<PAGE> 1
Filed Purusant to Rule 424(b)(2)
Registration Nos. 333-62921 and 333-62921-01
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
ARE NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
Subject to Completion. Dated November 25, 1998.
Prospectus Supplement to Prospectus dated November 9, 1998.
[SEAGRAMS LOGO]
$2,000,000,000
JOSEPH E. SEAGRAM & SONS, INC.
$ % Senior Notes due 2003
$ % Senior Notes due 2005
$ % Senior Notes due 2008
$ % Senior Debentures due 2018
Guaranteed as to Payment of Principal and Interest by
THE SEAGRAM COMPANY LTD.
-------------------------
Joseph E. Seagram & Sons, Inc. will pay interest on the Notes and
Debentures on June 30 and December 31 of each year. The first such payment will
be made on December 31, 1998. The Notes and Debentures will be issued only in
denominations of $1,000 and integral multiples of $1,000.
Joseph E. Seagram & Sons, Inc. may not redeem the Notes or Debentures prior
to maturity.
The Notes and Debentures are unsecured debt obligations of Joseph E.
Seagram & Sons, Inc. and are guaranteed as to payment of principal and interest
by The Seagram Company Ltd.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
<TABLE>
<CAPTION>
Per 2003 Per 2005 Per 2008 Per 2018
Note Note Note Debenture Total
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Initial public offering price.................... % % % % $
Underwriting discount............................ % % % % $
Proceeds, before expenses, to Joseph E.
Seagram & Sons, Inc............................ % % % % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the Notes and Debentures will accrue from December
, 1998 and must be paid by the purchaser if the Notes or the Debentures are
delivered after December , 1998.
-------------------------
The underwriters expect to deliver the Notes and Debentures in book-entry
form only through the facilities of The Depository Trust Company against payment
in New York, New York on December , 1998.
GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
MORGAN STANLEY DEAN WITTER
CHASE SECURITIES INC.
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
-------------------------
Prospectus Supplement dated December , 1998.
<PAGE> 2
THE SEAGRAM COMPANY LTD.
The Seagram Company Ltd. operates in two core, global businesses: spirits
and wine and entertainment. Unless the context otherwise requires, the term
"Guarantor" refers to The Seagram Company Ltd. and its subsidiaries and
affiliates and the term "Company" refers to Joseph E. Seagram & Sons, Inc. and
its subsidiaries and affiliates. The Company is a wholly-owned subsidiary of the
Guarantor and is the Guarantor's principal U.S. spirits and wine subsidiary. The
spirits and wine business is engaged principally in the production and marketing
of distilled spirits and wines, as well as coolers, beers and mixers. The
entertainment company, Universal Studios, Inc., produces and distributes motion
pictures, television and home video products and recorded music, and operates
theme parks and retail stores. On June 22, 1998, the Guarantor announced it had
signed definitive agreements with Koninklijke Philips Electronics N.V. and
PolyGram N.V. to acquire PolyGram in a transaction valued at approximately $10.4
billion. The term "Acquisition" refers to the acquisition of PolyGram. The
agreements call for the Guarantor to pay $8.4 billion in cash and to issue a
maximum of approximately 47.9 million common shares (12 percent of outstanding
common shares after the transaction). The Acquisition, which is subject to
customary conditions, is expected to close in December 1998.
SPIRITS AND WINE
The Guarantor's spirits and wine business, directly and through affiliates
and joint ventures in 40 countries and territories, produces, markets and
distributes more than 226 brands of distilled spirits, more than 180 brands of
wines, Champagnes, Ports and Sherries, and more than 48 brands of coolers,
beers, mixers and other low-alcohol adult beverages, which are sold in over 197
countries and territories. Some of these products are sold worldwide and others
only in the geographic area where they are produced. In addition to marketing
company-owned brands, the Guarantor also distributes spirits, wine and beer
brands owned by others.
Some of the Guarantor's best-known brand names include Crown Royal and
Seagram's V.O. Canadian whiskies; Seagram's 7 Crown blended whiskey; Four Roses
bourbon; Chivas Regal, Royal Salute and Passport Scotch whiskies; The Glenlivet
and Glen Grant single malt Scotch whiskies; Martell Cognacs; Seagram's Extra Dry
Gin; Captain Morgan and Myers's rums; Mumm and Perrier-Jouet Champagnes; and
Sterling Vineyards California wines. The Guarantor also distributes ABSOLUT
VODKA, owned by V&S Vin & Sprit Aktiebolag, in the United States and in most
major international markets.
The Guarantor imports into the United States fine wines, principally French
wines and Champagnes, and produces and markets premium California and other
wines. Among the wines produced and marketed by the Guarantor are Mumm and
Perrier-Jouet Champagnes; Sterling Vineyards California wines; Tessera
California wines; Mumm Cuvee Napa California sparkling wine; Sandeman Ports and
Sherries; and Matheus Muller and Mumm German sekt. The Monterey Vineyard
California wines and Barton & Guestier (B&G) French wines are produced for the
Guarantor.
The spirits and wine industry is highly competitive. The trend toward
retailer concentration in the spirits and wine industry, particularly in Europe,
has resulted in powerful multinational retailers and buying groups. All
marketers of beverage alcohol brands have confronted severe pricing pressure
across Europe. During the last few years, these Euro-based multinational
retailers and buying groups have expanded into certain markets in Asia and Latin
America. In addition, Diageo PLC,
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which resulted from the merger of two of
the largest spirits and wine companies, Grand Metropolitan PLC and Guinness PLC,
presents significant challenges for the Guarantor's spirits and wine business in
the future.
The Guarantor continues to address these competitive challenges by
investing in its core brands and key growth markets. To maintain and improve the
market position of its brands, the Guarantor makes extensive use of magazine,
newspaper and outdoor advertising. The Guarantor also utilizes radio and
television advertising, although the use of such advertising in connection with
the sale of beverage alcohol is restricted in certain countries.
The Guarantor also markets low-alcohol and non-alcohol adult beverages.
Seagram's Coolers are sold in a variety of fruit and mixed drink flavors. The
Guarantor's mixer line includes Ginger Ale, Club Soda, Tonic Water and Seltzer.
The Guarantor is the exclusive U.S. importer of Grolsch Beer, owned by Royal
Grolsch N.V., and of Steinlager Beer, owned by Lion Nathan Limited.
ENTERTAINMENT
The Guarantor owns an indirect interest of approximately 84% in Universal
Studios, Inc., which has three major business units: filmed entertainment, music
entertainment and recreation and other. Unless the context otherwise requires,
the term "Universal" refers to Universal Studios, Inc. and its subsidiaries and
affiliates.
FILMED ENTERTAINMENT
Universal's filmed entertainment business produces and distributes films
worldwide in the theatrical, home video and pay television markets; produces and
distributes television products in the international market; operates and has
ownership interests in a number of international channels including The Sci-Fi
Channel Europe, USA Latin America, recently launched action and suspense
channels in France and Germany and a movie channel in Italy; engages in the
licensing of merchandising rights and film property publishing rights; and is
involved in certain other activities through its ownership of the joint venture
and equity interests described below.
Universal is currently engaged in the production of feature length films
intended for initial theatrical exhibition and the production of product for
international television markets. In addition, Universal produces animated and
live action children's and family programming for networks, basic cable and
local television stations as well as home video.
The arrangements under which Universal's theatrical films are owned,
produced and distributed vary widely. Other parties may participate in varying
degrees in revenues or other contractually defined amounts. Generally, Universal
or its affiliated companies control worldwide distribution, except where they
act as a subdistributor in specified territories or contract for specified
territories or for specifically defined distribution rights.
Generally, theatrical films are first distributed in the theatrical, home
video and pay television markets. Subsequently, theatrical films are made
available for worldwide television network exhibition and/or television
syndication. The license agreements with theater operators are on an individual
picture basis, and rentals under these agreements are generally a percentage of
the theater's receipts with, in some instances, a minimum guaranteed amount.
Universal distributes its theatrical product in the United States and
Canada to motion picture theatres. Theatrical distribution throughout the rest
of the world is primarily conducted by United International Pictures, which is
equally owned by Universal, Metro-Goldwyn-Mayer Inc. and an affiliate of Viacom
Inc. Universal distributes product to pay television in the United
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States, Canada and other major international markets. Television distribution in
the United States is handled by USANi LLC ("USANi LLC") (approximately 50%
owned) and throughout the rest of the world primarily by Universal. Television
product produced by USANi LLC is distributed by Universal in international
markets. Videocassettes and videodiscs are marketed in the United States and
Canada by Universal and outside the United States and Canada by Cinema
International B.V., which is 49% owned by Universal and 49% owned by an
affiliate of Viacom.
At September 30, 1998, Universal also owned an approximate 26% interest in
Loews Cineplex Entertainment Corporation, which exhibits theatrical films
principally in the United States and Canada, and a 49% interest in United
Cinemas International Multiplex B.V., which operates motion picture theatres
outside of the United States and Canada.
MUSIC ENTERTAINMENT
Universal's music entertainment business encompasses record labels which
develop artist repertoire in the United States and internationally through
operations in 26 foreign territories; United States manufacturing, sales, and
distribution of recorded music and videos; music publishing; and live event and
concert promotion. Universal's record companies create and market recorded
music, principally on compact discs and cassettes. Universal's music appears on
such labels as MCA Records, Universal Records, MCA Nashville, Geffen Records,
DGC Records, GRP Records, Rising Tide, Curb/Universal and Interscope Records
(50% ownership). New labels marketed and/or distributed by Geffen Records
include Almo Sounds, Outpost Records and DreamWorks Records. Universal also
manufactures and distributes recorded music for all of the labels in the group,
affiliated label ventures, and others, and distributes video product for
Universal and others in the United States. Universal administers the release,
marketing and sale of recorded music in major markets outside of the United
States; however, in foreign countries other than Canada and the United Kingdom,
Universal's record product is manufactured and distributed by third parties,
principally BMG Music. Universal also releases soundtrack albums for motion
pictures and licenses music from a catalog of more than 175,000 copyrights for a
wide variety of uses including recorded music, videocassettes, videodiscs, video
games, radio, television and motion pictures. Concerts and live events are
presented at and promoted by the Guarantor's Universal Amphitheatre in Los
Angeles and Coors Amphitheatre in Chula Vista, California, Fiddler's Green in
Denver, Blossom Music Center in Cleveland and the Gorge Amphitheater in George,
Washington and through joint ventures at the Coca-Cola Starplex Amphitheatre in
Dallas, the Coca-Cola Lakewood Amphitheatre in Atlanta and the Molson
Amphitheatre in Toronto, Canada.
