs AG as a result of accepting the offer for

compensation will be free of charge for the KDH Shareholders (clause 5.3

of the Domination and Profit and Loss Transfer Agreement).

The obligation of Vodafone Vierte Verwaltungs AG to acquire KDH Shares

of the outside KDH Shareholders in exchange for payment of the

compensation is subject to a time limit pursuant to clause 5.2 of the

Domination and Profit and Loss Transfer Agreement. The declaration of the

outside KDH Shareholders who want to accept the offer of Vodafone Vierte

Verwaltungs AG for the compensation must be received within this deadline

(see section C.2.1.5(iv) concerning the details of the time limit on the

obligation of Vodafone Vierte Verwaltungs AG). After expiration of the

deadline established in clause 5.2 of the Domination and Profit and Loss


70

Transfer Agreement, it is no longer possible to accept the original offer for

the compensation.

However, if the Domination and Profit and Loss Transfer Agreement is

terminated by one of the contracting parties, the outside KDH Shareholders

existing at the time of the termination are entitled to sell their KDH Shares

to Vodafone Vierte Verwaltungs AG within a period of two months after the

date on which the registration of the termination of the Domination and

Profit and Loss Transfer Agreement in the commercial register of KDH AG

has been publicly announced pursuant to Section 10 HGB (see section

C.2.1.5(iv)).

(ii) Contract audit by the Contract Auditor

In response to identical requests of the management board of KDH AG and

the management board of Vodafone Vierte Verwaltungs AG, the District

Court (Landgericht) Munich I in accordance with Section 293c para. 1 AktG

selected and appointed Wedding & Cie. GmbH

Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, with the participation

of the publicly appointed and sworn in business-evaluation expert Dr. Anke

Nestler, Frankfurt am Main, as joint contract auditor within the meaning of

Section 293b para. 1 AktG by order dated 25 October 2013. The Contract

Auditor examines the Domination and Profit and Loss Transfer Agreement

and especially the reasonableness of the annual Recurring Compensation

Payment as well as the compensation and prepares the separate audit

report pursuant to Section 293e AktG. The Contract Auditor’s Audit Report

will be available together with the documents set forth in Section 293f para.

1 AktG as of the date on which the ordinary general shareholders’ meeting

of KDH AG that shall take place on 13 February 2014 is called on the

internet page of KDH AG at

http://www.kabeldeutschland.com/hauptversammlung. The report will also

be available during the general shareholders’ meeting of KDH AG on

13 February 2014.

(iii) Appraisal proceedings

If KDH Shareholders are of the opinion that the amount of the Recurring

Compensation Payment set out pursuant to clause 4.2 of the Domination

and Profit and Loss Transfer Agreement in accordance with Section 304

AktG is too low, they can have the reasonableness of the Recurring

Compensation Payment examined by a court in appraisal proceedings

pursuant to Section 304 para. 3 sentence 3 AktG in conjunction with

Section 1 no. 1 SpruchG after the Domination and Profit and Loss Transfer

Agreement takes effect. The right to make a motion for the initiation of

appraisal proceedings does not depend on having declared an objection to

the minutes recorded by the officiating notary against the resolution of the

general shareholders’ meeting about the Domination and Profit and Loss

Transfer Agreement in the general shareholders’ meeting. The court

examination of the Recurring Compensation Payment in special

proceedings under Section 304 para. 3 sentence 3 AktG in conjunction with

Section 1 no. 1 SpruchG can be requested within three months after the

date on which the registration of the existence of the Domination and Profit


71

and Loss Transfer Agreement in the commercial register of KDH AG has

been publicly announced pursuant to Section 10 HGB. The request must

be supported with reasons in accordance with Section 4 para. 2 SpruchG

within the above stated deadline of three months. If a higher annual

Recurring Compensation Payment is set forth by the court having

jurisdiction in the appraisal proceedings in an order which can no longer be

appealed (rechtskräftig), all outside KDH Shareholders can assert a claim

against Vodafone Vierte Verwaltungs AG for the Recurring Compensation

Payment as increased by the court (Section 13 SpruchG). The controlling

company can terminate the Domination and Profit and Loss Transfer

Agreement in this event within two months after the court decision has

become non-appealable without complying with any notice period (Section

304 para. 4 AktG). If appraisal proceedings are ended by a court

settlement, the rights of all outside KDH Shareholders are protected by the

fact that such an end of proceedings under Section 11 para. 2 SpruchG is

only possible with the consent of the joined representative of the outside

KDH Shareholders and any agreement about an increased Recurring

Compensation Payment or any increased compensation agreed in order to

end the proceedings applies for the benefit of all outside KDH Shareholders

regardless of whether they were involved in the appraisal proceedings

themselves.

If outside KDH Shareholders are of the view that the compensation set out

in clause 5.1 of the Domination and Profit and Loss Transfer Agreement is

too low, they can also have the reasonableness of the compensation

examined by a court in appraisal proceedings pursuant to Section 305

para. 5 sentence 2 AktG in conjunction with Section 1 no. 1 SpruchG. The

discussion in the above paragraph concerning the Recurring Compensation

Payment applies accordingly with regard to the deadline for submitting the

request, the submission of reasons for the request, the effect of the court

decision in such appraisal proceedings, the right of termination for the

controlling company after a determination of the compensation by the court

and the conclusion of such proceeding by way of court settlement

(gerichtlicher Vergleich) also to the benefit of outstanding KDH

shareholders not involved in the appraisal proceeding.

2.3.3 Tax effects for KDH Shareholders in Germany

(i) Introduction

The following paragraphs contain a brief summary of some important

German tax principles which can be relevant in connection with the

conclusion of the Domination and Profit and Loss Transfer Agreement for

the outside KDH Shareholders who are subject to full taxation in Germany.

Tax effects for KDH Shareholders who are not fully subject to taxation in

Germany are not explained below. These tax effects depend, among other

aspects, on special provisions in German tax law, the tax law in the country

in which the respective KDH Shareholder is domiciled as well as on

provisions in any existing treaty for the avoidance of double taxation

(double taxation treaty).


72

The description generally only relates to corporate income tax, income tax,

withholding tax on investment income and trade tax as well as the solidarity

surcharge which accrue in Germany and deals only with some of the

aspects of these types of taxes. For example, the situation in which

amounts used for payments of the Recurring Compensation Payment are

deemed to have been used from the tax-specific contribution account of

KDH AG is not explained. The description also does not address the

specific aspects with regard to KDH Shares which were acquired as

consideration for a tax benefited contribution under the UmwG (so-called

lock-up shares, (sperrfristbehaftete Anteile) as well as special provisions for

certain companies in the financial and insurance industry. Only the currently

applicable legal situation is used as a basis. This situation can change,

potentially also with retroactive effect. No liability is assumed for the

completeness and accuracy of this description. The recommendation is

made to KDH Shareholders to consult with their tax advisors. Only the tax

advisors are able to reasonably take into account the specific tax

circumstances of the individual KDH Shareholder.

The following description reflects that KDH AG only exists as stock

corporation since 4 March 2010. Therefore no descriptions on share

purchases before that time are necessary.

(ii) Taxation of the Recurring Compensation Payment at the level of the KDH

Shareholders

The Recurring Compensation Payment to be paid pursuant to clause 4.1 of

the Domination and Profit and Loss Transfer Agreement is subject to the

general rules on taxation of dividends at the level of the affected KDH

Shareholders.

(a) Withholding tax on investment income

Withholding tax on investment income (Kapitalertragsteuer) in the

amount of 25% (plus the solidarity surcharge in the amount of 5.5%,

in aggregate 26.375%, and, if applicable, church tax on this amount

for natural persons) will generally be withheld from the Recurring

Compensation Payment for the account of the KDH Shareholder and

passed on to the tax office. The withholding tax on investment

income will be withheld and passed on by the domestic payment

office (credit institution, financial services institution, securities

trading company or securities trading bank) which holds in custody

or administers the KDH Shares or by the collective custody bank for

securities which has been entrusted with collective custody of the

shares if this bank pays out the investment income to a foreign party.

The withholding tax on investment income is generally withheld and

passed on without regard to which amount the payment is actually

subject to taxation at the level of the KDH Shareholders.

The treatment of the withheld and passed on withholding tax on

investment income at the level of the KDH Shareholder depends on

whether the KDH Shares are allocated to private assets or business

assets of the relevant KDH Shareholder.


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(b) KDH Shares in private assets

The Recurring Compensation Payments for KDH Shares held as

private assets of natural persons are subject to income tax as

income from capital assets. The income tax on the Recurring

Compensation Payments is generally settled by the deduction of the

withholding tax on investment income (the so-called flat tax on

investment income (Abgeltungsteuer)). The Recurring Compensation

Payment must, therefore, generally no longer be declared in the

annual tax declaration of the KDH Shareholder. Income-related

expenses actually incurred which have an economic connection to

the Recurring Compensation Payments are not deductible. Only the

deduction of the saver's (tax-free) allowance of currently EUR 801

(EUR 1,602 in the case of jointly taxed spouses) is granted on all

private investment income. In certain situations (for example, in the

case of the existence of a non-assessment certificate of the tax

authorities or in the case of an exemption order in a sufficient

volume), the Recurring Compensation Payment can be paid out to

the KDH Shareholder without deducting withholding tax on

investment income, the solidarity surcharge or any applicable church

tax.

Upon the request of the KDH Shareholder, the respective Recurring

Compensation Payments can be made subject to the standard

income tax instead of taxation with the rate of the flat tax on

investment income of 25% if this leads to a lower tax burden for the

KDH Shareholder (most-favourable-tax-treatment test

(Günstigerprüfung)). Also in this event according to the current view

of the fiscal authorities (against the jurisdiction of fiscal courts) only

the saver's (tax-free) allowance of EUR 801 (EUR 1,602 in the case

of jointly assessed spouses) is granted, i.e. a deduction of the actual

income-related expenses is excluded; the decision of the highest

fiscal court is outstanding. The withholding tax on investment income

which is withheld and passed on is credited against the levied

income tax and any excess amount will be reimbursed.

(c) KDH Shares held as business assets

In the case of KDH Shares held as business assets, the withholding

tax on investment income which is withheld and passed on does not

have any conclusive effect. The KDH Shareholder must state the

Recurring Compensation Payments in the tax declaration. The

withholding tax on investment income which is withheld and passed

on is credited against the levied income tax or corporate income tax

and any excess amount will be reimbursed. Aside from this, the

taxation of the Recurring Compensation Payment depends on

whether the KDH Shareholder is a corporation, an individual

business person or a partnership (co-entrepreneur):


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(I) Corporations

After a reform of the rules on the taxation of dividends paid

on shares that are held in free float, Recurring Compensation

Payments to a corporation are subject to corporate income

tax in the full amount (plus the solidarity surcharge) if the

corporation has a direct participation of less than 10% in the

share capital of KDH AG (free-float participation

(Streubesitzbeteiligung)) at the beginning of the calendar

year.

If a corporation holds at least 10% of the share capital of

KDH AG at the beginning of the calendar year or if the

corporation initially acquires a participation of at least 10% or

does so by additional purchases during the course of the

calendar year, the Recurring Compensation Payment is

generally exempt from corporate income tax. However, 5% of

these revenues are deemed to be expenses which may not

be deducted as operating expenses and, thus, are subject to

taxation with corporate income tax (plus the solidarity

surcharge in the amount of 5.5% hereon). In exchange,

operating expenses which have actually been incurred that

have an economic connection to the Recurring

Compensation Payments can generally be fully deducted

(subject to other limits on deduction).

In both cases, the Recurring Compensation Payments are

also subject in full to trade tax unless the KDH Shareholder

has a participation of at least 15% in the share capital of KDH

AG (intercompany participation (Schachtelbeteiligung)) at the

beginning of the relevant tax period. In the latter case, the

exemption of 95% of the Recurring Compensation Payments

from corporate income tax applies accordingly for purposes

of trade tax.

(II) Individual business person

In the case of individual business persons (natural persons

(natürliche Personen)), 60% of Recurring Compensation

Payment is subject to the individual income tax rate (plus the

solidarity surcharge as well as any church tax). Expenses

related economically to the Recurring Compensation

Payment are accordingly only deductible in an amount of

60% (subject to other limits on deduction).

If the KDH Shares belong to the assets of a permanent

establishment of a commercial business of the KDH

Shareholder located in Germany, the Recurring

Compensation Payments are fully subject to trade tax if the

KDH Shareholder does not have a participation of at least

15% of the share capital of the company at the beginning of

the relevant tax period. The trade tax incurred on the


75

Recurring Compensation Payments, however, can be fully or

partially credited against the income tax of the KDH

Shareholder by means of a flat sum procedure. If the KDH

Shareholder holds at least 15% of the share capital of KDH

AG at the beginning of the tax period, the Recurring

Compensation Payments are fully exempt from trade tax.

(III) Partnerships

If the KDH Shares are held by a partnership that is

commercially active or has commercial qualifications (co-

entrepreneur), the income tax or corporate income tax (in

each case plus the solidarity surcharge as well as any church

tax in the case of natural persons) is only assessed at the

level of the respective partner. Accordingly, the taxation is

generally determined pursuant to the rules which would apply

if the partner were a direct KDH Shareholder (see sections

C.2.3.3(iii)(c)(I) and C.2.3.3(ii)(c)(II)). The participation in the

share capital of KDH AG will be proportionately attributed as

a direct participation to any corporation which is a partner in

a partnership with regard to the 10% participation threshold

for free float participations (see section C.2.3.3(ii)(c)(I)).

The Recurring Compensation Payment is subject to trade tax

at the level of the partnership if the partnership does not have

a participation of at least 15% in the share capital of KDH AG

at the beginning of the relevant tax period. If the partnership

holds at least 15% of the share capital of KDH AG at the

beginning of the tax period, the Recurring Compensation

Payment is generally not subject to trade tax. The situation

should be different to the extent that one or more

corporations have participations in the partnership. In this

event, 5% of the Recurring Compensation Payments are

subject to trade tax to the extent that they are attributable to

the corporation according to the share of the corporation(s) in

the profit of the partnership. Whether and to which extent the

new law on taxation of free float dividends (see section

C.2.3.3(ii)(c)(I)) will result in changes has not yet been finally

clarified. In the case of an interpretation according to the

specific wording of the provisions, there is certain support for

the view that the above described taxation of 5% of the

Recurring Compensation Payments will not apply to the

extent that the corporation indirectly has a participation of

less than 10% in the share capital of KDH AG through its

participation in the partnership. To the extent that the

Recurring Compensation Payment is subject to trade tax at

the level of the partnership, this will completely or partially be

credited against the income tax by means of the flat sum

procedure in the case of natural persons who have a

participation in the partnership.


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(iii) Taxation of the compensation at the level of KDH Shareholders

Pursuant to clause 5.1 of the Domination and Profit and Loss Transfer

Agreement, Vodafone Vierte Verwaltungs AG undertakes towards KDH

Shareholders who want to leave KDH AG due to the conclusion of the

Domination and Profit and Loss Transfer Agreement to purchase their KDH

Shares in exchange for a reasonable compensation in the amount of

EUR 84.53 for each KDH Share. The transfer of the KDH Shares to

Vodafone Vierte Verwaltungs AG in exchange for the compensation

constitutes a sale of the KDH Shares for the KDH Shareholders. A capital

gain is realized if the compensation minus any related costs of sale

exceeds the procurement costs for tax purposes or the book value for tax

purposes for the relevant KDH Shares at the respective KDH Shareholder.

If the compensation minus any costs of sale is less than the acquisition

costs or the book value of the KDH Shares at the KDH Shareholder, a

capital loss is incurred.

(a) Withholding tax on investment income

If a domestic paying office (credit institution, financial services

institution, securities trading company or securities trading bank)

holds the KDH Shares in custody or administers them or carries out

the sale and pays out or issues a credit for the investment income

("Domestic Paying Office"), it must generally withhold and pass on

from the capital gain the withholding tax on investment income in the

amount of 25% (plus the solidarity surcharge in the amount of 5.5%,

in aggregate 26.375%, and any church tax in the case of natural

persons) for the account of the KDH Shareholder.

The compensation for KDH Shares which are held by fully taxable

corporations is generally not subject to deduction of the withholding

tax on investment income. The withholding of tax on investment

income also does not occur in the case of capital gains which belong

to business revenues of a domestic business if this is declared to the

Domestic Paying Office using the officially required form.

Aside from this, the tax treatment of any capital gain or loss and the

issue of whether the withheld tax on investment income has

conclusive effect or whether it will be credited to the income tax or

corporate income tax obligation of the KDH Shareholder in the tax

assessment and, if applicable, reimbursed in the amount of any

excess, depends on whether the KDH Shares are attributable to the

private assets or business assets of the relevant KDH Shareholder:

(b) KDH Shares held as private assets

Profits from the sale of the KDH Shares are generally subject

to income tax without regard to the amount of the

participation. However, profits (and losses) are treated

differently depending on whether or not the KDH Shareholder

had a direct or indirect participation of at least 1% in the

share capital of KDH AG at any time in the last five years

prior to the transfer (a "Material Participation").


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The income tax on the capital gain for KDH Shareholders

who do not have a Material Participation is settled with the

deduction of the withholding tax on investment income by the

Domestic Paying Office, and the capital gain no longer has to

be declared in the income tax statement of the KDH

Shareholder. Capital losses can only be offset against profits

from the sale of shares in the current year or in a later year

(but not with other income from investments or other types of

income).

In certain cases (for example, if a non-assessment certificate

from the tax authorities or up to the amount of any issued

exemption order), KDH Shareholders can be paid the

compensation without deduction of withholding tax on

investment income and the solidarity surcharge (as well as

any church tax).

If the deduction of withholding tax on investment income

does not occur other than in these situations (e.g. due to lack

of a Domestic Paying Office), the KDH Shareholder must

state the capital gain in the shareholder’s income tax

declaration. However, the capital gain in these situations will

not be subject to the individual income tax rate of the KDH

Shareholder; instead, the assessment of the capital gain will

be at the rate for the flat tax on investment income of 25%

(plus the solidarity surcharge in the amount of 5.5%, in

aggregate 26.375%, and any church tax thereon). Also in this

case, the investment income minus the saver's (tax-free)

allowance of EUR 801 (EUR 1,602 in the case of jointly

assessed spouses) is determinative for the taxation, and a

deduction of any actually incurred income-relate expenses is

excluded.

Upon the request of the KDH Shareholder, the capital gain

can be subject to the income tax rate instead of taxation at

the rate of 25% for final tax on investment income if this

leads to a lower tax burden for the shareholder (most-

favourable-tax-treatment test (Günstigerprüfung)). In this

case, tax on investment income that has been withheld and

passed on will be credited against the levied income tax and

will be reimbursed in the amount of any excess. When

determining the income from investments, only a saver's (tax-

free) allowance of EUR 801 (or EUR 1,602 in the case of

jointly assessed spouses) can be deducted as income-relate

expenses. A deduction of the actual income-relate expenses

is according to the current view of the fiscal authorities

(against the jurisdiction of fiscal courts) excluded in this case;

the decision of the highest fiscal court is outstanding.

The deduction of withholding tax on investment income has

no conclusive effect if the KDH Shareholder has a Material


78

Participation. The gain from the sale of a Material

Participation is also not subject to the rate of 25% for the flat

tax on investment income. The partial income procedure

(Teileinkünfteverfahren) applies instead. According to this

procedure, only 60% of the capital gain is subject to income

tax at the individual income tax rate (plus the solidarity

surcharge and any church tax thereon). The withheld tax on

investment income that has been passed on will be credited

against the levied income tax and any excess will be

reimbursed. Only 60% of any capital losses and expenses in

connection with the sale can be claimed for tax purposes.

(c) KDH Shares held as business assets

If KDH Shares are held as business assets, the withholding tax on

capital income that has been passed on does not have any

conclusive effect. The KDH Shareholder must state the capital gain

from the sale of the KDH Shares in the shareholder’s tax declaration;

any initial withholding of tax on investment income will be credited

against the shareholder’s levied income tax or corporate income tax

obligation and any excess will be reimbursed. Aside from this, the

taxation of the capital gain depends on whether the KDH

Shareholder is a corporation, an individual business person or a

partnership (co-entrepreneur):

(I) Corporations

Profits from the sale of KDH Shares are generally exempt

from corporate income tax and trade tax for corporations.

However, 5% of the capital gain is deemed to be expenses

which cannot be deducted as business expenses for tax

purposes so that they are subject to corporate income tax

(plus the solidarity surcharge thereon) and trade tax. As a

result, a capital gain is generally 95% tax exempt. Capital

losses and other reductions in the profit economically related

to the sold KDH Shares cannot be taken into account for tax

purposes.

(II) Individual business person

To the extent that KDH Shares are part of the business

assets of an individual business person, 60% of the profit is

subject to taxation at the individual income tax rate (plus the

solidarity surcharge in the amount of 5.5% as well as any

church tax thereon). Accordingly, only 60% of the business

expenses economically related to the capital gains as well as

only 60% of any capital losses can be taken into account for

tax purposes.

If the KDH Shares belong to the domestic business assets of

a business of the KDH Shareholder, the capital gain is

generally also subject to trade tax, but only in an amount of


79

60%. The trade tax is completely or partially credited against

the income tax of the investor by way of a flat rate procedure.

(III) Partnerships

If the KDH Shares are held by a partnership that is

commercially active or has commercial qualifications (co-

entrepreneur), the income tax or corporate income tax (in

each case plus the solidarity surcharge as well as, in the

case of natural persons, any church tax thereon) is only

assessed at the level of the respective partner. Accordingly,

the taxation is generally in accordance with the rules which

would apply if the partner were a direct KDH Shareholder

(see sections C.2.3.3(iii)(c)(I) and C.2.3.3(iii)(c)(II)).

If the KDH Shares are attributed to a permanent

establishment located in Germany of a commercial business

of the partnership, the capital gain is generally also subject to

trade tax at the level of the partnership, generally in an

amount of 60%, to the extent that the capital gain is included

in the share of a natural person in the profit as a partner in

the partnership. To the extent that the capital gain are

contained in the share of the profit for a corporation as a

partner in the partnership, 5% of the capital gain is subject to

trade tax. Capital losses and other reductions in profit related

to the sold KDH Shares are not taken into account for

purposes of trade tax if they are attributable to the share of a

corporation in the profit, or 60% of these losses and

reductions are taken into account if they are attributable to

the profit share of a natural person. To the extent that natural

persons have a participation in the partnership, however, the

trade tax is completely or partially credited against their

income tax by way of a flat rate procedure.

2.3.4 Tax effects on KDH AG

The Domination and Profit and Loss Transfer Agreement between Vodafone Vierte

Verwaltungs AG and KDH AG has the consequence that the income of KDH AG

(prior to the transfer of profit) is generally no longer subject to corporate income tax

and trade tax at KDH AG, but, provided that the other legal requirements for a

consolidated tax group for purposes of corporate income tax and trade tax are

fulfilled and at the earliest starting on 1 April 2014, is instead attributed to Vodafone

Vierte Verwaltungs AG and ultimately taxed at the level of Vodafone GmbH

because a consolidated tax group for purposes of tax on income also exists in the

relationship of Vodafone Vierte Verwaltungs AG to Vodafone GmbH (. When

determining the income attributable for tax purposes under Section 14 KStG, the

profit prior to the transfer of profit is used as the basis. KDH AG owes corporate

income tax pursuant to Section 16 KStG on the payments of the Recurring

Compensation Payment to be made to the outside shareholders (plus the solidarity

surcharge thereon), despite the fact that Vodafone Vierte Verwaltungs AG and not

KDH AG owes the Recurring Compensation Payment and without regard to

whether the income of KDH AG attributable to Vodafone Vierte Verwaltungs AG is


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positive or negative. The basis for assessing corporate income tax (plus the

solidarity surcharge) is currently 20/17 of the Recurring Compensation Payments in

accordance with Section 16 KStG. For purposes of trade tax, and contrary to the

situation with respect to corporate income tax, the Recurring Compensation

Payment is in any event assessed at the level of Vodafone Vierte Verwaltungs AG

as the parent company of the consolidation tax group.

As a result of the consolidation for tax purposes, KDH AG is also liable pursuant to

Section 73 German General Tax Code (Abgabenordnung) for those taxes of

Vodafone Vierte Verwaltungs AG as the parent company of the consolidated tax

group, for which the consolidated tax group between Vodafone Vierte Verwaltungs

AG and KDH AG for purposes of corporate income tax and trade tax is relevant.

Claims for reimbursement of tax credits are treated equally with the taxes in this

regard.

During the term of the consolidated tax group, loss carry forwards of KDH AG for

purposes of corporate income tax and trade tax from the time prior to the

consolidated tax group cannot be credited against any potential positive income of

KDH AG which has to be attributed to the parent company in the consolidated tax

group. Furthermore, a loss carry forward of KDH AG for purposes of corporate

income tax from the time prior to the consolidated tax group cannot be credited

against any taxable income under Section 16 KStG. Any loss carry forwards from

the time prior to the consolidated tax group remain in place, but cannot be

deducted for the duration of the consolidated tax group.

3 Type and amount of the Recurring Compensation Payment and the

compensation under Sections 304, 305 AktG

3.1 Overview

Pursuant to Section 304 AktG, a domination and profit and loss transfer agreement must

contain a reasonable compensation for the outside KDH Shareholders by means of a

recurring payment of money related to the shares in the share capital. At least the annual

payment of that amount must be guaranteed or promised as compensation under Section

304 para. 1 sentence 1 AktG and Section 304 para. 2 sentence 1 AktG which could most

likely be distributed to the individual share as an average share in the profit according to

the earnings position of the company to date and its future prospects for earnings, taking

into account reasonable depreciation and adjustments in value but without establishing

other profit reserves.

According to Section 305 para. 1 AktG, a domination agreement or a domination and profit

and loss transfer agreement must also contain the obligation of the controlling company to

purchase the KDH Shares of an outside KDH Shareholder upon request in exchange for

reasonable compensation determined in the corporate group agreement. The reasonable

compensation must take into account the circumstances of the company at the time of

adopting the resolution by the general shareholders’ meeting of the controlled company

about the corporate group agreement in accordance with Section 305 para. 3 sentence 2

AktG. This applies accordingly for the Recurring Compensation Payment within the

meaning of Section 304 AktG. According to the order of the German Constitutional Court

(Bundesverfassungsgericht) dated 27 April 1999 (case no. 1 BvR 1613/94), an existing

stock exchange price cannot be ignored when setting the amount of the compensation


81

under Section 305 AktG. The stock exchange price generally represents the lowest amount

of the compensation to be paid to the shareholder.

The determinative date for the valuation of the enterprise and the determination of the

Recurring Compensation Payment and the compensation is the date of the general

shareholders’ meeting of KDH AG which will adopt the resolution about the Domination

and Profit and Loss Transfer Agreement, i.e. 13 February 2014.

The management boards of Vodafone Vierte Verwaltungs AG and KDH AG have issued a

mandate to Warth & Klein Grant Thornton AG, Wirtschaftsprüfungsgesellschaft,

Düsseldorf, in order to obtain support when setting the Recurring Compensation Payment

and the compensation, to issue an expert opinion on the enterprise value of KDH AG as of

the date of the general shareholders’ meeting on 13 February 2014 and the amount of the

reasonable Recurring Compensation Payment pursuant to Section 304 AktG and the

reasonable compensation pursuant to Section 305 AktG. The Valuation Expert conducted

the work required for the Valuation Report from 23 October 2013 to 19 December 2013.

The Valuation Expert submitted the Valuation Report on the determination of the enterprise

value of KDH AG as of 13 February 2014 and the reasonable Recurring Compensation

Payment (Section 304 AktG) and the compensation (Section 305 AktG) on 19 December

2013.

The Valuation Expert, in his function as a neutral expert within the meaning of IDW S 1,

concludes in his Valuation Report that the objectified enterprise value within the meaning

of IDW S 1 for KDH AG as of 13 February 2014 determined using the discounted earnings

method is EUR 6,706.2 million and that the value per share is EUR 75.76 for each KDH

Share based on 88,522,939 KDH Shares.

The Valuation Expert also concludes that the relevant average stock exchange price is

EUR 84.53 for each KDH Share. This is determined on the basis of a volume weighted

average stock exchange price for KDH Shares determined by BaFin for the three months

period prior to the announcement on 12 September 2013 of the intent of Vodafone Vierte

Verwaltungs AG to enter into a Domination and Profit and Loss Transfer Agreement with

KDH AG. Since the announcement was released after close of trading, the average stock

exchange price for KDH Shares determined by BaFin for the three months period including

the 12 September 2013 has been used as a basis. The Compensation thus amounts to

EUR 84.53 for each KDH Share.

Unlike regarding the Compensation, the principles developed by the German Constitutional

Court in relation to the stock exchange price forming the minimum level do not have to be

taken into account in relation to the determination of a fixed recurring compensation

payment as envisaged here (cf. Higher Regional Court of Stuttgart, decision dated 14

February 2008 – 20 W 10/06), therefore, the determination of the recurring compensation

payment generally has to be based on the capitalized earnings value. The Parties have,

however, agreed, for the benefit of the outstanding shareholders, to take as a basis for the

valuation not the value per share in the amount of EUR 75.76 as determined by the

Valuation Expert, but the offer price in the amount of EUR 84.50. The reasonable

Recurring Compensation Payment within the meaning of Section 304 AktG derived

therefrom amounts according to the determinations of the Valuation Expert on the basis of

the corporate income tax rate applicable at the time of conclusion of the contract, including

the solidarity surcharge, to a net amount of EUR 3.17 (EUR 3.77 before current corporate

income tax and the solidarity surcharge) for each KDH Share.


82

The complete version of the Valuation Report by the Valuation Expert on the determination

of the reasonable compensation (Section 305 AktG) and the reasonable Recurring

Compensation Payment (Section 304 AktG) dated 19 December 2013 is attached as

Annex 4 to this Contract Report and, thus, constitutes an integral part of this Contract

Report. The management board of KDH AG and the management board of Vodafone

Vierte Verwaltungs AG have completely incorporated the statements by the Valuation

Expert in the referenced Valuation Report as their own and include it in the substance of

this joint Contract Report.

In their own view, the management board of KDH AG and the management board of

Vodafone Vierte Verwaltungs AG consider the compensation for purposes of Section 305

AktG in the amount of EUR 84.53 for each KDH Share as well as a Recurring

Compensation Payment for purposes of Section 304 AktG in the present amount of

EUR 3.17 (EUR 3.77 before current income tax and solidarity surcharge) for each KDH

Share to be reasonable.

The Contract Report as well as the Valuation Report by the Valuation Expert will be

available at the website of KDH AG at

http://www.kabeldeutschland.com/hauptversammlung, together with the other documents

required by law starting on the date on which the general shareholders’ meeting of KDH

AG which will resolve on the approval of the Domination and Profit and Loss Transfer

Agreement is convened. The documents will also be available during the general

shareholders’ meeting. Reference is made to the invitation for the general shareholders’

meeting of KDH AG that will resolve about the approval of the Domination and Profit and

Loss Transfer Agreement with regard to the details.


Verwaltungs AG expressly point out for purposes of avoiding the risk of liabilities under

foreign legal systems that the planning of KDH AG constituting the basis of the enterprise

valuation by the Valuation Expert was prepared to the best of their knowledge but that

neither KDH AG, nor any other company of the Vodafone Group, can assume any liability

that the planning will actually be met.

3.2 Determination and setting of the amount of the reasonable Recurring Compensation

Payment under Section 304 AktG


Vodafone Vierte Verwaltungs AG grants a fixed annual Recurring Compensation Payment

to the outside KDH Shareholders starting in the fiscal year of KDH AG for which the

obligation to transfer profit under clause 2 of the Domination and Profit and Loss Transfer

Agreement takes effect, starting at the earliest as of the fiscal year 2014/2015 and lasting

for the duration of the Domination and Profit and Loss Transfer Agreement.

The annual Recurring Compensation Payment for holders of KDH Shares is EUR 3.17

(EUR 3.77 before current corporate income tax and solidarity surcharge) for each KDH

Share.

The reasons why the contracting parties have agreed on a fixed annual Recurring

Compensation Payment were described in section C.2.1.4(ii)(d). The contracting parties

have agreed on a gross amount in accordance with the case law of the BGH (order dated

21 July 2003, case no. II ZB 17/01 – "Ytong"). Reference is made on this point to the

explanation in section C.2.1.4.


83


Verwaltungs AG have agreed to determine the amount of the Recurring Compensation

Payment not on basis of the value per share in the amount of EUR 75.76 as determined by

the Valuation Expert, but on basis of the offer price in the amount of EUR 84.50. On this

basis the Valuation Expert concluded that the fixed annual Recurring Compensation

Payment under Section 304 AktG is currently EUR 3.17 (EUR 3.77 before current

corporate income tax and solidarity surcharge) for each KDH Share.

3.3 Determination and setting of the amount of the reasonable compensation under Section

305 AktG

Pursuant to clause 5 of the Domination and Profit and Loss Transfer Agreement, Vodafone

Vierte Verwaltungs AG is required to purchase the KDH Shares of any outside KDH

Shareholder upon request in exchange for the compensation (Section 305 para. 2 no. 3

AktG).

Each outside KDH Shareholder wanting to make use of the offer for the compensation

receives for each KDH Share a compensation in the amount of EUR 84.53 in cash in

accordance with clause 5.1 of the Domination and Profit and Loss Transfer Agreement.

The determinative reasons for the agreement on the compensation in the form of a cash

compensation are described in section C.2.1.5(ii).

The enterprise value of KDH AG determined by the Valuation Expert in his Valuation

Report in accordance with the discounted earnings method pursuant to IDW S 1 as

amended in 2008 as of 13 February 2014 is EUR 6,706.2 million. This results in a

proportionate value of EUR 75.76 for each KDH Share. This value is below the above-

mentioned volume weighted three months stock exchange price determined by the

Valuation Expert in the amount of EUR 84.53 for the KDH Share.

When determining the amount of the compensation, the Valuation Expert and the

contracting parties took into account the stock exchange price for the KDH Shares.

According to the case law of the German Constitutional Court of 27 April 1999 (case no. 1

BvR 1613/94), the stock exchange price represents the lowest limit for determining the

amount of the compensation to be offered to the outside KDH Shareholders.

The BGH (judgment dated 12 March 2001 – II ZB 15/00) specified the requirements of the

German Constitutional Court with regard to the relevance of the stock exchange price for

determining the reasonable compensation. In its judgment of 19 July 2010 (case no. ZB II

18/09 – "Stollwerck"), the BGH established additional requirements in this respect and

stated in further detail that the relevant stock exchange price must be determined on the

basis of a volume weighted average stock exchange price during a three month reference

period prior to the announcement of a structural measure.

Vodafone Group Plc issued a press release on 12 September 2013 about its intent to enter

into a Domination and Profit and Loss Transfer Agreement with KDH AG. Due to preceding

remarks of the Federal Cartel Office (Bundeskartellamt) and corresponding press coverage

it was to be expected at that point in time, that the EU Commission would approve the

merger of the Parties on 20 September 2013 and it had informed the Vodafone Vierte

Verwaltung AG thereof before the publication of the press release. Therefore, at this point

in time it was predominantly probable that the merger can be settled. The volume weighted

stock exchange price of the KDH Shares determined by BaFin pursuant to Section 5 para.