RECREATION AND OTHER
Universal owns and operates Universal Studios Hollywood, a theme park based
on Universal's filmed entertainment businesses and located at Universal City,
California. Universal has a 50% interest in Universal City Florida Partners, a
joint venture which owns Universal Studios Florida, a theme park on
approximately 440 acres owned by the joint venture in Orlando, Florida.
Universal City Development partners, a partnership in which Universal has a 50%
interest, is developing an additional theme park, Universal Studios Islands of
Adventure, and related commercial real estate, on approximately 385 acres of
land owned by the partnership and adjacent to Universal Studios Florida.
Universal Studios Islands of Adventure is expected to open in the spring of
1999. In 1996, Universal announced plans for Universal Studios Japan in Osaka,
the Guarantor's first theme park venture outside the United States. Construction
began in 1998 with an opening
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expected in 2001. Universal recently acquired an approximately 37% interest in
Port Aventura, S.A., an existing 2000 acre theme park located in Spain near
Barcelona.
Universal owns, develops and manages commercial buildings with
approximately 2.4 million rentable square feet of office space in Universal
City, including Universal CityWalk and the 10 Universal City Plaza office
building, which are occupied by Universal or leased to outside tenants; and
Universal owns the Sheraton-Universal Hotel. Universal CityWalk, which is
located on Universal property in Universal City, is an integrated
retail/entertainment zone which offers shopping, dining, cinemas and
entertainment adjacent to Universal Studios Hollywood. Universal also owns a
100,000 square foot office building adjacent to the Universal property.
At September 30, 1998, Universal owned approximately 27% of SEGA GameWorks
L.L.C. which designs, develops and operates location-based entertainment
centers. SEGA GameWorks currently owns and operates five such centers in the
United States which are located in Seattle, Washington, Las Vegas, Nevada,
Grapevine, Texas, Tempe, Arizona and Ontario, California.
In addition, Universal is involved in other businesses including the
operation of retail gift stores and the development of entertainment software.
Universal owns Spencer Gifts, Inc. which operates approximately 570 retail gift
stores throughout the United States through three groups of stores: the Spencer,
DAPY and Glow gift shops. Spencer, DAPY and Glow sell novelties, electronics,
accessories, books and trend driven products. In connection with the activities
of Spencer Gifts, Inc., Universal owns a building in New Jersey and leases
approximately 570 stores in various cities in the United States and a warehouse
in North Carolina.
Universal Studios New Media, Inc. develops entertainment software, is
responsible for the development and maintenance of Universal's websites and
manages Universal's approximate 26% interest (at September 30, 1998) in
Interplay Entertainment Corp., an entertainment software developer.
COMPETITION
FILMED ENTERTAINMENT. The Guarantor's filmed entertainment business
competes with all other forms of entertainment. The Guarantor competes with
other major film studios and independent producers for creative talent and story
products, essential ingredients of the Guarantor's filmed entertainment
business. The profitability of the Guarantor's filmed entertainment business is
dependent upon the public's changing tastes, shifts in demand, economic
conditions and technological developments.
MUSIC ENTERTAINMENT. The music entertainment industry is highly
competitive. The profitability of a company's recorded music business depends on
its ability to attract and develop recording artists, the public acceptance of
such artists and the recordings released in a particular year. The Guarantor's
music business competes for creative talent both from new artists and those
artists who have already established themselves through another label. Over-
expansion of retail stores for recorded music over the past several years
resulted in the closing of many such stores which has further increased
competition among recorded music companies. The recorded music business
continues to be adversely affected by counterfeiting and piracy, in particular
through the home taping of recorded music.
RECREATION AND OTHER. The Guarantor's theme parks compete with other theme
parks in their respective geographic regions and other leisure-time activities.
The profitability of the leisure-time industry is influenced by various factors
which are
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not controllable by the Guarantor such as economic conditions, amount of
available leisure time, transportation prices and weather patterns.
Spencer, DAPY and Glow stores compete with numerous retail firms of various
sizes throughout the United States, including department and specialty niche-
oriented gift stores.
RECENT DEVELOPMENTS
On October 28, 1998, the Guarantor announced that it has entered into
exclusive negotiations with Societe Financiere des Vins de Champagne ("SFVC"),
jointly owned by AXA and Groupe Frey, concerning the potential sale of Mumm and
Perrier-Jouet Champagne companies to SFVC. SFVC and the Guarantor also confirmed
that, if the negotiations are successfully concluded, the Guarantor will retain
global distribution of both brands. There can be no assurance that an agreement
will be reached with SFVC.
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POLYGRAM N.V.
The following information relating to PolyGram has been taken from or based
upon publicly available documents on file with the Securities and Exchange
Commission, including PolyGram's Annual Report on Form 20-F for the year ended
December 31, 1997, and other publicly available information. No assurance can be
given that the Guarantor and the Company are aware of all facts and events that
may affect the significance or accuracy of the information furnished.
GENERAL
PolyGram is an entertainment company involved in the music and film
businesses. The principal activity of PolyGram is the acquisition, production,
marketing, manufacture and distribution of recorded music. PolyGram also has
certain related activities such as music publishing. PolyGram is the largest
recorded music company in the world in terms of 1997 sales.
MUSIC
PolyGram's two principal music activities are popular music and classical
music. PolyGram has a significant position in the popular music market, where
its labels include A&M, Def Jam (60% owned), Island, Mercury, Mercury Nashville,
Verve, Motown and Polydor. It has a leading position in the classical music
market through its label companies Decca, Deutsche Grammophon and the Philips
Music Group. In 1997, popular music sales accounted for approximately 62% and
classical music sales accounted for approximately 8% of PolyGram's net sales.
PolyGram has stated that it believes that the development of new talent
with potential for mass market appeal is the key to obtaining market share and
profitability. The company considers the main sources of international popular
repertoire to be the United States and the United Kingdom. However, PolyGram has
stated that it believes that it is distinquishable from its competitors in its
strength in national domestic repertoire that taps the individual country tastes
of consumers in PolyGram's markets. From time to time certain national acts such
as Andrea Bocelli from Italy, appeal to a wider international market. PolyGram
continually seeks to exploit the rights it acquires or creates. New releases are
an important aspect of this exploitation as well as the exploitation of existing
catalogs including music from such artists as Bob Marley, The Police, Def
Leppard and Van Morrison, and the soundtracks to "Grease" and "Saturday Night
Fever". Exploitation of the catalog may include the issue of re-releases, "Best
of" and compilation albums.
PolyGram's music activities also involve music publishing and other related
activities which, in aggregate, accounted for approximately 14% of net sales in
1997.
POPULAR MUSIC
A popular music record company is dependent to a significant degree on its
ability to sign and retain artists who will appeal to popular taste over a
period of time. Each PolyGram recorded popular music operation has its own
artist and repertoire staff whose task is to identify and sign both new artists
with potential appeal and established artists who will complement PolyGram's
existing artist roster or whose potential PolyGram believes has not been fully
exploited. PolyGram has stated that it believes that the diversity of its
popular music labels, repertoire and catalogs helps to absorb the impact of
shifts in audience tastes. PolyGram's primary popular labels are A&M, Def Jam
(60% owned), Island, Mercury, Mercury Nashville, Verve, Motown and Polydor.
Artists who are currently, directly or through third parties, under contract
with PolyGram for one or more important territories include Bryan Adams, All
Saints, The Bee Gees, Bjork, Andrea Bocelli, Bon Jovi, Boyz II Men, Sheryl
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Crow, Elton John, Glay, Hanson, Lionel Ritchie, LL Cool J, Metallica, Sting,
Shania Twain, Texas and U2.
Top selling albums in 1997 were Hanson's debut album, "Middle of Nowhere",
selling 8.4 million units, Andrea Bocelli's "Romanza" which sold 6.8 million
units and U2's "Pop" which sold 5.5 million units. PolyGram had 38 albums which
each sold over 1 million units in 1997, compared to 34 albums in 1996.
PolyGram also owns Verve, one of the world's leading jazz labels, whose
artists include Herbie Hancock, Joe Henderson, Charlie Haden and Wayne Shorter.
In 1997, significant releases included "Beyond the Missouri Sky" by Charlie
Haden and Pat Metheny and "Dear Ella" by Dee Dee Bridgewater.
PolyGram seeks to contract with its popular artists on an exclusive basis
for the marketing of their recordings (both audio and audio-visual) in return
for a royalty on the wholesale or retail selling price of the recording.
PolyGram generally seeks to obtain rights on a worldwide basis, although certain
of its artists have licensed rights for the United States and/or other areas to
other record companies.
CLASSICAL MUSIC
Industry experts estimate that the market for classical music represented
approximately 5% in retail value of the total music market in 1997. It is an
important business for PolyGram, which holds a leading position in this market
as a result of its ownership of three major classical label companies: Decca
(based in the United Kingdom), Deutsche Grammophon (based in Germany) and the
Philips Music Group (based in The Netherlands).
Highlights of PolyGram's classical music business during 1997 include
Decca's "Braveheart" soundtrack, "A Hymn For The World", and Philips Music
Group's "Shine" soundtrack.
The catalogs of the individual classical companies include recordings
featuring many world famous artists, many of whom have been associated with the
labels over long-term periods.
While exclusive artist contracts are not uncommon and can extend over a
long period, many artists and orchestral contracts are of shorter duration and
only refer to specific recordings. The structure of classical contractual
agreements varies considerably and ranges from lump sum payments to royalty
arrangements including advances. The rights to exploit recordings are usually
negotiated on a worldwide basis.
RELATED ACTIVITIES
Music Publishing. Music publishing involves the acquisition of rights to,
and exploitation of, musical compositions (as compared with recordings).
Principal sources of revenue are mechanical reproduction royalties from the
reproduction of musical works on sound carriers and license fees from radio and
television broadcasting and public performance of musical works.
PolyGram enters into agreements with composers and authors of musical
compositions for the purpose of exploiting such compositions by way of licensing
for use in sound recordings, films, videos and by way of live performances and
broadcasting. In addition, PolyGram licenses such compositions for use in
printed sheet music and song folios. PolyGram also licenses and acquires
catalogues of musical composition from third parties such as other music
publishers and composers and authors who have retained or re-acquired rights.
PolyGram's publishing catalog extends to more than 385,000 titles that are
owned or controlled by it, making PolyGram the world's third largest music
publisher, although its two principal competitors are significantly larger. Of
these titles, approximately one quarter are currently generating
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revenues. Writers represented by
PolyGram's publishing companies include the late Jerome Kern, the late Leonard
Bernstein, Andrew Lloyd Webber, Tim Rice and the members of The Cranberries, Bon
Jovi and U2.
Other Music Related Activities. PolyGram has stated that it believes that
music TV has the potential to generate significant revenue. As a result,
PolyGram has entered into a partnership with EMI, Sony and Warner to form VIVA,
a 24-hour video music cable channel based in Germany. VIVA has German language
programming and a significant content of national repertoire. PolyGram is also a
partner with Viacom in MTV Asia, which is based in Singapore and broadcasts to
India and the South and South-East Asian regions in English and Chinese.
The company has also begun to exploit the brand names associated with its
labels. In early 1997, PolyGram and a group of other investors opened the second
Motown Cafe in Las Vegas (the first having been opened in New York in 1995)
featuring the history and sounds of Motown. A third Motown Cafe is planned to be
opened in Orlando in 1998. PolyGram has licensed the use of the Motown trademark
to these ventures and is actively considering other Motown licensing
opportunities.
FILMED ENTERTAINMENT
The company has three principal film production labels: Propaganda, Working
Title and Interscope. Recent releases include "Bean -- The Ultimate Disaster
Movie", "The Game" and "The Borrowers". Other films produced by the company
include "Four Weddings and a Funeral", "Fargo" and "Dead Man Walking". As well
as producing and co-producing its own films, the company purchases the
distribution rights to a number of films each year which have been produced by
third parties. Recently acquired titles include "The Usual Suspects" and
"Spiceworld: The Movie".
RECENT DEVELOPMENTS
On November 10, 1998, the Guarantor entered into an agreement to sell
certain film library assets of PolyGram's film division to an indirect
subsidiary of Metro-Goldwyn-Mayer Inc., Orion Pictures Library Acquisition Co.,
Inc., following the Acquisition. The purchase price for the transaction is
approximately $250 million, with $235 million to be paid in cash at the closing
of such transaction and the remaining estimated $15 million to be paid from
operating cash flow from the assets prior to the expected closing of such
transaction on December 31, 1998. The transaction is subject to the consummation
of the Acquisition, the receipt of regulatory approvals and other customary
closing conditions. Discussions with other parties regarding the sale of certain
other film and television library assets of PolyGram's film division have taken
place and the Guarantor is continuing to examine strategic alternatives
regarding the film division's production and distribution operations.
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USE OF PROCEEDS
The net proceeds of the offering of the Notes and Debentures are estimated
to be approximately $ billion. The Company will use the proceeds it
receives from the sale of the Notes and Debentures to repay a portion of the
indebtedness expected to be incurred under the Company's bank credit facilities
in connection with the Acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity, Capital Resources
and Market Risk" for a discussion of the additional funds required for the
Acquisition.
CONDENSED CONSOLIDATED CAPITALIZATION OF GUARANTOR
The following table summarizes the consolidated capital structure of the
Guarantor and its direct and indirect subsidiaries at September 30, 1998 on an
historical basis and as adjusted for the Acquisition and related financings.
<TABLE>
<CAPTION>
AS ADJUSTED FOR
GUARANTOR THE
HISTORICAL ACQUISITION
---------- ---------------
(U.S. DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and short-term investments at cost..................... $ 3,753 $ 708
======= =======
Short-term borrowings....................................... $ 1,525 $ 2,714
Indebtedness payable in one year............................ 295 295
Long-term indebtedness...................................... 2,266 6,842
Minority interest........................................... 1,923 1,957
Shareholder's Equity........................................ 10,329 12,329
------- -------
Total capitalization........................................ $16,338 $24,137
======= =======
</TABLE>
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GUARANTOR UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On August 25, 1998, the Guarantor completed the sale of Tropicana Products,
Inc. and the Guarantor's global juice business ("Tropicana") to PepsiCo, Inc.
for cash proceeds of approximately $3.3 billion. The proceeds from the Tropicana
sale will be used by the Guarantor to provide part of the financing for the
Acquisition which is expected to close in December 1998. In connection with the
Acquisition, the Guarantor has commenced an offer to acquire all issued shares,
par value NLG 0.50 per share, of PolyGram for per share consideration, at the
election of each holder of PolyGram shares, of either (i) 1.3772 common shares
without nominal or par value of the Guarantor or (ii) NLG 115, net to the seller
in cash; provided, that consideration in the form of shares shall be paid in
respect to 34,783,758 PolyGram shares and cash consideration shall be paid in
respect to all other tendered PolyGram shares. The offer is subject to several
customary conditions, including that at least 95 percent of PolyGram's issued
share capital be tendered and the absence of defined materially adverse changes
or events. The offer and withdrawal rights will expire on December 4, 1998,
unless extended.
The following Unaudited Pro Forma Consolidated Balance Sheet of the
Guarantor as of September 30, 1998 and Unaudited Pro Forma Consolidated
Statements of Income of the Guarantor for the three months ended September 30,
1998 and the fiscal year ended June 30, 1998 illustrate (1) the effect of the
Acquisition as if it had been consummated on September 30, 1998 for the
Unaudited Pro Forma Consolidated Balance Sheet, (2) the effect of the sale of
Tropicana and the Acquisition as if each had been consummated on July 1, 1997
for the Unaudited Pro Forma Consolidated Statement of Income for the three
months ended September 30, 1998 and (3) the effect of the sale of Tropicana, the
Acquisition and the other transactions described below as if such transactions
had been consummated on July 1, 1997 for the Unaudited Pro Forma Consolidated
Statement of Income for the fiscal year ended June 30, 1998. For purposes of the
following Unaudited Pro Forma Consolidated Financial Statements, the total
purchase price of the Acquisition of Dutch Guilders 20.7 billion is converted to
U.S. dollars at a rate of 2.0 Dutch Guilders to 1.0 U.S. dollar, the payment of
which is reflected as cash consideration of $8.35 billion and the issuance of
approximately 47.9 million common shares of the Guarantor valued at $2.0 billion
(assuming that all PolyGram shares are acquired in the Acquisition). The
Acquisition will be accounted for as a purchase.
The other transactions referred to in the immediately preceding paragraph
are:
- - On October 21, 1997, the acquisition by Universal of an incremental 50%
interest in the USA Networks partnership (the "USA Networks transaction"),
including The Sci-Fi Channel, for $1.7 billion in cash. The USA Networks
transaction was accounted for under the purchase method of accounting. The
cost of the acquisition was allocated on the basis of the estimated fair
market value of the assets acquired and liabilities assumed. This valuation
resulted in $1.6 billion of unallocated excess of cost over fair value of
assets acquired which was being amortized over 40 years, and
- - On February 12, 1998, the sale of a 50% interest in USA Networks to USA
Networks, Inc. ("USAi") and the contribution of the remaining 50% interest in
USA Networks and the majority of the television assets ("UTV") of Universal,
including all of Universal's domestic television production and distribution
operations and 50% of the international operations of USA Networks, to USANi
LLC, in a transaction (the "USAi transaction") in which Universal received
cash,
S-10
<PAGE> 12
13.5 million shares of USAi (after giving effect to the 2 for 1 split of USAi
stock on March 26, 1998), consisting of approximately 7.1 million shares of
common stock and 6.4 million shares of Class B common stock which, at the date
of acquisition, in the aggregate represented a 10.7% equity interest in USAi,
and a 45.8% interest in USANi LLC which is exchangeable for USAi common stock
and Class B common stock. The USAi transaction resulted in $82 million of
unallocated excess cost over fair value of assets acquired which is being
amortized over 40 years. The investment in 7.1 million shares of USAi common
stock held by Universal at September 30, 1998 is accounted for at market value
($138 million at September 30, 1998) and has an underlying historical cost of
$142 million. The investment in the 6.4 million shares of Class B common stock
of USAi is carried at its historical cost of $128 million. The investment in
USANi LLC is included in investments in unconsolidated companies on the
consolidated balance sheet and is accounted for under the equity method.
No adjustment has been included in the pro forma amounts for any
anticipated cost savings or other synergies.
Pursuant to the agreement relating to the Acquisition, PolyGram has
retained a financial advisor for the purpose of selling PolyGram's film division
as promptly as practicable. On November 10, 1998, the Guarantor and PolyGram
entered into an agreement with a subsidiary of Metro-Goldwyn-Mayer Inc. with
respect to the previously announced agreement in principle to sell certain
library assets of PolyGram's film division to a subsidiary of MGM following the
Acquisition. Discussions with other parties regarding the sale of certain other
library assets of PolyGram's film division have taken place, and the Guarantor
is continuing to examine strategic alternatives regarding the film division's
production and distribution operations. No adjustment has been included in the
pro forma amounts for any sale of PolyGram film division assets.
The Unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with (1) PolyGram's selected historical consolidated financial data,
set forth under "Polygram Selected Historical Consolidated Financial Data"; (2)
the historical financial statements of PolyGram (including the notes thereto)
for the year ended December 31, 1997 and the PolyGram unaudited consolidated
interim financial data incorporated by reference in the Guarantor's Current
Reports on Form 8-K, dated August 25, 1998, as amended, and November 24, 1998,
which are incorporated by reference herein; (3) the historical financial
statements of the Guarantor contained in the Guarantor's Annual Report on Form
10-K for the fiscal year ended June 30, 1998, as amended, which is incorporated
by reference herein; and (4) the historical unaudited financial statements of
the Guarantor contained in the Guarantor's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
The Unaudited Pro Forma Consolidated Financial Statements of the Guarantor
are presented for comparative purposes only and are not intended to be
indicative of actual consolidated results of operations or consolidated
financial position that would have been achieved had the sale of Tropicana, the
Acquisition, the USA Networks transaction and the USAi transaction been
consummated as of the dates indicated above nor do they purport to indicate
results which may be attained in the future.