3 WpÜG Offering Regulation for the three months period prior to the publication of the


84

press release by Vodafone Vierte Verwaltungs AG after close of trading on 12 September

2013 is EUR 84.53 per KDH Share, whereby the three months period was calculated

including 12 September 2013.

The volume weighted stock exchange price does not have to be adjusted and extrapolated

to the date of the general shareholders’ meeting. According to the Stollwerck decision of

the BGH, such adjustment only has to occur if a longer period of time has passed between

the public announcement of the structural measure and the date of the general

shareholders’ meeting and if the development of the stock exchange prices shows that an

adjustment is appropriate. An adjustment of the volume weighted three months stock

exchange price in the present case, however, is not necessary because a period of

approximately five months lies between the announcement of the intent to enter into a

Domination and Profit and Loss Transfer Agreement (12 September 2013) and the date on

which the general shareholders’ meeting takes place (13 February 2014) which will resolve

about the approval for the Domination and Profit and Loss Transfer Agreement. This does

not constitute a longer period of time under the Stollwerck decision.

3.4 Contract audit

Please see section C.2.3.2(ii) for explanations on the contract audit.

Vodafone Vierte Verwaltungs AG

The management board

Düsseldorf, 20 December 2013

Dr. Joachim Peters Dr. Thomas Wandres

KDH AG

The management board

Unterföhring, 20 December 2013

Dr. Adrian von Hammerstein Dr. Manuel Cubero

Erik Adams Dr. Andreas Siemen


85

Annexes


Annex 1: List of the direct and indirect participations of KDH AG as of

20 December 2013

Name and registered office of the company Interest in

the share

capital

Kabel Deutschland Vertrieb und Service GmbH, Unterföhring 100.00%

Kabel Deutschland Kundenbetreuung GmbH, Unterföhring 100.00%

TKS Telepost Kabel-Service Kaiserslautern Beteiligungs-GmbH, Kaiserslautern 100.00%

TKS Telepost Kabel-Service Kaiserslautern GmbH & Co. KG, Kaiserslautern 100.00%

Kabel Deutschland Field Services GmbH, Nürnberg 100.00%

„Urbana Teleunion“ Rostock GmbH & Co. KG, Rostock 70.00%

Verwaltung „Urbana Teleunion“ Rostock GmbH, Rostock 50.00%

KABELCOM Braunschweig Gesellschaft für Breitbandkabel- Kommunikation mit

beschränkter Haftung, Braunschweig

100.00%

KABELCOM Wolfsburg Gesellschaft für Breitbandkabel- Kommunikation mit

beschränkter Haftung, Wolfsburg

100.00%

Kabel Deutschland Holding Erste Beteiligungs GmbH, Unterföhring 100.00%

Kabel Deutschland Holding Zweite Beteiligungs GmbH, Unterföhring 100.00%

Kabel Deutschland Dritte Beteiligungsgesellschaft mbH, Unterföhring 100.00%

Kabel Deutschland Fünfte Beteiligungsgesellschaft mbH, Unterföhring 100.00%

Kabel Deutschland Sechste Beteiligungs GmbH, Unterföhring 100.00%

Kabel Deutschland Siebte Beteiligungs GmbH, Unterföhring 100.00%

Kabel Deutschland Achte Beteiligungs GmbH, Unterföhring 100.00%

Kabel Deutschland Neunte Beteiligungs GmbH, Unterföhring 100.00%

Kabelfernsehen München Servicenter Gesellschaft mit beschränkter Haftung –

Beteiligungsgesellschaft, München 24.00%

Kabelfernsehen München Servicenter GmbH & Co. KG, München 30.22%

AFK Aus- und Fortbildungs GmbH für elektronische Medien 2.00%


Annex 2: Material subsidiaries of Vodafone Group Plc as of 31 March 2013

Name of the company

Country of seat /

incorporation Capital share1

Vodafone GmbH2 Germany 100%

Vodafone Limited England 100%

Cable & Wireless Worldwide plc. England 100%

Vodafone Czech Republic a.s. Czech Republic 100%

Vodafone Magyarorszag Mobile Tavkozlesi Zartkoruen Mukodo

Reszvenytarsasag3 Hungary 100%

Vodafone Ireland Limited Ireland 100%

Vodafone Libertel B.V. Netherlands 100%

Vodafone Romania S.A. Romania 100%

Vodafone Telekomunikasyon A.S. Turkey 100%

Vodafone España S.A.U. Spain 100%

Vodafone Albania Sh.A. Albania 99.9%

Vodafone-Panafon Hellenic Telecommunications Company S.A. Greece 99.9%

Vodafone Malta Limited Malta 100%

Vodafone Portugal-Comunicações Pessoais, S.A.4 Portugal 100%

Vodafone India Limited5 India 84.5%

Vodacom Group Limited South Africa 65%

Vodacom Congo (RDC) s.p.r.l.6, 7, 8

Democratic Republic of

Congo 33.2%

Vodacom Tanzania Limited6, 8 Tansania 42.3%


VM, S.A.6, 9 Mozambique 55.3%

Vodacom Lesotho (Pty) Limited6 Lesotho 52%

Vodacom Business Africa Group (PTY) Limited6 South Africa 65%

Vodafone Egypt Telecommunications S.A.E. Egypt 54.9%

Ghana Telecommunications Company Limited Ghana 70%

Vodafone New Zealand Limited New Zealand 100%

Vodafone Qatar Q.S.C.8 Qatar 23%

Vodafone Group Services Limited10 England 100%

Vodafone Sales & Services Limited11 England 100%

Vodafone GmbH Germany 100%

Vodafone Holdings Europe S.L.U. Spain 100%

Vodafone Europe B.V. Netherlands 100%

Vodafone International Holdings B.V. Netherlands 100%

Vodafone Investments Luxembourg S.a.r.l. Luxembourg 100%

Vodafone Procurement Company S.a.r.l. Luxembourg 100%

Vodafone Roaming Services S.a.r.l. Luxembourg 100%

Vodafone Americas Inc.12 USA 100%

Comments:

1 The percentage of shares held by Vodafone Group Plc as of 31 March 2013 have been rounded to the nearest tenths

position.

2 The name of Vodafone D2 GmbH was changed to Vodafone GmbH on 1 February 2013.

3 Operates under Vodafone Hungary Mobile Telecommunications Company Limited.

4 38.6% of the issued share capital of Vodafone Portugal-Comunicações Pessoais, S.A. are held by Vodafone Group Plc

directly.

5 As of 31 March 2013, the group, via wholly-owned subsidiaries, directly held a 64.4% interest in Vodafone India Limited

(VIL) and indirectly held a 20.1% interest via companies in which the group holds less than 50%. In total, the shares


amounted therefore to 84.5%. The group has call-options for the acquisition of participations in companies, that indirectly

hold further participations of 4.5% in VIL. The shareholders of these companies furthermore have put options; in case of an

exercise of such put options, Vodafone would be obliged to acquire further shares in the company. In case these options

are exercised, which can only occur in accordance with the provisions of Indian law applicable at the time of exercising the

options, the group would directly and indirectly hold a participation of 89.0% in VIL.

6 The participation indirectly exists via Vodacom Group Limited. The indirect participation is calculated based on the

participation of 65.0% in Vodacom.

7 The share capital of Vodacom Congo (RDC) s.p.r.l. exists of 1,000,000 ordinary shares and 75,470,588 preference

shares.

8 The group owns rights through which it can dominate the strategic and operative decisions of Vodafone Qatar Q.S.C.,

Vodacom Congo (RDC) s.p.r.l. and Vodacom Tanzania Limited.

9 The share capital of VM, S.A. is divided into 60,000,000 ordinary shares and 548,350,646 preference shares.

10 The share capital is divided into 790 ordinary shares and one deferred share; 100% of the shares are indirectly held by

Vodafone Group Plc.

11 Vodafone Sales & Services Limited is directly held by Vodafone Group Plc.

12 The share capital is divided into 395,834,251 ordinary shares and 1.65 million repayable preference shares of category D und E, whereby 100% of the ordinary shares are indirectly held by Vodafone Group Plc.


Annex 3: Domination and Profit and Loss Transfer Agreement dated 20 December 2013 together with the comfort letter from Vodafone Group Plc dated 18 December 2013


1


(Beherrschungs- und Gewinnabführungsvertrag)

between

(1) Vodafone Vierte Verwaltungs AG

having its registered office in Düsseldorf, registered in the commercial register

(Handelsregister) at the Local Court (Amtsgericht) Düsseldorf under company number

HRB 70886,

- herein referred to as "Vodafone Vierte Verwaltungs AG" -

and

(2) Kabel Deutschland Holding AG

having its registered office in Unterföhring, registered in the commercial register

(Handelsregister) at the Local Court (Amtsgericht) Munich under company number HRB

184452,

- herein referred to as "Kabel Deutschland Holding AG" -

1 Management Control and Instructions

1.1 With effect as of the date of this agreement entering into force and in any event not earlier

than 1 April 2014, Kabel Deutschland Holding AG submits the management control

(Leitung) of its company to Vodafone Vierte Verwaltungs AG. Vodafone Vierte Verwaltungs

AG is accordingly entitled to issue instructions (Weisungen) to the management board of

Kabel Deutschland Holding AG with regard to the management control of the company.

The management board of Kabel Deutschland Holding AG is required to comply with the

instructions of Vodafone Vierte Verwaltungs AG. Without prejudice to this right to issue

instructions (Weisungsrecht), the management board of Kabel Deutschland Holding AG is

responsible for the management and representation of Kabel Deutschland Holding AG.

1.2 Vodafone Vierte Verwaltungs AG is not entitled to issue an instruction to the management

board of Kabel Deutschland Holding AG to amend, maintain or terminate this Agreement.

1.3 Any instructions require text form (Textform) or, if the instructions are issued orally, they

shall be confirmed in text form without undue delay.


2

2 Transfer of Profit

2.1 Kabel Deutschland Holding AG undertakes to transfer its entire annual profit

(Gewinnabführung), as determined in accordance with commercial law, to Vodafone Vierte

Verwaltungs AG. Subject to establishing or dissolving reserves in accordance with Clauses

2.2 and 2.3 of this Agreement below, the maximum amount permissible under section 301

German Stock Corporations Act (Aktiengesetz – "AktG"), as amended from time to time,

shall be transferred.

2.2 If and only to the extent permissible under commercial law and as economically justified by

reasonable commercial judgement and with the consent of Vodafone Vierte Verwaltungs

AG, Kabel Deutschland Holding AG may allocate parts of its annual profit to other profit

reserves (section 272 para. 3 German Commercial Code (Handelsgesetzbuch – "HGB")).

2.3 Upon the written request of Vodafone Vierte Verwaltungs AG, Kabel Deutschland Holding

AG shall dissolve other profit reserves within the meaning of section 272 para. 3 HGB

established during the course of this Agreement and use the proceeds to compensate for

any annual loss or transfer the proceeds as profit. Other reserves or profits carried forward

from the period prior to the term of this Agreement may neither be transferred as profit to

Vodafone Vierte Verwaltungs AG nor be used by Kabel Deutschland Holding AG to

compensate for any annual loss.

2.4 The obligation to transfer the annual profit applies for the first time to the entire profit for

the fiscal year of Kabel Deutschland Holding AG beginning on 1 April 2014 or for whichever

subsequent fiscal year of Kabel Deutschland Holding AG in which this Agreement becomes

effective. The claim of Vodafone Vierte Verwaltungs AG for a transfer of profit under this

Clause 2 becomes due upon expiration of the last day of the fiscal year of Kabel

Deutschland Holding AG for which the respective claim exists. The claim must be fulfilled

within four weeks after determination of the annual financial statements of Kabel

Deutschland Holding AG. Interest shall accrue in accordance with statutory law for the time

between the due date of the claim for the transfer of the profit and its fulfilment.

Claims based on any default in payment remain unaffected.

3 Assumption of Losses

3.1 An assumption of any annual losses (Verlustübernahme) of Kabel Deutschland Holding AG

by Vodafone Vierte Verwaltungs AG is agreed pursuant to and in accordance with the

provisions in section 302 AktG, as amended from time to time.

3.2 The obligation to assume losses applies for the first time for the entire fiscal year of Kabel

Deutschland Holding AG beginning on 1 April 2014 or for whichever subsequent fiscal year

of Kabel Deutschland Holding AG in which this Agreement becomes effective. The claim of

Kabel Deutschland Holding AG with regard to the assumption of any annual losses under

this Clause 3 becomes due upon expiration of the last day of a fiscal year of Kabel




between the due date of the claim for the assumption of the annual losses and its

fulfilment.



3

4 Recurring Compensation Payment

4.1 Vodafone Vierte Verwaltungs AG undertakes to pay to the outside shareholders of Kabel

Deutschland Holding AG as adequate recurring compensation an annual cash

compensation ("Recurring Compensation Payment") (Ausgleich) during the term of this

Agreement. The Recurring Compensation Payment is due on the first banking day

following the ordinary general shareholders’ meeting of Kabel Deutschland Holding AG for

any respective preceding fiscal year falling during the term of this Agreement, but in any

event within eight months following expiration of the relevant fiscal year.

4.2 For each full fiscal year of Kabel Deutschland Holding AG the Recurring Compensation

Payment for each bearer share of Kabel Deutschland Holding AG, representing a

mathematical portion of EUR 1.00 in the share capital ("Kabel Deutschland Holding AG

Share”) in each case amounts to a gross sum of EUR 3.77 ("Gross Recurring

Compensation Payment") (Bruttoausgleichsbetrag) minus the amount of any corporate

income tax and the solidarity surcharge in accordance with the respective tax rate

applicable for these taxes for the relevant fiscal year. Based on the situation at the time of

conclusion of this Agreement, the Gross Recurring Compensation Payment is subject to a

deduction of 15% corporate income tax plus 5.5% solidarity surcharge, i.e. EUR 0.60.

Based on this the Recurring Compensation Payment amounts to EUR 3.17 for each Kabel

Deutschland Holding AG Share for a full fiscal year based on the situation at the time of

conclusion of this Agreement.

4.3 The Recurring Compensation Payment is granted for the first time for the fiscal year of

Kabel Deutschland Holding AG for which the claim of Vodafone Vierte Verwaltungs AG for

the transfer of profit under Clause 2 of this Agreement becomes effective.

4.4 If this Agreement ends during a fiscal year of Kabel Deutschland Holding AG or if Kabel

Deutschland Holding AG establishes an abbreviated fiscal year (Rumpfgeschäftsjahr)

during the term of this Agreement, the Gross Recurring Compensation Payment is reduced

proportionately pro rata temporis for the relevant fiscal year.

4.5 If the share capital of Kabel Deutschland Holding AG is increased from the reserves in

exchange for the issuance of new shares, the Gross Recurring Compensation Payment for

each Kabel Deutschland Holding AG Share is reduced to such an extent that the total

amount of the Gross Recurring Compensation Payment remains unchanged. If the share

capital of Kabel Deutschland Holding AG is increased by cash contributions and/or

contributions in kind, the rights under this Clause 4 also apply for the shares subscribed to

by outside shareholders in such capital increase. The beginning of such entitlement

pursuant to this Clause 4 of the new shares corresponds to the dividend entitlement set by

Kabel Deutschland Holding AG when issuing the new shares.

4.6 If judicial appraisal proceedings (Spruchverfahren) regarding a judicial determination of the

adequate Recurring Compensation Payment are initiated and the court adjudicates a

legally binding higher Recurring Compensation Payment for each Kabel Deutschland

Holding AG Share, the outside shareholders are entitled to demand a corresponding

payment in addition to the Recurring Compensation Payment for each Kabel Deutschland

Holding AG Share which they have already received, even if they have already received

the Compensation pursuant to Clause 5 of this Agreement. All other outside shareholders

will be treated in the same way if Vodafone Vierte Verwaltungs AG undertakes to pay a

higher Recurring Compensation Payment to an outside shareholder of Kabel Deutschland


4

Holding AG in a court settlement (gerichtlicher Vergleich) for the purpose of avoiding or

settling judicial appraisal proceedings.

5 Compensation

5.1 Vodafone Vierte Verwaltungs AG undertakes upon demand of each outside shareholder of

Kabel Deutschland Holding AG to purchase such shareholder's Kabel Deutschland Holding

AG Shares in exchange for a cash compensation in the amount of EUR 84.53 for each

Kabel Deutschland Holding AG Share (“Compensation”) (Abfindung).

5.2 The obligation of Vodafone Vierte Verwaltungs AG under Clause 5.1 of this Agreement is

for a limited period of time. The time limitation period ends two months after the date on

which the registration of this Agreement in the commercial register of Kabel Deutschland

Holding AG has been announced pursuant to section 10 HGB. An extension of the time

limitation period pursuant to section 305 para. 4 sentence 3 AktG as a result of a motion for

determination of the adequate Recurring Compensation Payment or Compensation by a

court pursuant to section 2 of the German Act on Special Court Proceedings

(Spruchverfahrensgesetz) remains unaffected; in this event, the time limitation period ends

two months after the date on which the decision on the last motion ruled on has been

announced in the Federal Gazette (Bundesanzeiger).

5.3 The transfer of the Kabel Deutschland Holding AG Shares for payment of the

Compensation is free of costs for the outside shareholders of Kabel Deutschland Holding

AG.

5.4 If the share capital of Kabel Deutschland Holding AG is increased using corporate funds in

exchange for the issuance of new shares prior to the expiration of the time limitation period

set forth in Clause 5.2 of this Agreement, the Compensation for each Kabel Deutschland

Holding AG Share is reduced accordingly to such an extent that the total amount of the

Compensation remains unchanged. If the share capital of Kabel Deutschland Holding AG

is increased prior to the expiration of the time limitation period set forth in Clause 5.2 of this

Agreement by means of cash contributions and/or contributions in kind, the rights under

this Clause 5 also apply for the shares subscribed to by the outside shareholders in such

capital increase.

5.5 If judicial appraisal proceedings regarding a judicial determination of the adequate

Compensation are initiated and the court adjudicates a legally binding higher

Compensation for each Kabel Deutschland Holding AG Share, the outside shareholders

are entitled to demand a corresponding additional payment to the Compensation for each

Kabel Deutschland Holding AG Share, even if they have already received the

Compensation stipulated in this Agreement. All other outside shareholders will be treated in

the same way if Vodafone Vierte Verwaltungs AG undertakes to pay a higher

Compensation to an outside shareholder of Kabel Deutschland Holding AG in a court

settlement for the purpose of avoiding or settling judicial appraisal proceedings.

5.6 If this Agreement is terminated by notice of termination by Vodafone Vierte Verwaltungs AG

or Kabel Deutschland Holding AG at a point in time when the time limitation period set forth

in Clause 5.2 of this Agreement for accepting the Compensation pursuant to Clause 5.1 of

this Agreement has already expired, each outside shareholder of Kabel Deutschland

Holding AG at that time is entitled to sell his Kabel Deutschland Holding AG Shares held at

the time of the termination of this Agreement to Vodafone Vierte Verwaltungs AG in

exchange for payment of the Compensation set forth in Clause 5.1 of this Agreement for


5

each Kabel Deutschland Holding AG Share and Vodafone Vierte Verwaltungs AG is

required to purchase the shares of each outside shareholder upon request of such outside

shareholder. If the Compensation set forth in Clause 5.1 of this Agreement for each Kabel

Deutschland Holding AG Share is increased by a legally binding decision in judicial

appraisal proceedings or in a court settlement for the purpose of avoiding or settling

judicial appraisal proceedings, Vodafone Vierte Verwaltungs AG will purchase the shares

of the outside shareholders under the preconditions set forth in sentence 1 in exchange for

payment of the amount established for each Kabel Deutschland Holding AG Share in the

judicial appraisal proceedings or the court settlement. The right to sell pursuant to this

Clause 5.6 is for a limited period of time. The time limitation period ends two months after

the date on which the registration of the termination of this Agreement in the commercial

register of Kabel Deutschland Holding AG is announced pursuant to section 10 HGB.

Clause 5.3 and Clause 5.4 of this Agreement apply accordingly.

6 Effectiveness, Term and Termination of this Agreement

6.1 This Agreement requires the consent of the general shareholders’ meeting of Kabel

Deutschland Holding AG as well as the consent of the general shareholders’ meeting of

Vodafone Vierte Verwaltungs AG. This Agreement becomes effective upon registration in

the commercial register of Kabel Deutschland Holding AG.

6.2 This Agreement is concluded for an indefinite period of time. This Agreement can be

terminated for the first time as of the end of the fiscal year of Kabel Deutschland Holding

AG which ends at least five years (Zeitjahre) after the beginning of the fiscal year of Kabel

Deutschland Holding AG for which the claim of Vodafone Vierte Verwaltungs AG under

Clause 2 of this Agreement becomes effective. The term of this Agreement is extended

subsequently in each case by one year unless this Agreement is terminated by one of the

Parties by giving three months' notice prior to the expiration.

6.3 Notwithstanding the preceding Clause 6.2 of this Agreement, this Agreement can be

terminated for just cause (wichtiger Grund) without compliance with any notice period. Just

cause exists in particular if just cause for purposes of tax law for the termination of this

Agreement exists.

6.4 Any notice of termination must be in writing.

7 Comfort Letter

7.1 Vodafone Group Plc with seat in Newbury, Great Britain, indirectly holds 100% of the

shares in Vodafone Vierte Verwaltungs AG and in this capacity as indirect shareholder, has

without joining this Agreement as a party provided the comfort letter attached for

information purposes to this Agreement as an Annex. In this comfort letter Vodafone Group

Plc undertakes without limitation and irrevocably to ensure, that Vodafone Vierte

Verwaltungs AG will be managed and financially equipped in a way that Vodafone Vierte

Verwaltungs AG is at all times able to fulfil all its obligations arising from or in connection

with this Agreement completely and in time. This applies in particular to the obligation to

compensate losses pursuant to section 302 AktG.

7.2 In addition, Vodafone Group Plc undertakes without limitation and irrevocably vis-à-vis the

outside shareholders of Kabel Deutschland Holding AG that Vodafone Vierte Verwaltungs

AG fulfils all its obligations towards them arising from or in connection with this Agreement

completely and in time, in particular with respect to the Recurring Compensation Payment


6

and the Compensation. To that extent the outside shareholders of Kabel Deutschland

Holding AG have an own claim according to section 328 para. 1 German Civil Code

(Bürgerliches Gesetzbuch – BGB) directed at payment to Vodafone Vierte Verwaltungs

AG. Vodafone Group Plc’s liability pursuant to the two preceding sentences does, however,

only apply if Vodafone Vierte Verwaltungs AG does not fulfil its obligations towards the

outside shareholders of Kabel Deutschland Holding AG arising from or in connection with

this Agreement completely and in time and Vodafone Group Plc does not comply with its

obligation to equip Vodafone Vierte Verwaltungs AG as described in the preceding Clause

7.1 of this Agreement.

8 Further Provisions

8.1 The applicable law is German law.

8.2 If any provision of this Agreement is or becomes invalid, or if this Agreement does not

contain a necessary provision, the validity of the remaining provisions of this Agreement

shall not be affected. In place of the invalid provision, or in order to remedy an omission in

this Agreement, a legally permissible provision will be deemed to have been agreed which

corresponds as far as possible to what the Parties intended or would have intended in

accordance with the intent and purpose of this Agreement if they had been aware of the

invalidity of the relevant provision or the omission. Furthermore, when interpreting this

Agreement, the provisions contained in sections 14 to 19 of the German Corporate Income

Tax Act (Körperschaftsteuergesetz – KStG) as amended from time to time shall be taken

into account.


Düsseldorf, this 20 December 2013

Dr Joachim Peters Dr Thomas Wandres

Member of the management board Member of the management board

Kabel Deutschland Holding AG

Unterföhring, this 20 December 2013

Dr. Adrian v. Hammerstein Dr. Andreas Siemen

Chairman of the management board Member of the management board

Annex: Comfort Letter of Vodafone Group Plc


1

[Letterhead of Vodafone Group Plc]

London, 18 December 2013


Betastraße 6-8

80774 Unterföhring

Comfort Letter (Patronatserklärung)

Vodafone Vierte Verwaltungs AG, Düsseldorf, registered in the commercial register


HRB 70886, intends to enter into a domination and profit and loss transfer agreement

(Beherrschungs- und Gewinnabführungsvertrag) with Kabel Deutschland Holding AG,

Unterföhring, registered in the commercial register at the Local Court Munich under company

number HRB 184452, with Kabel Deutschland Holding AG as the controlled and profit transferring

company ("Domination and Profit and Loss Transfer Agreement"). Vodafone Group Plc, a

company incorporated and operating under the laws of England and Wales, registered under

register no. 1833679, with its registered office at Vodafone House, The Connection, Newbury,

Berkshire, RG14 2FN, Great Britain, indirectly holds 100% of the shares in Vodafone Vierte

Verwaltungs AG. Vodafone Group Plc hereby makes the following declarations without joining the

Domination and Profit and Loss Transfer Agreement as a party:

1. Vodafone Group Plc undertakes without limitation and irrevocably to ensure, that Vodafone

Vierte Verwaltungs AG will be managed and financially equipped in a way that Vodafone

Vierte Verwaltungs AG is at all times able to fulfill all its obligations arising from or in

connection with the Domination and Profit and Loss Transfer Agreement completely and in

time. This applies in particular to the obligation to compensate losses pursuant to

section 302 German Stock Corporations Act (Aktiengesetz – AktG).

2. Vodafone Group Plc undertakes without limitation and irrevocably vis-à-vis the outside

shareholders of Kabel Deutschland Holding AG that Vodafone Vierte Verwaltungs AG

fulfills all its obligations towards them arising from or in connection with the Domination and

Profit and Loss Transfer Agreement completely and in time, in particular with respect to the

recurring compensation payment (Ausgleich) and the cash compensation (Abfindung). To

that extent the outside shareholders of Kabel Deutschland Holding AG have an own claim

according to section 328 para. 1 German Civil Code (Bürgerliches Gesetzbuch – BGB)

directed at payment to Vodafone Vierte Verwaltungs AG. Vodafone Group Plc’s liability

pursuant to the two preceding sentences does, however, only apply if Vodafone Vierte

Verwaltungs AG does not fulfill its obligations towards the outside shareholders of Kabel

Deutschland Holding AG arising from or in connection with the Domination and Profit and

Loss Transfer Agreement completely and in time and Vodafone Group Plc does not comply

with its obligation to equip Vodafone Vierte Verwaltungs AG pursuant to Section 1 of this

Comfort Letter.


2

This Comfort Letter is subject to the law of the Federal Republic of Germany.

Vodafone Group Plc

A. Halford

Title: Chief Financial Officer


Annex 4: Expert Opinion on the Equity Value of KDH AG by Warth & Klein Grant

Thornton AG dated 19 December 2013


EXPERT REPORT

on the equity value of

Kabel Deutschland Holding AG,

Unterföhring,

and on the determination of the reasonable compensation pursuant to

§ 305 German Stock Corporations Act [Aktiengesetz, "AktG"] as well as

the reasonable guaranteed dividend pursuant to § 304 AktG

as of 13 February 2014

This English version of our Expert Report is only the translation of the German

Expert Report „Gutachtliche Stellungnahme über den Unternehmenswert der

Kabel Deutschland Holding AG, Unterföhring, und zur Ermittlung der

angemessenen Abfindung gemäß § 305 AktG sowie zum angemessenen

Ausgleich gemäß § 304 AktG zum 13 Februar 2014“. In a matter of doubt only

the German version is valid.

- I -


T a b l e o f C o n t e n t s

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

Page

A. MANDATE AND CONDUCT OF THE MANDATE 1

B. SUBJECT OF THE VALUATION 4

I. Legal situation 4

II. Economic situation 7

1. Subject of the business activity 7

2. Earnings and financial situation 11

3. Market and competition 15

III. Tax situation 22

C. VALUATION METHODOLOGY 23

I. Discounted Earnings Value and Discounted Cash Flow 23

II. Liquidation value and substance value 24

III. Comparison oriented value 25

IV. Stock exchange price 25

V. Price for the takeover bid and synergies 26

D. VALUATION OF KDH AG 27

I. Discounted earnings value 27

1. Valuation date 27

2. Determination of the expected net distributions 28

a) Analysis of the results in the past 28

b) Analysis of the operating planning of KDH AG 29

c) Earnings after interest and taxes 49

d) Sustained profit 51

e) Expected net distributions 53

3. Determination of the Capitalization Interest Rate 54

a) Risk free rate 54

b) Risk premium 55

c) Deduction for growth 67

4. Discounted earnings value of the operational business 69

- II -


T a b l e o f C o n t e n t s

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

Page

5. Special values 70

6. Equity value and value per share 71

II. Reasonableness of the equity value 71

1. Trading Multipliers 71

2. Transaction Multipliers 72

III. Takeover bid price and synergies 73

1. Takeover bid price 73

2. Synergies reflected in the takeover bid price 74

3. Non-reflection of these synergies within the discounted earnings value 74

4. Classification of genuine synergies within takeover bid 75

IV. Stock exchange price 76

V. Compensation 81

VI. Guaranteed dividend 82

1. Determination of the average share in the profit 82

2. Consideration of corporate income tax according to the case law of the BGH 84

E. FINAL COMMENT 85

- III -


L i s t o f A n n e x e s ---------------------------------------------

Annex 1 Final draft of the Domination and Profit and Loss Transfer Agreement between Vodafone Vierte Verwaltungs AG and KDH AG dated 18.12.2013

Annex 2 General Terms and Conditions of Engagement for Accountants and Accounting Firms in the version dated 1 January 2002

- IV -


L i s t o f A b b r e v i a t i o n s

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

adj. adjusted AFK AFK Aus- und Fortbildungs GmbH für elektronische Medien AG German Stock Corporation [Aktiengesellschaft] AktG German Stock Corporations Act [Aktiengesetz] ARD Consortium of public broadcasters in Germany

[Arbeitsgemeinschaft der öffentlich-rechtlichen Rundfunkanstalten der Bundesrepublik Deutschland]

ARPU Average Revenue per User Art. Article ARTE Association Relative à la Télévision Européenne BaFin German Financial Supervisory Authority [Bundesanstalt für

Finanzdienstleistungsaufsicht] BB German professional journal in the field of law, economics and

taxes [Betriebs Berater] BCA Business Combination Agreement BGH German Federal Court of Justice [Bundesgerichtshof] BVerfG Federal Constitutional Court [Bundesverfassungsgericht] BvR Register reference of the Federal Constitutional Court

[Registerzeichen des Bundesverfassungsgerichts] BWA Broadband Wireless Access ca. circa CAGR Compound Annual Growth Rate CAPM Capital Asset Pricing Model CDAX Composite DAX DAX German Stock Market Index [Deutscher Aktienindex] DCF Discounted Cash Flow DPLTA Domination and Profit and Loss Transfer Agreement DSL Digital Subscriber Line DTAG Deutsche Telekom AG DTK DTK Deutsche Telekabel GmbH DVR Digital Video Recorder e.V. registered association [eingetragener Verein] e.g. exempli gratia (for example) EBIT Earnings before Interest and Taxes EBITDA Earnings before Interest and Taxes, Depreciation and

Amortization EBT Earnings before Taxes EStG Income Tax Act [Einkommensteuergesetz] et seq. et sequens (and the following pages) EU European Union EUR Euro

- V -



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

FAUB Technical Committee for Business Valuation and Economics [Fachausschuss für Unternehmensbewertung und Betriebswirtschaft des IDW]

FTE Full-time equivalent GB Great Britain GewStG Trade Tax Act [Gewerbesteuergesetz] GG German Constitution [Grundgesetz] GmbH German company with limited liability [Gesellschaft mit

beschränkter Haftung] GSM Global System for Mobile Communications HD High Definition HFC Hybrid Fiber Coax Network [Hybrid-Glasfaser-Koaxial-Netz] HGB Commercial Code [Handelsgesetzbuch] HRB Commercial Register [Handelsregister – Abteilung B] i.e. id est IAS International Accounting Standard IDW Institute of Accountants in Germany – Institute of Public Auditors

in Germany, Incorporated Association [Institut der Wirtschaftsprüfer in Deutschland e.V.]

IDW S 1 IDW Standards: Principles on the Conduct of Enterprise Valuations dated 02 April 2008

IFRS International Financial Reporting Standards Inc. Incorporation incl. including IP Internet Protocol IPO Initial Public Offering IPTV Internet Protocol Television KCB KABELCOM Braunschweig Gesellschaft für Breitbandkabel-

Kommunikation mbH KCW KABELCOM Wolfsburg Gesellschaft für Breitbandkabel-

Kommunikation mbH KDFS Kabel Deutschland Field Services GmbH KDK Kabel Deutschland Kundenbetreuung GmbH KDVS Kabel Deutschland Vertrieb und Service GmbH KDH Kabel Deutschland Holding KG Limited Partnership [Kommanditgesellschaft] KMS GmbH Kabelfernsehen München Servicenter GmbH –

Beteiligungsgesellschaft – KMS KG Kabelfernsehen München Servicenter GmbH & Co. KG KStG Corporation Tax Act [Körperschaftsteuergesetz] LTIP Long Term Incentive Plan mbH with limited liability [mit beschränkter Haftung] Mbit/ s Megabit per second MDAX Mid-Cap-DAX

- VI -



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

mEUR million Euro Mio. million MSCI Morgan Stanley Capital International no. number NV/N.V. Naamloze Vennootschap (stock corporation according to Dutch

and Belgian law) NZG Professional journal in the field of law [Neue Zeitschrift für

Gesellschaftsrecht] n/a not available OLG Court of appeals [Oberlandesgericht] p. page p. a. per annum para. paragraph Plc Public limited company PLN Polish Złoty RGU Revenue-Generating Unit RTL Radio Télévision Luxembourg / RTL Television Rz. point [Randziffer] SA/S. A. Société anonyme SD Standard Definition SEPA Single Euro Payments Area SLA Service Level Agreement sp. special TC Tele Columbus GmbH TKS TKS Telepost Kabel-Service Kaiserslautern GmbH & Co. KG TV Television Tz. note [Textziffer] UMTS Universal Mobile Telecommunications System Unitymedia Unitymedia Kabel BW GmbH US United States (of America) USA United States of America USD US-Dollar Urbana GmbH Urbana Teleunion Rostock GmbH Urbana KG Urbana Teleunion Rostock GmbH & Co. KG VDSL Very High Speed Digital Subscriber Line VoD Video-on-Demand vs. versus w/o without WACC Weighted Average Cost of Capital WLAN Wireless Local Area Network WpÜG German Takeover Act [Wertpapiererwerbs- und

Übernahmegesetz] XETRA Exchange Electronic Trading (electronic trading system of

Deutsche Börse AG)

- VII -



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

ZDF Second German Television [Zweites Deutsches Fernsehen] ZIP Professional journal in the field of law [Zeitschrift für

Wirtschaftsrecht und Insolvenzpraxis]

The calculations shown in this report were calculated to several places behind the decimal point, although they are shown only with one place after the decimal point for the sake of

convenience. For this reason, the addition of the values in the tables can lead to differences with the shown subtotals and totals.