S-11
<PAGE> 13
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(U.S. DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
POLYGRAM POLYGRAM SEAGRAM
SEAGRAM FINANCIAL PRO FORMA CONSOLIDATED
HISTORICAL STATEMENTS(A) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments at
cost............................ $ 3,753 $ 98 $ 5,207(b) $ 708
(8,350)(c)
Receivables, net.................. 2,216 1,268 -- 3,484
Inventories....................... 2,734 154 -- 2,888
Film costs, net of amortization... 304 194 -- 498
Deferred income taxes............. 294 216 -- 510
Prepaid expenses and other current
assets.......................... 683 528 (188)(d) 1,023
------------- ------------- ------------- -------------
TOTAL CURRENT ASSETS.......... 9,984 2,458 (3,331) 9,111(k)
------------- ------------- ------------- -------------
Common stock of DuPont................ 925 -- -- 925
Common stock of USAi.................. 266 -- -- 266
Film costs, net of amortization....... 1,292 315 -- 1,607
Artists' contracts, advances and other
entertainment assets................ 860 1,265 2,800(e) 4,925
Property, plant and equipment, net.... 2,759 405 -- 3,164
Investment in unconsolidated
companies........................... 3,836 69 -- 3,905
Excess of cost over fair value of
assets acquired..................... 3,109 1,060 6,544(e) 10,713
Deferred charges and other assets..... 651 68 -- 719
------------- ------------- ------------- -------------
$ 23,682 $ 5,640 $ 6,013 $ 35,335(k)
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings and
indebtedness payable within one
year............................ $ 1,820 $ 482 $ 707(f) $ 3,009
Accrued royalties and
participations.................. 738 911 -- 1,649
Payables and accrued
liabilities..................... 2,043 1,037 95(g) 3,175
Income and other taxes............ 525 47 -- 572
------------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES..... 5,126 2,477 802 8,405(k)
------------- ------------- ------------- -------------
Long-term indebtedness................ 2,266 76 4,500(h) 6,842
Accrued royalties and
participations...................... 453 187 -- 640
Deferred income taxes................. 2,541 271 1,064(e) 3,876
Other credits......................... 1,044 242 -- 1,286
Minority interest..................... 1,923 34 -- 1,957
Shareholders' equity
Shares without par value.......... 859 2,353 (2,353)(i) 2,859
2,000(j)
Cumulative currency translation
adjustments..................... (382) -- -- (382)
Cumulative gain on equity
securities after tax............ 477 -- -- 477
Retained earnings................. 9,375 -- -- 9,375
------------- ------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY.... 10,329 2,353 (353) 12,329
------------- ------------- ------------- -------------
$ 23,682 $ 5,640 $ 6,013 $ 35,335
============= ============= ============= =============
</TABLE>
S-12
<PAGE> 14
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(U.S. DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------------------
POLYGRAM SEAGRAM
SEAGRAM TROPICANA FINANCIAL POLYGRAM CONSOLIDATED
HISTORICAL ADJUSTMENTS STATEMENTS(L) ADJUSTMENTS PRO FORMA
---------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 2,247 $ 1,343 $ 3,590
Cost of revenues.......... 1,282 741 $ 83(m) 2,106
Selling, general and
administrative
expenses................ 786 533 41(n) 1,360
--------------- ----------- --------------- ---------------
Operating income.......... 179 69 (124) 124(k)
Interest, net and
other................. 41 11 90(o) 142
--------------- ----------- --------------- ---------------
138 58 (214) (18)
Provision (benefit) for
income taxes.......... 87 (11) (64)(p) 12
Minority interest charge
(credit).............. 6 (4) (6)(q) (4)
Equity earnings (loss)
from unconsolidated
companies............... 50 (2) -- 48
--------------- ----------- --------------- ---------------
Income (loss) from
continuing
operations............ $ 95 $ 71 $ (144) $ 22
Discontinued Tropicana
operations:
Loss from discontinued
operations (net of
taxes of $0)........ (3) 3(r) -- -- --
Gain on sale of
discontinued
operations (net of
taxes of $373)...... 1,072 (1,072)(s) -- -- --
--------------- --------------- ----------- --------------- ---------------
1,069 (1,069) -- -- --
--------------- --------------- ----------- --------------- ---------------
Net income (loss)......... $ 1,164 $ (1,069) $ 71 $ (144) $ 22(k)
=============== =============== =========== =============== ===============
</TABLE>
S-13
<PAGE> 15
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
(U.S. DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS
------------------- ------------------------
GUARANTOR/ POLYGRAM
UTV AND USAI FINANCIAL
GUARANTOR USA USAI & PRO TROPICANA STATEMENTS
HISTORICAL NETWORKS OTHER FORMA ADJUSTMENTS (L)
---------- -------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $9,474 $(376)(t) $11(v) $9,109 $5,559
Cost of revenues.................... 5,525 (232)(t) 5,293 3,045
Selling, general and administrative
expenses........................... 3,396 (53)(t) 8(v) 3,351 2,156
------ ----- --- ------ ------
Operating income.................... 553 (91) 3 465 358
Interest, net and other............ 228 (38)(t) 21(w) 211 14
Gain on sale of Time Warner
Shares........................... 926 -- -- 926 -- --
Gain on USAi transaction........... 360 -- -- 360 -- --
------ ----- --- ------ ------
1,611 (53) (18) 1,540 344
Provision (benefit) for income
taxes............................ 638 (14) 3(p) 627 102
Minority interest charge
(credit)......................... 48 (10)(t) 6(q) 44 11
Equity (losses) earnings from
unconsolidated companies......... (45) 31(t) 19(u) 5 -- (11)
------ ----- --- ------ ---- ------
Income (loss) from continuing
operations....................... $ 880 $ 2 $(8) $ 874 $ 220
Income from discontinued Tropicana
operations, after tax............ 66 -- -- 66 $(66)(r) --
------ ----- --- ------ ---- ------
Net income (loss)................... $ 946 $ 2 $(8) $ 940 $(66) $ 220
====== ===== === ====== ==== ======
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------
GUARANTOR
POLYGRAM CONSOLIDATED
ADJUSTMENTS PRO FORMA
----------- ------------
<S> <C> <C>
Revenues............................ $14,668
Cost of revenues.................... $ 347(m) 8,685
Selling, general and administrative
expenses........................... 169(n) 5,676
----- -------
Operating income.................... (516) 307(k)
Interest, net and other............ 360(o) 585
Gain on sale of Time Warner
Shares........................... -- 926
Gain on USAi transaction........... -- 360
----- -------
(876) 1,008
Provision (benefit) for income
taxes............................ (258)(p) 471
Minority interest charge
(credit)......................... (35)(q) 20
Equity (losses) earnings from
unconsolidated companies......... -- (6)
----- -------
Income (loss) from continuing
operations....................... $(583) $ 511
Income from discontinued Tropicana
operations, after tax............ -- --
----- -------
Net income (loss)................... $(583) $ 511(k)
===== =======
</TABLE>
S-14
<PAGE> 16
NOTES TO GUARANTOR UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(a) The PolyGram financial statements have been converted to U.S. GAAP and
certain reclassifications have been made to conform to the Guarantor's
account classifications. The balance sheet has been converted at a rate of
1.8794 Dutch Guilders to 1.0 U.S. dollar.
(b) Reflects the cash proceeds from short term borrowings and long term
borrowings.
(c) Reflects the cash paid to PolyGram shareholders in the Acquisition.
(d) Reflects option premiums for the purchase of various currency options to
hedge the Guarantor's currency exposure given that the cash consideration
payable in the Acquisition is payable in Dutch Guilders. The Guarantor has
purchased options to sell $6.8 billion in exchange for Deutsch Marks, which
are being used as a proxy for Dutch Guilders due to the greater liquidity
available in the German currency, at strike prices equivalent to the
forward rates at the times of purchase. These options mature on various
dates near the expected close of the Acquisition.
(e) Reflects preliminary estimates of the revaluation of artist contracts,
catalogs and music publishing to fair value and the associated deferred tax
liability and the unallocated amount of the excess of the purchase price
over the fair value of PolyGram assets acquired. The Guarantor is currently
evaluating the fair value of certain assets to be acquired and liabilities
to be assumed. Upon completion of this valuation, the Guarantor will make a
final allocation of the excess purchase price over fair value, which may
include adjustments to the preliminary estimates referenced above.
Accordingly, the purchase accounting allocation is preliminary and has been
made solely for the purpose of developing the unaudited pro forma
consolidated financial information.
(f) Reflects the short-term borrowings to finance the Acquisition.
(g) Reflects financing and transaction costs incurred as a result of the
Acquisition.
(h) Reflects the long-term borrowings to finance the Acquisition.
(i) Reflects the elimination of historical PolyGram equity.
(j) Reflects the issuance of 47,904,191 of the Guarantor's common shares at
$41.75 per share to PolyGram shareholders in the Acquisition.
(k) Includes PolyGram's film division balances which represent approximately
five percent of the Guarantor's pro forma current assets, approximately two
percent of the Guarantor's pro forma total assets, approximately five
percent of the Guarantor's pro forma current liabilities and approximately
two percent of the Guarantor's pro forma total liabilities. The operating
loss and net loss for PolyGram's film division for the three months ended
September 30, 1998 were $38 million and $48 million, respectively. The
operating loss and net loss for PolyGram's film division for the twelve
months ended June 30, 1998 were $102 million and $150 million,
respectively.
(l) The PolyGram financial statements for the three months ended September 30,
1998 have been converted to U.S. GAAP and certain reclassifications have
been made to conform to the Guarantor's account classifications. The
income statement has been converted to U.S. dollars at an
S-15
<PAGE> 17
average rate of 1.9868 Dutch Guilders to 1.0 U.S. dollar for the three
months ended September 30, 1998 and 2.01812 Dutch Guilders to 1.0 U.S.
dollars for the twelve months ended June 30, 1998.
(m) Reflects the amortization, on an accelerated basis over periods from 14 to
20 years, of the $2.8 billion revaluation to fair value of artist contracts,
catalogs and music publishing assets as described in note (e). Amortization
for the fiscal years ending June 30, 1999, June 30, 2000, June 30, 2001 and
June 30, 2002 will be $332 million, $228 million, $198 million and $183
million, respectively.