- 1 -


A. MANDATE AND CONDUCT OF THE MANDATE

Kabel Deutschland Holding AG, Unterföhring, and Vodafone Vierte Verwaltungs AG, Düsseldorf, mandated us in a letter dated 23 October 2013 to conduct an enterprise valuation of

Kabel Deutschland Holding AG,

Unterföhring,

(hereinafter also referred to as "KDH AG" or the "Company")

and to determine the amount of the reasonable compensation pursuant to § 305 AktG as

well as the reasonable guaranteed dividend pursuant to § 304 AktG.

The reason for the valuation is the planned conclusion of a Domination and Profit and Loss Transfer Agreement pursuant to § 291 AktG (hereinafter, also the "DPLTA") between Vodafone Vierte Verwaltungs AG as the controlling company and KDH AG as

the controlled company. The extraordinary general shareholders meeting of KDH AG is supposed to resolve about the conclusion of the DPLTA on 13 February 2014.

On 24 June 2013 Vodafone Vierte Verwaltungs AG (formerly Vodafone Vierte Verwaltungsgesellschaft mbH) announced to submit a voluntary public takeover bid to

acquire the shares of KDH AG for a price of EUR 84.50. Vodafone Vierte Verwaltungs AG declared in the offer document for the voluntary public takeover bid published on 30 July 2013 that it has the intent, subject to fulfilling the relevant legal

prerequisites, to conclude a DPLTA with KDH AG. The announcement was made on 12 September 2013 that the minimum threshold for acceptance of 75 % contemplated in the takeover bid was achieved. The transaction was subject to merger control

proceedings. On 20 September 2013 the relevant EU competition authority officially announced that there are no antitrust concerns against the takeover of KDH AG by

Vodafone Vierte Verwaltungs AG. Correspondingly, the executive board of Vodafone Vierte Verwalungs AG announced on the 20 September 2013 that all necessary closing conditions were satisfied. Simultaneously, the intent to conclude a DPLTA was again

affirmed by the bidder by approaching the executive board of KDH AG for the purpose of commencing contract negotiations about the conclusion of a DPLTA. The closing of the takeover bid was announced on 14 October 2013.

We conducted our work after being mandated in the months of October 2013 until the date of signature of this Expert Report in the offices of KDH AG in Unterföhring and in

our offices in Düsseldorf.

The basis for our work consisted especially of the following documents.

� Final draft of the DPLTA between Vodafone Vierte Verwaltungs AG and KDH AG dated 18.12.2013;

- 2 -


� Final draft of the joint report of the executive board of Vodafone Vierte Verwaltungs AG and the executive board of KDH AG pursuant to § 293a AktG on the DPLTA (the "Contract Report") dated 18.12.2013;

� Letter of comfort issued by Vodafone Group Plc;

� Business plan of KDH AG for the fiscal years 2013/14 until 2018/19; adopted by the executive board of KDH AG on 25 November 2013;

� Annual financial reports of KDH AG for the fiscal years 2010/11 to 2012/13 as well as the interim notification of KDH AG on the second quarter of the fiscal year 2013/14;

� Audit reports for the annual financial statements and the management report of KDH AG for the fiscal years 2010/11 to 2012/13 from Ernst & Young GmbH

Wirtschaftsprüfungsgesellschaft;

� Audit reports about the consolidated financial statements and the consolidated management report of KDH AG for the fiscal years 2010/11 to 2012/13 by Ernst &

Young GmbH Wirtschaftsprüfungsgesellschaft;

� Excerpt from the commercial register for KDH AG dated 16 December 2013;

� Articles of association of KDH AG in the version registered in the commercial register on 23 July 2013;

� Determination of the weighted average German stock exchange price for the stock of KDH AG in accordance with the WpÜG from the Federal Financial Supervisory Agency [Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin"] dated 17 December2013

for the relevant three-month-period ending on 12.09.2013.

In addition, we refer to publicly available information as well as capital market data.

We were openly and willingly provided information about the economic and tax circumstances of KDH AG as well as the planned accounts.

We received a declaration of completeness from the executive board of Vodafone Vierte Verwaltungs AG and KDH AG stating that all information which is relevant for the

valuation was correctly and completely provided.

We expressly point out that we have not conducted any audit of the accounts, the annual

and consolidated financial statements as well as the management reports or the management of KDH AG and the companies in the KDH Group. Such audits are not

the subject of our valuation work. The consistency of the submitted individual consolidated financial statements as well as the management reports of KDH AG as well

- 3 -


as the companies in the KDH Group for the fiscal years that have been completed and are shown in this Report with the respective legal provisions has been fully certified by the respective auditors of the financial statements. We accordingly assume the accuracy

of the documents presented to us with regard to the completeness of the annual financial statements and compliance with accounting provisions.

Our work is based on the statement of the Institute of Accountants in Germany – Institute of Public Auditors in Germany, Incorporated Association [Institut der

Wirtschaftsprüfer in Deutschland e.V.], Düsseldorf, IDW Standard: Principles on the Conduct of Enterprise Valuations [Grundsätze zur Durchführung von Unternehmensbewertungen] dated 02 April 2008 ("IDW S 1 2008"). We also took into account the guidelines developed in

the case law.

We are issuing this Expert Report as neutral experts.

If there are material changes in the period between the completion of our work on the date of signing this Expert Report and the date on which the resolution of the

extraordinary shareholders meeting of KDH AG is adopted on 13 February 2014 which affect the assessment of the compensation and guaranteed dividend, these changes would

have to be subsequently taken into account.

Our mandate is based on the attached "General Terms and Conditions of Engagement

for Accountants and Accounting Firms in the version dated 1 January 2002". Our liability is limited under clause 9 para. 2 of these General Terms and Conditions of Engagement to EUR 4 million for individual damages caused by negligence, except for damages

resulting from injury to life, physical integrity and health. With regard to the relevance of our mandate for the determination of the compensation and the guaranteed dividend, the

amount of EUR 10 million takes the place of the maximum amount of EUR 4 million set forth in Clause 9 para. 2 of the General Terms and Conditions of Engagement due to the importance of our mandate for the setting of the compensation and the guaranteed

dividend. The above maximum amount of liability is only available in total once for all beneficiaries of any claims. No. 1 para. 2 and no. 9 of the General Terms and Conditions of Engagement are determinative in the relationship to third parties.

The Expert Report has been prepared in connection with the intended conclusion of a DPLTA pursuant to § 291 AktG and will be published as an attachment to the

contractual agreement. Any additional disclosure of our Expert Report to third parties can only occur subject to the express consent from our side. The consent to distribute the Expert Report to third parties will only be granted under the restriction that the particular

third party and Warth & Klein Grant Thornton have concluded a liability agreement in written form.

- 4 -


B. SUBJECT OF THE VALUATION

I. Legal situation

Commercial register, articles of association and participations

KDH AG has its registered office in Unterföhring and is registered under HRB 184452 in the commercial register at the Local Court [Amtsgericht] Munich. The fiscal year of KDH AG begins on 1 April of a calendar year and ends on 31 March of the following

calendar year. The articles of association of KDH AG are valid in the version registered in the commercial register on 23 July 2013.

The direct and indirect shareholdings of KDH AG as of 31 March 2013 are shown below:

According to information from the Company, two companies have been established since

31 March 2013 in which KDH AG holds 100 % of the shares: Kabel Deutschland Holding Erste Beteiligungs GmbH and Kabel Deutschland Holding Zweite Beteiligungs GmbH. Both companies are shelf companies and are not operational.

KDH AG is the top management and holding company in the KDH Group. As the parent company, it performs the typical responsibilities of a holding company, for

example, the strategic development of the Group as well as providing services and financing for its affiliated enterprises.

The business activity of the KDH Group is primarily conducted by the operational Kabel Deutschland Vertrieb und Service GmbH ("KDVS GmbH"), TKS Telepost Kabel-

Service Kaiserslautern GmbH & Co. KG ("TKS KG"), KABELCOM Wolfsburg Gesellschaft für Breitbandkabel-Kommunikation mit beschränkter Haftung

Group Companies as of 31.03.2013 Share

KDH AG in %

Kabel Deutschland Vertrieb und Service GmbH 100.00%

Kabel Deutschland Kundenbetreuung GmbH 100.00%

TKS Telepost Kabel-Service Kaiserslautern Beteiligungs-GmbH 100.00%

TKS Telepost Kabel-Service Kaiserslautern GmbH & Co. KG 100.00%

Kabel Deutschland Field Services GmbH 100.00%

"Urbana Teleunion" Rostock GmbH & Co. KG 70.00%

Verwaltung "Urbana Teleunion" Rostock GmbH 50.00%

KABELCOM Braunschweig Gesellschaft für Breitbandkabel-Kommunikation mit beschränkter Haftung 100.00%

KABELCOM Wolfsburg Gesellschaft für Breitbandkabel-Kommunikation mit beschränkter Haftung 100.00%

Kabel Deutschland Dritte Beteiligungsgesellschaft mbH 100.00%

Kabel Deutschland Fünfte Beteiligungsgesellschaft mbH 100.00%

Kabel Deutschland Sechste Beteiligungs GmbH 100.00%

Kabel Deutschland Siebte Beteiligungs GmbH 100.00%

Kabel Deutschland Achte Beteiligungs GmbH 100.00%

Kabel Deutschland Neunte Beteiligungs GmbH 100.00%

Kabelfernsehen München Servicenter Gesellschaft mit beschränkter Haftung - Beteiligungsgesellschaft - 24.00%

Kabelfernsehen München Servicenter GmbH & Co. KG 30.22%

AFK Aus- und Fortbildungs GmbH für elektronische Medien 2.00%

- 5 -


("KCW GmbH") as well as KABELCOM Braunschweig Gesellschaft für Breitbandkabel-Kommunikation mit beschränkter Haftung ("KCB GmbH").

KDVS GmbH is the owner and operator of the operational cable television business and represents the main part of the business operations of KDH Group. The subject of the business activity of KDVS GmbH is activity in all areas of television, telecommunications

and multi-media and services related to these areas.

TKS KG is a service provider which provides especially telecommunications products

such as TV, internet and telephone and telecommunications services for English language customers in Germany. It is especially active on the American military bases in Germany.

TKS Telepost Kabel-Service Kaiserslautern Beteiligungs-GmbH (“TKS GmbH“) is the general partner of TKS KG.

KCW GmbH and KCB GmbH construct and operate cable connections, especially for the transmission of television and radio signals at the network level 4 (building connections) for end customers. In addition, the companies provide back channel

services in cooperation with KDVS GmbH such as internet and telephone products as well as other digital services. The companies Kabel Deutschland Kundenbetreuung

GmbH ("KDK GmbH") and Kabel Deutschland Field Services GmbH ("KDFS GmbH") are internal service provider companies in the KDH Group.

The internal services of KDK GmbH include rendering services especially for customer service, call centers and sales support. KDFS GmbH is active as a regional complex service provider and performs services and carries out works of all kinds in the field of

cable networks in this regard, especially services for maintenance and correction of problems as well as services for setting up interactive services. KDFS GmbH also

handles the procurement and sale of the material components required for performing the services.

In addition, KDH AG has participations in "Urbana Teleunion" Rostock GmbH & Co. KG ("Urbana KG") and its general partner "Urbana Teleunion" Rostock GmbH ("Urbana GmbH").

The business activity of Urbana KG covers the development, production, administration, maintenance and servicing of telecommunications systems as well as all related business.

The management "Urbana Teleunion" Rostock GmbH ("Urbana GmbH") has a participation in Urbana KG as the general partner without a capital contribution. The

activity of Urbana GmbH is limited to management activities within the KG.

A minority stake is held in Kabelfernsehen München Servicenter GmbH & Co. KG

("KMS KG") and its general partner, Kabelfernsehen München Servicenter Gesellschaft mit beschränkter Haftung - Beteiligungsgesellschaft - ("KMS GmbH").

- 6 -


The activity of KMS KG includes especially the construction and operation of broadband distribution equipment in Munich and in parts of Southern Bavaria as well as the acquisition, servicing and administration of the corresponding customers. KMS GmbH

conducts the business and represents KMS KG in accordance with the partnership agreement of KMS KG. KMS GmbH does not carry out any own business activity other than the management for KMS KG.

The companies Kabel Deutschland Dritte Beteiligungsgesellschaft mbH, Kabel

Deutschland Fünfte Beteiligungsgesellschaft mbH, Kabel Deutschland Sechste Beteiligungs GmbH, Kabel Deutschland Siebte Beteiligungs GmbH, Kabel Deutschland Achte Beteiligungs GmbH and Kabel Deutschland Neunte Beteiligungs GmbH are non-

operational shelf companies. AFK - Aus- und Fortbildungs GmbH für elektronische Medien is a charitable company which was established on the initiative of the Bavarian State Central Office for New Media [Bayerische Landeszentrale für neue Medien]. The subject

of the company is developing concepts for training and continuing education measures in the field of electronic media, especially for television and radio.

Share capital, number of shares, shareholders

The share capital of KDH AG in the amount of EUR 88,522,939 is divided into 88,522,939 no par value bearer shares. KDH AG does not hold any treasury stock.

At the completion of our work Vodafone Vierte Verwaltungs AG holds 67,780,374 shares in KDH AG; this corresponds to a shareholding of 76.57 % in the share capital of

KDH AG.

- 7 -


II. Economic situation

1. Subject of the business activity

According to the currently valid articles of association, the subject of the enterprise is

working in all areas involving television, telecommunications and multi-media and services related to these areas.

The Company is authorized to take all actions and measures and can conduct all transactions which directly or indirectly are appropriate for serving the corporate purpose. The Company can also establish, acquire and participate in other enterprises of the same

or related kind in Germany and foreign countries as well as manage such companies or limit itself to the management of the participation. The Company can completely or

partially spin off its operations to affiliated enterprises. The Company can also establish branches and permanent establishments in Germany and foreign countries.

The cable network is the foundation of the business for the KDH Group and forms the foundation for all other products and services. When measured in terms of residential units that can be connected to a cable network and overall clients, according to its own

assessment KDH Group can be considered as the largest cable network operator in Germany. With more than 15 million residential units which can be connected to a cable

network, the cable network of KDH Group is most likely also the largest within one single country throughout Europe. As of 30 September 2013, 13.9 million of the 15 million residential units that can be connected, are equipped with back-channel-ready

connections. Of these, 11.6 million can currently be provided with internet- and/or phone services from KDH AG. That’s about 30 % of all German households.

The network coverage of the KDH Group in Germany is shown in the following illustration. The territory for the activity of KDH Group in Germany is marked with dark color. The German states of Hesse, North Rhine-Westphalia and Baden-Wuerttemberg

are displayed with a light color because KDH Group is not active in these regions.

- 8 -


With its current cable network in place, Germany has an infrastructure which is ideally

suited for transporting broadcast signals and other large volumes of data. The development of the network goes back to the year 1982 when the former German Federal

Post Office [Deutsche Bundespost] began to supply the Federal Republic with comprehensive coverage with so-called broadband cable. The proportion of German households which are connected to this network equals around 70 %.

The cable network in Germany is organized into four so-called network levels. The network levels 1 and 2 provide the signal transport from the broadcaster to the regional

distribution networks. The network level 3 extends from the regional distribution points or head-end stations to the households’ cellar or their connection points in front of the

house door. Network level 4 is the portion of the network from the transfer point to the cable socket in the apartment.

KDH Group operates the network level 3 in its regional area of activity and also supplies customers directly in these territories, i.e. at the network level 4.

- 9 -


KDH Group uses the cable network to offer its customers services of various kinds in the areas of television and telecommunications, including analog, digital and high definition

television as well as video-on-demand ("VoD”), digital video recording (“DVR”), pay-TV, broadband internet and telephone service using the TV cable network and with one cellular telephone services partner.

The activities of KDH AG are organized into two business segments: TV as well as Internet and Telephone.

The TV business covers basic cable and premium TV-products and -services. The basic cable business consists of analog and digital TV and radio services which are offered

especially using individual contracts with end customers or group contracts with building owners and residential companies as well as contracts with network level 4 operators.

Premium TV products such as pay-TV, digital video recording and access to high definition television are distributed to basic cable customers as supplemental services.

The Internet and Telephone business segment includes broadband internet access, fixed line telephone service and cellular telephone service, mobile data services as well as additional options. Broadband internet access and fixed line telephone service is provided

to households which can be connected to the upgraded KDH network. A large portion of the new customers in the Internet and Telephone segment subscribed to combination

products which cover both services. The mobile telephone and data services are offered by KDH Group using a contractual relationship with a cellular telephone operator.

The allocation of the sales revenues to the two business segments TV as well as Internet and Telephone for the fiscal years 2005/06 to 2012/13 is shown in the following graph:

Ne

two

rkle

ve

l

Content production and network supply

Anlalog and digital signal processing

and encryption

Regional signal distribution

In-house signal distribution

Ne

two

rkle

ve

l 2

Ne

two

rk le

ve

l 3

Ne

two

rkle

ve

l 4

- 10 -


Source: annual financial reports of KDH

From the allocation of sales between the business segments, it becomes clear that the Internet and Telephone division has gained importance compared to the TV division in the shown period. The portion of total sales of the Internet and Telephone division in

the fiscal year 2005/06 was 1.0 % and increased to 34.9 % over the course of time until the fiscal year 2012/13.

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

mE

UR

Revenue shares of TV- and Internet and Phone business

TV business Internet and Phone business

- 11 -


2. Earnings and financial situation

The earnings situation of KDH AG under IFRS (consolidate ed financial statements)

according to the information for the fiscal years 2010/11 to 2012/13 published and certified in the annual financial reports is shown in the following table:

KDH AG generated in the last fiscal years corporate group profit of EUR -45.3 million

(2010/11), EUR 159.4 million (2011/12) as well as 246.8 million (2012/13).

The main reasons for the positive development of the group profit in the fiscal year

2011/12 compared to the previous year were the dynamic development of sales in the Internet and Telephone division which generated growth in sales of 16.2 % compared to

the previous year. Costs and expenses were also able to be reduced which is mainly attributable to lower expenses for depreciation by extending the useful life of certain assets as well as the expiration of the useful life of the customer base which was originally

acquired by KDH AG in 2003. In addition, the interest expense was able to be lowered compared to the fiscal year 2010/11. This decrease resulted from a reorganization of debt that was carried out in the fiscal years 2010/11 and 2011/12.

In the fiscal year 2012/13, KDH AG was again able to show a major increase in the

group profit. As in the previous year, the Internet and Telephone division was one of the main components for this success with an increase in sales of 17.9°%. The costs and expenses of KDH AG increased mainly as a result of an increase in the personnel costs

which resulted essentially from the permanent employment of temporary workers at the call centers of the KDH-Group. However, the general increase in costs was able to be compensated in part by lower expenses for depreciation. The interest expense compared

Profit and loss statement 2010/11 2011/12 2012/13

KDH AG mEUR mEUR mEUR

Revenues 1,598.9 1,699.7 1,829.9

Cost of services rendered -801.5 -784.3 -835.6


Selling expenses -467.4 -424.7 -414.2

General and adminstrative expenses -135.4 -130.0 -166.8

EBIT 207.0 372.9 426.0

Interest income 4.3 2.9 3.3

Interest income -272.7 -201.6 -206.0

Income from associates 4.1 1.6 2.3

EBT -57.3 175.8 225.6

Income tax 12.0 -16.4 21.2

Net profit/loss -45.3 159.4 246.8

Non-controlling interest 0.0 0.0 0.0

for information only: depreciation and amortization -490.2 -395.9 -360.9

for information only: EBITDA 697.1 768.8 786.9

for information only: EBITDA margin 43.6% 45.2% 43.0%

* The non-controlling interest for the fiscal years 2011/12 - 2012/13 are 781.10 EUR, 1,225.70 EUR

* and 1,254.70 EUR, respectively. As the figures are presented in mEUR * the table shows 0,0.

- 12 -


to the previous year was virtually constant. Overall, the increase in costs and expenses compared to the growth in sales in the fiscal year 2012/13 was disproportionately low.

KDH AG published the profit and loss statement under IFRS based on the cost of sales method. The profit and loss statement in the internal reporting, especially the business planning, however, is prepared according to the total costs method. In order to have

better comparability of the planning for the profit and loss statement with the observed developments in the past, the following illustration shows the earnings position of

KDH AG (corporate group) according to the internal organizational structure based on the total costs method. Expenses for the Long Term Incentive Plan (“LTIP”) are shown separately from personnel expenses. Furthermore, the adjusted EBITDA displayed by

the Company within its annual financial report is shown for information purposes only:

The financial situation of KDH AG under IFRS (consolidated financial statements) according to information for the fiscal years 2010/11 to 2012/13 published and certified

in the annual financial reports is as follows:

Profit and loss statement 2010/11 2011/12 2012/13


actual actual actual

Revenues 1,598.9 1,699.7 1,829.9

Cost of material and services -421.6 -450.9 -491.1

Personnel expenses -182.0 -179.4 -199.6

LTIP -17.4 -20.5 -64.1

Other expenses -293.1 -292.2 -300.9


EBITDA 697.1 768.8 786.9

Depreciation and amortization -490.2 -395.9 -360.9

EBIT 207.0 372.9 426.0

Financial result -264.3 -197.1 -200.3

EBT -57.3 175.8 225.6

Income tax 12.0 -16.4 21.2

Net profit/loss -45.3 159.4 246.8

for information only: adapted EBITDA 729.1 795.5 862.3

- 13 -


The balance sheet total of KDH AG increased in the fiscal year 2011/12 compared to the previous year from EUR 2,014.3 million to EUR 2,159.8 million. Compared to the

previous year, the main differences resulted from increases in cash- and cash equivalents. The related balances at credit institutions were pledged under the Senior Credit Facility and its amendments as security for the benefit of the corresponding lending banks as of

31 March 2012. There was a decrease in the capital reserve on the equity liabilities side in the fiscal year. This results primarily from the cancelation of redeemed treasury stock. At

the end of the fiscal year 2011/12 KDH AG reported a net accumulated loss on the balance sheet of EUR 1,691.2 million which resulted in negative equity capital. The main reason for the net accumulated loss can be seen in the accounting treatment of the

foundation of KDH AG in the year 2004 under IFRS and the application of a “reverse acquisition” according to IFRS 3 and IAS 18.

Balance sheet 31.03.2011 31.03.2012 31.03.2013


Cash and cash equivalents 28.3 133.8 609.5

Trade receivables 83.0 88.8 131.2

Inventories 16.2 31.5 51.9

Receivables from tax authorities 0.4 0.3 1.9

Other current financial assets 9.8 15.6 16.4

Prepaid expenses 12.0 12.3 12.0

Current assets 149.8 282.3 823.0

Intangible assets 673.2 630.4 641.4

Property and equipment 1,158.5 1,198.0 1,308.9

Equity investment in associates 13.2 8.1 7.7

Deferred tax assets 1.4 0.6 38.5

Other non-current financial assets 0.0 7.8 7.0

Prepaid expenses 18.3 32.6 32.0

Non-current assets 1,864.5 1,877.5 2,035.5

Total assets 2,014.3 2,159.8 2,858.5

Subscribed capital 90.0 88.5 88.5

Capital reserve 126.5 68.1 68.1

Legal reserve 0.0 0.0 8.9

Cash flow hedge reserves 0.0 -43.0 -51.1

Asset revaluation surplus 1.0 0.8 0.6

Accumulated deficit -1,850.8 -1,691.2 -1,585.8

Non-controlling interest 0.3 0.0 0.0

Equity -1,633.0 -1,576.8 -1,470.9

Current financial liabilities 208.5 27.9 40.1

Trade payables 266.2 287.9 312.6

Liabilites to associates 0.0 0.0 0.0

Other current provisions 34.5 21.7 8.5

Liabilities due to income taxes 85.2 72.8 58.1

Other current liabilities 106.1 88.9 93.7

Deferred income 238.6 237.1 227.8

Current liabilities 939.1 736.3 740.9

Non-current financial liabilities 2,546.2 2,831.9 3,383.1

Deferred tax liabilites 64.6 41.3 1.1

Provisions for pensions 44.6 49.0 54.8

Other non-current provisions 23.2 24.8 33.1

Other non-current liabilities 28.9 51.4 115.1

Deferred income 0.7 1.9 1.2

Non-current liabilites 2,708.2 3,000.3 3,588.5

Total equity and liabilities 2,014.3 2,159.8 2,858.5

- 14 -


The total balance sheet for the fiscal year 2012/13 compared to the previous year increased substantially from EUR 2,159.8 million to EUR 2,858.5 million. This increase resulted especially from increased cash- and cash equivalents resulting from the issuance

of senior notes in June 2012 as well as increases of senior secured notes in July 2012. The long-term debt increased in a corresponding manner on the liabilities side of the balance sheet. An additional increase on the assets side results from the increase in receivables for

delivery of goods and services compared to the previous year. This results mainly from the increase of revenue generating units (“RGU”) and the corresponding revenue

recognition of accrued receivables as well as from receivables towards broadcasters established under public law for signal feeds which were outstanding as of 31 March 2013 due to ongoing proceedings. Due to the positive annual result, the net accumulated loss

on the balance sheet has been reduced to EUR 1,585.8 million at the end of the fiscal year 2012/13.

- 15 -


3. Market and competition

KDH Group offers television as well as internet and telephone services through its cable

network. In light of this business model the German cable market and the competitors active in that market are discussed in the analysis of the market and competition. Furthermore, the market and competition for the two business segments, TV- as well as

internet and telephone services are then analyzed.

The cable network is the main foundation of the business of KDH Group and constitutes

the basis for all additional products and services. Until the end of the 1990s, the entire German cable network was owned by Deutsche Telekom, which was required by the EU

Commission to completely separate its telecommunications- and cable television networks. In order to create more competition, Deutsche Telekom accordingly had to sell its TV-cable networks. In preparation of this sale, Deutsche Telekom outsourced its

broadband cable operations to affiliated companies.

The cable networks in North Rhine Westphalia and Baden-Wuerttemberg were sold to

the American investor Callahan, whereas the British investor Gary Klesch acquired the Hessian cable network. Through these transactions the companies ish for the cable

network in North Rhine Westphalia and iesy for the cable network in Hesse originated, which were later merged to Unitymedia and KabelBW.

Nowadays, cable network operators in addition to KDH Group are Unitymedia Kabel BW ("Unitymedia”), Tele Columbus ("TC”), DTK Deutsche Telekabel ("DTK”), PrimaCom, pepcom Unternehmensgruppe (“pepcom”) as well as several local suppliers.

Unitymedia, which is part of Liberty Global, provides broadband services in the States of North Rhine-Westphalia, Hesse and Baden-Wuerttemberg. TC consists of several regional cable network operators and supplies customers in the core regions of Berlin,

Brandenburg, Saxony, Saxony-Anhalt and Thuringia as well as in certain key regions in Western Germany. DTK is active throughout the country. PrimaCom operates its cable

network with a regional emphasis in Berlin, Brandenburg, Mecklenburg-Vorpommern, Saxony, Saxony-Anhalt and Thuringia as well as some major regions in Western Germany. pepcom comprises of twelve regional cable operators running more than 100 local and

regional networks.

Beside other cable network operators that offer their products and services in the same

footprint, the competitors for the cable network operators are Deutsche Telekom, other DSL-providers (in particular United Internet, Telefónica O2 and Vodafone) and regional

city network operators whose services directly compete with the offers from the cable network operators.

- 16 -


TV Market

The households owning a television set constitute the relevant sales market for TV

products in Germany. The supply of these households with TV products occurs through various means of transmission that compete with each other. These are: satellite, cable, terrestrial broadcasting and IPTV (Internet). TV reception by means of satellite or by

means of a terrestrial broadcast signal is generally free of charge in Germany, if the corresponding reception equipment exists. Compared to this, reception by cable or IPTV

is subject to charges.

The actual and expected allocation of the television households to the various

transmission methods for the year 2006 to 2017 is shown in the following table:

Source: German Entertainment and Media Outlook 2013, p. 77.

The number of households that receive their television signal by satellite has increased substantially in recent years. Their portion in the number of television households in the

year 2012 was 45.9 %, whereby a further increase to 48.0 % is expected by the year 2017. The reasons for the increased portion of satellite households can be seen in the largely free of charge services and the wide variety of the offered programs.

The increase in the satellite households especially coincides with the decrease in cable households. The number of cable households in the year 2012 was 44.6 % of the

television households and for the first time less than the number of satellite households. A further decreasing number of cable households is expected in the future. The reason

for this is the competition with other transmission channels combined with a stagnating overall market (number of television households) which has the result of decreasing the number of cable customers. The cable suppliers are trying to counter this trend by

bundling products such as TV, internet and telephone and by selling additional products to existing customers.

The share of terrestrial households as well as IPTV households currently has a subordinate relevance in the overall market. The share of households receiving terrestrial

Transmission pathes 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

TV homes actual actual actual actual actual expected expected expected expected expected

m m m m m m m m m m

Satellite homes 16.2 16.2 16.7 17.1 17.6 17.8 18.0 18.1 18.3 18.4

Change n/a 0.0% 3.1% 2.4% 2.9% 1.1% 1.0% 0.9% 0.8% 0.6%

Share of TV homes 43.0% 42.9% 43.7% 44.8% 45.9% 46.4% 46.9% 47.3% 47.7% 48.0%

Cable homes 18.4 18.6 18.2 17.9 17.1 16.7 16.4 16.2 16.0 15.8

Change n/a 1.1% -2.4% -1.7% -4.2% -2.2% -1.7% -1.5% -1.2% -1.0%

Share of TV homes 48.8% 49.2% 47.5% 46.8% 44.6% 43.6% 42.9% 42.3% 41.7% 41.3%

Terrestrial homes 2.6 2.0 2.0 1.7 2.0 1.9 1.8 1.7 1.6 1.5

Change n/a -23.1% 0.0% -15.0% 17.6% -3.5% -6.7% -7.2% -7.2% -6.5%

Share of TV homes 6.9% 5.3% 5.2% 4.5% 5.2% 5.0% 4.7% 4.4% 4.0% 3.8%

IPTV homes 0.5 1.0 1.4 1.5 1.6 1.9 2.1 2.3 2.5 2.6

Change n/a 85.2% 35.0% 11.1% 9.3% 14.6% 12.8% 9.9% 7.3% 4.0%

Share of TV homes 1.4% 2.6% 3.5% 3.9% 4.3% 4.9% 5.5% 6.1% 6.5% 6.8%

TV homes 37.7 37.8 38.2 38.1 38.3 38.3 38.4 38.3 38.3 38.3

Change n/a 0.3% 1.1% -0.2% 0.5% 0.00 0.00 0.00 0.00 0.00

- 17 -


broadcast signals in the year 2012 was around 5.2 % and is expected to decrease to 3.8 % by the year 2017. One reason for the expected downward trend includes the decision of RTL to stop terrestrial broadcasting towards the end of 2014. 1 However, there is a

positive trend with the number of IPTV households. The share of households using IP based television transmission was 4.3 % in 2012; a share of 6.8 % is expected by the year 2017.

A major development in the field of TV is the increasing digitalization of German

television households which is shown in the following graph:

Source: die medienanstalt (2013): Digitalization Report 2013, p. 35.

While 32.3 % and 10.3 % of the television households were not digitalized or not completely digitalized in the year 2011, their portion decreased to only 19.2 % and 7.4 % of the television households in the middle of 2013.

The analysis of the digitalization of the transmission channels shows a differentiated picture. As a result of shutting down distribution with analog terrestrial television

broadcasting at the end of 2008 and analog satellite transmission in April 2012, these two transmission channels have become fully digitalized in the meantime. Contrary to this, cable households currently can still receive analog television signals, whereby the portion

of digital television households increased from 16.2% in 2007 to 55.9% in the middle of 2013.

In order to further advance the digitalization of the television households, the media companies have increasingly supported requests to cancel the existing basic encryption in

cable in recent years. As a result of basic encryption, the transmission channel is encoded so that programs cannot be received without an additional decoder. The basic encryption of digital programs in SD quality was generally eliminated as of May 2013 in the two large

German cable networks of KDH Group and Unitymedia respectively due to an order of the Federal Cartel Office [Bundeskartellamt]. In the case of KDH Group, the conditions

1 See, die medienanstalt (2013): Digitalization Report 2013, p. 39.

32%

10%

59%2011

analog TV reception only

22%

7%

71%

2012

digital and analog TV reception

19%

7%

74%

2013

digital TV reception only

Progress of digitalization of TV homes 2011 to 2013

- 18 -


imposed by the Cartel Office are directed towards the two large broadcasting groups ProSiebenSat.1 and RTL. For most private broadcasters the basic encryption of HD-signals will continue to exist.

Internet and telephone market

The percentage of the German population with internet access increased from 75.9 % in the year 2012 to 77.2 % in the year 2013; this corresponds to a total of 54.2 million users.2

The major portion of broadband connections in fixed line networks is based on copper lines (DSL) and HFC cable networks. Furthermore, glass fiber, satellite, radio based

infrastructure (BWA) as well as electric power lines do exist as additional connection technologies. The number of broadband connections as well as their allocation for the years 2002 to 2012 is shown in the following table.

Source: Federal Network Agency (2013): Annual Report 2012, p. 75-76.

In 2012 DSL is the dominant connection technology with 23.3 million connections and a

share of 83.2 %. The high level of market penetration in the broadband market in general is also reflected in the corresponding rates of growth in the connection technologies.

While growth in the number of DSL connections of 54.5 % was able to be generated in the year 2004 when the market penetration for the broadband market was still very low, the growth has since then continuously decreased with increasing saturation of the

market. In the year 2012, fewer DSL connections were placed in operation compared to the previous year for the first time; they decreased by 0.9 %.

In 2012 the total number of broadband connections of the cable network operators is well below the total number of DSL connections with a number of 4.4 million and a corresponding share of 15.7 %. Due to the lower starting level, the cable providers were

able to achieve relatively high rates of growth compared to the previous years; at times more than 100 % as in the years 2006 und 2007. Accordingly, they were able to decrease

the distance to the DSL connections. As a result of the increasing market penetration for

2 See, results of ARD/ZDF-Online Study 2013.

Broadband connections 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Germany millions millions millions millions millions millions millions millions millions millions millions

DSL connections 3.20 4.40 6.80 10.50 14.40 18.50 20.90 22.40 23.00 23.50 23.30

Growth n/a 37.5% 54.5% 54.4% 37.1% 28.5% 13.0% 7.2% 2.7% 2.2% -0.9%

Share 100.0% 97.8% 97.1% 97.2% 96.0% 93.9% 92.1% 89.6% 87.8% 86.1% 83.2%

Cable connections 0.05 0.07 0.15 0.24 0.49 1.00 1.60 2.30 2.90 3.60 4.40

Growth n/a 40.0% 114.3% 60.0% 104.2% 104.1% 60.0% 43.8% 26.1% 24.1% 22.2%

Share 1.6% 1.6% 2.1% 2.2% 3.3% 5.1% 7.0% 9.2% 11.1% 13.2% 15.7%

Other connections 0.00 0.03 0.05 0.06 0.11 0.20 0.20 0.30 0.30 0.20 0.30

Growth n/a n/a 66.7% 20.0% 83.3% 81.8% 0.0% 50.0% 0.0% -33.3% 50.0%

Share 0.0% 0.7% 0.7% 0.6% 0.7% 1.0% 0.9% 1.2% 1.1% 0.7% 1.1%

Broadband connections 3.20 4.50 7.00 10.80 15.00 19.70 22.70 25.00 26.20 27.30 28.00

Growth n/a 40.6% 55.6% 54.3% 38.9% 31.3% 15.2% 10.1% 4.8% 4.2% 2.6%

- 19 -


the entire broadband market and the accordingly decreasing rates of growth, the percentage growth in broadband connections for the cable providers has continuously decreased; it was 22.2 % in the year 2012. This general development in the overall market

of cable providers is also reflected in the development of KDH Group’s number of customers:

Sources: Federal Network Agency (2013): Annual Report 2012, p. 76; Data from KDH AG.

As becomes evident by comparing the development of total broadband connections with

the number of customers of KDH Group with broadband connections in the internet and telephone segment, the growth in customers of KDH Group outweighed the combined business growth of all cable operators in the years 2006 until 2010. The major

reasons for this development can be seen in the relatively late commercialization of internet- and telephone services by KDH Group compared to its competitors and the small customer base at the beginning of operations. In the following years between 2010

and 2012 the rate of customer growth of KDH Group has adjusted towards the growth rates of the other cable operators.

In 2012, around 0.3 million connections or a share of 1.1 % are attributable to all other connection technologies, whereby purely glass fiber connections have not been very

widespread so far.3

At the end of 2012, a total of around 28 million broadband connections were in operation

which corresponds to market penetration of 70.1 % based on the total number of households.4 Accordingly, broadband connections are increasingly becoming the standard equipment for households, which is why the quality of the connections, in terms

of features such as speed and the actually available bandwidth, will gain further importance in the future. The growth in the broadband market is slowing as the market

penetration progresses. While the growth in broadband connections in the year 2004 was still 55.6 %, a continuous decrease in the rates of growth to 2.6 % in the year 2012 was observed.

For the overall market of broadband connections a transition from a growth path towards a stage of stagnation is anticipated due to the consisting penetration of the market. With

respect to the different types of connection it is envisioned that a shift from DSL-

3 See, Federal Network Agency (2013): Annual Report 2012, p. 74.

4 See, Federal Network Agency (2013): Annual Report 2012, p. 81.

Broadband connections 2006 2007 2008 2009 2010 2011 2012

Market vs. KDH AG actual actual actual actual actual actual actual

Broadband connections via cable in millions 0.49 1.00 1.60 2.30 2.90 3.60 4.40

Growth 104.2% 104.1% 60.0% 43.8% 26.1% 24.1% 22.2%

Internet & Phone subscribers KDH AG in millions 0.07 0.19 0.42 0.81 1.10 1.35 1.60

Growth n/a 192.0% 121.2% 91.5% 36.1% 23.0% 18.6%

- 20 -


connections towards connections with higher transmission rates will take place. Furthermore, it is anticipated that cable operators will increase their share of total connections to 26% in the year 2017, which equals an average annual growth of 11.5 %.5

Source: German Entertainment and Media Outlook 2013, p. 42-43.

As is apparent from the table, an increase in the number of broadband connections to 29.7 million is forecasted for the year 2017. At the same time, there continues to be a trend that product bundles consisting of TV, internet and telephone are offered which

tends to make the broadband connection cheaper for the households; this is documented in the expected ARPUs which are forecasted to decrease from EUR 22.54 in the year 2012 to EUR 22.08 in the year 2017. The slowly increasing number of broadband

connections as well as the decreasing ARPUs will consequentially lead to a decrease in growth in terms of sales revenues for the broadband market.

Various competitors are active in the broadband market. In addition to Deutsche Telekom, which is the largest provider of broadband connections, these are above all the

cable providers KDH Group and Unitymedia and other providers such as 1&1, Vodafone and Telefónica O2 as well as regional city network operators. The market shares of the competitors in the broadband market in the years 2011 to 2013 are shown in the

following graph.

Source: dslweb.de: Broadband Reports 2010-2013

5 See, German Entertainment and Media Outlook 2013, p. 44.

Market for broadband connections 2012 2013 2014 2015 2016 2017

Germany actual expected expected expected expected expected

Broadband connections (in millions) 28.00 28.40 28.80 29.10 29.40 29.70

Growth 2.6% 1.4% 1.4% 1.0% 1.0% 1.0%

ARPU (in EUR) 22.54 22.40 22.30 22.22 22.16 22.08

Growth -2.0% -0.6% -0.4% -0.4% -0.3% -0.4%

Revenues (in mEUR) 7,482 7,578 7,650 7,717 7,781 7,830

Growth 1.4% 1.3% 1.0% 0.9% 0.8% 0.6%

46%

11%

44%06/11

Telekom

46%

13%

41%06/12

Cable operators

44%

15%

41%

06/13

Others

Market shares in the German Broadband Market

- 21 -


As becomes evident from the development of the market shares, Deutsche Telekom dominates the market for broadband connections as a DSL provider. The other DSL providers 1&1, Vodafone and Telefónica O2 have similarly high combined market shares.

However, cable providers have succeeded in recent years in gaining market shares in the broadband market; which is reflected by an increase from 11.0 % in the middle of 2011 to 15.4 % in the middle of 2013. The cable providers have profited from their technical

advantages because they can already offer high speed connections with up to 150 Mbit/s and more in large areas of their territory. Comparable offers from competitors are limited

to only a few regions in Germany. In order to counter this competitive advantage of the cable providers, the DSL providers are using the newly developed vectoring technology which is supposed to double the maximum speed of 50 Mbit/s in the VDSL network to

100 Mbit/s6 or potentially increase VDSL even further to 200 Mbit/s through additional technical solutions..

6 See, dslweb.de: Broadband Report Q2/2013.

- 22 -


III. Tax situation

The tax office München maintains the records for KDH AG under the tax number 143/101/00707. A tax consolidation [Organschaft] for purposes of corporate income tax or trade tax exists between KDH AG (as the superior entity in a tax group) and the

operating companies KDVS, KDK and KDFS as well as non-operational shelf companies.

KDH AG has loss carry forwards for purposes of corporate income tax and trade tax as of 31 March 2013. The loss carry forwards for corporate income tax, according to our

information, are around EUR 241.9 million, and the loss carry forwards for trade tax are around EUR 159.9 million. The interest carry forward of KDH AG as of 31 March 2013 -is additionally around EUR 310.9 million. There are also negligible loss carry forwards for

purposes of corporate income tax and trade tax for companies in the KDH group which are not included in the consolidation group.

Upon the acquisition of 76.57 % of the shares of KDH AG by Vodafone Vierte Verwaltungs AG, the Company currently believes that the existing loss carry forwards and interest carry forwards at the level of KDH AG will be eliminated. Elimination of these

loss carry forwards and interest carry forwards is not necessarily mandated in light of the unclear legal situation concerning the applicability of the exceptions set forth in § 8c para.

1 sentence 6-9 KStG (“silent reserve clause“). Therefore, we have assumed the existing loss carry forwards and interest carry forwards of KDH AG forehanded and value enhancing at an anticipated value of 50 % when determining the corporate taxes.

With regards to the tax loss carry forwards existing at companies outside of the two consolidation groups it is believed that these loss carry forwards cannot be used in the

future because the companies are inactive and, therefore, no profits for tax purposes arise. Since no results are planned in the future for these companies the loss carry forwards

existing at the inactive companies were not taken into account in the valuation.

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C. VALUATION METHODOLOGY

I. Discounted Earnings Value and Discounted Cash Flow

The value of the equity capital in a commercial enterprise is derived from the future, uncertain cash flows which the provider of equity capital must expect. Therefore, such an equity value can be calculated as the present value of all future surpluses of revenues over

expenses of the enterprise.

This requires a forecast of the expected surpluses of the enterprise. The basis for valuing

the earnings, therefore, is normally the corporate planning which covers at least a period of three to five planned years as well as the estimate of sustained earnings which can be

considered to be able to be generated on a permanent basis during the period of time after the planned years. The main focus of such corporate planning is normally on the planning of earnings. To the extent that timing differences exist between the planned

earnings and expenses as well as the planned revenues and expenditures, these differences must be reflected in the calculation of the need for financing and must be reflected in the valuation on the basis of the financing effects.

The basis for such a forecast of future earnings and expenses consists of the adjusted earnings generated in the past. The forecasts prepared by the enterprise being valued can

be checked with regard to plausibility by comparisons with the past, developments of other enterprises as well as developments in the industry, the market and the general

economy.

However, every forecast involves a degree of uncertainty. When determining a present

value of forecast cash flows, it is accordingly necessary to consider that providers of equity capital normally prefer a secure positive cash flow compared to an equally high, uncertain cash flow. This risk aversion can be taken into account by increasing the risk

free interest rate used for calculating the present value by a risk premium.

The principles about how such enterprise valuations relating to the future are to be conducted are set forth in the valuation standard IDW S 1 2008 (Principles on the Conduct of Enterprise Valuations).

In order to determine the reasonable cash compensation (Abfindung) and guaranteed dividend (Ausgleich), a discounted earnings valuation pursuant to IDW S 2008 was

conducted. The discounted earnings method is recognized by the case law in Germany. According to this method, the equity value results from the discounting of future, expected distributions from the enterprise to its shareholders appropriately reflecting the

risk. The principles established in the IDW S 1 standard, especially the explanation of the discounted earnings method, corresponds to the predominant view in academic writings

on business management, the case law and the practice of enterprise valuation.

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As an alternative to applying the discounted earnings method, it is also generally possible to apply the discounted cash flow ("DCF") method for valuations under the IDW S 1 2008. According to the DCF method in its common form used in practice (the so-called

gross, entity, enterprise or WACC approach), initially a total value of the capital for the operational business is determined. The value of the equity capital is then derived from the total value of the capital by deducting the net debt.

The discounted earnings method and the DCF method are based on the calculation of the

value of capital and, thus, on the same conceptual foundations. In the case of the same premises, especially consistent planning including the planned income statements, the planned balance sheets and the planned cash flow statements, both methods arrive at the

same result. Therefore, we have not included a discussion of the discounted cash flow in this Expert Report.

The present value of the forecast cash flows calculated when applying the discounted earnings method only completely includes those values contributing to value which can be correctly reflected in terms of value by ongoing cash flows. Factors contributing to value

which cannot be shown at all in this manner or can only be reflected incompletely must be separately valued. This can especially involve assets which are not required for

operations.

II. Liquidation value and substance value

The value of an enterprise is derived under the discounted earnings method by discounting expected surplus cash flows of the enterprise as a going concern. Compared

to this, the liquidation value represents the cash surplus resulting from liquidation. The substance value is the total of expenditures which would be needed if the enterprise were supposed to be reproduced.

We have conducted a rough estimate of the liquidation value and concluded that the

equity value of KDH AG is greater than the liquidation value. Liquidation in the sense of a regular unwinding of the operational business would clearly result in much lower values than continuing the business.

The valuation of the substance under procurement aspects leads to a so-called reconstruction value of the enterprise which is actually just a partial reconstruction value

due to the general lack of replacement costs of intangible assets. This substance value by itself has no informative value for determining the overall value of a going concern.

Therefore, no substance value was determined.

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III. Comparison oriented value

It is common in the practice of mergers & acquisitions to determine indicative enterprise values or ranges for values by means of multipliers which are considered to be common for the industry. When carefully conducting such valuations, an analysis of the past and

also the expected earnings situation of the subject of the valuation is needed in the first place. Secondly, the multipliers must be derived from an analysis of the valuations of comparable enterprises. Such multiplier valuations are only simplified, generalized

discounted earnings valuations. Therefore in collaboration with IDW S 1 i. d. F. 2008 Tz. 164 - 167, a comprehensive, analytical valuation according to the discounted earnings

method, as conducted in the present case, is preferable to multiplier valuations.

A multiplier valuation was conducted only in order to check the reasonableness, see

below in Section D.II.

IV. Stock exchange price

The shares of KDH AG are listed on the stock exchange and traded in the regulated market on the Frankfurt Stock Exchange (Prime Standard) and over the counter at the

exchanges in Berlin, Düsseldorf, Hamburg, Hanover, Munich as well as Stuttgart. Therefore, it is possible to fix the compensation on the basis of stock exchange prices.

According to the case law of the Federal Constitutional Court [Bundesverfassungsgerichts, "BVerfG” (order dated 27 April 1999 - 1 BvR 1613/94), Art. 14 German Constitution

[Grundgesetz, "GG”] requires that the departing shareholder receive full compensation for the corporate participation which cannot be less than the fair market value. In the case of listed companies, this value cannot be determined without taking the stock exchange price

into account. Exemptions can be made if the stock exchange price does not represent the fair market value of the stock in an exceptional situation. Thus, the stock exchange price is in general the lower limit regarding the compensation of minority shareholders in the

case of corporate group contracts and mergers.

According to the most recently issued case law of the Federal Supreme Court of Justice [Bundesgerichtshof, "BGH”] (order dated 19 July 2010 – II ZB 18/09 - "Stollwerck”), the stock exchange value forming the basis of a reasonable cash compensation must generally

be determined on the basis of sales weighted domestic average stock prices within a three month reference period prior to the announcement of the measure.

If an extended period of time has passed between the announcement of the structural measure and the date of the general shareholders meeting and the development of the

stock exchange price appears to require an adjustment, the stock exchange value must be extrapolated in accordance with the typical development in values in general or for the industry, taking into account the previous development of the stock price (BGH, II ZB

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18/09 - "Stollwerck”). This extrapolation is not required in situations in which the measure is carried out within a normal or common period of time. In any event, a period of six to seven months can be considered to be normal or common (Court of Appeals

[Oberlandesgericht, "OLG”] Stuttgart, order dated 19 January 2011, 20 W 2/07, with reference to Bungert, BB 2010, 2227, 2229; Bücker, NZG 2010, 967, 970; OLG Frankfurt, order dated 29 April 2011, 21 W 13/11 with reference to Bungert/Wettich,

BB 2010, 2227, 2229; Decher, ZIP 2010, 1673, 1676; Bücker, NZG 2010, 967, 970).

In the present situation in which the general shareholders meeting, which is supposed to resolve about the conclusion of the DPLTA, is supposed to take place five months after the relevant calculation date for determining the average stock exchange price we have

therefore refrained from extrapolating the stock exchange price.

We address in Sections D.IV and D.V the question about which average price results for

KDH AG on the basis of this case law and which relationship the equity value and the average stock exchange price have to each other.

V. Price for the takeover bid and synergies

The purpose of our valuation is grounded on Vodafone Vierte Verwaltungs AG’s and

KDH AG’s intention to conclude a DPLTA. In the present case, this intention was already announced in the context of the public takeover bid. In the documents and

disclosures related to this takeover bid, Vodafone Vierte Verwaltungs AG offered a takeover price of EUR 84.50. Shareholders accepting the offer received the dividend of EUR 2.50 which was paid out before closing. If the closing would have taken place

before the dividend payout, Vodafone would have paid the accepting shareholders a price increased by EUR 2.50.

The takeover price includes a premium compared to the stock exchange price which was justified by Vodafone with synergies which can be achieved upon full integration of

KDH Group into the Vodafone Group. We will take a further stand with regards to this topic in Section D.III.

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D. VALUATION OF KDH AG

I. Discounted earnings value

The equity value of KDH AG was derived by us on the basis of the planned profit of KDH Group using the discounted earnings method in accordance with IDW S 1 2008 and based on the perspective of a domestic, fully taxable natural person as a shareholder.

The tax circumstances of the shareholders were typified and taken into account (direct typification pursuant to IDW S 1 2008, no. 44). While the planned profits of KDH Group were generally accepted by us up to the level of the EBIT ("Earnings before

Interest and Taxes"), we recalculated the financial result and the tax expense and took into account earnings that could be realized over a sustained period. Consistent with the

purpose of the valuation non-genuine synergies that can possibly be realized before DPLTA have been considered.

The subject of the valuation is KDH AG. KDH AG was valued as a corporate group on the basis of consolidated planned accounts which cover both KDH AG as well as its participations. Assets which are not required for the business were taken into account as

special values. These are companies in which participations are held which are inactive or were not included in the planning because they have no material importance.

The equity value of KDH AG results accordingly from the discounted earnings value of the operational business plus the special values.

We describe below our results relating to adjustments in the past, the analysis of the planning as well as the adjustments we have made to the planned accounts.

1. Valuation date

The valuation date for determining the equity value as the basis for calculating the compensation and the guaranteed dividend is 13 February 2014. This is the date on which the DPLTA is supposed to be submitted to the extraordinary general shareholders

meeting of KDH AG for approval.

The expected net distributions were discounted directly to the valuation date 13 February 2014. The special values were also determined as of the valuation date 13 February 2014.

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2. Determination of the expected net distributions

a) Analysis of the results in the past

The starting point for our analysis of the planning was an analysis of the results of KDH AG in the past because they serve as an initial orientation for analyzing the planned numbers. Since the planned profit and loss statement of KDH AG was prepared

according to the total costs method, a description using the total costs method was also used as a basis for the actual years in order to have better comparability with the observed developments in the past, see, Section B.II.2.

The group profit and loss statements of KDH AG for the fiscal years 2010/11 to

2012/13 down to the level of the EBIT were reviewed by us with regard to one-time or extraordinary positions and adjusted accordingly. The adjustments and the resulting profit of KDH AG in the past after the adjustment are shown in the following table:

For purposes of better comparability with operational planning, revenues generated

through the feed-in of signals of the public service broadcasters ARD, ZDF, ARTE and Deutschlandradio were adjusted for the three disclosed fiscal years; in the fiscal years 2010/11 until 2012/13 these revenues amounted to EUR 27.3 million, EUR 27.6 million

and EUR 24.8 million. These feed charges are no longer planned by the Company since the relating contracts were terminated by the public service broadcasters as of

31. December 2012.

The profit statement of KDH AG was adjusted by a total of EUR 12.7 million for the

fiscal year 2010/11. Beside the revenues of feed charges this amount is allocated to the positions for cost of materials and procured services, personnel costs and other costs. The adjustment for costs of materials and procured services of EUR 11.5 million involves

in substance one-time expenses resulting from adding provisions for restructuring which were established on the basis of a change in the network infrastructure in connection with the transfer of television signals to glass fiber. The personnel costs were adjusted for

2010/11 by a total of EUR 2.2 million for expenditures. The amount results from adjusting expenditures in connection with the restructuring measures and the legal

reorganization within KDH Group, especially restructuring certain functions in the finance department such as changes resulting from outsourcing solutions. The

Profit and loss statement 2010/11 2011/12 2012/13 2010/11 2011/12 2012/13 2010/11 2011/12 2012/13

KDH AG actual actual actual adjustment adjustment adjustment actual adj. actual adj. actual adj.

mEUR mEUR mEUR mEUR mEUR mEUR mEUR mEUR mEUR

Revenues 1,598.9 1,699.7 1,829.9 -27.3 -27.6 -24.8 1,571.6 1,672.2 1,805.1

Cost of material and services -421.6 -450.9 -491.1 11.5 -410.1 -450.9 -491.1

Personnel expenses -182.0 -179.4 -199.6 2.2 0.9 2.9 -179.8 -178.5 -196.8

LTIP -17.4 -20.5 -64.1 -17.4 -20.5 -64.1

Other costs -293.1 -292.2 -300.9 0.9 4.0 8.5 -292.3 -288.2 -292.4

Other operating income 12.3 12.1 12.6 12.3 12.1 12.6

EBITDA 697.1 768.8 786.9 -12.7 -22.7 -13.5 684.4 746.2 773.4

Depreciation and amortization -490.2 -395.9 -360.9 -490.2 -395.9 -360.9

EBIT 207.0 372.9 426.0 -12.7 -22.7 -13.5 194.3 350.2 412.5

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adjustment of EUR 0.9 million within other costs is attributable primarily to expenses incurred in the fiscal year 2010/11 in connection with the IPO of KDH AG of around EUR 0.7 million.

In the fiscal year 2011/12, the profit and loss statement of the Company was adjusted by EUR 22.7 million. Beside the revenues of feed charges this amount can be allocated to

adjustments within personnel costs as well as other costs. The adjusted personnel costs in the total amount of EUR 0.9 million include on the one hand expenses of EUR 2.1

million related to restructuring measures and the legal reorganization in the fiscal year 2011/12. These measures involved in substance primarily combining the sales channel management and the regional sales offices as well as reorganizing interfaces between sales

and certain central functions. On the other hand, one-time earnings of around EUR 1.3 million connected to changes in pension commitments of KDH Group have been eliminated from the personnel expenses. Other costs were adjusted with an amount of

EUR 4.0 million. These costs include for the most part IT related expenditures and consulting expenses as well as costs for legal advice incurred as a result of the merger of

various companies to form KDVS.

The EBIT of KDH AG was adjusted by a total of EUR 13.5 million in the fiscal year

2012/13. Beside the adjustment of revenues of feed charges this amount spreads to adjustments relating to personnel costs and other costs. The adjustments in personnel costs amount to around EUR 2.9 million and arose in connection with bundling the

customer service center and the technical service center into the one hundred percent subsidiary KDK. The adjustment of the other costs in the amount of EUR 8.5 million involves primarily costs in connection with the intended acquisition of TC as well as one-

time expenses in connection with the EU Regulation on the introduction of a Single European Payment Area for transactions in Euro (SEPA).

b) Analysis of the operating planning of KDH AG

The enterprise valuation is based on the mid-term planning prepared by KDH AG for the fiscal years 2013/14 to 2018/19. We examined the reasonableness of the documents that were provided concerning the planning. We initially systematically checked the structure

of the planning. We discussed in detail the planning assumptions and the resulting planned accounts with the executive board of KDH AG and the relevant employees. We verified the general suitability of the planned accounts as a basis for the valuation as

follows:

Planning process and responsibility for the planning

The mid-term planning of KDH AG always covers 5 years – the fiscal year beginning in each case on the next 1 April (budget year) as well as four additional fiscal years.

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The process for preparing the mid-term planning normally begins in November and is completed in March of the subsequent year when the planning is adopted by the executive board. In addition, the planning for the budget year is updated twice during the course of

the year after publication of the business figures for the first (“Q1”) and second (“Q2”) quarter of the fiscal year (“Forecast”).

Based on the planning of sales volume and subscribers which in done in close cooperation with the individual product areas the business planning for the budget year

regarding sales revenues is carried out especially by the controlling department of KDH AG The product areas themselves coordinate with the sales channels in the planning process. The planning of the remaining operational business down to the level

of the EBITDA as well as the planning for investments is made according to so-called reverse planning with all business units. At this stage, top-down targets are formulated, which are validated by means of a bottom-up planning.

Based on the knowledge from the ongoing budget planning, the preparation of the mid-term plan takes place in a multi-step process. In a first step, general targets are drafted

top-down by the executive board. In a second step, these targets are supported with detailed planning in the product areas by planning the material variables for the planning

such as the expected number of subscribers, the expected number of RGUs and the expected average revenue per unit ("ARPU”). In a third step, the corresponding sales numbers are broken down to the individual sales channels. In a fourth step costs and

capital expenditures are planned according to reverse planning through the inclusion of the business units. In this process top-down targets are set by the executive board, which are subsequently validated in a bottom-up planning by the business units. The corporate

development department in connection with the business units and cost units is responsible for strategically combining and modelling the planning assumptions into

integrated planned accounts down to the level of the EBITDA. The planning for depreciation, interest, taxes and working capital is the responsibility of the finance department.

The planning for the budget years forms the basis for the short-term outlook for the enterprise, also for purposes of external communication. However, KDH AG does not

publish any sales or profit forecasts that go beyond the budget year. The mid-term planning is exclusively intended for internal management purposes.

Timeliness of the planning

In order for corporate planning to be taken into account for purposes of determining the value as of 13 February 2014 which reflects the current developments in KDH AG, the

normal process for preparing the new mid-term planning was delayed so that an updated mid-term plan was also submitted by the company in parallel to the second update of the budget planning (“Forecast”). Compared to the mid-term plan prepared in March 2013,

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the planning was extended by an additional planned year because the current budget year 2013/14 will already represent an additional nearly concluded actual year at the time of the relevant general shareholders meeting. This approach guarantees that the planning is

based on the most recent information. Furthermore, it is assured that the valuation of KDH AG is based on the most accurate management estimates regarding expected future business development with proximity to the relevant valuation day.

As is common in the annual planning process of KDH AG, developments that occurred

since the mid-term planning adopted in March 2013 were taken into account in the updated mid-term planning. Especially effects from current business developments up to and including Q2 2013/14 as well as new estimates in the course of the budgeting process

for the fiscal year 2014/15 were reflected.

A material change compared to the mid-term planning in March 2013 involves, for

example, the compensation for feed signals which the broadcasters established under public law ARD, ZDF, ARTE and Deutschlandradio pay for feeding their signal to KDH Group. The public law broadcasters had terminated the corresponding contracts about

the feed charges effective as of 31 December 2012. In the initial first instance judgment, the complaints of KDH AG against these terminations were dismissed7. Due to this

reason, the feed charges under public law were no longer taken into account in the updated mid-term planning. In addition, corrections were made in the area of the planned number of customers, RGUs and ARPUs based on the current business

developments. Main reasons for these corrections can be found in the discontinuation of the basic encryption which has direct- and indirect consequences for KDH AG’s business performance and its current planning. Direct effects can be seen in decreases in revenues

which were formerly achieved by decoding SD-signals. However, more serious are the indirect effects occurring through decreases in overall customer contacts which were

necessary when basic encryption was still in place. This makes it more difficult for KDH Group to offer additional services to its customers which ultimately leads to lesser sales. Therefore, the estimated sales quantity in the Premium-TV segment was altered.

Adjustments were also made with regards to the considerations about the development of new fields of business:

In connection with the expansion of its hotspots, KDH Group originally intended to

offer mobile data services to individual users throughout Germany by the help of its network. These services were planned to include price-aggressive charges compared to KDH AGs competitors. A cooperation relationship was supposed to be concluded with

7 See on this point, the semi-annual financial report of KDH AG as of 30 September 2013. On 21 November 2013, the OLG Stuttgart and on 28 November 2013 the OLG München have both decided in second instance that Südwestrundfunk and Bayerischer Rundfunk do not have to pay feeding fees for its

programs to be submitted over KDH AG’s cable network.

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a cellular telephone provider in order to assure complete network coverage also outside of the KDH WLAN network. Thought was also given to enabling cellular telephone operators to offload mobile data ("mobile offloading”) using the KDH network.

Both the offer of mobile data services to new end customers as well as "mobile offloading” cannot be realized in the form that was intended in the previous mid-term

planning. Reasons for this are rooted in difficulties regarding the technical feasibility of the business idea as well as existing regulatory hurdles. Concerning the technical

feasibility, limited stability of WLAN-networks as well as comprehensive network coverage can be regarded as the major challenges. Regulatory hurdles do exist because the Federal Network Agency will not approve the cooperation with a third party cellular

telephone operator after Vodafone became the majority shareholder of KDH AG because Vodafone is prohibited from becoming a service provider for operators that operate in the same substantive and geographic market as Vodafone in connection with

the award of the GSM and UMTS licenses. Even without the entry of Vodafone, it would have been perhaps difficult for KDH AG to find a cellular telephone operator for its

aggressive price strategy, due to the consolidation of the German mobile market. The monetization of KDH’s own WLAN network for mobile services is only possible to a much lesser extent than previously planned without the cooperation with a cellular

telephone operator, which is accounted for in the planning.

Other business ideas involved the development of VoD offers, feeding regional TV

advertising (“Targeted Advertising”), personalized online advertising as well as distributing internet and telephone services to small companies. Due to legal hurdles (necessity of the "double-opt-in"), the plan to offer personalized online advertising was

given up in the meantime and, therefore, is no longer contained in the updated mid-term planning. Due to legal restrictions the double-opt-in requires a dual approval from clients

for personalized online advertisement, which is hard to obtain according to current assessments from KDH AG. The business idea to offer internet and telephone services to small companies in the future is also no longer pursued. The Company has decided

against an entry into the market for business clients as it concluded after further detailed reviews that the business case is not economically viable. Furthermore, the provisions in the Business Combination Agreements with Vodafone provide that KDH Group will

limit itself to business with private customers. The business idea of targeted advertising and the development of the VoD business continue to be reflected in the updated mid-

term planning.

Synergies resulting at KDH Group due to the entry of Vodafone as the majority

shareholder that are independent of conclusion of the DPLTA (so-called non-genuine synergies) were also taken into account in the updated mid-term planning. Cost synergies are expected in the area of IP-Peering and procurement. Furthermore, there are

advantages in financing the company due to the take-over by Vodafone which have a

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positive effect on the financial result of KDH Group. Potential synergies which can only be achieved after the conclusion of the DPLTA and which are not yet implemented or transformed into concrete terms were not taken into account in the planning as they

symbolize genuine synergies (see further details in Section D.III).

The current mid-term planning was adopted by the executive board on 25 November

2013.

Structure of the planning

The operational planning down to the level of the EBITDA was prepared on the basis of the total costs method and consists primarily of two components:

The first part consists of the existing core business of KDH Group which is basically broken down into the business segments TV as well as Internet and Telephone. A

detailed further breakdown according to individual product groups is implemented within these business segments. KDH Group has planned the development of RGUs and estimated the future ARPUs for each of these product groups on the basis of new

contracts and termination rates. The planning of the expenses also has a high degree of detail and takes place in an integrated planning model that depends on the planned development of customers and RGUs.

The second part involves the future expected earnings from new fields of business such as offering mobile services using the KDH WLAN network, VoD and targeted advertising.

Based on the operational planning of the EBITDA and the capex planning the

depreciation, financial result and corporate taxes were determined by the Company. The planned financial result prepared by the Company contains interest income which is based on a planning of the need for financing build on the mid-term planning, but not on an

integrated planning of the need for financing. During the course of the valuation of KDH AG, we accordingly replaced this planning by an integrated planning of the need for financing and again determined the corporate taxes.

Planning accuracy

In order to evaluate the planning accuracy of KDH AG, we compared the actual numbers

in the fiscal years 2010/11 to 2012/13 as well as the current forecast for the fiscal year 2013/14 based on the Q2 2013/14 results with the business plans adopted by the Company for these fiscal years.

Our analysis covered the mid-term plan which was prepared in February/March 2010 for the initial public offering of KDH AG as well as the mid-term plans prepared in March

2012 and March 2013. The Company did not prepare any business plan in the year 2011.

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The deviations between the sales revenues and adapted EBITDA actually achieved in the fiscal years 2010/11 to 2012/13 and the sales revenues and adapted EBITDA forecasted for the year 2013/14 based on the Q2 2013/14-results are shown in the following table.

The adapted EBITDA for the fiscal years 2010/11 to 2013/14 was disclosed by the Company in the respective annual financial reports (see, Section B.II.2). The adapted EBITDA for 2013/14 is based on the forecast for the current fiscal year:

Only the mid-term planning prepared in 2010 can be used as a basis for comparison with

the fiscal years 2010/11 and 2011/12. The Company planned sales revenues of EUR 1,595.7 million and an adapted EBITDA of EUR 722.3 million for 2010/11. In fact, KDH AG achieved sales revenues of EUR 1,598.9 million and an adapted EBITDA

of EUR 729.1 million in the fiscal year 2010/11 and, thus, values which only deviate from the planning to a minimal degree.

KDH AG planned an increase in sales revenues to EUR 1,745.0 million and an increase in the adjusted EBITDA to EUR 817.6 million for the next fiscal year 2011/12. The

actual numbers fell slightly short of the planned numbers: KDH AG generated in this fiscal year sales revenues of EUR 1,699.7 million (deviation –2.6 %) and an adapted EBITDA of EUR 795.5 million (deviation –2.8 %).

An additional basis for comparison is available in the form of the mid-term planning adopted in March 2012 in order to compare the planning accuracy for the fiscal year

2012/13. Compared to the planning prepared two years earlier, KDH AG decreased its

Plan vs. Actuals 2010/11 2011/12 2012/13 2013/14

KDH AG actual actual actual Forecast

mEUR mEUR mEUR mEUR

Revenue - Actuals 1,598.9 1,699.7 1,829.9 1,909.1

Revenue - Plan Feb/Mar 2010 1,595.7 1,745.0 1,942.7 2,150.8

Delta Actuals vs. Plan 2010 3.2 -45.2 -112.8 -241.7

Delta in % 0.2% -2.6% -5.8% -11.2%

Revenue - Plan Mar 2012 1,841.5 2,002.0

Delta Actuals vs. Plan 2012 -11.6 -92.9

Delta in % -0.6% -4.6%

Revenue - Plan Mar 2013 1,969.7

Delta Actuals vs. Plan 2013 -60.6

Delta in % -3.1%

adapted EBITDA - Actuals 729.1 795.5 862.3 910.0

EBITDA - Plan Feb/Mar 2010 722.3 817.6 955.8 1,107.1

Delta Actuals vs. Plan 2010 6.7 -22.2 -93.5 -197.1

Delta in % 0.9% -2.7% -9.8% -17.8%

EBITDA - Plan Mar 2012 860.0 961.4

Delta Actuals vs. Plan 2012 2.3 -51.3

Delta in % 0.3% -5.3%

EBITDA - Plan Mar 2013 945.0

Delta Actuals vs. Plan 2013 -35.0

Delta in % -3.7%

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assumptions for revenues and adjusted EBITDA in the fiscal year 2012/13. The actual results in the fiscal year were very close to these updated planned numbers with deviations (absolute numbers) of less than 1 % at the level of revenue and EBITDA. The planning

from March 2010 had still assumed a better development of the business for this fiscal year; the actual sales revenues were 5.8 % and the actual adapted EBITDA was 9.8 % lower than the corresponding planned numbers. The cause for this deviation can be

found in too optimistic expectations for ARPU. Furthermore, the subscriber base in the core TV business decreased more than expected in the year 2010.

The comparison of the different mid-term plans with the current forecast for the fiscal year 2013/14 illustrates that plan-vs.-actual deviations increase correspondingly to the

number of years between the year of the preparation of the plan and the respective plan year. Based on the Q2 results, actual sales revenues of the year 2013/14 are expected to fall short of the sales revenue figure planned in 2010 by 11.2 %. The respective EBITDA

deviation amounts to 17.8 %. Compared to the planning figures of the mid-term planning prepared in 2012, actual sales revenues and actual adapted EBITDA of the current fiscal

year are expected to turn out lower by 4.6 % and 5.3 %, respectively. Furthermore, KDH AG expects in the current fiscal year for the first time a considerable deviation between actuals and budget: Based on the Q2 results, the Company predicts that revenues and

EBITDA will fall below the figures budgeted in March 2013 by 3.1 % and 3.7 %, respectively. According to KDH AG, this is due to the adverse effects that the discontinuation of the basic encryption had on the growth in the Premium-TV segment as

well as to the termination of the feed-in-fee contracts by public broadcasters.

The analysis of the deviations in the plan show that the respective first planned year

(budget) is very close to the actual achieved results so that there is good planning accuracy for the budget year. The relatively higher deviation between budget and actuals in the

current year compared to the previous years could be explained by the just-mentioned special effects in the current fiscal year.

However, the growth planned in the mid-term plan in 2010 for the future years was not able to be realized in the expected volume. This image results in the same manner for the comparison of the historic plans from 2010 and 2012 to the current forecast for the fiscal

year 2013/14 on the basis of the Q2 2013/14 numbers. This mainly results because the mid-term planning has been primarily used to incentivize the organization to outperform

and thus has been based on ambitious assumptions.