(n) Reflects the amortization, over a 40 year period, of the unallocated amount
of the excess of the purchase price over the fair value of PolyGram assets
acquired as described in note (e).
(o) Reflects the additional interest expense resulting from the increased
short-term borrowings of approximately $707 million at an average borrowing
rate of 6.28% and increased long-term borrowings of $4.5 billion at an
average borrowing rate of 7.02% for the payment of $8.35 billion of the
$10.35 billion purchase price to acquire 100% of PolyGram in the
Acquisition. The balance of the $8.35 billion payment will be funded from
the net sale proceeds from the sale of Tropicana.
(p) Reflects the income taxes provided for at the statutory income tax rate.
(q) Reflects the adjustment of interest attributable to minority shareholders
of Universal.
(r) Reflects the removal of Tropicana net income.
(s) Reflects the removal of the gain on the sale of Tropicana.
(t) Reflects the elimination of USA Networks and the television business
contributed to USANi LLC. The initial 50% interest was accounted for under
the equity method of accounting, while the acquisition of the remaining
50% interest was accounted for under the purchase method of accounting.
(u) Reflects the 45.8% equity in the net income of USANi LLC net of the
amortization of goodwill on the investment in USANi LLC over 40 years. The
interest in USANi LLC is accounted for under the equity method of
accounting.
(v) Reflects distribution agreements which principally include: (1) USAi's
distribution of Universal's library and other television product and
theatrical films in domestic television markets and (2) Universal's
distribution of USAi's television product in foreign markets.
(w) Reflects the additional interest expense resulting from the increased
short-term borrowings for the payment of $1.7 billion for the incremental
50% interest in USA Networks offset by the reduction of short-term
borrowings using cash proceeds of $1.3 billion from the USAi transaction,
at an average borrowing rate of 5.4%.
S-16
<PAGE> 18
GUARANTOR UNAUDITED SUPPLEMENTARY PRO FORMA FINANCIAL INFORMATION
The following Unaudited Supplementary Pro Forma Financial Information of
the Guarantor is intended solely to provide investors with additional data and
should be read in conjunction with (i) the Unaudited Pro Forma Consolidated
Statement of Income of the Guarantor for the fiscal year ended June 30, 1998
included in this Prospectus Supplement, and (ii) the Unaudited Pro Forma
Consolidated Balance Sheet as of September 30, 1998 and Unaudited Pro Forma
Consolidated Statement of Income of the Guarantor for the three months ended
September 30, 1998 included in this Prospectus Supplement.
The Unaudited Supplementary Pro Forma Financial Information that follows
includes revenues and earnings before interest, taxes, depreciation and
amortization of the Guarantor and its consolidated subsidiaries ("EBITDA").
EBITDA is a non-GAAP financial metric utilized by management and is intended
solely to provide additional information to investors. The Guarantor believes
EBITDA provides additional information for understanding its underlying business
results. The Guarantor also believes EBITDA is an appropriate measure of the
Guarantor's operating performance, given the goodwill associated with the
Guarantor's acquisitions. However, EBITDA should be considered in addition to,
not as a substitute for, reported revenues, operating income, net income, cash
flows and other measures of financial performance in accordance with generally
accepted accounting principles.
The Unaudited Supplementary Pro Forma Financial Information for the fiscal
year ended June 30, 1998 illustrates the effect of the Acquisition and the other
transactions referred to below as if such transactions had been consummated on
July 1, 1997. The Unaudited Supplementary Pro Forma Financial Information for
the three months ended September 30, 1998 illustrates the effect of the
Acquisition as if it had been consummated on July 1, 1997.
For purposes of the following Unaudited Supplementary Pro Forma Financial
Information, the total purchase price of the Acquisition of Dutch Guilders 20.7
billion is converted to U.S. dollars at a rate of 2.0 Dutch Guilders to 1.0 U.S.
dollar, the payment of which is reflected as cash consideration of $8.35 billion
and the issuance of approximately 47.9 million common shares of the Guarantor
valued at $2.0 billion (assuming that all PolyGram shares are acquired in the
Acquisition). The Acquisition will be accounted for as a purchase.
The other transactions referred to above are:
- - On October 21, 1997, the acquisition by Universal of an incremental 50%
interest in the USA Networks partnership, including The Sci-Fi Channel, for
$1.7 billion in cash. The USA Networks transaction was accounted for under the
purchase method of accounting. The cost of the acquisition was allocated on
the basis of the estimated fair market value of the assets acquired and
liabilities assumed. This valuation resulted in $1.6 billion of unallocated
excess of cost over fair value of assets acquired which was being amortized
over 40 years, and
- - On February 12, 1998, the sale of a 50% interest in USA Networks to USAi and
the contribution of the remaining 50% interest in USA Networks and the
majority of the television assets of Universal, including all of Universal's
domestic television production and distribution operations and 50% of the
international operations of USA Networks, to USANi LLC in a transaction in
which Universal received cash, 13.5 million shares of USAi (after giving
effect to the 2 for 1 split of USAi stock on March 26, 1998), consisting of
approximately 7.1 million shares of common stock and 6.4 million shares of
Class B common stock which, at the date of acquisition, in the aggregate
represented a 10.7% equity
S-17
<PAGE> 19
interest in USAi, and a 45.8% interest in USANi LLC which is exchangeable for
USAi common stock and Class B common stock. The USAi transaction resulted in
$82 million of unallocated excess cost over fair value of assets acquired
which is being amortized over 40 years. The investment in the 7.1 million
shares of USAi common stock held by Universal accounted for at market value.
The investment in the 6.4 million shares of Class B common stock of USAi is
carried at its historical cost. The investment in USANi LLC is included in
investments in unconsolidated companies on the consolidated balance sheet and
is accounted for under the equity method.
No adjustment has been included in the pro forma amounts for any
anticipated cost savings or other synergies.
Pursuant to the agreement relating to the Acquisition, Polygram has
retained a financial advisor for the purpose of selling PolyGram's film division
as promptly as practicable. On November 10, 1998, the Guarantor and PolyGram
entered into an agreement with a subsidiary of MGM with respect to the
previously announced agreement in principle to sell certain library assets of
PolyGram's film division to a subsidiary of MGM following the Acquisition.
Discussions with other parties regarding the sale of certain other library
assets of PolyGram's film division have taken place, and the Guarantor is
continuing to examine strategic alternatives regarding the film division's
production and distribution operations. No adjustment has been included in the
pro forma amounts for any sale of Polygram film division assets.
The Unaudited Supplementary Pro Forma Financial Information of the
Guarantor is presented for comparative purposes only and is not intended to be
indicative of actual consolidated results of operations that would have been
achieved had the Acquisition, the USA Networks transaction and the USAi
transaction been consummated as of the dates indicated above nor does it purport
to indicate results which may be attained in the future.
S-18
<PAGE> 20
UNAUDITED SUPPLEMENTARY PRO FORMA FINANCIAL INFORMATION
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
(U.S. DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
------------------ ------------------------------
UTV AND SEAGRAM/ POLYGRAM SEAGRAM
SEAGRAM USA USAI & USAI FINANCIAL POLYGRAM CONSOLIDATED
HISTORICAL NETWORKS OTHER PRO FORMA STATEMENTS(C)(D) ADJUSTMENTS PRO FORMA
---------- -------- ------ --------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Spirits and Wine........... $4,525 $ -- $-- $4,525 $ -- $ -- $ 4,525
Entertainment
Filmed Entertainment..... 2,793 (376)(a) 11(b) 2,428 -- -- 2,428
Music.................... 1,461 -- -- 1,461 5,559 -- 7,020
Recreation and Other..... 695 -- -- 695 -- -- 695
------ ----- -- ------ ------ ----- -------
Total Entertainment........ 4,949 (376) 11 4,584 5,559 -- 10,143
Total Revenues............... $9,474 $(376) $11 $9,109 $5,559 $ -- $14,668
====== ===== == ====== ====== ===== =======
EBITDA
Spirits and Wine........... $ 583 $ -- $-- $ 583 $ -- $ -- $ 583
Entertainment
Filmed Entertainment..... 316 (115)(a) 3(b) 204 -- -- 204
Music.................... 84 -- -- 84 540 -- 624
Recreation and Other..... 99 -- -- 99 -- -- 99
------ ----- -- ------ ------ ----- -------
Total Entertainment........ 499 (115) 3 387 540 -- 927
Total EBITDA................. 1,082 (115) 3 970 540 -- 1,510
Depreciation and
Amortization............... 416 (24)(a) -- 392 182 516(e) 1,090
Corporate Expenses........... 113 -- -- 113 -- -- 113
------ ----- -- ------ ------ ----- -------
Operating Income............. $ 553 $ (91) $3 $ 465 $ 358 $(516) $ 307
====== ===== == ====== ====== ===== =======
</TABLE>
S-19
<PAGE> 21
UNAUDITED SUPPLEMENTARY PRO FORMA FINANCIAL INFORMATION
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
(U.S. DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-------------------------------
POLYGRAM SEAGRAM
SEAGRAM FINANCIAL POLYGRAM CONSOLIDATED
HISTORICAL STATEMENTS(C)(D) ADJUSTMENTS PRO FORMA
---------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Spirits and Wine............. $1,021 $ -- $ -- $1,021
Entertainment
Filmed Entertainment...... 618 -- -- 618
Music..................... 420 1,343 -- 1,763
Recreation and Other...... 188 -- -- 188
------ ------ ----- ------
Total Entertainment.......... 1,226 1,343 -- 2,569
Total Revenues................. $2,247 $1,343 $ -- $3,590
====== ====== ===== ======
EBITDA
Spirits and Wine............. $ 144 $ -- $ -- $ 144
Entertainment
Filmed Entertainment...... 93 -- -- 93
Music..................... 21 114 -- 135
Recreation and Other...... 34 -- -- 34
------ ------ ----- ------
Total Entertainment.......... 148 114 -- 262
Total EBITDA................... 292 114 -- 406
Depreciation and
Amortization................. 101 45 124(e) 270
Corporate Expenses............. 12 -- -- 12
------ ------ ----- ------
Operating Income............... $ 179 $ 69 $(124) $ 124
====== ====== ===== ======
</TABLE>
S-20
<PAGE> 22
NOTES TO GUARANTOR UNAUDITED SUPPLEMENTARY
PRO FORMA FINANCIAL INFORMATION
(a) Reflects the elimination of USA Networks and the television business
contributed to USAi LLC. The initial 50% interest was accounted for under
the equity method of accounting, while the acquisition of the remaining 50%
interest was accounted for under the purchase method of accounting.