Completeness of the planning

The planned accounts of KDH Group consist of an income statement for the fiscal years

2013/14 to 2018/19 as well as investment planning. Consolidated balance sheet planning as well as an integrated planning for needed financing was not prepared by the Company. The audited consolidated balance sheet of 31 March 2013 was accordingly carried forward

- 36 -


by us for the planned years and the need for financing was determined on this basis, taking into account the planned profits and investments, the financing structure as well as the assumptions relating to distributions.

All material subsidiaries were included in the planned accounts. Inactive participations and participations which the Company does not consider to be material were not included

in the planning. The inactive companies involve the shelf companies Kabel Deutschland Holding Erste Beteiligungs GmbH, Kabel Deutschland Holding Zweite Beteiligungs

GmbH, Kabel Deutschland Dritte Beteiligungsgesellschaft mbH, Kabel Deutschland Fünfte Beteiligungsgesellschaft mbH, Kabel Deutschland Sechste Beteiligungs GmbH, Kabel Deutschland Siebte Beteiligungs GmbH, Kabel Deutschland Achte Beteiligungs

GmbH and Kabel Deutschland Neunte Beteiligungs GmbH. AFK Aus- und Fortbildungs GmbH für elektronische Medien, in which KDH AG has only a 2 % participation, was not included in the planned accounts due to reasons of materiality.

These companies were taken into account in the valuation as special values (see, Section D.I.5).

Planned results of KDH Group

The planned results of KDH AG down to the level of the EBIT for the fiscal years 2013/2014 to 2018/2019 compared to the adjusted results in the past are shown below:

Verification of the reasonableness of the planning

We have mathematically checked the structure of the planning and critically reviewed the underlying assumptions. The goal was especially to test the developments assumed in the planning against the observed developments in the past and to check the consistency of

the assumptions. During this process we especially reverted to prominent market-specific performance indicators like ARPU and RGUs. We based our analysis of the planned

earnings on their structure and the total costs method:

Profit and loss statement 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

KDH AG Adj. Actuals Adj. Actuals Adj. Actuals Forecast Plan Plan Plan Plan Plan


Revenues 1,571.6 1,672.2 1,805.1 1,909.1 2,043.4 2,199.9 2,322.7 2,429.5 2,541.3

Cost of material and services -410.1 -450.9 -491.1 -494.8 -546.1 -578.7 -610.3 -645.0 -666.3

Personnel expenses -179.8 -178.5 -196.8 -213.1 -223.1 -231.9 -241.4 -251.4 -261.4

LTIP -17.4 -20.5 -64.1 -63.6 -15.8 -10.1 -5.5 -4.8 -4.8

Other expenses -292.3 -288.2 -292.4 -336.9 -306.6 -325.2 -331.2 -338.6 -346.5

Other operating income 12.3 12.1 12.6 9.8 9.9 10.1 10.2 10.3 10.5

EBITDA 684.4 746.2 773.4 810.6 961.9 1,064.0 1,144.5 1,200.2 1,272.8

Depreciation and amortization -490.2 -395.9 -360.9 -404.3 -458.3 -478.7 -484.9 -484.4 -493.2

EBIT 194.3 350.2 412.5 406.3 503.6 585.3 659.7 715.7 779.6

- 37 -


Sales revenues

KDH Group generated its sales revenues in the two business segments TV and Internet & Telephone. The development of the sales revenues in these two business segments is shown in the following table:

Sales revenues TV

In the TV segment, the sales revenues are generated primarily by basic cable connection fees which are paid by customers for access to the cable network and the reception of

analog and digital TV signals. In addition to private households, residential companies (including the owners of buildings) and network level 4 operators are among the customers. The private households and residential companies are referred to as direct

customers, whereas the clients of other network level 4 operators are referred to as indirect customers. KDH Group also generated sales revenues with premium TV

services and international pay TV offers, leasing of DVR and technical access fees for basic encoded HD broadcasters.

The Company plans slightly increasing annual sales revenues of around 1.7 % for the connection fees in the TV division from EUR 1,018.2 million in the fiscal year 2012/13 to EUR 1,124.1 million in the last planned year 2018/19.

The expected increase in revenues for TV connection fees is the result of an increase in the TV RGUs and an increase in the TV ARPUs:

The main foundation for revenues of KDH Group are its direct basic cable customers. The number of direct basic cable customers has slightly decreased in the last three years

Revenues 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 CAGR CAGR

KDH AG Adj. Actuals Adj. Actuals Adj. Actuals Forecast Plan Plan Plan Plan Plan 13/14-18/19 10/11-12/13

mEUR mEUR mEUR mEUR mEUR mEUR mEUR mEUR mEUR0

TV subscription revenues 987.8 994.9 1,018.2 1,031.9 1,048.8 1,071.6 1,088.0 1,104.7 1,124.1 1.7% 0.8%

Carriage fees and other revenues 117.8 136.0 148.6 135.6 140.9 149.2 148.2 138.5 147.4 -0.1% 5.2%

Revenues TV 1,105.6 1,130.8 1,166.8 1,167.5 1,189.7 1,220.8 1,236.2 1,243.2 1,271.5 1.4% 1.3%

Growth in % 2.3% 3.2% 0.1% 1.9% 2.6% 1.3% 0.6% 2.3%

Internet & Phone recurring revenues 436.0 508.3 604.7 699.8 811.8 937.1 1,044.6 1,144.4 1,227.9 12.5% 23.1%

Internet & Phone non-recurring revenues 30.0 33.0 33.6 41.8 41.9 41.9 41.9 41.9 41.9 3.8% -15.3%

Revenues Internet & Phone 466.0 541.4 638.3 741.6 853.8 979.1 1,086.5 1,186.3 1,269.8 12.1% 18.9%

Growth in % 16.2% 17.9% 16.2% 15.1% 14.7% 11.0% 9.2% 7.0%

Total Revenues 1,571.6 1,672.2 1,805.1 1,909.1 2,043.4 2,199.9 2,322.7 2,429.5 2,541.3 5.9% 6.3%

Growth in % 4.7% 6.4% 7.9% 5.8% 7.0% 7.7% 5.6% 4.6% 4.6%

Blended ARPU in EUR / month 13.40 14.44 15.89 17.13 18.51 20.05 21.35 22.55 23.54 6.8% 8.8%

Subscribers/RGUs TV 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 CAGR CAGR

KDH AG Actuals Actuals Actuals Forecast Plan Plan Plan Plan Plan 13/14-18/19 10/11-12/13

'000 '000 '000 '000 '000 '000 '000 '000 '0000

Direct basic cable subscribers 7,299 7,232 7,193 7,170 7,140 7,122 7,107 7,096 7,089 -0.2% -0.5%

Indirect basic cable subscribers 1,205 1,009 897 736 629 562 472 436 399 -12.6% -14.3%

Total basic cable subscribers 8,504 8,241 8,090 7,907 7,769 7,684 7,579 7,533 7,488 -1.3% -2.5%

Basic cable RGUs 8,878 8,702 8,619 8,325 8,102 7,927 7,583 7,537 7,492 -2.3% -1.5%

Premium TV RGUs 1,264 1,680 2,067 2,342 2,645 2,909 3,137 3,335 3,507 9.2% 24.4%

Total RGUs TV 10,142 10,381 10,687 10,667 10,748 10,835 10,721 10,872 10,998 0.5% 2.0%

TV-ARPU in EUR / month 9.52 9.86 10.37 10.72 11.12 11.53 11.86 12.17 12.47 3.1% 3.7%

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(CAGR - 0.5 %). KDH Group anticipates a further slightly decreasing number of basic cable customers until the end of the planning period, however the decline is assumed to occur at a lower rate (CAGR -0.2 %) than in the years before.

As described in Section B.II.3, the number of German cable homes is expected to decrease from 2013 to 2017 by on average 1.7 % per year, according to German

Entertainment and Media Outlook 2013. Thus, KDH Group assumes a significantly lower relative decrease in its basic cable subscriber base compared to the market.

The wholesale business with indirect basic cable customers (network level 4 operators) was already showing a clear downturn in recent years. The expectation is that this trend

will continue in the planned period. The reason is that network 4 operators are increasingly building on the existing KDH network and no longer need to pay the fees previously paid to KDH Group for using the KDH lines.

The drivers behind the increase in sales revenues in the business segment TV are the premium TV services which KDH Group offers as an upgrade to the current cable

connection to its existing customer base. This includes especially a substantial increase in the leased DVRs. It is also expected that more customers will continuously book the

German pay TV product "Kabel Premium HD”. The premium TV products are normally sold in a bundled form so that normally one or two additional RGUs accrue for each customer that has been upgraded to premium TV. In total KDH Group plans to

increase the RGUs in the area of premium TV from 2.067 million at the end of the fiscal year 2012/13 to 3.507 million by the end of the detailed planning period 2018/19.

Although KDH Group expects to almost double its Premium-TV RGUs over the planning period, the CAGR for the years of the mid-term plan lies below the CAGR

achieved in the years 2010/11 to 2012/13. According to KDH AG, this is due to various reasons:

- Since the discontinuation of the basic encryption (see, Section B.II.3), KDH Group faces a substantial decline of subscriber contact rates at its call centers, one of the most important sales channels for the Premium-TV product. In consequence, the

number of gross adds in Premium-TV fell considerably short of the figures budgeted. The Company anticipates that this effect can only partially be mitigated by other sales channels in the coming years.

- Given the declining number of basic cable subscribers and the increasing number of Premium-TV RGUs, the remaining subscriber base that could potentially upgrade to

Premium-TV services will steadily decrease. By assuming gross adds to remain constant over the mid-term-plan period, KDH Group expects to even acquire an annually increasing share of Premium-TV users out of the remaining subscriber base.

Furthermore, as a consequence of the growing RGU figures and despite the fact that churn rates are assumed to stay constant or even go back over the planning horizon,

- 39 -


the absolute number of churns is expected to increase. This contributes to the decline in the growth of net adds.

- Not only the quantity but also the willingness to buy – i. e. the probability that the

average subscriber will upgrade to Premium-TV – of the remaining client base is supposed to change. This is due to the fact that the first subscribers that upgraded to Premium-TV were normally young, with a high affinity to technology and/or

financially strong. With rising RGUs, these “easy-to-acquire” subscribers make up a declining share of the remaining subscriber base.

- The average annual RGU-growth rate of 9.2 % which is expected by KDH Group for Premium-TV-Products is higher than the growth rates projected for the German Pay-TV market. For example, the German Entertainment and Media Outlook 2013

expects for the time period 2013 – 2017 an average annual growth rate of German Pay-TV households of 6.6 % but with declining growth rates over the passage of time. 8

For the stated reasons, we consider it to be understandable that the planned growth rates

of the RGUs in the Premium-TV segment are lower than in past years and slightly decline throughout the planning horizon.

As a result of the continuously increasing penetration in the premium TV segment an

increasing revenue per customer is expected by KDH Group in the business segment TV. The TV ARPU is supposed to increase from EUR 10.38/month in 2012/13 to EUR 12.47/month in 2018/19.

KDH Group generates other sales revenues in the TV segment especially with feed

charges by television broadcasters for distributing program offers, installation fees from

individual users, sale of end devices and the newly introduced VoD offer to existing TV customers. KDH Group also expects minor sales revenues from targeted advertising

starting in the year 2014/15.

Feed charges and other sales revenues are supposed to decrease in the year 2013/14 by

around EUR 13 million compared to the previous year. A slight decrease is expected for installation fees as well as from the sale of hardware equipment.

The increase in other sales revenues in the three subsequent years can especially be traced back to growing sales revenues in the areas of VoD and Targeted Advertising. Marginally

decreasing sales revenues are expected for the years 2016/17 and 2017/18. As described above, feed charges from public broadcasters were not taken into account in the planning. The corresponding actual figures were therefore adjusted for these feed charges from

8 see, German Entertainment and Media Outlook 2013, p. 82.

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public broadcasters to achieve a better comparability (see, adjustment of past results in Section D.I.2.a)

Sales revenues for Internet and Telephone

KDH Group has offered its customers internet and telephone services using the KDH

cable network since the year 2005. The business segment of Internet and Telephone has continuously developed since then to be the main driver of growth in the business. KDH Group was always able to realize at least two digit rates of growth in internet and

telephone sales revenues, also as a consequence of the advancement in the technical equipment in the cable network for interactive services. KDH Group generated sales

revenues of EUR 638.3 million in the year 2012/13 in the Internet and Telephone business segment which is a share already of 34.9 % in the total sales revenues of the Company.

The growth in sales in the area of Internet and Telephone is supposed to continue in the coming fiscal years according to the current planning of KDH Group. The Company

expects an increase of sales revenues in the business segment to EUR 1,269.8 million by the last planned year 2018/19. This would represent a share of around 50.0 % in the total

revenues of KDH Group.

The by far largest portion of the sales revenues in the Internet and Telephone business

segment involves the recurring charges. This includes especially fixed monthly fees for telephone and internet flat rates. KDH Group obtains revenues with use-based fees and termination fees, the importance of which has decreased substantially, however, in recent

years, also as a consequence of EU-wide regulations. Furthermore, KDH Group offers a small amount of mobile telephone and data services on the basis of a contractual

relationship with a German cellular telephone operator. KDH Group plans for an increase in the recurring fees during the planning period of EUR 604.7 million in the year 2012/13 to EUR 1,227.9 million in the planned year 2018/19.

The following table shows that the growth in the Internet and Telephone business segment is especially volume-based growth. The number of RGUs is supposed to almost

double from 3.660 million in the fiscal year 2012/13 to 6.617 million in the planned year 2017/18:

Since internet and telephone services are generally sold in bundled form, the rates of growth for internet RGUs and telephone RGUs are only marginally different. The fact

RGUs Internet & Phone 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 CAGR CAGR

KDH AG Actuals Actuals Actuals Forecast Plan Plan Plan Plan Plan 13/14-18/19 10/11-12/13

'000 '000 '000 '000 '000 '000 '000 '000 '0000

Internet RGUs 1,260 1,518 1,829 2,177 2,476 2,728 2,968 3,182 3,374 10.7% 22.3%

Phone RGUs 1,296 1,549 1,831 2,153 2,428 2,656 2,874 3,069 3,243 10.0% 20.8%

Total RGUs Internet & Phone 2,556 3,067 3,660 4,330 4,904 5,385 5,842 6,251 6,617 10.4% 21.6%

ARPU in EUR / month 29.15 28.24 28.17 27.49 27.33 28.26 28.84 29.32 29.54 0.8% -0.9%

- 41 -


that KDH Group continues to have significant increases in the planned numbers of users while anticipating at the same time a slowdown in the growth dynamics during the planning period applies for both services. The Company believes that there are various

reasons for the expected downturn in the growth rates for revenues in the Internet and Telephone business segment:

− Especially the increase in the number of households with equipped back-channel

capable cable connections was responsible for the strong rates of growth in previous years. Only this type of connection permits the use of interactive services so that as a consequence of this improvement in equipment, the number of accessible marketed

households for internet and telephone services increased substantially. At 30 September 2013 already 91.4 % of the KDH network was equipped for a back-channel capable structure. During the course of a further investment program, this

share is supposed to be increased to almost 94 % of the residential units that can be connected by the end of the fiscal year 2014/15. Additional increases in this portion,

however, are not expected economically according to information from the Company. In light of a constant number of households that can be connected, KDH Group expects also only very small rates of increase for the marketed

residential units so that no material growth can be generated any longer from an increase in the potential user base.

− A further aspect is that the number of marketed residential units remains approximately the same with continuously increasing RGUs in the Internet and

Telephone business segment. Therefore, the remaining basis of households which could potentially still conclude a telephone/internet agreement with KDH Group is

reduced. At the same time, and with planned churn rates, which are already low compared to competitors, the absolute churn increases just mathematically due to the increasing RGUs.

− According to information from the Company and similar to the situation in the

Premium-TV segment, the willingness to buy of the remaining base deteriorates. That means, the share of the potential users that even considers obtaining these services

from KDH Group becomes smaller. This is explained, on the one hand, by the increasing share of former customers which are again calculated as potential customers in the pool after notice of termination. Furthermore, marketing and sales

activities had first been directed towards those potential subscribers to which the highest probability of success in terms of achieving an internet and/or phone contract was assigned, i.e. solvent or young customers who appreciate the high

bandwidths of the cable network.

− Furthermore, KDH Group expects incisive changes in the competitive environment

over the next years. First, the Company assumes that the competitive pressure from

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Deutsche Telekom AG will increase significantly as a result of the VDSL-expansion and the introduction of the vectoring technology. Second, additional competition will arise from the city network providers who consistently push forward the

technical upgrade and expansion of their network through municipal support.

Further support for the expected slowdown in the Internet and Telephone business

segment is given by the German Entertainment and Media Outlook 2013 (see Section B.II.3). According to this study, the number of broadband connections is assumed to

grow by only 1.0 % annually from 2015 to 2017, compared to an average growth of 3.9 % observed for 2010 through 2012. The expectation that there will be shifts of market shares from DSL to cable is reflected in the growth rate of the Internet and Telephone

business during the planning period.

We consider it to be understandable for these stated reasons that the rates of growth in

sales revenues in the Internet and Telephone business segment are planned to be lower during the planning period.

The basis for calculating the ARPUs shown in the above table is the number of those KDH customers who have booked at least one of the two services telephone or internet.

The planned ARPU development shows that the price component has only a minor share in the high rates of growth of sales revenues in the Internet and Telephone business segment. Overall, the price level is expected to remain stable. However, due to the

expected trend towards more expensive “high bundles”, ARPU is expected to slightly increase over the planning horizon. Both, the decline in ARPUs reported for the last business years as well as the ARPU decline that the German Entertainment and Media

Outlook 2013 (see Section B.II.3) depicts for the years 2013 to 2017 suggest that this might even be an ambitious assumption. The somewhat stronger increase of the ARPUs

in the planned year 2015/16 compared to the other years is the result of an improvement in the packet structure planned for the corresponding year.

In addition to the monthly recurring sales revenues, KDH Group realizes non-recurring

sales revenues which include especially initial installation fees and other one-time revenues. The non-recurring sales revenues are planned in part on the basis of the

number of (new) users and accordingly increase substantially over the planning period in a manner which is analogous to the development of the growth in customers in this

business segment.

KDH Group plans overall an increase in its total sales revenues from

EUR 1,805.1 million (adjusted) in the last actual fiscal year 2012/2013 to EUR 2,541.3 million in the last year of the mid-term plan 2018/19. This corresponds to a rate of growth in the mid-term plan in an average of 5.9 % p. a. This is slightly below the rate of

6.8 % which was achieved on average annually in the fiscal years 2010/11 to 2012/13. The absolute growth in sales, however, is supposed to be higher with an annual average of

- 43 -


EUR 122.7 million in the planned years 2013/14 to 2018/19 than the growth sales on average of EUR 109.5 million annually achieved from 2010/11 to 2012/13. Based on the current Q2 2013/14 numbers, growth of only 5.8 % (adjusted) is expected for the current

fiscal year 2013/14. Substantially higher rates of growth in sales revenues of 7.0 % and 7.7 % respectively are expected for the following planned years 2014/15 and 2015/16, and this is accordingly supposed to be higher than the rates of increase achieved on

average in the last three years in the past. KDH Group expects for the planned years 2016/17 to 2018/19 that the growth in sales will slightly weaken especially due to a

somewhat easing dynamics in the Internet and Telephone business segment.

Based on historical results, market expectations and explanations regarding the predicted

growth in RGUs given to us by the management of the Company , we deem reasonable the planning of the Company’s revenues.

Cost of materials and for procured services

The cost of materials and expenses for procured services include expenses in connection with service level agreements (SLA) with Deutsche Telekom ("DTAG”) which relate above all to leased cable channel facilities, technical rooms, glass fiber systems and energy

supply. This also includes expenses for procurement of program content, connectivity and other network costs, interconnection expenses, maintenance and repair costs as well

as other expenses.

KDH Group forecasts overall in the planned period an increase in the cost of materials

and the procured services from EUR 490.8 million in the last actual fiscal year 2012/13 to EUR 666.3 million in the last planned year 2018/19.

The following table shows the development of the individual expense positions from 2010/11 to 2018/19:

The largest expense position consists of the costs for renting and leasing in

connection with SLAs especially with DTAG. A large portion of these expenses

consists of fixed costs for the cable channel facilities. These remain relatively constant during the planning period. The planned increase in costs for rent and leasing on average

of around 2.8 % annually planned by KDH Group through the year 2018/19 are above all

Cost of Materials and Serv. Rendered 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19



DTAG service level agreements -188.3 -199.0 -209.6 -200.4 -226.9 -230.3 -235.9 -247.8 -248.0

Content cost -52.3 -59.4 -76.6 -93.8 -116.9 -137.5 -153.5 -164.6 -173.4

Phone interconnection -42.5 -42.5 -42.9 -38.7 -37.8 -37.8 -39.0 -42.0 -44.5

Maintenance -27.7 -35.8 -41.1 -39.5 -39.4 -41.6 -43.6 -45.2 -46.8

Connectivity -22.0 -29.4 -34.1 -38.6 -44.5 -49.0 -51.2 -53.6 -55.8

Other expenditures -77.3 -84.9 -86.8 -83.9 -80.6 -82.5 -87.0 -91.8 -97.8

Cost of materials and serv. rendered -410.1 -450.9 -491.1 -494.8 -546.1 -578.7 -610.3 -645.0 -666.3

Growth in % 9.9% 8.9% 0.8% 10.4% 6.0% 5.5% 5.7% 3.3%

in % of revenues 26.1% 27.0% 27.2% 25.9% 26.7% 26.3% 26.3% 26.5% 26.2%

- 44 -


the result of higher expected payments of rent for glass fiber lines because the growing user numbers in the Internet and Telephone business segment also mean that the need for additional line capacity increases. The increase is still relatively small compared to the

planned growth in the user numbers in the Internet and Telephone business segment. The reason is that KDH Group is constructing its own glass fiber lines in the course of a planned investment program and, thus, must lease a lower amount of (additional) lines

from DTAG.

Those costs are compiled in expenses for program content which must be paid to the corresponding broadcasters for providing pay TV and private HD programs (Kabel Digital, Kabel Komfort HD, Kabel Premium, Kabel International). The rates of growth

in these expenses are closely linked to the increase in RGUs in the area of premium TV because the services in general are charged on the basis of costs per customer. The expenses for program content overall increased during the planning period by 14.6 % on

average over the years and thus slightly greater than the RGUs in the premium TV segment (+9.2 %) which, among other reasons, is the result of additional costs for HD

content which are incurred in the first planned years for the new HD packages of KDH Group.

The expenses for phone interconnection consist of fees for transmission and scheduling which are charged to KDH Group by other carriers. These involve the offsetting positions to the use-based feeds which KDH Group, in turn, demands from third party

carriers for the scheduling of telephone traffic and which are shown in the recurring sales revenues for Internet & Telephone. Despite substantially higher RGUs in the Internet and Telephone business segment, this position in the expenses remains relatively constant

because substantially decreasing traffic minutes and corresponding costs per user are expected in a manner which is analogous to the corresponding expectations for sales.

Synergies in the area of IP peering which KDH Group expects as the result of Vodafone becoming the majority shareholder contribute to a slight degree to reducing the annual expense.

In the area of maintenance and repair, KDH Group plans slightly increasing expenses on average of around 2.2 % annually based on the growth of the RGUs and a slightly

decreasing planned maintenance ratio per RGU.

A further main position in the costs involves the connectivity expenses which include especially rental payments for national and regional backbones. During the course of the planned expansion of the network, these expenses are also planned to increase

substantially.

Other expenses, for example, are costs for external call center agencies, costs for sold

end devices, installation fees as license fees which have not been capitalized. In a manner analogous to the growth in the RGUs and the sales revenues, an increase is expected in

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the planning period also for these positions in the costs. The planning considers, that KDH Group expects synergies in the area of procurement through the entry of Vodafone of around EUR 7.7 million in the planned year 2014/15 and around EUR 14.4 million

p.a. for the following years.

Since the cost of materials and procured services depends directly on the number of

customers and connection fees of KDH Group, we consider it reasonable that the corresponding rates of growth are virtually identical during the planned period. The

percentage portion of cost and materials and procured services in the sales revenues during the planning period is accordingly virtually constant. The ratio decreases only slightly from 27.2 % in the year 2012/13 to 26.2 % in the last planned year 2018/19.

Personnel costs

The personnel costs include salaries as well as social insurance levies especially for technical personnel who are responsible for planning and operating the network

infrastructure.

KDH Group intends to further expand its staff of employees in the planning period and plans and average annual growth of 3.3 % for full time equivalents (FTEs). The costs for personnel are accordingly supposed to increase from EUR 196.8 million in 2012/13 to

EUR 261.4 million in 2018/19. This corresponds to an average annual growth rate of 4.8 % that is higher than the growth in FTEs due to assumed wage increases. As is the

case with the position for costs of materials and procured services, KDH Group also expects slight economies of scale effect in coming years for the personnel costs. Compared to sales revenues, the personnel costs are supposed to decrease from 10.8 % in

the year 2012/13 to 10.3 % in the last planned year 2018/19.

Long-term incentive plan

A new compensation structure for certain employees in the Group was introduced

effective as of 1 April 2010 in accordance with the requirements of the German Stock Corporations Act and the German Corporate Governance Code.

A new long-term, success-based variable compensation structure based on a long-term incentive plan was also introduced by KDH AG and its subsidiaries together with this

new compensation structure effective as of 1 April 2010. This LTIP consists of two

Personnel Expenses 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19



Personnel Expenses (w/o LTIP) -179.8 -178.5 -196.8 -213.1 -223.1 -231.9 -241.4 -251.4 -261.4

Growth in % -0.7% 10.2% 8.3% 4.7% 4.0% 4.1% 4.1% 4.0%

in % of revenues 11.4% 10.7% 10.9% 11.2% 10.9% 10.5% 10.4% 10.3% 10.3%

Ø FTEs 2,795 2,857 3,220 3,617 3,745 3,788 3,829 3,869 3,911

Growth in % 2.2% 12.7% 12.3% 3.5% 1.2% 1.1% 1.0% 1.1%

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stock-based components: a virtual performance share program ("LTIP I”) to be awarded annually and a one-time grant of virtual stock options ("LTIP II”) both for members of the executive board as well as for selected members of the senior management.

The performance shares granted under the LTIP I become mature for payment four years after they have been allocated, depending on certain success targets. The success targets

are measured according to the development of the returns on shares for the KDH stock compared to the MDAX in the four year vesting period. The payout is made in cash and

results from the number of payable performance shares multiplied by the volume weighted average closing price for the KDH stock in XETRA trading during the last 30 trading days prior to the date of full vesting.

The virtual stock options granted under the LTIP II are mature for exercise depending on achieving certain success targets in a staggered basis on 31 March 2012 (40 % of the

options), 31 March 2013 (additional 30 % of the options) and on 31 March 2014 (remaining 30 % of the options). EBITDA goals which must be achieved during a certain period of time as well as goals relating to the price of the KDH stock which must be

achieved within a defined performance window are set as the success targets. The virtual stock options can be exercised for the first time four years after they have been allocated

during a two year exercise period. Upon exercising the virtual options, the difference between the issuing price of the KDH stock in the initial public offering and the volume weighted average closing price of the KDH stock in XETRA trading during the last 30

days prior to the exercise date is paid in cash.

The expenses for the LTIPs to be taken into account in the planning result from two

components. The first component is the change in value in the already granted performance shares and the virtual stock options. The planned changes in value are

determined on the basis of an option price model. Due to the dynamic development of the stock price of KDH AG since the last accounting date on 31 March 2013, an increase in the obligations under the LTIPs in the amount of EUR 63.6 million is expected in the

forecasts for the present fiscal year 2013/14. Lower changes in value are planned in subsequent years because a constant price for the KDH stock is used as a basis in the option price model. The Company expects that success-based compensation will also be

used in the future to assure appropriate compensation. With regards to the value it needs to be proceeded from the respective compensation in previous years. In this light, the

Company took the overall value of the performance shares granted on 01 December 2012 of EUR 4.8 million p.a. into account for the planned years 2014/15 et seq. as a second component of the expenses for LTIP.

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Other expenses

The other expenses include, among other items, marketing expenses, copyright royalties, expenses for IT support, sales commissions, expenses for temporary personnel, rental

expenses, consulting costs and travel costs.

In the budget year 2013/14 which already incorporates actual figures due to the forecasts one-time expenses are included in the other expenses which explains the comparably high

share of other expenses of sales revenues of 17.6 %. One-time expenses of EUR 35.9 millions relate to the take-over by Vodafone Vierte Verwaltungs AG and the EU regulation relating to SEPA. Without these one-time items the share of other expenses of

sales revenues would be 15.8 % and thus be lower than observed in the past. Apart from this KDH Group expects an increase in other expenses from EUR 292.4 million in the

year 2012/13 to EUR 346.5 million in the last planned year 2018/19 at an annual average of around 2.9 %. As is the case with the other positions in costs, KDH Group also plans increases in efficiency in the area of other expenses which decrease the ratio to sales

revenues from 16.2 % in 2012/13 to 13.6 % in 2018/19. This is based, among other aspects, on decreasing planned expenses in the area of consulting costs, license fees and temporary personnel (in part hired as firm employees). Economies of scale, for example,

are also planned in sales commissions and travel costs.

Other operating income

The other operating income includes primarily income from other services, commissions for advertising costs premiums, payments of damages as well as various other positions. KDH Group anticipates a decrease in the other operating income from EUR 12.6 million

in the year 2012/13 to a forecast of EUR 9.8 million in the current fiscal year 2013/14 which stems from the elimination of one-offs of the previous year resulting from the

switch off of analog satellite TV. Apart from this, only minor changes are expected in subsequent years. A slight increase to EUR 10.5 million is planned by the year 2018/19.

EBITDA

The following table shows the planned development of the EBITDA as well as the EBITDA margin of KDH Group until the year 2018/19.

Other Costs 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19



Other costs -292.3 -288.2 -292.4 -336.9 -306.6 -325.2 -331.2 -338.6 -346.5

Growth in % -1.4% 1.5% 15.2% -9.0% 6.1% 1.8% 2.2% 2.3%

in % of revenues 18.6% 17.2% 16.2% 17.6% 15.0% 14.8% 14.3% 13.9% 13.6%

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EBITDA is planned to increase from EUR 773.4 million in the fiscal year 2012/13 to

EUR 1,272.8 million in the planned year 2018/19, which corresponds to an annual average growth rate of 8.8 %. The associated expected EBITDA margins increase from 42.8 % in the fiscal year 2012/13 to 50.1 % in the planned year 2018/19.

If the expenses for LTIP and the one-time items already reflected in the forecast 2013/14 are neglected when calculating EBITDA, EBITDA increases from EUR 837.5 million in

the fiscal year 2012/13 to EUR 1,277.6 million by the last planned year 2018/19. This corresponds to an average annual rate of growth of 7.3 %. At the same time, KDH Group expects a further increase of its EBITDA margin from 46.4 % in the fiscal

year 2012/13 to 50.3 % in the planned year 2018/19.

Based on the explanations of the Company provided to us with regard to the planning assumptions, our analysis of the results in the past and a comparison with market studies,

we consider the assumptions forming the basis of the business planning of KDH Group down to the level of the EBITDA to be justified and verifiable.

Depreciation

The planned depreciation relates to the tangible and intangible assets of KDH Group which are subject to wear and tear. Depreciation of good will is not planned, as these are determined on the grounds of a annual impairment test

The planning of the investments (capex) and the depreciation is shown as follows when compared to the fiscal years 2010/11 through 2012/13:

Depreciation of tangible and intangible assets was planned by KDH Group in two steps.

Firstly, depreciation of the currently existing assets was calculated based on a simulation approach. Then the depreciation of the planned capex of KDH Group was considered.

EBITDA 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19



EBITDA 684.4 746.2 773.4 810.6 961.9 1,064.0 1,144.5 1,200.2 1,272.8

Growth in % 9.0% 3.7% 4.8% 18.7% 10.6% 7.6% 4.9% 6.0%

in % of revenues 0.4 44.6% 42.8% 42.5% 47.1% 48.4% 49.3% 49.4% 50.1%

+ LTIP 17.4 20.5 64.1 63.6 15.8 10.1 5.5 4.8 4.8

+ One-time effects 0.0 0.0 0.0 35.9 0.0 0.0 0.0 0.0 0.0

EBITDA (before LTIP/sp. effects) 701.8 766.6 837.5 910.0 977.6 1,074.1 1,150.0 1,205.0 1,277.6

Growth in % 9.2% 9.2% 8.7% 7.4% 9.9% 7.1% 4.8% 6.0%

in % of revenues 44.7% 45.8% 46.4% 47.7% 47.8% 48.8% 49.5% 49.6% 50.3%

3u

Capex and Depreciation 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19



Capex 384.3 395.5 486.7 590.1 666.9 484.5 481.6 486.4 487.5

in % of revenues 24.5% 23.7% 27.0% 30.9% 32.6% 22.0% 20.7% 20.0% 19.2%

Depreciation -490.2 -395.9 -360.9 -404.3 -458.3 -478.7 -484.9 -484.4 -493.2

in % of revenues -31.2% -23.7% -20.0% -21.2% -22.4% -21.8% -20.9% -19.9% -19.4%

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The planned investments are composed of success based investments directly attributable of the acquisition of new subscribers and non-success based investments, attributable to the upgrade and expansion of the network of KDH Group. In April 2013 the Company

has started an investment program with a volume of around EUR 300 million that will be implemented within the current and next financial year. The objective of the program is an additional growth and efficiency improvements in network infrastructure. Accordingly

the planned investments are initially planned to increase from EUR 384.3 million in 2010/11 to EUR 666.9 million in 2014/15. After 2015/16 the Company expects an

overall decrease in investments. The expected investments to revenues ratio is planned within a range between 19.2 % and 22.0 % after 2015/16 which is overall at a lower level than was observed in the past.

The decrease in planned investments due to the phase out of the investment program for network upgrades towards the end of the fiscal year 2014/15 becomes visible through a decreased portion of depreciation compared to revenues from 22.4 % in the plan year

2014/15 to 19.4 % in the plan year 2018/19. This level of depreciation is situated below or at the lower end of a range of 20.0 % to 31.2 % of revenues which was observed in the

past.

c) Earnings after interest and taxes

Determination of the financial result

The financial result of KDH Group includes several components: the interest income,

allocations of profit to minority shareholder and silent partners as well as the results from participations.

The planned accounts prepared by the Company contain interest income which is based on a planning of the need for financing build on the mid-term planning,but not based on an integrated planning of the need for financing. During the course of the valuation of

KDH Group, we accordingly replaced this planning by an integrated planning of the need for financing which is based on the audited consolidated accounts as of 31 March 2013 and takes into account the planned earnings and investments, the financing structure

as well as payout assumptions.

We took into account the assumptions of the Company concerning financing when deriving the interest results. In light of the improved credit rating of KDH Group in the investment grade range resulting from the takeover by Vodafone, a successive increase in

the investment grade debt capacity of the Company at clearly improved conditions for the financing is expected. The interest expense is initially expected to decrease strongly until the planned year 2015/16 as a result of this non-genuine synergy, and it is then planned to

slightly increase with increasing interest levels.

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Minority participations of third parties exist in the fully consolidated companies Urbana KG and its general partner Urbana GmbH. The treatment of the profit shares belonging to the minorities is different for the two companies in the planned accounts.

The profit share in Urbana KG belonging to the minorities is covered in the financial result, while the minority share in Urbana GmbH is shown separately as a minority share below the annual profit (see on this point the section "Determination of minority shares”

below).

KDH AG has an indirect participation of 100 % in KCW GmbH and KCB GmbH. However, the two companies have concluded a contract about establishing an atypical silent partnership for an indefinite term. Under this contract the silent partners have a

share in the profits, the assets and the silent reserves of the companies. The profit share of the silent partners is 60 %. The two companies are included with their full contribution to profit in the consolidated planned accounts of KDH Group which is why

the profit allocations to the silent partners were taken into account in the financial result. As the planning of the Company is performed on a consolidated level and in the absence

of individual planning accounts for the affiliates, the profit allocations to the silent partners in the planning were calculated on the basis of the forecast for the fiscal year 2013/14. They were developed further by indexing them to the overall development of

KDH Group.

The indirect participations of KDH AG in KMS KG and KMS GmbH are included in

the accounts at equity which is why the shares in the profit of the companies are shown in the results from participations. In the absence of individual planning accounts for these affiliates the corresponding income from subsidiaries was perpetuated on the basis of the

last available annual financial statement of these companies. According to our assessment the business development of the affiliates is however expected to follow the general

business development of KDH Group. Therefore, the level of the income from subsidiaries was again linked to the business development of KDH Group.

Determination of corporate taxes

KDH AG has carried out planning of the corporate taxes. Starting with the consolidated IFRS income before taxes, the tax result of the fiscal unit of KDH AG (as parent

company), KDVS, KDK and KDFS and the remaining affiliates was derived. Due to the modified calculation of the results for interest, the corporate taxes were recalculated by us. This determination of corporate taxes was based on the Company’s calculation of the tax

result.

When calculating the corporate taxes, a corporate income tax rate including the solidarity

surcharge in the amount of 15.83 % was applied. The trade tax for the fiscal unit of KDH AG (as parent company) and its operating affiliates was calculated with a trade tax

rate of about 13.65 %. This is based on the expected average trade tax charging rate at the

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fiscal unity of 390.02 %. For the other companies individual trade tax charging rates were considered.

When calculating the basis for assessing trade tax, additions and reductions were made in accordance with §§ 8 and 9 GewStG. Taking into account the free amount, under § 8 no. 1a, consideration for debt after taking into account the interest barrier (§ 4h EStG

in conjunction with. § 8a KStG), 20 % of the rents, lease payments and leasing installments for movable assets under § 8 no. 1d, 50% of the rents and lease payments for

immovable assets under § 8 no. 1e as well as 25 % of the expenses for the grant of rights limited by time under § 8 Nr. 1f were added.

There are loss carry forwards as of 31 March 2013 at KDH AG for purposes of corporate income tax and trade tax. The loss carry forwards for purposes of corporate income tax according to our information are around EUR 241.9 million, and the loss carry forwards

for trade tax purposes are around EUR 159.9 million. The interest carry forward of KDH AG as of 31 March 2013 is additionally around EUR 310.9 million. Upon the acquisition of 76.57 % of the shares of KDH AG by Vodafone Vierte Verwaltungs AG,

the Company currently believes that the existing loss carry forwards and interest carry forwards at the level of KDH AG will be eliminated. Elimination of these loss carry

forwards and interest carry forwards is not necessarily mandated in light of the unclear legal situation concerning the applicability of the exceptions set forth in § 8c para. 1 sentence 6-9 KStG (“silent reserve clause”). Therefore, we have assumed the existing loss

carry forwards and interest carry forwards of KDH AG in a precautionary value enhancing way at an anticipated value of 50 % when determining the corporate taxes.

Determination of minority shares

The minority shares relate to the part of the profit of KDH Group which is attributable to minority shareholders in the fully consolidated subsidiaries. As already explained in the

section "Determination of the financial result”, the minority shares shown separately below the annual profit relate only to Urbana GmbH. Due to the lack of material

importance of the minority shares in Urbana GmbH, they are not included by KDH Group in the planning and have accordingly been determined from our side. The net profit (HGB) of Urbana GmbH amounted to 2.1 TEUR in the fiscal year 2012/13

which leads us to not consider minority shares throughout our valuation.

d) Sustained profit

The planned accounts of KDH AG for the years 2013/14 to 2019/20 et seq. which are forming the basis of evaluation are shown below:

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For the derivation of the sustained profit 2019/20 et seq. we extended the planning of KDH Group by one additional year to account for the stronger growth of the business

segment Internet and Telephone compared to the sustainable growth rate after the last plan year 2018/19. The derivation of the sustained profit is based on the following considerations:

Our derivation of revenues differentiates between the business segments TV as well as Internet and Telephone. The revenues 2019/20 in the business segment TV were derived

applying the sustainable growth rate of 1.0 % to the TV revenues planned for the last year of the planning period. With regard to the Internet and Telephone revenues we assume a higher growth rate of 5.0 % to derive the revenues for the year 2019/20 for this business

segment. This growth rate results from a linear interpolation of the growth trend of the last three years of the business plan. In total, these growth assumptions result in an

increase in revenues to EUR 2,617.5 million in 2019/20, which corresponds to an increase of EUR 76.2 million or 3.0 % respectively.

The EBITDA of fiscal year 2019/2020 is calculated based on the incremental average EBITDA-Margin of the planning years of 60 %. The incremental EBITDA-Margin is the margin that can be earned on one additional unit of revenue, thus, it is higher than the

margin on the total revenues. Applied to the change in revenue of EUR 76.2 million an EBITDA growth of EUR 45.7 million to EUR 1,318.5 million results equaling a growth

rate of 3.6 %. This growth rate is right in the middle of the expected EBITDA growth rate in the year 2018/19 of 6.0 % and the sustainable growth rate of 1.0 %.

The sustainable depreciations correspond to the necessary sustainable investments. They are derived based on the expectation of the Company that 19.5 % of revenues need to be reinvested. This percentage is lower than the average annual investment rate of 24.4 %

which has been observed in the past.

Profit and loss statement 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

KDH AG Forecast Plan Plan Plan Plan Plan TV

mEUR mEUR mEUR mEUR mEUR mEUR mEUR

Revenues 1,909.1 2,043.4 2,199.9 2,322.7 2,429.5 2,541.3 2,617.5

Cost of material and services -494.8 -546.1 -578.7 -610.3 -645.0 -666.3

Personnel expenses -213.1 -223.1 -231.9 -241.4 -251.4 -261.4

LTIP -63.6 -15.8 -10.1 -5.5 -4.8 -4.8

Other expenses -336.9 -306.6 -325.2 -331.2 -338.6 -346.5

Other operating income 9.8 9.9 10.1 10.2 10.3 10.5

EBITDA 810.6 961.9 1,064.0 1,144.5 1,200.2 1,272.8 1,318.5

in % of revenues 42.5% 47.1% 48.4% 49.3% 49.4% 50.1% 50.4%

Depreciation and amortization -404.3 -458.3 -478.7 -484.9 -484.4 -493.2 -510.4

EBIT 406.3 503.6 585.3 659.7 715.7 779.6 808.1

Financial result -212.7 -167.5 -124.5 -127.8 -130.7 -137.5 -145.0

EBT 193.6 336.0 460.8 531.8 585.0 642.1 663.1

Income tax -33.3 -80.5 -143.0 -164.6 -178.7 -196.4 -204.1

Net profit/loss 160.3 255.5 317.8 367.2 406.3 445.7 459.0

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e) Expected net distributions

The expected net distributions were derived as follows:

Distribution of dividends and retained earnings (internal financing)

A resolution was adopted at the general shareholders meeting on 10 October 2013 about the dividend for the year 2012/13 which is EUR 2.50 per share. This dividend has been paid to the shareholders so that this outflow of funds was taken into account when

planning the need for financing.

KDH Group has not made any assumptions in its planned accounts concerning the application of the annual surplus. In this context, a distribution ratio of 45 % of the annual surplus available for purposes of distribution, after taking minorities into account

(gross distribution), is applied for the planning years as well as for the sustainable planning year 2019/20. This ratio is derived from the historic distribution policy of publicly listed companies which are comparable to KDH Group.

Tax exempt return of contributions

Pursuant to § 27 para. 1 sentence 3 KStG, a company which is fully subject to taxation

can return payments free of taxes to the extent that these payments exceed the profits capable of being distributed which have been identified as of the closing of the previous fiscal year. The profit of KDH AG available for distribution as defined there will be

positive for the first time in the year 2015/16 so that all distributions of KDH AG to its shareholders will be made as tax exempt returns of contributions up to that point in time.

Deemed retention of earnings

The contribution to value from retained earnings is that part of the gross distribution which is not distributed as a dividend to the shareholders. The assumption is made with

regard to the deemed retained earnings that they flow directly to the shareholders after deduction of capital gains tax.

The method of directly attributing the retained funds to the shareholder was chosen for reasons of simplification. In the alternative, there could be an assumption of internal

reinvestment within the enterprise in the amount of the deemed retained earnings at the capitalization interest rate before the taxes accruing at the level of the enterprise, which would have the same effect.

Net distribution 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20



Net income 160.3 255.5 317.8 367.2 406.3 445.7 459.0

Dividends 72.1 115.0 143.0 165.2 182.8 200.6 206.5

Capital gains (fictious retention of net income) 88.2 140.5 174.8 202.0 223.5 245.2 252.4

Income tax on dividends 0.0 -12.9 -37.7 -43.6 -48.2 -52.9 -54.5

Income tax on capital gains (fictious retention of net income) -11.6 -18.5 -23.1 -26.6 -29.5 -32.3 -33.3

Net distribution 148.7 224.1 257.1 297.0 328.6 360.5 371.2

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All profits from the sale of securities and corporate shares acquired after 1 January 2009 are subject to the final tax on investment income [Abgeltungsteuer] including the solidarity surcharge at a rate of 26.38 %. The assumption can be made for purposes of typification

that capital gains are only realized and taxed in the far future. The effective tax burden on capital gains tends to be below that on dividends due to this tax deferral effect. Taken into account a very long holding period, an effective tax on the capital gains on the

deemed retained earnings is deducted in one-half of the nominal final tax on investment income resulting in 13.19 %.

The net distributions to the shareholders to be capitalized result from the total of the dividend distributions (minus final tax on investment income) and the deemed retained

earnings (minus tax on capital gains).

3. Determination of the Capitalization Interest Rate

The discounted earnings value is determined by discounting the future financial surpluses to the valuation date. The capitalization interest rate reflects the return on investment for

an alternative investment in which the cash flow is considered to be comparable to the cash flow which the shares in the enterprise being valued provide in terms of timing, risk

and taxation.

The starting point for the determination of the capitalization interest rate is the return on

investment of a risk-free investment in the capital market (risk free rate). This risk free rate must be increased by a risk premium which is supposed to cover the greater uncertainty about the amount of the financial surpluses involved in an investment in

shares of the enterprise being valued compared to an investment in a risk-free interest bearing security. When determining the risk free rate in the risk premium, provisions on taxes must be considered. In order to determine effects of growth in the form of

continuously increasing financial surpluses after the end of the detailed planning phase, the capitalization interest rate is reduced by a factor for growth (deduction for growth).

Our approach for determining the capitalization interest rate is as follows:

a) Risk free rate

The risk free rate represents a risk-free alternative investment equivalent to an investment

in the enterprise being valued in terms of timing. In light of their virtually safe nature, government bonds in Germany fulfill to a greatest extent the requirement of freedom from risk due to the inability of the issuers to become insolvent.

When valuing an enterprise with a perpetual life, as a general rule the returns on

investment which can be realized on the valuation date from government bonds which

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are also perpetual would have to be used as the risk free rate (equivalent term). However, since such perpetual bonds do not exist or are not traded, the theoretical return on investment for bonds with a perpetual term can be approximated using the observed

interest yield curve.

The German Federal Bank [Deutsche Bundesbank] regularly publishes estimates of the yield

curves on the basis of the prices of listed German Federal Government securities having a remaining term of up to around 30 years by using the Svensson method. These yield

curves reflect risk free rates for specific terms (so-called zero bond interest rates).

In the case of remaining terms greater than 30 years, the average determined zero bond

interest rate for a remaining term of 30 years can normally be applied as a long-term approximate value in light of the general uncertainty of forecasts and the limited applicability of the parameters of the estimation function of the German Federal Bank in

the context of an extrapolation for forecasts of interest for periods further in the future. This approach was followed in accordance with the recommendation of the FAUB (Technical Committee for Business Valuation and Economics [Fachausschuss für

Unternehmensbewertung und Betriebswirtschaft].

In order to determine the base interest rate, an average interest yield curve for the years 2013 et seq. over a time period of up to 30 years was derived from the estimates of the German Federal Bank [Deutsche Bundesbank] for the months of September to November

and an extrapolation of the average 30 year zero bond interest rate. The specific interest rates for the terms in the interest yield curve derived in this manner were converted to a uniform base interest rate before income taxes of 2.7574 % for all planned years and

rounded by us to 2.75 %.

b) Risk premium

The risk premium serves to compensate the risk that is accepted when investing in shares

of the enterprise being valued. It must be assumed that market participants are risk averse. This means that safe earnings are always preferred compared to expected values from unsafe earnings in the same amount. This risk aversion can be taken into account

by a deduction from the expected surpluses (so-called certainty equivalent method; Sicherheitsäquivalenzmethode) or by a risk premium on the capitalization interest rate (so-called risk premium method; Risikozuschlagsmethode). Both methods can be converted to

each other, but in practice risk aversion is almost exclusively reflected by a premium on the interest rate.

This decision for the risk premium method is embedded in the general purpose of an objectified valuation. An objectified valuation needs to meet the requirement to be based

on transparent parameters which are comprehensible for third parties. As the

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theoretically equal certainty equivalent method derives its risk discounts from the planned figures in individual, not observable and therefore not comprehensible utility functions and preferences, it basically needs to be disregarded for objectified valuations. In contrast

to this, risk premiums which are demanded by investors for risky investments are visible in the capital market and can therefore be verified.

Due to this reason capital market models such as the Capital Asset Pricing Model (CAPM) and the Tax CAPM, which is based on the CAPM, are particularly good for

determining the risk premium in the course of objectified valuations. These capital market models derive risk premiums indirectly using prices that can be observed in the capital market. The prices that develop in the capital market are the results of actions of

the investors. Prices for securities reflect in this regard also the risk preferences of the investors because the investors knowingly and freely make a decision to purchase or sell certain securities. This market assessment of the risks in shares by rational and risk averse

investors is reflected in the CAPM and the Tax CAPM in the form of a theoretical model. The CAPM and the Tax CAPM accordingly provide a verifiable, objectified explanatory

context for the quantification of a reasonable risk premium.

It can be argued that the theoretical considerations of the CAPM and especially the Tax-

CAPM are grounded on assumptions (e.g. the presence of a complete market) which are not observable in reality. This critique is justified and leads to the conclusion that the results of empirical analyses of the capital market need to be assessed in terms of

plausibility. For individual parameters like market risk premium or beta factor (see section D.I.3.bb) it is generally observed that results can differ significantly depending on the selection of the underlying data and the analyzed respective time periods. Despite the

justified critique, the derivation of a risk premium on the basis of a capital market model is preferable compared to rough estimations and guesses which were customary in the

past (e.g. premiums on the basis of credit risk, industry risk or size risk), because

- the CAPM displays the behavior of capital market participants in a rational and

comprehensible way. Despite market imperfections and existing mispricing it cannot be concluded that the capital market is systematically wrong or sustainably valued in an incorrect way.

- no other pricing model has shown its superiority over the long run so far.

- an objective discussion about the adequate approach and the plausibility of the results is just possible due to the comprehensible valuation parameters.

The debate about the valuation parameters “market risk premium” and “beta factor” will progress in the following sections. As the influence of taxes is generally significant for

investment decisions and valuations and in light of KDH AGs tax-free potential distributions and endangered tax losses carried forward it is advisable to utilize the CAPM

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in its after-tax version (Tax-CAPM).Against this background, the two model parameters of market risk premium and beta factor, which are needed in the CAPM and Tax-CAPM to calculated the adequate risk premium are derived as follows:

aa) Market risk premium

The market risk premium is the market average excess return on investment for investments in stock compared to returns on investment for risk-free securities demanded

by investors. The stock market can be reflected by a broad stock index such as, for example, the CDAX or the MSCI All Country World Index.

The CAPM represents in its standard form a capital market model in which the costs of capital and risk premiums are explained without taking into account the effects of personal income taxes. Since returns on investment for stock and risk premiums,

however, are generally influenced by taxes on income, an explanation of the empirically observable returns on investment that is closer to reality is provided by the Tax CAPM which expands the CAPM in order to expressly take into account the effects of personal

income taxes. The different tax treatment of interest income, dividends and capital gains is directly covered in the equation for the Tax CAPM by considering the respective

relevant tax rates for the components of the costs of capital.

According to the Tax CAPM, the capitalization interest rate consists of the risk free rate as reduced by typified personal income taxes and the risk premium after personal income

taxes determined on the basis of the tax CAPM, weighted with the beta factor.

In light of the current situation in the capital markets, the Technical Committee for Business Valuation and Economics at the IDW (FAUB)9 considers it appropriate to use

as an orientation a range of 5 % to 6 % (after personal taxes) when assessing the market risk premium in light of the current distortions in the financial market and the Euro debt

crisis.

In times of stable economic development, it must be assumed that the relationship

between risk premium and risk-free interest rate measured in the past and taking into account long-term developments of trends is a good basis for estimating the expected relationship. In light of this background, the capitalization interest rate is determined in

the context of the capital market oriented approach as the sum of a return of risk-free return on investment currently expected for the future and a forecast risk premium which is based on returns on investment measured in the past. While the risk-free interest rate

can be derived from current expectations in the capital market, the forecast of the risk

9 See, "Instructions of the FAUB on taking into account the crisis in the financial markets when determining the capitalization interest rate in enterprise valuations “ dated 19 September 2012.

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premium is made on the basis of historic average values due to the lack of ability to measure the expected returns on investment for stocks.

In the current crisis in the financial markets and the Euro debt crisis, however, various

indicators show that long-term developments in trends assumed in the past when forecasting the risk premium are currently being overshadowed by other influences or no longer exist in the extent previously anticipated. Long-term German government bonds

currently have a very low return on investment compared to their past history and compared to other EU government bonds. Even negative returns on investment can be

seen for short-term German government bonds and inflation protected German government bonds. Furthermore, there are spreads between interbank interest rates and government bonds that are significantly above the spreads that were measured prior to

the beginning of the crisis in the financial market. In light of this background, it must be determined that the current situation in the capital market no longer corresponds to the situation that was observed on average in the past.

Despite these distortions, it must be noted that the observable returns on investment for German government bonds continue to be the best possible estimator for determining

the risk-free interest rate because no failure of the market can be observed for them.

Compared to this, both the increased spread between German government bonds and other European government bonds as well as the increased spread between interbank

interest rates and government bonds support the assumption that the risk premium as the price for assuming the risk has increased. An extension of the analysis of historical data for considerations about the development of real returns on investment for shares as well

as findings in a so-called ex ante analysis confirms this view.

In light of this background, we have applied a market risk premium in the amount of

5.5 % for the valuation of KDH Group.

bb) Beta factor

The amount of the beta factor according to the valuation formula in the CAPM reflects the degree of systematic risk in a stock which cannot be diversified by capital market

transactions. The higher the beta factor, the higher is the risk premium demanded by investors in the capital market.

The CAPM and the Tax-CAPM are so-called ex ante models in order to explain shareholders’ expected return on investment from risky cash flows in capital market

equilibrium. They are based on expected values of future cash flows and returns. Therefore, in the context of a forward looking valuation, reference must be made to future beta factors that reflect the risk of the business model being valued. This future

risk, however, cannot be directly observed and measured.

- 59 -


Due to un-availability of observable future beta factors, reference can be made only to auxiliary solutions. As one of these solutions the usage of so-called fundamental beta factors is thinkable. Financial analysts estimate fundamental betas on the basis of

fundamental company information using econometric models. As these econometric models are usually not disclosed and are hence not traceable, the usage of fundamental betas should usually be ruled out in the determination of objectified business values. The

standard practice solution is therefore the estimation of the unknown future beta factor on the basis of historical data.

In general, historic beta factors can be derived both on the basis of the historic stock prices of the subject of the valuation, if the subject is a listed company, as well as on the

basis of stock prices of comparable enterprises.

We have analyzed and evaluated both possible approaches:

(1) Beta factor of peer group

“Valuing is comparing”: the discount rate represents the return on an alternative investment adequately comparable to the entity to be valued (see, IDW S 1 2008, no. 4).

In a first step, we therefore analyzed which conclusions with regard to the beta can be made from the average beta factor of a group of comparable companies (Peer Group)

For this purpose we considered those listed cable network operators that have comparable business models to KDH Group.

Especially the revenue structure of the enterprises with regard to the business fields of TV as well as internet and telephone were taken into account. The peer group that was used consists of cable network operators which are primarily active in the United States of

America as well as in the European area. The activities of the companies included in the peer group, whose beta factors have been included in determining the average unlevered

beta factor, are described below (in alphabetical order):

Cablevision Systems Corp.

Cablevision Systems with sales of around USD 6,705 million (2012) is one of the leading US American media and telecommunications companies. The company owns and

operates hybrid fiber coaxial cable networks in four western states of the USA and offers also cable, internet and voice solutions in the New York area. In 2012, the company generated a share of 51 % of its total sales within their TV division. Revenues resulting

from their internet- and telephone operations amounted to 33% of the company’s total sales revenues.

- 60 -


Charter Communications Inc.

With sales of USD 7,504 million (2012) Charter Communications symbolizes a large cable

network operator in the USA. The core business of the company consists primarily of operating broadband networks with coaxial and fiber optic cables. In total, around 12 million households are connected to the cable network of the company. The customers

are provided with video, data, interactive and private network services through this infrastructure. In addition, the company provides telephone services using their

broadband network. In 2012, the company generated 49 % of its sales in the area of TV/Video- and 36 % in the area of internet and telephone service.

Comcast Corp.

Comcast is a US American cable network operator which offers its customers TV,

internet and telephone services. The business of the company is organized and segmented into the two divisions of Comcast Cable and NBCUniversal. Comcast Cable is present in 39 US states, and forms the largest cable provider for private households and

companies in the areas of video, high speed internet and telephone services in the USA. The subsidiary NBCUniversal acquired in March 2013 develops, produces and markets

entertainment, news, sports and other content for a worldwide audience. In addition, NBCUniversal operates an own cable network.

Liberty Global Plc

Liberty Global is an operator of broadband cable networks and generates its sales

primarily with video, telephone and internet services. The corporate group operates networks within 14 countries. Liberty Global is primarily active in Europe and is represented, among other, by the brands UPC (Austria), Unitymedia (German), UPC

Cablecom (Switzerland) and Telenet (Belgium). In June 2013, the company acquired Virgin Media which operates in the United Kingdom. The company is accordingly one of

the largest cable network operators outside of the USA. In March 2013, Liberty Global acquired a block of shares of around 25 % from a private equity investor. In 2012, Liberty Global employed 22,000 employees and achieved revenues of USD 10,311 million. 45 %

of these sales are attributable to the company’s TV-operations, whereas 39 % can be linked to their various internet and telephone services.

Multimedia Polska SA

Multimedia Polska is a leading cable network operator, provider of digital TV as well as broadband, mobile and fixed line network solutions in Poland. In November 2011, the company was delisted. The company generated around 48 % of its sales by providing

cable television in this year. Another 28 % and 21 % were generated with internet and telephone services, respectively. In 2011, the company achieved total revenues of in 2011 PLN 622.3 million.

- 61 -


Telenet Group Holding NV

Telenet Group is a Belgian telecommunications company and the largest cable network

operator in the country; a majority of the shares in the company are owned by Liberty Global. The company offers services such as fixed line telephone service, cellular telephone, broadband internet, pay TV and cable television for private persons through

hybrid glass fiber coaxial networks. Commercial customers are reached through specialized voice and data transmission using glass fiber cable and coaxial cable in

Belgium and parts of Luxembourg. The company had sales of EUR 1,489 million in 2012, whereby 37 % of the sales were generated by providing cable television and 53 % by providing internet and telephone services.

Time Warner Cable Inc.

Time Warner Cable is a large US American cable network operator with sales revenues of USD 21,386 million (2012). The company provides multimedia services to more than 15 million households and around 300,000 corporate clients. The main fields of business of

the company are HD-TV, services for video and high speed data transmission as well as voice and digital telephone services. The company achieved around 58 % of its sales

revenues in the TV field and around 40 % with its internet and telephone services.

Virgin Media Inc.

Virgin Media is an Anglo-American company which provides services in the field of telecommunications. The core business is providing fixed line- and cell telephone

networks, television- as well as broadband internet solutions for private and commercial customers in Great Britain. With its extensive cable network, the company services around 4.8 million customers. The TV, internet and telecommunication services are

combined in the division of cable with which around 82 % of the sales revenues are generated. Around 31 % of the cable sales revenues in the fiscal year 2012 were

attributable to the field of TV and the remaining 69 % were attributable to the field of internet and telephone. Within telephone services, revenues generated with mobile phone services represent only a small portion of total revenues. In June 2013, the company was

acquired by Liberty Global.

ZON Optimismus SGPS SA

ZON Optimus is a media company which has its origins in Portugal Telecom. The

company supplies its customers with satellite and cable television as well as internet services as a service provider. The company generated total sales of EUR 858.6 million in 2012. A portion of 86 % and, thus, a majority of the sales of the company are generated

by providing television as well as internet and telephone services. To a lesser extent the company offers mobile services.

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The Dutch Ziggo NV could also have been included in the peer group in light of the comparable operational business. The company is, however, only listed since March 2012. Due to the lack of sufficient data this was precluded for the beta inquiry.

Since the beta factor in an enterprise valuation is a forward looking variable, major influences of one-time effects in the past must be avoided if possible and possible trends

must be analysed. For this purpose, we conducted five determinations of beta against the MSCI World All Country Index for the period December 2007 to December 2013.

Each of these determinations cover a period of two years and are based on weekly returns on investment. The use of the worldwide MSCI World All Country Index reflects the existing worldwide possibilities for investment and diversification of a representative

investor and corresponds to the approach of using an international peer group. The oldest period in these inquiries ends on 09 December 2009 and the most recent on 09 December 2013.

In order to assess the statistical significance and the goodness of the regressions made to derive the beta factors we applied the coefficient of determination (R²) and the t-test. 10

The usage of statistical filter criteria based on these statistical tests can ensure that, on the one hand, a statistical relationship between the stock returns and market returns even

exist (as measured with the beta factor and tested with the t-test) and, on the other hand, that the this relationship has a minimum of statistical reliability and quality (tested with R²). If measured beta factors could not fulfil both statistical tests11, they were eliminated

from our analysis. In addition, beta factors of companies whose stock quotes were influenced by acquisitions were not considered in the respective time periods.

The so-called adjusted, and corrected for their financial risk (unlevered) beta factors that have been adjusted for this purpose, are derived as follows from the analysis:

10 These tests are often used for valuation purposes and are accepted by courts (see, decision of the OLG

Stuttgart from 18 December 2009, Az 20 W 2/08, p. 77; decision of OLG Stuttgart from 19 January 2011, Az 20 W 3/09, Tz. 212).

11 As the lower limit of the coefficient of determination we applied a common minimum value of 10 %; for the t-test we used a significance level of 5.0 %, which is also common for statistical tests.

Unlevered adjusted beta factors

Company10.12.2007 -

09.12.2009

10.12.2008 -

09.12.2010

10.12.2009 -

09.12.2011

10.12.2010 -

09.12.2012

10.12.2011 -

09.12.2013Mean

Cablevision Systems Corp 0.75 0.68 0.60 0.61 0.66 0.66

Charter Communications Inc 0.47 0.59 0.53

Comcast Corp 0.79 0.71 0.70 0.77 0.78 0.75

Liberty Global PLC 0.67 0.59 0.54 0.58 0.63 0.60

Multimedia Polska SA 0.78 0.77 0.78

Telenet Group Holding NV 0.65 0.65 0.64 0.65

Time Warner Cable Inc 0.57 0.55 0.60 0.57

Virgin Media Inc 0.67 0.56 0.62 0.57 0.61

ZON OPTIMUS SGPS SA 0.68 0.52 0.65 0.63 0.62

Mean 0.71 0.63 0.62 0.60 0.65 0.64

- 63 -


The unlevered beta factors of the peer group companies show a range of 0.53 to 0.78. The average value of the unlevered beta factors is 0.64 and was rounded down to 0.60 from our side throughout the determination of the capitalization interest rate.

The capital structure risk was taken into effect by a period specific adjustment of this unlevered beta factor for the risk effect resulting from the varying degrees of debt of

KDH Group, whereby the fact that third party capital generally involves risk was taken into account. The level of debt is integrated and derived from the calculation of the need

for financing. This results in a range of the levered beta factor of 0.74 to 0.75.

(2) The own historic beta factor of KDH AG

Since the stocks of KDH AG are listed since 22 March 2010, own historic beta factors for KDH AG can be calculated.

To start with, we have determined different historic beta factors for KDH AG over different time periods since the initial listing of the stock using the MSCI World All

Country Index. Analog to the analysis of the peer group, time periods of two years were chosen. The analyses were based on weekly (calculated per last weekday) returns on

investment. The so derived historic unadjusted beta factors of KDH AG are as follows:

The historic beta factors of KDH AG (unadjusted and levered) determined over these

time periods are within a range of 0.25 and 0.60. It should firstly be noted that the beta factors of KDH AG are generally lower for younger time periods since Vodafone’s

intention to acquire KDH AG was released on 13 February 2013.

In order to differentiate between purely random and systematic beta observations,

statistical tests are usually applied. In order to assess the statistical significance and the goodness of the regressions made to derive the historic beta factors of KDH AG we applied the coefficient of determination (R²) and the t-test.

In the present case, the beta factors derived for KDH AG mainly have an unsatisfying R² that decreases when later estimation periods are considered. This might be an argument

that the future beta of KDH AG to be estimated should really be close to zero, or alternatively, that the estimated beta factor has been measured purely randomly from a

statistical point of view. Since one should assume that the business and the planning of KDH AG is generally not riskless, we consider the estimations of KDH’s own beta factor as not very reliable and as not very suitable to forecast the company’s risk. That the

KDH AG's levered raw beta

KDH's levered raw beta - 0.60 0.47 0.44 0.25

Coefficient of determination - 15% 9% 7% 2%

Passed t-test - yes yes yes no

Data points 0 37 90 104 103

10.12.2007 -

09.12.2009

10.12.2008 -

09.12.2010

10.12.2009 -

09.12.2011

10.12.2010 -

09.12.2012

10.12.2011 -

09.12.2013

- 64 -


quality of the beta estimations decreases when later periods are considered indicates that the own historic beta of KDH AG has been decoupled from the intrinsic risk of its business model at the latest since the publication of Vodafone’s takeover intention on

13 February 2013. Then, this beta factor would not suitable to forecast the future beta factor of KDH AG. In the following we therefore analysed the suitability of the historic beta factors of KDH AG to forecast the company’s future risk in more detail.

We first analysed the development of the historic own beta factor of KDH AG over time.

Beginning with the initial listing of the stock of KDH AG on 22 March 2010, we have determined beta factors using the MSCI World All Country Index for each week up to 09 December 2013], each of which covers a period of one year and is based on weekly

(calculated per last weekday) returns on investment. These rolling unadjusted historic beta factors are shown together with the stock price development of KDH AG and of the MDAX are as follows:

After initial fluctuations, the annual beta factor of KDH AG determined on a rolling basis

shows a general upward trend up to spring 2013.

The development of the stock price of KDH AG indicates that the own beta factors are

distorted since the first rumors about the potential takeover through Vodafone arose in press on 13 February 2013. On this day the stock price of KDH AG increased sharply with relatively high trading volumes and, in the following weeks, the stock was primarily

determined by increased interest on the part of analysts (see section D.IV). Beta factors that are estimated this period therefore do not reflect market expectations with regard to

the risk of future earnings of KDH AG but instead expectations with regard to a potential takeover bid and the bid price.

Starting with these speculations the stock price of KDH AG has been decoupled from the general market movements (as represented by the MDAX index). That this decoupling from the market does not affect beta factors immediately is explained by the methodology

to determine beta factors on past returns (1 year in this case). Distortions in the stock

-0,20

0,00

0,20

0,40

0,60

0,80

0

20

40

60

80

100

120

25.03.2011 25.09.2011 25.03.2012 25.09.2012 25.03.2013 25.09.2013

beta

fa

cto

r

sto

ck

pri

ce o

f K

DH

in

Eu

ro,

Ind

ex n

orm

alise

d

Rolling annual (unadjusted) beta fakcor and stock pricedevelopment of KDH AG

KDH AG MDAX Betafaktor der KDH AG

13.02.2013: first rumors about Vodafone's takeover intentions

12.06.2013: Confirmation of Vodafone's takeover intention by KDH

- 65 -


price can therefore be detected only with a time lag in the beta factors, though they impact beta factors immediately.

Since the date of the announcement of receipt of a preliminary proposal for a takeover by Vodafone on 12 June 2013, KDH AG’s stock price was virtually fixed until the announcement that the 75 % minimum acceptance threshold has been reached on

12 September 2013 (see section D.IV). With lacking volatility of stock returns the historic beta factor of KDH AG approaches zero and is now even negative.

As a result, historic beta factors of KDH AG that consider estimation periods after 13 February 2013 are not suitable to forecast the inherent systematic risk of the planning

of KDH AG.

Within the relevant estimation period for KDH AG starting with the listing and ending

before 13 February 2013, the own beta factor (unadjusted and levered) determined on a rolling basis follows a slightly increasing trend after initial fluctuations from around 0.3 to around 0.6. In contrast, the average beta factor of comparable companies is relatively

stable at a level of just over 0.6 (adjusted and unlevered). This raises the question of which observation is more suitable to value the future risk of KDH AG.

It is worth pointing out, that the planning of KDH AG includes an increasing importance of the Internet and Telephone segment compared to the TV segment. The expected

revenue share of the TV segment decreases from around 61 % in 2013/14 to around 50 % in plan year 2018/19 (see section D.I.2.b). Compared with this, the revenue share of KDH in the past has been substantially higher (see graph in section D.I). The extent to

which the own beta factors determined for the period prior to 13 February 2013 are appropriate in light of the continuously changing revenue structure of KDH AG is at least

questionable. In contrast, the peer group we derived shows already in the past an average revenue share for the TV segment at levels seen at the end of KDH AG’s planning horizon. Hence, there are good arguments that the historic own beta factor of KDH AG

cannot easily be applied to the future.

(3) Estimation of the future beta factor

In general, both, the historic beta of comparable companies as well as the historic own beta of KDH AG indicate that the risk inherent in the business model is below-average.

Due to the difference between the beta factor of the peer group of 0,6 (adjusted and unlevered) and the range of the historic own beta factor of KDH AG of 0.3 to 0.6

(unadjusted and levered) determined on a rolling basis, a decision between both approaches is required.

This decision can be made on the basis of concrete empirical results or on the basis on fundamental theoretical considerations.