(b) Reflects distribution agreements which principally include: (1) USAi's
distribution of Universal's library and other television product and
theatrical films in domestic television markets and (2) Universal's
distribution of USAi's television product in foreign markets.
(c) The PolyGram financial statements for the twelve months ended June 30, 1998
and three months ended September 30, 1998 have been converted to U.S. GAAP
and certain reclassifications have been made to conform to Seagram's account
classifications. The income statement has been converted to U.S. dollars at
an average rate of 2.01812 Dutch Guilders to 1.0 U.S. dollar for the twelve
months ended June 30, 1998 and at an average rate of 1.9868 Dutch Guilders
to 1.0 U.S. dollar for the three months ended September 30, 1998.
(d) Includes PolyGram's film division operating results for the twelve months
ended June 30, 1998 and the three months ended September 30, 1998,
respectively.
(e) Reflects the amortization, on an accelerated basis over periods from 14 to
20 years, of the $2.8 billion revaluation to fair value of artist contracts,
catalogs and music publishing assets as described in note (e) to the
Guarantor Unaudited Pro Forma Consolidated Financial Information.
Amortization for the fiscal years ending June 30, 1999, June 30, 2000, June
30, 2001 and June 30, 2002 will be $332 million, $228 million, $198 million
and $183 million, respectively. Also reflects the amortization, over a 40
year period, of the unallocated amount of the excess of the purchase price
over the fair value of PolyGram assets.
S-21
<PAGE> 23
GUARANTOR SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The Guarantor's selected historical consolidated financial data presented
below as of June 30, 1998, 1997 and 1996 and January 31, 1996, for the fiscal
years ended June 30, 1998 and 1997, the five-month transition period ended June
30, 1996, and the fiscal year ended January 31, 1996 were derived from the
Guarantor's historical consolidated financial statements and the notes thereto
contained in the Guarantor's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998, as amended, which is incorporated herein by reference, and
have been audited by PricewaterhouseCoopers LLP, independent accountants. In
addition, the Guarantor's selected historical consolidated financial data
presented below for the fiscal years ended January 31, 1995 and 1994 were
derived from the Guarantor's historical consolidated financial statements for
the fiscal years ended January 31, 1995 and 1994, respectively, which have been
audited by PricewaterhouseCoopers LLP. The data presented as of September 30,
1998 and 1997 and for the three months ended September 30, 1998 and September
30, 1997 are derived from the Guarantor's unaudited consolidated financial
statements contained in the Guarantor's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, which is incorporated herein by reference. As
a result of the Guarantor's sale of Tropicana, the Guarantor's Consolidated
Financial Statements report the results of Tropicana as discontinued operations.
The data presented below should be read in conjunction with the Guarantor's
consolidated financial statements.
The Guarantor's consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles which, in their
application to the Guarantor, conform in all material respects to Canadian
generally accepted accounting principles. Except as otherwise noted, figures are
in millions of U.S. dollars.
<TABLE>
<CAPTION>
FIVE-MONTH UNAUDITED
TRANSITION -----------------
FISCAL YEARS ENDED PERIOD FISCAL YEARS QUARTER ENDED
JANUARY 31, ENDED ENDED JUNE 30, SEPTEMBER 30,
--------------------------- JUNE 30, ----------------- -----------------
U.S. DOLLARS IN MILLIONS 1994 1995 1996 1996 1997 1998 1997 1998
- ------------------------ ------- ------- ------- ---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues............................ $ 4,724 $ 4,994 $ 7,787 $ 4,112 $10,354 $ 9,474 $ 2,372 $ 2,247
Operating income.................. 622 614 435 93 719 553 260 179
Interest, net and other........... 275 317 195 99 147 228 44 41
Gain on sale of Time Warner
shares.......................... -- -- -- -- 154 926 -- --
Gain on USAi transaction.......... -- -- -- -- -- 360 -- --
Equity earnings (losses) from
unconsolidated companies........ 18 14 47 35 62 (45) 2 50
Income from continuing operations
before the cumulative effect of
accounting change............... 249 170 144 67 445 880 116 95
Income (loss) from discontinued
Tropicana operations, after
tax............................. 34 24 30 18 57 66 17 (3)
Gain on sale of discontinued
Tropicana operations, after
tax............................. -- -- -- -- -- -- -- 1,072
Discontinued DuPont activities,
after tax....................... 96 617 3,232 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income before cumulative effect of
accounting change............... 379 811 3,406 85 502 946 133 1,164
Cumulative effect of accounting
change, after tax............... -- (75) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income........................ $ 379 $ 736 $ 3,406 $ 85 $ 502 $ 946 $ 133 $ 1,164
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
S-22
<PAGE> 24
<TABLE>
<CAPTION>
FIVE-MONTH UNAUDITED
TRANSITION -----------------
FISCAL YEARS ENDED PERIOD FISCAL YEARS QUARTER ENDED
JANUARY 31, ENDED ENDED JUNE 30, SEPTEMBER 30,
--------------------------- JUNE 30, ----------------- -----------------
U.S. DOLLARS IN MILLIONS 1994 1995 1996 1996 1997 1998 1997 1998
- ------------------------ ------- ------- ------- ---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION DATA
(AT END OF PERIOD)
Current assets...................... $ 3,532 $ 3,938 $ 6,194 $ 6,307 $ 6,131 $ 6,971 $ 6,105 $ 9,984
Common stock of DuPont............ 3,154 3,670 631 651 1,034 1,228 1,012 925
Common stock of Time Warner....... 1,769 2,043 2,356 2,228 1,291 -- 1,450 --
Other noncurrent assets........... 1,754 1,773 10,230 10,328 10,257 12,246 10,267 12,773
Net assets of discontinued
Tropicana operations............ 1,220 1,270 1,549 1,693 1,734 1,734 1,714 --
------- ------- ------- ------- ------- ------- ------- -------
Total assets............... $11,429 $12,694 $20,960 $21,207 $20,447 $22,179 $20,548 $23,682
======= ======= ======= ======= ======= ======= ======= =======
Current liabilities............... $ 2,776 $ 3,865 $ 3,557 $ 4,383 $ 3,087 $ 4,709 $ 3,328 $ 5,126
Long term indebtedness............ 3,051 2,838 2,889 2,562 2,478 2,225 2,481 2,266
Total liabilities.......... 6,428 7,174 9,788 10,163 9,174 10,948 9,531 11,430
Minority interest................. -- 11 1,844 1,839 1,851 1,915 1,858 1,923
Shareholders' equity.............. 5,001 5,509 9,328 9,205 9,422 9,316 9,159 10,329
------- ------- ------- ------- ------- ------- ------- -------
Total liabilities and
shareholders' equity..... $11,429 $12,694 $20,960 $21,207 $20,447 $22,179 $20,548 $23,682
======= ======= ======= ======= ======= ======= ======= =======
CASH FLOW DATA
Cash flow from operating
activities...................... 370 370 222 315 664 (241) (96) (449)
Capital expenditures.............. (118) (124) (349) (245) (393) (410) (77) (98)
Other investing activities, net... (1,556) (341) 2,260 (346) 2,101 1,109 (33) 3,000
Dividends paid.................... (209) (216) (224) (112) (239) (231) (59) (57)
</TABLE>
S-23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Guarantor has entered into several significant transactions during the
last two years, which have realigned the Guarantor's assets and have impacted or
will impact the comparability of its financial statements.
SALE OF TROPICANA: On August 25, 1998, the Guarantor completed the sale of
Tropicana for cash proceeds of approximately $3.3 billion. As a result of this
transaction, the Guarantor's Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations report
the results of Tropicana as discontinued operations for all periods presented.
ACQUISITION OF POLYGRAM: On June 22, 1998, the Guarantor announced that it
had signed definitive agreements with Koninklijke Philips Electronics N.V. and
PolyGram to acquire PolyGram in a transaction valued at approximately $10.4
billion. The agreements call for the Guarantor to pay $8.4 billion in cash and
to issue a maximum of approximately 47.9 million common shares (12 percent of
outstanding common shares after the transaction). The Acquisition, which is
subject to customary conditions, is expected to close in December 1998.
PURCHASE OF USA NETWORKS AND COMBINATION WITH USA NETWORKS, INC.: On
October 21, 1997, Universal acquired Viacom Inc.'s 50 percent interest in USA
Networks, including The Sci-Fi Channel, for $1.7 billion in cash. On February
12, 1998, Universal sold its acquired 50 percent interest in USA Networks to
USAi, formerly HSN, Inc., and contributed its original 50 percent interest in
USA Networks and the majority of its television assets, including substantially
all of its domestic operations and 50 percent of the international operations of
USA Networks, to USAi for $1.3 billion in cash and a 45.8 percent equivalent
equity interest in USAi. The Guarantor recognized a gross gain of $583 million
on the transaction, before taking into consideration the effect of the USAi
transaction on its remaining television assets. As a result of this transaction,
which represented the Guarantor's exit from the domestic television production
and distribution business, certain remaining television assets were impaired and
various related contractual obligations became adverse purchase commitments. The
fair value of these items was determined based on expected future cash flows.
The impairment losses and adverse purchase commitments arising from the USAi
transaction aggregated $223 million and are reflected in the net gain of $360
million ($222 million after-tax).
SALE OF TIME WARNER SHARES: On February 5, 1998, the Guarantor sold 15
million shares of Time Warner Inc. for pretax proceeds of $958 million. On May
27, 1998, the Guarantor sold its remaining 11.8 million shares of Time Warner
common stock for pretax proceeds of $905 million. The aggregate after-tax gain
on the sale of the shares in 1998 was $602 million and after-tax net proceeds
were $1.5 billion. On May 28, 1997, the Guarantor sold 30 million shares of Time
Warner common stock for pretax proceeds of $1.39 billion. The Guarantor had an
after-tax gain of $100 million and after-tax net proceeds of $1.33 billion on
the 1997 transaction.
SALE OF PUTNAM BERKLEY: On December 16, 1996, the Guarantor completed the
sale of The Putnam Berkley Group, Inc. ("Putnam"), the book publishing division
of Universal, for $330 million in cash. The Guarantor had a $64 million pretax
gain on the sale but no after-tax gain due to the write-off of goodwill
allocated to Putnam, which has no associated tax benefit.
SALE OF THE 156 MILLION DUPONT EQUITY WARRANTS: On July 24, 1996, the
Guarantor sold its 156 million equity warrants of E.I. du Pont de Nemours and
Company
S-24
<PAGE> 26
("DuPont") to DuPont for $500 million in cash. The Guarantor had an after-tax
gain of $39 million and after-tax net proceeds of $479 million.
------------------------
Effective June 30, 1996, the Guarantor changed its fiscal year-end from
January 31 to June 30. The financial results for the twelve months ended June
30, 1997 represent the first full fiscal year on the new basis.
For each period presented, there is an analysis of total Guarantor and
business segment results prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") which includes reported revenues and operating
income. The discussion also includes reported revenues and operating income for
the three lines of business within the entertainment segment -- filmed
entertainment, music and recreation and other.
The discussion will also include as supplemental information attributed
revenues and attributed earnings before interest, taxes, depreciation and
amortization ("attributed EBITDA"). These amounts include the Guarantor's
proportionate share of the revenues and EBITDA, respectively, of its
unconsolidated companies. Attributed revenues and attributed EBITDA are non-
GAAP financial metrics utilized by management and are intended solely to provide
additional information to investors. The adjustment for unconsolidated companies
eliminates the proportionate share of the revenues or EBITDA of the
unconsolidated companies to reconcile to reported revenues or operating income.
The Guarantor believes attributed revenues and attributed EBITDA provide
additional information for understanding the underlying business results. The
Guarantor also believes attributed EBITDA is an appropriate measure of the
Guarantor's operating performance, given the goodwill associated with the
Guarantor's acquisitions. However, attributed revenues and attributed EBITDA
should be considered in addition to, not as a substitute for, reported revenues,
operating income, net income, cash flows and other measures of financial
performance in accordance with generally accepted accounting principles.
The following detailed analysis of operations should be read in conjunction
with the Selected Historical Consolidated Financial Data of the Guarantor
incorporated by reference herein.
S-25
<PAGE> 27
QUARTER ENDED SEPTEMBER 30, 1998 VS.
QUARTER ENDED SEPTEMBER 30, 1997.
EARNINGS SUMMARY
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
----------------
U.S. DOLLARS IN MILLIONS 1997 1998
------------------------ ------ ------
<S> <C> <C>
Revenues
Spirits and Wine.......................................... $1,027 $1,021
Entertainment
Filmed Entertainment................................... 829 618
Music.................................................. 335 420
Recreation and Other................................... 181 188
------ ------
Total Entertainment....................................... 1,345 1,226
Total Reported Revenues..................................... $2,372 $2,247
====== ======
Operating Income
Spirits and Wine.......................................... $ 165 $ 114
Entertainment
Filmed Entertainment................................... 111 75
Music.................................................. (17) (10)
Recreation and Other................................... 22 14
------ ------
Total Entertainment....................................... 116 79
Corporate................................................. (21) (14)
------ ------
Total Operating Income...................................... 260 179
Interest, Net and Other..................................... 44 41
Provision for Income Taxes.................................. 93 87
Minority Interest Charge.................................... 9 6
Equity Earnings from Unconsolidated Companies............... 2 50
------ ------
Net Income Before Discontinued Operations................... 116 95
Discontinued Operations..................................... 17 (3)
Gain on Sale of Discontinued Operations..................... -- 1,072
------ ------
Net Income.................................................. $ 133 $1,164
====== ======
Net cash used for operating activities...................... $ (96) $ (449)
Net cash (used for) provided by investing activities........ $ (110) $2,902
Net cash provided by financing activities................... $ 3 $ 129
</TABLE>
S-26
<PAGE> 28
SUPPLEMENTAL INFORMATION:
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
----------------
1997 1998
------ ------
<S> <C> <C>
Attributed Revenues
Spirits and Wine............................................ $1,088 $1,039
Entertainment
Filmed Entertainment...................................... 1,036 1,025
Music..................................................... 367 453
Recreation and other...................................... 254 275
------ ------
Total Entertainment......................................... 1,657 1,753
------ ------
Total Attributed Revenues................................... 2,745 2,792
Adjustment for unconsolidated companies..................... (373) (545)
------ ------
Reported Revenues........................................... $2,372 $2,247
====== ======
Attributed EBITDA
Spirits and Wine............................................ $ 192 $ 145
Entertainment
Filmed Entertainment...................................... 158 171
Music..................................................... 18 26
Recreation and other...................................... 63 73
------ ------
Total Entertainment......................................... 239 270
------ ------
Total Attributed EBITDA..................................... 431 415
Adjustment for unconsolidated companies..................... (50) (123)
Depreciation and amortization............................... (102) (101)
Corporate................................................... (19) (12)
------ ------
Operating Income............................................ $ 260 $ 179
====== ======
</TABLE>
Reported revenues for the quarter ended September 30, 1998 declined five
percent to $2.2 billion, reflecting lower spirits and wine revenues in Asia
Pacific and at the Motion Picture group. Operating income, which excludes the
equity earnings of unconsolidated companies, decreased significantly to $179
million due to lower spirits and wine results, primarily in Asia Pacific, and to
declines in Filmed Entertainment and Recreation and Other. Equity earnings from
unconsolidated companies increased from $2 million last year to $50 million this
year. The increase in equity earnings reflects the impact of owning
approximately 50 percent of USANi LLC this quarter compared with 50 percent of
USA Networks in the prior period, the acquisition in June 1998 of a 37.5 percent
interest in Port Aventura, S.A. in Spain and improved operating results at Loews
Cineplex Entertainment Corporation as compared to Cineplex Odeon Corporation
(owned in the prior period).
Attributed EBITDA declined four percent to $415 million on total attributed
revenues of $2.8 billion. The attributed EBITDA decline reflects a 13 percent
increase in attributed EBITDA, to $270 million, for the entertainment segment,
offset by a 24 percent decrease in the spirits and wine group's attributed
EBITDA to $145 million from $192 million.
S-27
<PAGE> 29
SPIRITS AND WINE
In the quarter ended September 30, 1998, the spirits and wine segment
contributed $1.02 billion to reported revenues and $114 million to operating
income versus $1.03 billion of reported revenues and $165 million of operating
income in the prior year.
Spirits and wine revenues were adversely affected by difficult market
conditions in Asia Pacific and the impact of unfavorable foreign exchange.
Reported revenues declined one percent; however, excluding the impact of
unfavorable foreign exchange, reported revenues would have increased three
percent versus the prior year. Operating income declined 31 percent. Excluding
the impact of unfavorable foreign exchange, operating income would have
decreased 27 percent. Reported revenues in Asia Pacific were down 19 percent
reflecting lower sales in many markets including Greater China and Duty Free.
Operating income for Asia Pacific declined 58 percent as demand shifted from
imported products to less expensive locally-produced spirits. In the Americas,
reported revenues and operating income were essentially flat; a slight increase
in North America was offset by a decline in Latin America which has been
affected by political instability and economic fall-out from Asia, particularly
in Brazil and Venezuela. Europe's first quarter reported revenues increased six
percent due to improvement in Germany, reflecting the stabilization of the
classic Mumm Sekt brand and the introduction of the Jules Mumm line extension.
Despite the revenue improvement, operating income for Europe declined by 12
percent reflecting investment spending. Key markets in Europe, including
Germany, Spain and the U.K. performed well. Operating income as a percentage of
reported revenues declined from 16.1 percent to 11.2 percent reflecting the
shortfall in Asia Pacific where predominantly higher margin products are sold.
Since the Asian economic and currency crisis began to affect the
Guarantor's operations in the second quarter of fiscal 1998, the comparisons
between the first quarter of fiscal 1998 and the first quarter of this year were
difficult. The Guarantor presently anticipates that on a full fiscal year basis
there will be no further material adverse change in its spirits and wine results
(as compared to fiscal year 1998) due to the situation in Asia.
In the first quarter cost of goods sold as a percentage of reported
revenues increased to 51.3 percent from 50.0 percent. Selling, general and
administrative expenses as a percentage of reported revenues increased to 37.5
percent from 33.9 percent due to spending for Year 2000 remediation, increased
information systems expenses, and the timing of expenses. Total brand spending
declined three percent at constant exchange rates as a decline related to lower
volume in Asia was partially offset by increased spending in both North America
and Europe.
Spirits and wine case volumes decreased two percent in the quarter
reflecting the impact of market conditions in Asia on several of the Guarantor's
global brands including Chivas Regal, Martell and Royal Salute. Mumm Sekt
volumes were strong with a 28 percent year-on-year increase due to the
stabilization of the classic Mumm Sekt brand and the introduction of the Jules
Mumm line extension. ABSOLUT VODKA, which is owned by V&S Vin & Sprit
Aktiebolag, rose 17 percent. Captain Morgan volumes increased three percent but
Crown Royal, which was impacted by timing, declined three percent in the
quarter.
The equity in earnings of unconsolidated companies improved from a loss of
$3 million last year to break even this year. The unconsolidated companies are
located in Asia Pacific and are Kirin-Seagram Limited in Japan and Seagram
(Thailand) Limited. The first quarter ended September 30, 1997 also included
Doosan
S-28
<PAGE> 30
Seagram Co. Limited in Korea. As a result of an additional investment in Doosan
Seagram at the end of June 1998, its results are consolidated in the current
year.
Attributed revenues were five percent weaker than last year at $1.04
billion. Attributed EBITDA decreased 24 percent to $145 million. Excluding the
impact of unfavorable foreign exchange, attributed revenues would have decreased
one percent and attributed EBITDA would have decreased 21 percent versus last
year.