- 66 -


If the empirical data basis is considered in more detail, one can observe that the beta factors provided by Bloomberg or other financial service companies that are based on weekly stock returns are usually derived from weekly returns that are calculated as of end

of the week (Friday). However, there is no economic justification to calculate weekly stock returns based on last prices of the week. Rather, every week day should have the same relevancy.

Therefore, analogous to the preceding beta estimations, beginning with the initial listing

of the stock of KDH AG on 22 March 2010, we have determined beta factors using the MSCI World All Country Index for each week up to 09 December 2013, each of which covers a period of one year and is based on weekly returns on investment. We calculated

the weekly returns on investment, however, for various week days, i.e. the weekly returns on investment from one Friday to the next Friday as well as the returns on investment determined for other week days respectively were analyzed. Depending on the week day

used as a basis for calculating the weekly returns on investment, the observed beta factors (unadjusted and levered) are as follows:

The amount of the own historic beta factor of KDH AG depends decisively on the week

day which is used as a basis for determining the weekly returns on investment. For example, beta factors between slightly over zero up to 1.48 can be observed depending on the underlying week day. The average beta factor established over all weekday for time

periods until 13.02.2013 is on average about 0.75. Thus, there would be a certain degree of arbitrariness if, for example, weekly returns on investment determined as of a specific

week day were used for determining the beta factor or to apply a however calculated

-0,20

0,00

0,20

0,40

0,60

0,80

1,00

1,20

1,40

1,60

25.03.2011 25.09.2011 25.03.2012 25.09.2012 25.03.2013 25.09.2013

Rolling annual (unadjusted) beta factor of KDH AG based on weekly stock returns measured over different week days

Monday Tuesday Wednesday

Thursday Friday Mean over week days

13 February 2013: rumors about Vodafone's intention to take over KDH arise

12 June 2013: KDH confirms Vodafone's takeover intentions

- 67 -


average above week days. The arbitrariness of the own beta factor is not by chance. Rather, this empirical result is in accordance with fundamental theoretical considerations.

The estimation of future beta factors on the basis of historic measurement requires a resilient and a large data base as possible. If however the historic beta factor of only a single company is applied to the valuation, then the data basis is so small that even

changes in the week day used to calculate returns can result in almost arbitrary changes in the outcome. In contrast, such distortions can offset each other in the total data set of a

large peer group and can so be avoided.

“Valuing is comparing” is therefore not an empty phrase. Valuing a company always

means to conclude form the known value of other companies to the value of the company to be valued. With regard to multiple valuation techniques, the earnings multiples observed from other comparable companies are applied to the valuation object.

With regard to Discounted Earnings valuations, the required returns on investments observed from comparable companies and hence the beta factors are applied to the valuation object. Comparing a company with itself however generates no further

knowledge.

It is for this reason that the valuation standard IDW S 1 assumes that as part of the comparison required for the valuation the discount rate represents the return on an alternative investment adequately comparable to the entity to be valued (see, IDW S 1

2008, no. 4 and no. 114).

Based on the concrete empirical data basis as well as on fundamental theoretical

considerations, we therefore consider it as preferable to use the beta factor derived from comparable companies instead of the own historic beta in order to estimate the future

beta factor of KDH AG. Although the above analysis shows the arbitrariness of applying the own historic beta factor of KDH AG, nonetheless, when considering the average value of about 0.75 established for the week days, it does not contradict the range of the

levered beta factor of KDH AG from 0.74 to 0.75 determined using the peer group.

c) Deduction for growth

The growth of expected future enterprise profits must be taken into account throughout the valuation of the enterprise. Any growth in the corporate profits for the individual

periods in the detailed planning phase 2013/14 to 2018/19 is included in the planned accounts. The contribution to value from the surplus payments in the company which

accrue over time after the detailed planning phase starting in the year 2019/20 et seq. is reflected in the valuation for purposes of simplification by the present value of a terminal annuity [terminal value]. Within the discounted cash flow formula, the terminal value

needs to be reflected by the means of the sustainable expected profit. If the enterprise

- 68 -


being valued is able to increase its profits in a sustained manner in the period after the detailed planning phase, the corresponding growth in profit can be taken into account mathematically by a deduction from the capitalization interest rate.

We have set the sustainable growth rate at 1.0 % p.a. We have derived this value from the following considerations:

The starting point for the development of sustained profits is the determination that nominal planning variables can be subject to inflation-linked- and real changes over the

long term.

The expected changes for inflation for German can be determined using differences in returns on investment between nominal fixed interest and inflation protected government bonds. Based on this as well as fundamental forecasts, the long-term inflation expectation

ranges between 1.5 % to 1.9 % which has effects on both the sales revenues as well as the costs. Inflation effects are considered by KDH Group to be a material key factor for the success of the business. If the increases in costs cannot be held below the increase in

sales revenues by increasing productivity and operating efficiency, the margins come under pressure.

In addition to this nominal development, real developments can also influence the growth of profits. These real developments were considered for the two business segments TV

and Internet and Telephone separately.

As displayed in Section B.II.3 the number of TV households is expected to be constant at

around 38.3 Mio. in the mid-term. For the long-term, a shrinking population is anticipated for Germany as a result of the demographic development. In contrast to this, households consisting of one or two persons are increasing, which leads to an overall

increase of total households despite the demographic development. However, the share of cable households on total TV households is decreasing and a continuation of this

process is expected because the transportation of TV signals via cable stays in direct competition with other ways of transportation like satellite or IPTV. Apart from this volume-based perspective the development in general pricing policies also needs to be

considered when analyzing ways to compensate the decrease of customers for cable network operators.12 One reference point for the sustainable volume-based and price-related developments can be seen in the growth rates of revenues from subscriber and

Pay-TV services in the overall TV market. These are expected to decrease as a result of the increasing market penetration. For the business segment TV no real growth is

anticipated in the long run.

12 See, German Entertainment and Media Outlook 2013-2017, p. 81.

- 69 -


Within the sustainable development of the business segment Internet and Telephone it needs to be considered next to the general demographic development and the number of households, that the relevant market for KDH Group is limited. The market currently

comprises of 15 million households of which 13.9Mio are upgraded with a back-channel ready connection. Of these, 11.6 million households are potential users of KDH Groups Internet and Telephone products. This high penetration rate can be seen in the total

broadband market as well. At the end of 2012 a total of 28 million broadband connections were in use which equals a penetration rate of 70.1 %.13 Broadband

connections are becoming the standard for households and with the continuous development in terms of market penetration the volume-based growth of the broadband market slows down. It is expected to be only 1 % by the year 2017.14 Simultaneously, the

development towards increased bundling of TV, Internet and Telephone products becomes visible, which makes the broadband connection generally cheaper for households. For the business segment Internet and Telephone, growth is anticipated

which is expected to be higher than in the TV business segment.

In light of this, we consider a rate of growth of 1 % for the entire corporate group to be reasonable.

Based on the above considerations, we derive the capitalization interest rate for the expected net distributions of KDH AG as follows:

4. Discounted earnings value of the operational business

The forecasted net distributions were discounted directly to the valuation date 13 February 2014. This results in a discounted earnings value of around EUR 6,705.7 million for KDH AG as of 13 February 2014.

13 See, Bundesnetzagentur (2013): Jahresbericht 2012, p. 81.

14 See, German Entertainment and Media Outlook 2013-2017, p. 42-43.

Discount rate 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20


Risk-free rate before personal income tax 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75%

Personal income tax -0.73% -0.73% -0.73% -0.73% -0.73% -0.73% -0.73%

Risk-free rate after personal income tax 2.02% 2.02% 2.02% 2.02% 2.02% 2.02% 2.02%

Market risk premium after personal income tax 5.50% 5.50% 5.50% 5.50% 5.50% 5.50% 5.50%

Beta unlevered 0.60 0.60 0.60 0.60 0.60 0.60 0.60

Leverage 48.05% 50.30% 51.28% 49.82% 49.39% 48.52% 47.66%

Beta levered 0.74 0.75 0.75 0.75 0.75 0.74 0.74

Risk premium after personal income tax 4.09% 4.13% 4.14% 4.12% 4.11% 4.10% 4.08%

Sustainable growth rate -1.00%

Discount rate 6.11% 6.15% 6.17% 6.14% 6.14% 6.12% 5.11%

- 70 -


5. Special values

KDH AG owns affiliated companies which are inactive or have not been taken into account in the planned accounts due to their lack of materiality. Therefore, these

companies are regarded as special values.

The inactive companies are symbolized by the shell companies Kabel Deutschland

Holding Erste Beteiligungs GmbH, Kabel Deutschland Holding Zweite Beteiligungs GmbH, Kabel Deutschland Dritte Beteiligungsgesellschaft mbH, Kabel Deutschland

Fünfte Beteiligungsgesellschaft mbH, Kabel Deutschland Sechste Beteiligungs GmbH, Kabel Deutschland Siebte Beteiligungs GmbH, Kabel Deutschland Achte Beteiligungs GmbH und Kabel Deutschland Neunte Beteiligungs GmbH. AFK Aus- und

Fortbildungs GmbH für elektronische Medien, in which KDH AG has a participation of only 2 %, was not included in the planned accounts due to reasons of materiality.

The respective special value of the designated companies was set at the book value of the participation or the proportionate equity capital if that was higher than the proportionate book value. The special values determining this manner are compiled in the following

table:

According to the Company, the Company does not have further non-operating assets, which need to be recognized as special values.

Discounted earnings value 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

KDH AG Forecast Plan Plan Plan Plan Plan Terminal value


Net distribution 148.7 224.1 257.1 297.0 328.6 360.5 371.2

Discount rate 6.11% 6.15% 6.17% 6.14% 6.14% 6.12% 5.11%

Discount factor as of 13.02.2014 0.9925 0.9350 0.8807 0.8297 0.7818 0.7367 14.4221

Present values 147.6 209.5 226.4 246.4 256.9 265.6 5,353.3

Equity value as of 13.02.2014 6,705.7

Special Values

KDH AG mEUR

Kabel Deutschland Holding Erste Beteiligungs GmbH 0.03

Kabel Deutschland Holding Zweite Beteiligungs GmbH 0.03

Kabel Deutschland Dritte Beteiligungsgesellschaft mbH 0.31

Kabel Deutschland Fünfte Beteiligungsgesellschaft mbH 0.03

Kabel Deutschland Sechste Beteiligungs GmbH 0.03

Kabel Deutschland Siebte Beteiligungs GmbH 0.03

Kabel Deutschland Achte Beteiligungs GmbH 0.03

Kabel Deutschland Neunte Beteiligungs GmbH 0.03

AFK Aus- und Fortbildungs GmbH für elektronische Medien* 0.00

Total Special Values 0.48

* The Special value of the company is 511.29 EUR. As all amounts in the table are

shown in mEUR it is displayed as 0.00.

- 71 -


6. Equity value and value per share

We have determined an equity value as of the valuation date of 13 February 2014 of around EUR 6,706.2 million and a value per share in KDH AG in the amount of EUR 75.76.

II. Reasonableness of the equity value

In order to check the reasonableness of our enterprise valuation based on the internal

data from the enterprise, we conducted a comparative analysis on the basis of public capital market data. Such multiplier valuations represent only simplified, generalized

discounted earnings valuations and, therefore only serve the purpose of checking reasonableness.

Earnings and market capitalization data of listed comparable companies (“Trading Multiples”) and comparable transactions (“Transaction Multiples”) serve as the basis for the multiplier valuation.

1. Trading Multipliers

Within the analysis of trading multipliers we have related the classic earnings number EBITDA of comparable companies (see Peer Group in Section D.I.3.b)) to their respective total enterprise values (“Entity Value”). We have excluded Virgin Media Inc.

from this analysis, as the company was acquired by Liberty Global Plc in June 2013. Within our analysis we have referred to the consensus estimates of analysts for the years

2013 to 2016 provided by the financial information service provider Bloomberg.

We have applied the earnings multipliers obtained for the year 2013 to the corresponding

planned earnings of KDH AG for the fiscal year 2013/14 because the main part of these earnings accrue in the year 2013 due to the reason that the fiscal year of KDH AG ends on 31 March. In accordance with this logic, we have applied the earnings multiples

measured for the years 2014 until 2016 to the planned earnings of KDH AG for the respective fiscal years.

This approach is based on the assumption that the relationship of the overall enterprise value and the earnings in the enterprise being valued is similar to the enterprises in the

peer group. This results in the following values:

Company ValueKDH AG mEUR

Discounted earnings value 13.02.2014 6,705.7

Special value for inactive or non-operating entities 13.02.2014 0.5

Enterprise value 13.02.2014 6,706.2

Number of shares (in 1,000) 88,523

Value per share in EUR 13.02.2014 75.76

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After deducting the net debt position, a maximum value of the equity capital related to the

average value of the multipliers results in an amount of around EUR 5.6 billion. With regards to the lowest and the highest multiplier, the equity capital value ranges between

EUR 3.2 billion and EUR 8.1 billion. The value of the equity capital of KDH AG including special values derived on the basis of the discounted earnings method of EUR 6.7 billion is situated in the upper range of this equity capital value derived in a simplified

manner. This is shown in the following graph, whereby the broken line represents the discounted earnings value of KDH AG.

2. Transaction Multipliers

For the analysis of transaction multipliers we analyzed completed transactions

(acquisitions & IPOs) which were executed within the respective industry of KDH AG in the years 2012 – 2013. The foundation of our analysis was formed by the data base of the

Value of the Equity Capital on the

Basis of Multipliers (in mEUR) 2013/14 2014/15 2015/16 2016/17

Minimum 7.7x 6.9x 6.6x 6.5x

Mean 8.9x 8.3x 7.9x 7.6x

Maximum 10.4x 10.1x 9.8x 9.8x

EBITDA 811 962 1,064 1,145

Net debt position -3,060 -3,060 -3,060 -3,060

Special Values 0.5 0.5 0.5 0.5

Minimum 3,190 3,590 3,941 4,342

Mean 4,164 4,923 5,322 5,629

Maximum 5,369 6,684 7,331 8,134

EBITDA

Mu

ltip

lier

Eq

uity V

alu

e

0 2.000 4.000 6.000 8.000 10.000

2013/14

2014/15

2015/16

2016/17

Value of the Equity Capital (in mEUR)

Fis

ca

l Y

ea

r

Value of the Equity Capital on the basis of EBITDA Multipliers

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financial information service provider Zephyr. The results of our analysis are presented in the table below:

When applying the mean of the multipliers, an equity capital value of EUR 1.8 billion is

derived from the analysis. With regards to the lowest and highest multipliers the result for the equity capital value ranges between EUR -0.2 billion and EUR 3.4 billion. Within this determination it needs to be recognized that these values are based on the (adjusted)

earnings figures of KDH AG from 31.03.2013 and thus do not reflect the expected earnings growth of KDH AG.

Based on the results of the comparison based valuation by means of multipliers, we consider the discounted earnings value of KDH AG of EU 6.7 billion to be rather

optimistic, but not implausible.

III. Takeover bid price and synergies

1. Takeover bid price

The discounted earnings value derived in Section D.I reflects the expectations for the business of KDH Group according to its economic and legal circumstances at the present

point in time. This situation is characterized by the fact that Vodafone is the majority shareholder after completion of the takeover bid, but before concluding a DPLTA. In

such a situation, before the completion of a DPLTA, influences from Vodafone into KDH Groups business decisions are problematic with regards to the governing law on stock companies and are not desired by both sides from an economic viewpoint. Specific

actions to exploit potential synergies have not been undertaken so far, with the exclusion

Value of Equity Capital on the Basis of Transaction Multipliers (in mEUR)

Date Acquirer Target Country Transaction Type EBITDA-

Mulltiple

30.07.2013 Consortium/Sumitomo Corp. Jupiter Telecommunications Co Ltd Japan Acquisition of 29.31% 5.6x

10.06.2013 Liberty Global PLC Virgin Media Inc. GB Acquisition of 100% 8.4x

01.05.2013 Liberty Global PLC Charter Communications Inc. USA Acquisition of 27.3% 3.7x

28.03.2013 Liberty Global PLC Ziggo NV Netherlands Acquisition of 12.65% 6.0x

11.01.2013 Liberty Global PLC Telenet Group Holding NV Belgium Acquisition of 8% 5.6x

18.07.2012 WideOpenWest Holding Cos Knology Inc. USA Acquisition of 100% 8.1x

Minimum 3.7x

Mean 6.2x

Maximum 8.4x

EBITDA KDH AG 31.03.2013 773

Entity Value (Minimum) 2,846

Entity Value (Mean) 4,815

Entity Value (Maximum) 6,466

Net debt position -3,060

Special values 0.5

Equity Value (Minimum) -213

Equity Value (Mean) 1,756

Equity Value (Maximum) 3,407

Sources: Bloomberg, Zephyr

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of amendments to KDH AGs financing situation and certain specific cost reductions (e.g. IP Peering or procurement).

In contrast to this, Vodafone has offered a price of EUR 84.50 plus the dividend of EUR 2.50 in its public takeover bid, which symbolizes a significant premium to the unaffected stock exchange price of KDH AG. The offered price was justified by

Vodafone with reference to the potential synergies which can be achieved upon full integration of KDH AG into the Vodafone Group and under the assumption of a

subsequent completion of a DPLTA.

This differing consideration of synergies follows the legal understanding, that minority

shareholders do not have a claim to be compensated for synergies which can only be achieved through the specific transaction and through the collaboration between takeover target and majority shareholder. A split of all synergies into so-called genuine (only

realizable with the DPLTA) and non-genuine synergies (possible to realize after the takeover of KDH AG by Vodafone but before DPLTA) is therefore necessary with regards to the present valuation purpose. In comparison, the public announcements

made by Vodafone and KDH AG only focus on an estimate of synergies resulting from full integration, especially after concluding a DPLTA.

2. Synergies reflected in the takeover bid price

The intent to conclude a DPLTA between Vodafone Vierte Verwaltungs AG and KDH AG after the successful completion of the takeover bid was already expressed in the takeover bid. In section 8.1 of the takeover bid, the economic and strategic reasons

for the intended integration of the two corporate groups are also mentioned. From the implementation of the present measures, synergies for the integrated group are expected which were estimated by Vodafone as follows:

• Cost and Capex synergies with a total volume of EUR 300 million p.a., beginning

with year four after full integration (before integration costs), which relate to a present value of EUR 3 billion.

• Revenue-related synergies with a present value of more than EUR 1.5 billion.

The equivalent estimations of KDH Group concerning expected synergies which can be achieved after full integration into Vodafone show similar levels.

3. Non-reflection of these synergies within the discounted earnings value

Within the determined entity value of KDH AG non-genuine-synergies are taken into

account, which leads to value-enhancements. These synergies relate to estimated cost-advantages within expenses for IP Peering and improved buying conditions in the area of

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procurement, see section D.I.2.b). Furthermore, KDH Group will benefit from significant funding advantages resulting from Vodafone’s entry, which will be reflected in the Company’s interest results, see section D.I.2.c). However, the main advantages from

the takeover are estimated to be achieved in other areas. By way of summary, the joint use of the cable infrastructure can achieve lower costs, and accelerated growth in sales can be achieved by offering bundled products to the customers of both companies. This

involves for both companies the main foundations of their businesses (network infrastructure and customers). In light of this and reflecting legal and economic aspects,

both sides do not see essential possibilities to implement the stated measures without concluding a DPLTA.

A further aspect is that the implementation of the intended integration requires extensive technical analyses and consents from customers, so that even after concluding the DPLTA, the opinion is that there is no potential to realize synergies in the short term.

4. Classification of genuine synergies within takeover bid

The conclusion that the main synergies explained in the course of the takeover bid cannot be initiated before the completion of a DPLTA and are therefore not initiated at the

current stage is clear in our view. In consequence, we do not consider it possible to now take into account those synergies in the discounted earnings value of KDH AG under the valuation standards IDW S 1 and the case law. According to this only non-genuine

synergies are reflected in the discounted earnings value of KDH AG (see section D.I.2b)).

In light of the importance of the synergies in the present case and the specific mention by

Vodafone, however, we have considered which consequences another analysis of these synergies would have for the compensation and the guaranteed dividend.

If, contrary to our assessment, the synergies mentioned by Vodafone were included as effects to be considered in the calculation of the discounted earnings value, the question

would arise about the share with which KDH AG participates in these synergies. The amounts stated by Vodafone represent in the final analysis the overall effect from the point of view of Vodafone. However, only the synergies attributable to KDH AG would

be relevant for the shareholders in KDH AG.

It must be noted that the criteria of "initiated and documented measures" and "genuine

synergies" compared to "non-genuine synergies" have been developed in valuation practice specifically because a clear allocation of the potential for synergies to two

business partners is hardly possible.

If the attempt were made in an alternative analysis to divide the overall potential for

synergy between KDH and Vodafone, anyway, the question arises about what the basis for a fair standard for the allocation could be. An initial consideration about this, on the

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one hand, is the idea that also a company which has been taken over can have potential to provide additional value in an overall constellation with other enterprises. On the other hand, it is undisputed that the specific synergies which only can be implemented by the

specific cooperation between the company doing the takeover and the company being taken over, which cooperation is made possible by the corporate group measure representing the reason for the valuation, are attributable as so-called genuine synergies

solely to the company doing the takeover. These conclusions show that the maximum potential synergy that can be attributed to the shareholders of a company that has been

taken over is limited to the synergies which can be realized also with other business partners or other measures.

In the present case, this potential synergy which can at most be attributed is well documented and understandable. The implementation of the takeover with a price of EUR 84.50 per share of KDH AG shows that no other potential acquiring company

existed which would have been willing to pay more. This also leads to KDH AG's board recommendation towards their shareholders to make use of the takeover bid.

Due to this reason, we regard the takeover price of EUR 84.50 per share to contain all synergies, also the genuine synergies, and to allocate them adequately between KDH AG

and Vodafone. According to the undisputed legal opinion, the minority shareholders of KDH AG do not have a claim for the recognition of all synergies within the course of the DPLTA. Through a determination of a cash compensation above EUR 84.50 the

minority shareholders would receive a share of the entire synergies, which goes beyond the share attributable to them and which would therefore be inadequate – from the viewpoint of the shareholders of Vodafone as well as from the viewpoint of the majority

of shareholders from KDH AG, which have sold their shares for the takeover bid price.

IV. Stock exchange price

In accordance with the case law of the BGH, see section C.IV, the average stock

exchange price for a three month reference period is the lowest limit for value when determining the reasonable cash compensation. The end of the reference period is determined by the announcement of the measure.

Starting with an analysis of the development of the stock exchange price for the KDH AG stock, we show below how the three month period used as a basis for

determining the average stock exchange price was derived.

Analysis of the development of the stock price

The stock of KDH AG was listed on the stock exchange for the first time on 22 March

2010, whereby the issue price was EUR 22.00 per share. The stock reached a price of EUR 22.24 at the end of the first trading day (closing price according to Deutsche Börse

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AG). The price for the stock continuously increased in the subsequent months until 31 May 2011 to a highest level of EUR 47.42; the price then fell steadily to one point of EUR 33.16 on 08 August 2011. Prior to 15 September 2011, the last trading day prior to

the notification by KDH AG that it intends to buy back its own stock for a total consideration of EUR 60 million, the stock price reached a level of EUR 37.91.

In the following months until 18 May 2012, the price for the KDH stock moved in a range between EUR 36.85 and EUR 47.75. On 18 May 2012, the last trading day prior to

the announcement of the planned acquisition of the Tele Columbus Group for EUR 603 million, the stock was listed at EUR 46.18. Despite initial decreases to values below EUR 45.00, a stock price of more than EUR 50.00 was continuously achieved

starting on 03 August 2012. The stock increased until 12 February 2013, the date before the first rumors about a potential interest of Vodafone in KDH AG arose at Reuters and

others, to EUR 63.60. As a result of the rumors, relatively high volumes of KDH shares were traded, and the price increased to EUR 69.17. The price stabilized at this level in the following trading days before the first information became official on 18 February 2013,

according to which the Federal Cartel Office was opposed to the planned acquisition of Tele Columbus. The KDH stock then lost more than 5 % of its value on the next trading day and closed at a price of 67.37 EUR. In the subsequent weeks, the price for the stock

was primarily determined by increased interest on the part of analysts. Continuing speculation about potential purchasers led to a positive development for the stock.

During the period 20 February 2013 to 11 June 2013, the stock listed in a range of EUR 66.24 to EUR 75.84.

11 June 2013 also represents the last trading day prior to KDH AGs announcement stating that it had received a preliminary approach from Vodafone.

0

1

2

3

4

0

10

20

30

40

50

60

70

80

90

100

03/2010 09/2010 03/2011 09/2011 03/2012 09/2012 03/2013 09/2013

Tra

din

g V

olu

me in

Mio

.

Sha

re P

rice in E

UR

Share price development of KDH AG from 22.03.2010 until 22.11.2013 and corresponding trading volume

Trading Volume Share Price BaFin Price

12.09.13: Achievement of

75% Acceptance Rate

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On the date of the announcement, the 12 June 2013, the stock gained more than 8 % in price and listed at the end of the trading day at EUR 80.84. In the following three trading days, the KDH stock continued to gain value and closed on 14 June 2013 at a price of

EUR 82.69. KDH AG confirmed the receipt of a further preliminary proposal for a takeover by Liberty Global on Monday, 17 June 2013. After brief increases of the stock respectively to more than EUR 85.00 in the middle of June, the stock consolidated at a

price level of around EUR 84.00.

On 24 June 2013, the receipt of the announcement of a takeover bid from Vodafone Vierte Verwaltungs AG became public through an ad hoc announcement by KDH AG. The stock closed on that day at a price of EUR 85.50. The Federal Cartel Office

addressed the takeover bid on 26 June 2013 and declared that a potential takeover of KDH AG by Vodafone Vierte Verwaltungs AG would be subjected to a detailed antitrust examination.15

Liberty Global declared on 16 July 2013 that it was withdrawing from negotiations about an acquisition of KDH AG which, however, did not materially influence the stock price.

The stock listed at a price of EUR 84.19 on 15 July 2013 and at a price of EUR 84.39 on 16 July 2013.

The course of the stock price was subsequently stable. In the period from 17 July 2013 till 29 July 2013, the stock moved in a range EUR 84.31 to EUR 84.55. 29 July 2013 was

also the last trading day prior to the disclosure of receipt of the offer document for the voluntary takeover bid of Vodafone Vierte Verwaltungs AG. The takeover bid was officially disclosed on 30 July 2013, but this did not lead to material movements in the

price for the KDH stock.

A joint statement was published on 02 August 2013 by the executive board and the supervisory board of KDH AG in which the previously received takeover bid was welcomed. This publication also did not lead to any material movements in the price for

the KDH stock; it closed at the level of the previous day at EUR 84.57.

The stock price for KDH AG was stable in a tight range of EUR 84.50 to EUR 86.00

until the end of the acceptance period for the takeover bid on 11 September 2013. The stock closed on the last day of the acceptance period at a price of EUR 85.55.

On the next day, 12 September 2013, it became public after the close of the exchange that the takeover bid had reached the minimum acceptance threshold of 75 %; that same day,

Vodafone affirmed to conclude a DPLTA with KDH AG. The KDH stock experienced

15 On 21 August 2013 the Federal Cartel Office declared that they do not have antitrust concerns regarding the transaction, see FAZ from 21 August 2013

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an extraordinary jump from 86.39 to EUR 91.82 on 13 September 2013 and a resulting daily gain of 6.3 %. The stock continued to increase in the subsequent trading days.

The EU competition authorities published a statement on 20 September 2013 that they did not have any antitrust concerns against the takeover of KDH AG by Vodafone and already granted the approval for the takeover in phase 1 of the antitrust proceedings.

Vodafone Vierte Verwaltungs AG announced on 20 September 2013 that all closing conditions had been satisfied and that the bidder had approached KDH AG on the same

day for the purpose of commencing contract negotiations about the conclusion of a DPLTA. In the proceeding days, a further increase of the KDH stock became visible; until 09 October 2013, the stock increased up to a level of EUR 94.15. On the following

Monday, 14 October 2013, Vodafone publicly announced that the takeover bid had been completed with an acquired share in KDH AG of 76.57 % and reinforced its previously expressed intent to conclude a DPLTA.

Determination of the relevant three-month period

In the present case and under consideration of the governing law on stock companies it needs to be clarified which day marks the announcement of the measure. As one end of

the potential interpretation the 30 July 2013 can be considered, as the takeover bid was disclosed on this day, followed by the intent to conclude a DPLTA (see, Section 9.7 of the offer). In contrast to this, it could be argued that at this point in time it was unclear

whether the terms and conditions included in the offer, which form the basis of the subsequent move towards a DPLTA, can be fulfilled. The development of the stock price implies that this uncertainty was present, as a significant reaction did not occur in

the market subsequently to the announcement of the takeover bid.

The achievement of the most important closing condition, which was reached when the acceptance rate exceeded the minimum threshold of 75 %, was announced on 12 September 2013. After this announcement, combined with a disclosure from

Vodafone Vierte Verwaltungs AG which affirmed that the set-up of a DPLTA is intended after successful closing of the takeover, a significant reaction in the market became visible. This lead to the development, that the stock price of KDH AG surpassed the actual

takeover bid price (EUR 87.00 incl. dividend) on 13 September 2013. From an economic viewpoint it can therefore be argued that from this date onwards speculation about

possible and already disclosed subsequent corporate law measures started to unfold. The stock corporations act indicates that an average stock exchange price which is unbiased by speculations needs to be utilized as a minimum price. Therefore, the stock price

development after 12 September 2013 needs to be regarded as not relevant for the estimation of the average stock exchange price and for the minimum of the cash compensation

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According to the case-law regarding stock corporations, a measure can also be announced at a date at which not all closing conditions were already achieved (OLG Frankfurt, decision from 21 December 2010, Az. 5W 15/10). The prerequisite is that the

achievement is already likely at this date. At 12 September 2013, the only remaining condition for the closing of the takeover bid and the possible completion of a DPLTA which had not yet materialized was the antitrust approval. This antitrust approval was

already likely at this point. Responsible for this approval was the EU commission. The president of the German Federal Cartel Office had already announced in an interview

published on 21 August 2013 in the FAZ that the Federal Cartel Office would not ask for the transaction to be referred back to Germany because after initial, preliminary estimation it determined that a complementary merger was present. After Vodafone

received confirmation from the German Federal Cartel Office that it would not request the EU Commission to refer the offer to the German Federal Cartel Office for its approval and after the deadline for the application of re-transfer expired Vodafone issued

a press release on 09.09.2013. Due to the dialogues between the EU commission and the respective parties involved, no indicators were given that the EU commission would

come to a different conclusion.

In the light of these considerations we regard the three-month period before

13 September 2013 to be the relevant period for the derivation of KDH AGs average stock exchange price.

Relevant average stock exchange price as the lowest limit on the value

In order to determine the average stock exchange price in the relevant three-month

period ending on 12. September 2013, reference will be made to the calculation by the Federal Financial Supervisory Authority [Bundesanstalt für Finanzdienstleistungsaufsicht,

"BaFin”]. The valid minimum price for the stock of Kabel Deutschland calculated by the BaFin pursuant to § 31 para. 1, 7 WpÜG in conjunction with § 5 WpÜG Offer Regulation for the corresponding period is EUR 84.53.

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Shares of KDH AG were traded on each of the 66 trading days during the three-month reference period from 13 June 2013 to 12 September 2013. The volume of the daily

traded number of KDH AG shares fluctuated during this reviewed period between 113,025 and 2,017,354 shares.

As a normal period of less than six to seven months lies between the announcement of the intended structural measure on 12 September 2013 and the date of the general shareholders meeting adopting the resolution on 13 February 2014, we do not see any

need for an adjustment of the stock exchange price on the basis of the development of the stock price in the meantime.

V. Compensation

The equity value of KDH AG as of 13 February 2014 is around EUR 6,706.2 million.

Based on the share capital of KDH AG which is divided into 88,522,939 no par bearer shares, a value per share of KDH AG of EUR 75.76 results.

The average stock exchange price calculated by the BaFin for the relevant three-month period is EUR 84.53 which is higher than the estimated company value of EUR 75.76

resulting from our valuation. Therefore, the cash compensation needs to be calculated on the basis of the average stock exchange price which forms the lower limit.

Accordingly, the adequate cash compensation per share of KDH AG equals EUR 84.53.

Pursuant to § 305 AktG, the fixed compensation must take into account the

circumstances of the company at the time the general shareholders meeting adopts the

0

1

2

3

4

70

75

80

85

90

95

100

13/06/2013 13/07/2013 13/08/2013 13/09/2013 13/10/2013

Tra

din

g V

olu

me

in M

io.S

ha

re P

rice

in

EU

R

Share Price Development of KDH AG and corresponding number of traded shares within relevant period from 13.06.2013 until 12.09.2013 (incl. period until 14.10.2013)

Trading Volume Share Price BaFin Price

Liberty Global

officially steps back

from bidding

processAd-hoc: Vodafone

takeover offer arrives at

KDH

Announcement Vodafone: Take-over offer has reached acceptance rate of 75%

EU approves transaction

Ad-hoc KDH: Intention for takeover offer of Vodafone is made public

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resolution. If material changes have occurred in the time between the completion of our work on 19 December 2013 and the date of adopting the resolution in the extraordinary general shareholders meeting of KDH AG on 13 February 2014 which have an effect on

the assessment of the cash compensation, these changes would have to be subsequently taken into account.

VI. Guaranteed dividend

The annual payment of at least that amount which could likely be distributed as an

average profit share to the individual share based on the current earnings position of the company and its future earnings prospects and taking into account reasonable

depreciation and value adjustments but without establishing other profit reserves must be provided as the guaranteed dividend pursuant to § 304 para. 2 sentence 1 AktG. This statutory provision assures that the outside shareholder receives a guaranteed dividend

which corresponds in value to the average dividend which the shareholder would receive without the corporate group agreement.

The following table shows the earnings per of KDH AG for fiscal years 2010/11 to 2012/13:

1. Determination of the average share in the profit

The derivation of an average fixed future profit for fluctuating earnings expectations is

done mathematically correct by discounting the present value of the fluctuating earnings. The present value of the fluctuating earnings is incorporated in the discounted earnings value calculated in accordance with the principles pursuant to IDW S 1 2008.

The fixed guaranteed dividend payment per share results by applying an interest rate to the equity value of KDH AG determined in section D.I. In the present case the parties

involved have decided in favor of the minority shareholders to apply a higher calculation base for the guaranteed dividend which amounts to the takeover bid price of EUR 84.50,

which equals a total company value of EUR 7,480.2 million.

When identifying the reasonable interest rate for the determination of the fixed

guaranteed dividend payment, the risk for the recipient of the guaranteed dividend associated with the guaranteed dividend payment must be examined. During the term of the DPLTA, the recipient of the guaranteed dividend receives the dividend payment

Earnings per Share 2010/11 2011/12 2012/13

KDH AG EUR EUR EUR

Total Earnings after Minorities (in mEUR) -45.3 159.4 246.8

Number of Outstanding Shares 90,000,000 89,408,169 88,522,939

Earnings per Share -0.50 1.78 2.79

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firmly guaranteed by Vodafone Vierte Verwaltungs AG which must be considered to be unsecure compared to a secure government bond but, on the other hand, must be considered to be secure when compared to a share in the enterprise of KDH AG.

Uncertainty exists for the recipient of the guaranteed dividend generally with the regard to the term of DPLTA and the recipient’s financial position after the end of the DPLTA.

The draft DPLTA provides in clause 5.6 that in the event of notice of termination of the DPLTA by Vodafone Vierte Verwaltungs AG or KDH AG, each outstanding

shareholder of KDH AG is entitled to sell the shareholder’s shares in KDH AG held at that time of the end of the contract to Vodafone Vierte Verwaltungs AG, and this company is required to purchase the shares. As consideration, the shareholder receives

the compensation set in the context of the DPLTA or the higher compensation resulting in the course of a final decision in the special court proceedings or resulting from a legal settlement to avoid or conclude special court proceedings.

Accordingly, the recipient of the guaranteed dividend only carries the risk of failure of the debtor of the guaranteed dividend payment. The recipient of the guaranteed dividend is

therefore the equivalent of a creditor of Vodafone Vierte Verwaltungs AG. The risk of failure of Vodafone Vierte Verwaltungs AG is however related to that of Vodafone

Group Plc because Vodafone Group Plc issued a letter of comfort. On the basis of this letter of comfort, Vodafone Group Plc ensures unrestricted and irrevocable commitment towards the obligations of Vodafone Vierte Verwaltungs AG. This commitment also

holds with regards to obligations towards the outstanding shareholders of KDH AG which are related to the DPLTA, especially that the payment of the guaranteed dividend and the cash compensation is made entirely and at due date.

The interest rate applied as the annuitisation factor for determining the amount of the

guaranteed dividend results from the sum of the risk-free base interest rate and a risk premium which takes into account the risk of failure of Vodafone Group Plc.

The risk of failure of Vodafone Group Plc was determined by the differences in returns for long-term bonds of Vodafone Group Plc and returns of bonds issued by the Federal Republic of Germany with similar maturities. As a result of this analysis, we derived a risk

spread of around 1.0 %. The discount rate before taxes therefore equals the combination of the risk free rate of 2.75 % and the risk premium of 1.0 % and is 3.75 %.

The guaranteed dividend is finally calculated under consideration of the dividend basis which was voluntarily increased by Vodafone Vierte Verwaltungs AG for the benefit of

the minority shareholders from the proportional discounted earnings value of EUR 75.76 to EUR 84.50 and the annuitisation factor of 3.75 %. As of 13 February 2014 the guaranteed dividend for each KDH share results in the amount of EUR 3.17.

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2. Consideration of corporate income tax according to the case law of the BGH

The BGH decided in an order dated 21 July 2003, II ZB 17/01, with regard to the guaranteed dividend that the outside shareholders must be promised the likely average

gross profit per share that is capable of being distributed, minus the corporate income tax in the amount of the respectively valid tax rate which is to be paid by the company (on

distributions) as a fixed guaranteed dividend within the meaning of § 304 para. 1 sentence 1, para. 2 sentence 1 AktG. The BGH refers only to the burden with German corporate income tax; other domestic as well as foreign tax burdens are not taken into

account. The interaction between possible changes in the corporate income tax at the level of the company and changes in the income taxation at the level of the shareholders also is not taken into account.

According to the above referenced order, the generated profit is deemed to be the profit before corporate income tax because the amount of the corporate income tax cannot be

influenced by the company alone and instead is only a result of the profit generated by the company. Especially in the case of a future lowering of the corporate income tax rate in

the law, the BGH finds that there is an unjustified benefit for the company or the parent company at the expense of the outside shareholder because then a correspondingly higher amount would be available for distribution as profit than the net amount set out at one

time permanently as the guaranteed dividend. In the case of such a decrease in the tax rate, a full distribution of the previously determined average available gross profit would in fact no longer take place.

According to the opinion of the BGH, this approach does not call into question the

principle of having a fixed calculation date because when setting the guaranteed dividend, the average gross profit available for distribution must be derived as a fixed amount from the objective value of the enterprise so that only the organizational circumstances and the

economic and legal structures of the company are determinative as they exist on the valuation date.

Taking into account the corporate income tax rate of 15 % and the solidarity surcharge of 5.5 %, thus 15.83 %, the net guaranteed dividend of EUR 3.17 corresponds to a gross

guaranteed dividend before corporate income tax of EUR 3.77 per share. From this guaranteed dividend the future corporate income tax needs to be deducted. Under the current tax code this is 15.83 % on EUR 3.77, thus EUR 0.60 per share resulting in a net

guaranteed dividend of EUR 3.17 per share under the current tax code.

Derivation of guaranteed dividend EUR

Basis for Derivation 84.50

Annuitising Factor 3.75%

Net guaranteed dividend per share 3.17

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E. FINAL COMMENT

We had the mandate to conduct an enterprise valuation of KDH AG and determined the amount of the reasonable compensation under § 305 AktG as well as the reasonable guaranteed dividend under § 304 AktG.

The occasion for this valuation is the planned conclusion of a Domination and Profit and Loss Transfer Agreement pursuant § 291 AktG Vodafone Vierte Verwaltungs AG as the

controlling company and KDH AG as the controlled company. The extraordinary general shareholders meeting of KDH AG is supposed to resolve about the conclusion of

the Domination and Profit and Loss Transfer Agreement on 13 February 2014.

We have issued this Expert Report and especially conducted the discounted earnings

valuation of KDH AG on the basis of the documents and information provided to us. We also took into account the results of our own examinations.

Our valuation was in accordance with the standard IDW S 1 2008. This results for KDH AG in an equity value on the valuation date of 13 February 2014 in the amount of around EUR 6,706.2 million. Based on the share capital of KDH AG divided into

88,522,939 no-par bearer shares, this results in a value per share of KDH AG of EUR 75.76.

The average stock price calculated by BaFin for the relevant reference period before the announcement to conclude a DPLTA is EUR 84.53 and is above our calculated

discounted earnings value. In this respect, the average stock price has to be used as the minimum value for the cash compensation.

Based on the agreements between the parties the basis of assessment for the estimation of the guaranteed dividend was raised to EUR 84.50 on a voluntary basis. On this basis the gross amount of the guaranteed dividend is EUR 3.77 per KDH share annually. The

respective corporate income tax burden including the solidarity surcharge must be deducted in accordance with the respectively applicable tax rate. At the currently

applicable corporate income tax rate including the solidarity surcharge of 15.83 %, this results in a deduction for taxes per share in the amount of EUR 0.60 and a net amount of the guaranteed dividend of EUR 3.17.

If there are material changes in the time between the completion of our work on 19 December 2013 and the date on which the resolution is adopted in the extraordinary

general shareholders meeting of KDH AG on 13 February 2014 which have an effect on the assessment of the compensation in the guaranteed dividend, these changes would

have to be subsequently taken into account.

- 86 -


We are issuing this Expert Report as neutral and independent experts to the best of our knowledge and in accordance with the professional principles as they are set forth in §§ 2 and 43 of the German Accountants Code.

Düsseldorf, 19 December 2013

Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft

Prof. Dr. Martin Jonas Dr. Heike Wieland-Blöse

Wirtschaftsprüfer Wirtschaftsprüferin

Annex

Annex 1

Final Draft 18/12/2013 NON-BINDING ENGLISH TRANSLATION

1


(Beherrschungs- und Gewinnabführungsvertrag)

between

(1) Vodafone Vierte Verwaltungs AG

having its registered office in Düsseldorf, registered in the commercial register


HRB 70886,

- herein referred to as "Vodafone Vierte Verwaltungs AG" -

and

(2) Kabel Deutschland Holding AG

having its registered office in Unterföhring, registered in the commercial register

(Handelsregister) at the Local Court (Amtsgericht) Munich under company number HRB

184452,

- herein referred to as "Kabel Deutschland Holding AG" -

1 Management Control and Instructions

1.1 With effect as of the date of this agreement entering into force and in any event not earlier

than 1 April 2014, Kabel Deutschland Holding AG submits the management control

(Leitung) of its company to Vodafone Vierte Verwaltungs AG. Vodafone Vierte Verwaltungs

AG is accordingly entitled to issue instructions (Weisungen) to the management board of

Kabel Deutschland Holding AG with regard to the management control of the company.

The management board of Kabel Deutschland Holding AG is required to comply with the

instructions of Vodafone Vierte Verwaltungs AG. Without prejudice to this right to issue

instructions (Weisungsrecht), the management board of Kabel Deutschland Holding AG is

responsible for the management and representation of Kabel Deutschland Holding AG.

1.2 Vodafone Vierte Verwaltungs AG is not entitled to issue an instruction to the management

board of Kabel Deutschland Holding AG to amend, maintain or terminate this Agreement.

1.3 Any instructions require text form (Textform) or, if the instructions are issued orally, they

shall be confirmed in text form without undue delay.


2

2 Transfer of Profit

2.1 Kabel Deutschland Holding AG undertakes to transfer its entire annual profit

(Gewinnabführung), as determined in accordance with commercial law, to Vodafone Vierte

Verwaltungs AG. Subject to establishing or dissolving reserves in accordance with Clauses

2.2 and 2.3 of this Agreement below, the maximum amount permissible under section 301

German Stock Corporations Act (Aktiengesetz – "AktG"), as amended from time to time,

shall be transferred.

2.2 If and only to the extent permissible under commercial law and as economically justified by

reasonable commercial judgement and with the consent of Vodafone Vierte Verwaltungs

AG, Kabel Deutschland Holding AG may allocate parts of its annual profit to other profit

reserves (section 272 para. 3 German Commercial Code (Handelsgesetzbuch – "HGB")).

2.3 Upon the written request of Vodafone Vierte Verwaltungs AG, Kabel Deutschland Holding

AG shall dissolve other profit reserves within the meaning of section 272 para. 3 HGB

established during the course of this Agreement and use the proceeds to compensate for

any annual loss or transfer the proceeds as profit. Other reserves or profits carried forward

from the period prior to the term of this Agreement may neither be transferred as profit to

Vodafone Vierte Verwaltungs AG nor be used by Kabel Deutschland Holding AG to

compensate for any annual loss.

2.4 The obligation to transfer the annual profit applies for the first time to the entire profit for

the fiscal year of Kabel Deutschland Holding AG beginning on 1 April 2014 or for whichever

subsequent fiscal year of Kabel Deutschland Holding AG in which this Agreement becomes

effective. The claim of Vodafone Vierte Verwaltungs AG for a transfer of profit under this

Clause 2 becomes due upon expiration of the last day of the fiscal year of Kabel




between the due date of the claim for the transfer of the profit and its fulfilment.


3 Assumption of Losses

3.1 An assumption of any annual losses (Verlustübernahme) of Kabel Deutschland Holding AG

by Vodafone Vierte Verwaltungs AG is agreed pursuant to and in accordance with the

provisions in section 302 AktG, as amended from time to time.

3.2 The obligation to assume losses applies for the first time for the entire fiscal year of Kabel

Deutschland Holding AG beginning on 1 April 2014 or for whichever subsequent fiscal year

of Kabel Deutschland Holding AG in which this Agreement becomes effective. The claim of

Kabel Deutschland Holding AG with regard to the assumption of any annual losses under

this Clause 3 becomes due upon expiration of the last day of a fiscal year of Kabel




between the due date of the claim for the assumption of the annual losses and its

fulfilment.



3

4 Recurring Compensation Payment

4.1 Vodafone Vierte Verwaltungs AG undertakes to pay to the outside shareholders of Kabel

Deutschland Holding AG as adequate recurring compensation an annual cash

compensation ("Recurring Compensation Payment") (Ausgleich) during the term of this

Agreement. The Recurring Compensation Payment is due on the first banking day

following the ordinary general shareholders’ meeting of Kabel Deutschland Holding AG for

any respective preceding fiscal year falling during the term of this Agreement, but in any

event within eight months following expiration of the relevant fiscal year.

4.2 For each full fiscal year of Kabel Deutschland Holding AG the Recurring Compensation

Payment for each bearer share of Kabel Deutschland Holding AG, representing a

mathematical portion of EUR 1.00 in the share capital ("Kabel Deutschland Holding AG

Share”) in each case amounts to a gross sum of EUR 3.77 ("Gross Recurring

Compensation Payment") (Bruttoausgleichsbetrag) minus the amount of any corporate

income tax and the solidarity surcharge in accordance with the respective tax rate

applicable for these taxes for the relevant fiscal year. Based on the situation at the time of

conclusion of this Agreement, the Gross Recurring Compensation Payment is subject to a

deduction of 15% corporate income tax plus 5.5% solidarity surcharge, i.e. EUR 0.60.

Based on this the Recurring Compensation Payment amounts to EUR 3.17 for each Kabel

Deutschland Holding AG Share for a full fiscal year based on the situation at the time of

conclusion of this Agreement.

4.3 The Recurring Compensation Payment is granted for the first time for the fiscal year of

Kabel Deutschland Holding AG for which the claim of Vodafone Vierte Verwaltungs AG for

the transfer of profit under Clause 2 of this Agreement becomes effective.

4.4 If this Agreement ends during a fiscal year of Kabel Deutschland Holding AG or if Kabel

Deutschland Holding AG establishes an abbreviated fiscal year (Rumpfgeschäftsjahr)

during the term of this Agreement, the Gross Recurring Compensation Payment is reduced

proportionately pro rata temporis for the relevant fiscal year.

4.5 If the share capital of Kabel Deutschland Holding AG is increased from the reserves in

exchange for the issuance of new shares, the Gross Recurring Compensation Payment for

each Kabel Deutschland Holding AG Share is reduced to such an extent that the total

amount of the Gross Recurring Compensation Payment remains unchanged. If the share

capital of Kabel Deutschland Holding AG is increased by cash contributions and/or

contributions in kind, the rights under this Clause 4 also apply for the shares subscribed to

by outside shareholders in such capital increase. The beginning of such entitlement

pursuant to this Clause 4 of the new shares corresponds to the dividend entitlement set by

Kabel Deutschland Holding AG when issuing the new shares.

4.6 If judicial appraisal proceedings (Spruchverfahren) regarding a judicial determination of the

adequate Recurring Compensation Payment are initiated and the court adjudicates a

legally binding higher Recurring Compensation Payment for each Kabel Deutschland

Holding AG Share, the outside shareholders are entitled to demand a corresponding

payment in addition to the Recurring Compensation Payment for each Kabel Deutschland

Holding AG Share which they have already received, even if they have already received

the Compensation pursuant to Clause 5 of this Agreement. All other outside shareholders

will be treated in the same way if Vodafone Vierte Verwaltungs AG undertakes to pay a

higher Recurring Compensation Payment to an outside shareholder of Kabel Deutschland


4

Holding AG in a court settlement (gerichtlicher Vergleich) for the purpose of avoiding or

settling judicial appraisal proceedings.

5 Compensation

5.1 Vodafone Vierte Verwaltungs AG undertakes upon demand of each outside shareholder of

Kabel Deutschland Holding AG to purchase such shareholder's Kabel Deutschland Holding

AG Shares in exchange for a cash compensation in the amount of EUR 84.53 for each

Kabel Deutschland Holding AG Share (“Compensation”) (Abfindung).

5.2 The obligation of Vodafone Vierte Verwaltungs AG under Clause 5.1 of this Agreement is

for a limited period of time. The time limitation period ends two months after the date on

which the registration of this Agreement in the commercial register of Kabel Deutschland

Holding AG has been announced pursuant to section 10 HGB. An extension of the time

limitation period pursuant to section 305 para. 4 sentence 3 AktG as a result of a motion for

determination of the adequate Recurring Compensation Payment or Compensation by a

court pursuant to section 2 of the German Act on Special Court Proceedings

(Spruchverfahrensgesetz) remains unaffected; in this event, the time limitation period ends

two months after the date on which the decision on the last motion ruled on has been

announced in the Federal Gazette (Bundesanzeiger).

5.3 The transfer of the Kabel Deutschland Holding AG Shares for payment of the

Compensation is free of costs for the outside shareholders of Kabel Deutschland Holding

AG.

5.4 If the share capital of Kabel Deutschland Holding AG is increased using corporate funds in

exchange for the issuance of new shares prior to the expiration of the time limitation period

set forth in Clause 5.2 of this Agreement, the Compensation for each Kabel Deutschland

Holding AG Share is reduced accordingly to such an extent that the total amount of the

Compensation remains unchanged. If the share capital of Kabel Deutschland Holding AG

is increased prior to the expiration of the time limitation period set forth in Clause 5.2 of this

Agreement by means of cash contributions and/or contributions in kind, the rights under

this Clause 5 also apply for the shares subscribed to by the outside shareholders in such

capital increase.

5.5 If judicial appraisal proceedings regarding a judicial determination of the adequate

Compensation are initiated and the court adjudicates a legally binding higher

Compensation for each Kabel Deutschland Holding AG Share, the outside shareholders

are entitled to demand a corresponding additional payment to the Compensation for each

Kabel Deutschland Holding AG Share, even if they have already received the

Compensation stipulated in this Agreement. All other outside shareholders will be treated in

the same way if Vodafone Vierte Verwaltungs AG undertakes to pay a higher

Compensation to an outside shareholder of Kabel Deutschland Holding AG in a court

settlement for the purpose of avoiding or settling judicial appraisal proceedings.

5.6 If this Agreement is terminated by notice of termination by Vodafone Vierte Verwaltungs AG

or Kabel Deutschland Holding AG at a point in time when the time limitation period set forth

in Clause 5.2 of this Agreement for accepting the Compensation pursuant to Clause 5.1 of

this Agreement has already expired, each outside shareholder of Kabel Deutschland

Holding AG at that time is entitled to sell his Kabel Deutschland Holding AG Shares held at

the time of the termination of this Agreement to Vodafone Vierte Verwaltungs AG in

exchange for payment of the Compensation set forth in Clause 5.1 of this Agreement for


5

each Kabel Deutschland Holding AG Share and Vodafone Vierte Verwaltungs AG is

required to purchase the shares of each outside shareholder upon request of such outside

shareholder. If the Compensation set forth in Clause 5.1 of this Agreement for each Kabel

Deutschland Holding AG Share is increased by a legally binding decision in judicial

appraisal proceedings or in a court settlement for the purpose of avoiding or settling

judicial appraisal proceedings, Vodafone Vierte Verwaltungs AG will purchase the shares

of the outside shareholders under the preconditions set forth in sentence 1 in exchange for

payment of the amount established for each Kabel Deutschland Holding AG Share in the

judicial appraisal proceedings or the court settlement. The right to sell pursuant to this

Clause 5.6 is for a limited period of time. The time limitation period ends two months after

the date on which the registration of the termination of this Agreement in the commercial

register of Kabel Deutschland Holding AG is announced pursuant to section 10 HGB.

Clause 5.3 and Clause 5.4 of this Agreement apply accordingly.

6 Effectiveness, Term and Termination of this Agreement

6.1 This Agreement requires the consent of the general shareholders’ meeting of Kabel

Deutschland Holding AG as well as the consent of the general shareholders’ meeting of

Vodafone Vierte Verwaltungs AG. This Agreement becomes effective upon registration in

the commercial register of Kabel Deutschland Holding AG.

6.2 This Agreement is concluded for an indefinite period of time. This Agreement can be

terminated for the first time as of the end of the fiscal year of Kabel Deutschland Holding

AG which ends at least five years (Zeitjahre) after the beginning of the fiscal year of Kabel

Deutschland Holding AG for which the claim of Vodafone Vierte Verwaltungs AG under

Clause 2 of this Agreement becomes effective. The term of this Agreement is extended

subsequently in each case by one year unless this Agreement is terminated by one of the

Parties by giving three months' notice prior to the expiration.

6.3 Notwithstanding the preceding Clause 6.2 of this Agreement, this Agreement can be

terminated for just cause (wichtiger Grund) without compliance with any notice period. Just

cause exists in particular if just cause for purposes of tax law for the termination of this

Agreement exists.

6.4 Any notice of termination must be in writing.

7 Comfort Letter

7.1 Vodafone Group Plc with seat in Newbury, Great Britain, indirectly holds 100% of the

shares in Vodafone Vierte Verwaltungs AG and in this capacity as indirect shareholder, has

without joining this Agreement as a party provided the comfort letter attached for

information purposes to this Agreement as an Annex. In this comfort letter Vodafone Group

Plc undertakes without limitation and irrevocably to ensure, that Vodafone Vierte

Verwaltungs AG will be managed and financially equipped in a way that Vodafone Vierte

Verwaltungs AG is at all times able to fulfil all its obligations arising from or in connection

with this Agreement completely and in time. This applies in particular to the obligation to

compensate losses pursuant to section 302 AktG.

7.2 In addition, Vodafone Group Plc undertakes without limitation and irrevocably vis-à-vis the

outside shareholders of Kabel Deutschland Holding AG that Vodafone Vierte Verwaltungs

AG fulfils all its obligations towards them arising from or in connection with this Agreement

completely and in time, in particular with respect to the Recurring Compensation Payment


6

and the Compensation. To that extent the outside shareholders of Kabel Deutschland

Holding AG have an own claim according to section 328 para. 1 German Civil Code

(Bürgerliches Gesetzbuch – BGB) directed at payment to Vodafone Vierte Verwaltungs

AG. Vodafone Group Plc’s liability pursuant to the two preceding sentences does, however,

only apply if Vodafone Vierte Verwaltungs AG does not fulfil its obligations towards the

outside shareholders of Kabel Deutschland Holding AG arising from or in connection with

this Agreement completely and in time and Vodafone Group Plc does not comply with its

obligation to equip Vodafone Vierte Verwaltungs AG as described in the preceding Clause

7.1 of this Agreement.

8 Further Provisions

8.1 The applicable law is German law.

8.2 If any provision of this Agreement is or becomes invalid, or if this Agreement does not

contain a necessary provision, the validity of the remaining provisions of this Agreement

shall not be affected. In place of the invalid provision, or in order to remedy an omission in

this Agreement, a legally permissible provision will be deemed to have been agreed which

corresponds as far as possible to what the Parties intended or would have intended in

accordance with the intent and purpose of this Agreement if they had been aware of the

invalidity of the relevant provision or the omission. Furthermore, when interpreting this

Agreement, the provisions contained in sections 14 to 19 of the German Corporate Income

Tax Act (Körperschaftsteuergesetz – KStG) as amended from time to time shall be taken

into account.


Düsseldorf, this 20 December 2013

Dr Joachim Peters Dr Thomas Wandres

Member of the management board Member of the management board


Unterföhring, this 20 December 2013

Dr. Adrian v. Hammerstein Dr. Andreas Siemen

Chairman of the management board Member of the management board

Annex: Comfort Letter of Vodafone Group Plc

Annex 2

[Translator's notes are in square brackets]

General Engagement Termsfor

Wirtschaftsprüfer and Wirtschaftsprüfungsgesellschaften[German Public Auditors and Public Audit Firms]

as of January 1, 2002

This is an English translation of the German text, which is the sole authoritative version

1. Scope

(1) These engagement terms are applicable to contracts between Wirt-schaftsprüfer [German Public Auditors] or Wirtschaftsprüfungsgesellschaften[German Public Audit Firms] (hereinafter collectively referred to as the"Wirtschaftsprüfer") and their clients for audits, consulting and other engagementsto the extent that something else has not been expressly agreed to in writing or isnot compulsory due to legal requirements.

(2) lf, in an individual case, as an exception contractual relations have alsobeen established between the Wirtschaftsprüfer and persons other than theclient, the provisions of No. 9 below also apply to such third parties.

2. Scope and performance of the engagement

(1) Subject of the Wirtschaftsprüfer's engagement is the performance of agreedservices - not a particular economic result. The engagement is performed inaccordance with the Grundsätze ordnungsmäßiger Berufsausübung [Standardsof Proper Professional Conduct]. The Wirtschaftsprüfer is entitled to use qualifiedpersons to conduct the engagement.

(2) The application of foreign law requires - except for financial attestationengagements - an express written agreement.

(3) The engagement does not extend - to the extent it is not directed thereto - toan examination of the issue of whether the requirements of tax law or specialregulations, such as, for example, laws on price controls, laws limiting competitionand Bewirtschaftungsrecht [laws controlling certain aspects of specific businessoperations] were observed; the same applies to the determination as to whethersubsidies, allowances or other benefits may be claimed. The performance of anengagement encompasses auditing procedures aimed at the detection of thedefalcation of books and records and other irregularities only if during the conductof audits grounds therefor arise or if this has been expressly agreed to in writing.

(4) If the legal position changes subsequent to the issuance of the finalprofessional statement, the Wirtschaftsprüfer is not obliged to inform the client ofchanges or any consequences resulting therefrom.

3. The client's duty to inform

(1) The client must ensure that the Wirtschaftsprüfer - even without his specialrequest - is provided, on a timely basis, with all supporting documents andrecords required for and is informed of all events and circumstances which maybe significant to the performance of the engagement. This also applies to thosesupporting documents and records, events and circumstances which first becomeknown during the Wirtschaftsprüfer's work.

(2) Upon the Wirtschaftsprüfer's request, the client must confirm in a writtenstatement drafted by the Wirtschaftsprüfer that the supporting documents andrecords and the information and explanations provided are complete.

4. Ensuring independence

The client guarantees to refrain from everything which may endanger theindependence of the Wirtschaftsprüfer's staff. This particularly applies to offers ofemployment and offers to undertake engagements on one's own account.

5. Reporting and verbal information

lf the Wirtschaftsprüfer is required to present the results of his work in writing,only that written presentation is authoritative. For audit engagements the long-form report should be submitted in writing to the extent that nothing else has beenagreed to. Verbal statements and information provided by the Wirtschaftsprüfer'sstaff beyond the engagement agreed to are never binding.

6. Protection of the Wirtschaftsprüfer's intellectual property

The client guarantees that expert opinions, organizational charts, drafts,sketches, schedules and caIculations - expecially quantity and cost computations- prepared by the Wirtschaftsprüfer within the scope of the engagement will beused only for his own purposes.

7. Transmission of the Wirtschaftsprüfer's professional statement

(1) The transmission of a Wirtschaftsprüfer's professional statements (long-form reports, expert opinions and the like) to a third party requires theWirtschaftsprüfer's written consent to the extent that the permission to transmit toa certain third party does not result from the engagement terms.

The Wirtschaftsprüfer is liable (within the limits of No. 9) towards third parties onlyif the prerequisites of the first sentence are given.

(2) The use of the Wirtschaftsprüfer's professional statements for promotionalpurposes is not permitted; an infringement entitles the Wirtschaftsprüfer toimmediately cancel all engagements not yet conducted for the client.

8. Correction of deficiencies

(1) Where there are deficiencies, the client is entitled to subsequent fulfillment[of the contract]. The client may demand a reduction in fees or the cancellation ofthe contract only for the failure to subsequently fulfill [the contract]; if theengagement was awarded by a person carrying on a commercial business aspart of that commercial business, a government-owned legal person under publiclaw or a special government-owned fund under public law, the client may demandthe cancellation of the contract only if the services rendered are of no interest tohim due to the failure to subsequently fulfill [the contract]. No. 9 applies to theextent that claims for damages exist beyond this.

(2) The client must assert his claim for the correction of deficiencies in writingwithout delay. Claims pursuant to the first paragraph not arising from anintentional tort cease to be enforceable one year after the commencement of thestatutory time limit for enforcement.

(3) Obvious deficiencies, such as typing and arithmetical errors and formelleMängel [deficiencies associated with technicalities] contained in aWirtschaftsprüfer's professional statements (long-form reports, expert opinionsand the like) may be corrected - and also be applicable versus third parties - bythe Wirtschaftsprüfer at any time. Errors which may call into question theconclusions contained in the Wirtschaftsprüfer's professional statements entitlethe Wirtschaftsprüfer to withdraw - also versus third parties - such statements. Inthe cases noted the Wirtschaftsprüfer should first hear the client, if possible.

9. Liability

(1) The liability limitation of § ["Article"] 323 (2)["paragraph 2"] HGB["Handelsgesetzbuch": German Commercial Code] applies to statutory auditsrequired by law.

(2) Liability for negligence; An individual case of damagesIf neither No. 1 is applicable nor a regulation exists in an individual case, pursuantto § 54a (1) no. 2 WPO ["Wirtschaftsprüferordnung": Law regulating theProfession of Wirtschaftsprüfer] the liability of the Wirtschaftsprüfer for claims ofcompensatory damages of any kind - except for damages resulting from injury tolife, body or health - for an individual case of damages resulting from negligenceis limited to € 4 million; this also applies if liability to a person other than the clientshould be established. An individual case of damages also exists in relation to auniform damage arising from a number of breaches of duty. The individual caseof damages encompasses all consequences from a breach of duty without takinginto account whether the damages occurred in one year or in a number ofsuccessive years. In this case multiple acts or omissions of acts based on asimilar source of error or on a source of error of an equivalent nature are deemedto be a uniform breach of duty if the matters in question are legally oreconomically connected to one another. In this event the claim against theWirtschaftsprüfer is limited to € 5 million. The limitation to the fivefold of theminimum amount insured does not apply to compulsory audits required by law.

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(3) Preclusive deadlinesA compensatory damages claim may only be lodged within a preclusive deadlineof one year of the rightful claimant having become aware of the damage and ofthe event giving rise to the claim - at the very latest, however, within 5 yearssubsequent to the event giving rise to the claim. The claim expires if legal actionis not taken within a six month deadline subsequent to the written refusal ofacceptance of the indemnity and the client was informed of this consequence.

The right to assert the bar of the preclusive deadline remains unaffected.Sentences 1 to 3 also apply to legally required audits with statutory liability limits.

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10. Supplementary provisions for audit engagements

(1) A subsequent amendment or abridgernent of the financial statements ormanagement report audited by a Wirtschaftsprüfer and accompanied by anauditor's report requires the written consent of the Wirtschaftsprüfer even if thesedocuments are not published. If the Wirtschaftsprüfer has not issued an auditor'sreport, a reference to the audit conducted by the Wirtschaftsprüfer in themanagement report or elsewhere specified for the general public is permitted onlywith the Wirtschaftsprüfer's written consent and using the wording authorized byhim.

(2) lf the Wirtschaftsprüfer revokes the auditor's report, it may no longer beused. lf the client has already made use of the auditor's report, he must announceits revocation upon the Wirtschaftsprüfer's request.

(3) The client has a right to 5 copies of the long-form report. Additional copieswill be charged for separately.

11. Supplementary provisions for assistance with tax matters

(1) When advising on an individual tax issue as well as when furnishingcontinuous tax advice, the Wirtschaftsprüfer is entitled to assume that the factsprovided by the client - especially numerical disclosures - are correct andcomplete; this also applies to bookkeeping engagements. Nevertheless, he isobliged to inform the client of any errors he has discovered.

(2) The tax consulting engagement does not encompass procedures required tomeet deadlines, unless the Wirtschaftsprüfer has explicitly accepted theengagement for this. In this event the client must provide the Wirtschaftsprüfer,on a timely basis, all supporting documents and records - especially taxassessments - material to meeting the deadlines, so that the Wirtschaftsprüferhas an appropriate time period available to work therewith.

(3) In the absence of other written agreements, continuous tax adviceencompasses the following work during the contract period:

a) preparation of annual tax returns for income tax, corporation tax andbusiness tax, as well as net worth tax returns on the basis of the annualfinancial statements and other schedules and evidence required for taxpurposes to be submitted by the client

b) examination of tax assessments in relation to the taxes mentioned in (a)c) negotiations with tax authorities in connection with the returns and

assessments mentioned in (a) and (b)

d) participation in tax audits and evaluation of the results of tax audits withrespect to the taxes mentioned in (a)

e) participation in Einspruchs- und Beschwerdeverfahren [appeals andcomplaint procedures] with respect to the taxes mentioned in (a).

In the afore-mentioned work the Wirtschaftsprüfer takes material published legaldecisions and administrative interpretations into account.

(4) If the Wirtschaftsprüfer receives a fixed fee for continuous tax advice, in theabsence of other written agreements the work mentioned under paragraph 3 (d)and (e) will be charged separately.

(5) Services with respect to special individual issues for income tax, corporatetax, business tax, valuation procedures for property and net worth taxation, andnet worth tax as well as all issues in relation to sales tax, wages tax, other taxesand dues require a special engagement. This also applies to:

a) the treatment of nonrecurring tax matters, e. g. in the field of estate tax,capital transactions tax, real estate acquisition tax

b) participation and representation in proceedings before tax andadministrative courts and in criminal proceedings with respect to taxes,and

c) the granting of advice and work with respect to expert opinions inconnection with conversions of legal form, mergers, capital increases andreductions, financial reorganizations, admission and retirement ofpartners or sharehoIders, sale of a business, liquidations and the like.

(6) To the extent that the annual sales tax return is accepted as additional work,this does not include the review of any special accounting prerequisities nor of theissue as to whether all potential legal sales tax reductions have been claimed. Noguarantee is assumed for the completeness of the supporting documents andrecords to validate the deduction of the input tax credit.

12. Confidentiality towards third parties and data security

(1) Pursuant to the law the Wirtschaftsprüfer is obliged to treat all facts that hecomes to know in connection with his work as confidential, irrespective of whetherthese concern the client himself or his business associations, unless the clientreleases him from this obligation.

(2) The Wirtschaftsprüfer may only release long-form reports, expert opinionsand other written statements on the results of his work to third parties with theconsent of his client.

(3) The Wirtschaftsprüfer is entitled - within the purposes stipulated by the client- to process personal data entrusted to him or allow them to be processed by thirdparties.

13. Default of acceptance and lack of cooperation on the part of the client

lf the client defaults in accepting the services offered by the Wirtschaftsprüfer or ifthe client does not provide the assistance incumbent on him pursuant to No. 3 orotherwise, the Wirtschaftsprüfer is entitled to cancel the contract immediately.The Wirtschaftsprüfer's right to compensation for additional expenses as well asfor damages caused by the default or the lack of assistance is not affected, evenif the Wirtschaftsprüfer does not exercise his right to cancel.

14. Remuneration(1) In addition to his claims for fees or remuneration, the Wirtschaftsprüfer isentitled to reimbursement of his outlays: sales tax will be billed separately. Hemay claim appropriate advances for remuneration and reimbursement of outlaysand make the rendering of his services dependent upon the complete satisfactionof his claims. Multiple clients awarding engagements are jointly and severallyliable.

(2) Any set off against the Wirtschaftsprüfer's claims for remuneration andreimbursement of outlays is permitted only for undisputed claims or claimsdetermined to be legally valid.

15. Retention and return of supporting documentation and records

(1) The Wirtschaftsprüfer retains, for ten years, the supporting documents andrecords in connection with the completion of the engagement - that had beenprovided to him and that he has prepared himself - as well as the correspondencewith respect to the engagement.

(2) After the settlement of his claims arising from the engagement, theWirtschaftsprüfer, upon the request of the client, must return all supportingdocuments and records obtained from him or for him by reason of his work on theengagement. This does not, however, apply to correspondence exchangedbetween the Wirtschaftsprüfer and his client and to any documents of which theclient already has the original or a copy. The Wirtschaftsprüfer may prepare andretain copies or photocopies of supporting documents and records which hereturns to the client.

16. Applicable law

Only German law applies to the engagement, its conduct and any claims arisingtherefrom.


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Date post:	25-Jul-2020
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CONTRACT REPORT - Vodafone Kabel Deutschland · Vodafone Vierte Verwaltungs AG announced its...

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