ENTERTAINMENT
In the quarter ended September 30, 1998, entertainment contributed $1.2
billion to reported revenues, nine percent less than the $1.3 billion
contributed in the prior year. Operating income decreased 32 percent to $79
million. The decline in reported revenues and operating income was primarily due
to lower motion picture results, which more than offset the strong music
results. Operating income as a percentage of reported revenues decreased from
8.6 percent to 6.4 percent. Total costs, which consist primarily of production
and manufacturing costs, distribution and selling expenses, artists' costs and
participations, labor and amortization, as a percentage of reported revenues
increased from 91.4 percent to 93.6 percent.
Equity in earnings from unconsolidated companies increased from $5 million
last year to $50 million this year. The increase in equity earnings reflects the
impact of owning approximately 50 percent of USANi LLC this year compared with
50 percent of USA Networks last year. In addition, the Guarantor benefited from
the acquisition of a 37.5 percent interest in Port Aventura in Spain and
improved operating results at Loews Cineplex.
Attributed revenues, at $1.8 billion, were up six percent over the prior
year. Attributed EBITDA improved 13 percent, to $270 million.
FILMED ENTERTAINMENT
In the first quarter, reported revenues and operating income decreased 25
percent and 32 percent respectively. The Motion Picture group reported revenues
declined because of the disappointing box office performance of first quarter
releases and difficult comparisons with the prior year's first quarter which
benefited from the carryover of The Lost World and Liar, Liar. International
Television results declined year on year due to start-up costs relating to the
new international channels, lower signing bonuses, and losses from USA
International (previously owned by USA Networks), and lower international
library results. Partially offsetting these declines, Motion Picture library
sales and profitability improved over last year largely due to the network
availability of The Lost World. In addition, Television library sales were up,
reflecting the sale of Murder, She Wrote to A&E.
The equity in earnings from unconsolidated companies improved from a loss
of $3 million in the prior year to income of $28 million in the current year
primarily due to the impact of owning approximately 50 percent of USANi LLC this
year compared with 50 percent of USA Networks in the prior year. The
unconsolidated companies principally include USANi LLC, Loews Cineplex, United
Cinemas International Multiplex B.V., Cinema International Corporation N.V.,
Cinema International B.V., Brillstein Grey Entertainment and United
International Pictures.
Attributed revenues declined one percent as compared to the prior year
while attributed EBITDA increased eight percent to $171 million.
MUSIC
In the first quarter reported revenues increased 25 percent and the
operating loss declined from $17 million to $10 million. The improved
performance primarily reflects growth in domestic labels. In particular,
S-29
<PAGE> 31
Geffen Records and Interscope Records had significant year-on-year improvement.
In the quarter, the Music group had strong releases from Hole, Vince Gill, Rob
Zombie, Trisha Yearwood and Marilyn Manson, as well as the soundtrack from How
Stella Got Her Groove Back.
The equity in earnings from unconsolidated companies was flat year-on-year
at $4 million. The unconsolidated companies principally include Universal
Concerts Canada and Universal/PACE Amphitheaters Group, L.P., which are both
concert joint ventures.
Attributed revenues increased 23 percent as compared to the prior year and
attributed EBITDA grew 44 percent to $26 million.
RECREATION AND OTHER
Reported revenues for Recreation and Other increased four percent in the
quarter, while operating income declined $8 million. The increase in reported
revenues reflects the success of the Crash Bandicoot 2 video game, the
management fee earned from Port Aventura and improved sales by Spencer Gifts,
partially offset by the weakness of Universal Studios Hollywood. Attendance at
the theme park in Hollywood declined 15% in the quarter, largely due to the
impact of the Asian economic and currency crisis on tourism. The decline in
operating income was due primarily to the poor performance of Universal Studios
Hollywood.
The equity in earnings from unconsolidated companies increased from $4
million in the prior year to $18 million in the current year. The increase was
driven by the impact of the investment in Universal's Port Aventura. At
Universal Studios Florida, paid attendance and per capita spending were
essentially even with last year, but results improved slightly because of
increased turnstile attendance due to a promotion for second-day free admission.
The unconsolidated companies principally include Universal City Florida
Partners, Universal City Development Partners, Port Aventura, SEGA GameWorks
L.L.C. and Interplay Entertainment Corp.
Attributed revenues increased eight percent over the prior year while
attributed EBITDA improved 16 percent to $73 million.
CORPORATE EXPENSES AND INTEREST. NET AND OTHER.
Corporate expenses were $14 million in the current quarter as compared to
$21 million in the prior year, primarily due to reduced costs associated with
certain stock-based compensation resulting from the decline in the market value
of the Guarantor's shares during the quarter. Interest, net and other was $41
million, slightly below the prior year.
NET INCOME
Income from continuing operations was $95 million in the quarter compared
with $116 million last year. During the quarter, the Guarantor realized an
after-tax gain on the sale of Tropicana of $1.07 billion. Including this gain
and the results of Tropicana until it was sold on August 25, 1998, reported net
income was $1.164 billion.
The effective income tax rate on continuing operations including earnings
from unconsolidated companies was 46 percent in the quarter compared with 43
percent in the prior year reflecting reduced current year earnings in the
relatively low tax jurisdictions in Asia.
S-30
<PAGE> 32
FISCAL YEAR ENDED JUNE 30, 1998 VS.
FISCAL YEAR ENDED JUNE 30, 1997.
EARNINGS SUMMARY
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
JUNE 30,
------------------
U.S. DOLLARS IN MILLIONS 1997 1998
- ------------------------ ------- -------
<S> <C> <C>
REPORTED REVENUES........................................... $10,354 $ 9,474
OPERATING INCOME
Spirits and Wine.......................................... 663 464
Entertainment............................................. 194 209
Corporate................................................. (138) (120)
------- -------
OPERATING INCOME............................................ 719 553
Interest, net and other................................... 147 228
Gain on sale of Time Warner shares........................ 154 926
Gain on USAi transaction.................................. -- 360
------- -------
726 1,611
Provision for income taxes................................ 331 638
Minority interest charge.................................. 12 48
Equity earnings/(losses) from unconsolidated companies.... 62 (45)
------- -------
INCOME FROM CONTINUING OPERATIONS........................... $ 445 $ 880
Income from discontinued Tropicana operations, after
tax.................................................... 57 66
------- -------
NET INCOME.................................................. $ 502 $ 946
======= =======
Net Cash provided by (used for) operating activities...... $ 664 $ (241)
Net Cash provided by (used for) investing activities...... $ 1,708 $ 699
Net Cash (used for) provided by financing activities...... $(2,175) $ 159
SUPPLEMENTAL INFORMATION:
Attributed Revenues....................................... $11,763 $11,196
Attributed EBITDA......................................... 1,413 1,302
</TABLE>
The Guarantor's results in 1998 were severely impacted by the economic and
currency crises in Asia, which hampered business performance and resulted in a
$60 million charge to spirits and wine operations in the second quarter of the
fiscal year. Reported revenues of $9.5 billion declined from $10.4 billion last
year. Excluding the unfavorable impact of foreign exchange and the contribution
of Putnam from last year, reported revenues declined five percent year-on-year.
Operating income was $553 million, after the charge for Asia, substantially
below the prior year which included a $64 million pretax gain on the sale of
Putnam. Excluding the charge for Asia this year and the contribution from Putnam
last year, operating income declined three percent year-on-year reflecting the
decline in spirits and wine operations and higher depreciation and amortization
expense. Spirits and wine operating income declined 21 percent, before the
charge for Asia. Entertainment operating income was almost double last year,
excluding the contribution of Putnam. Entertainment operating income for the
fiscal year ended June 30, 1998 includes
S-31
<PAGE> 33
$94 million of income from USA Networks for the period from October 21, 1997 to
February 12, 1998 when the Guarantor owned 100 percent of USA Networks. The
incremental depreciation and amortization principally results from higher
goodwill amortization from October to February related to the acquisition of the
remaining 50 percent of USA Networks. Corporate expenses decreased from $138
million to $120 million largely due to reduced expenses associated with the
Guarantor's ongoing reengineering programs.
Attributed revenues of $11.2 billion declined from $11.8 billion last year.
Excluding the unfavorable impact of foreign exchange and the contribution of
Putnam from last year, attributed revenues declined two percent year-on-year.
Attributed EBITDA was $1.3 billion compared with $1.4 billion last year.
Excluding the charge for Asia this year and the contribution of Putnam last
year, attributed EBITDA decreased two percent. Spirits and wine attributed
EBITDA declined 20 percent, before the charge for Asia. Entertainment attributed
EBITDA was 24 percent above last year, excluding the contribution of Putnam.
During the fiscal year ended June 30, 1998, the Guarantor recognized
pre-tax gains on the USAi transaction ($360 million) and the sale of the
remaining Time Warner shares ($926 million). During the fiscal year ended June
30, 1997, the Guarantor had a pretax gain of $154 million on the sale of Time
Warner shares.
In the fiscal year ended June 30, 1998, interest, net and other included
net interest expense of $255 million which was partially offset by $27 million
of dividend income from Time Warner and DuPont. In the fiscal year ended June
30, 1997, net interest expense of $247 million was offset by the pretax gain on
the sale of the DuPont warrants ($60 million) and $40 million of dividend income
from Time Warner and DuPont. The net interest expense increase largely reflects
a higher average debt balance, which is due to the funding of the Guarantor's
purchase of the incremental 50 percent interest in USA Networks on October 21,
1997 and share repurchases pursuant to the Guarantor's ongoing share repurchase
program, partially offset by the repayment of debt with the proceeds from the
USAi transaction and the sales of the Time Warner shares.
The underlying effective income tax rate for continuing operations
(excluding one-time items) for the fiscal year ended June 30, 1998 was 48
percent compared with 43 percent in the prior fiscal year. The increase in the
effective tax rate results from reduced earnings in relatively low tax
jurisdictions in Asia. The income tax provision in fiscal 1998 also includes
$138 million of taxes on the gain on the USAi transaction, $324 million of taxes
on the gain on the sale of the remaining Time Warner shares and a $10 million
benefit on the charge for spirits and wine operations in Asia. The income tax
provision in fiscal 1997 also included $21 million of taxes on the gain on the
sale of the DuPont warrants, $64 million of taxes on the gain on the sale of
Putnam and $54 million of taxes on the gain on the sale of Time Warner shares.
The effective income tax rate, including the Guarantor's one-time items, was 40
percent in fiscal 1998 compared with 46 percent in the prior year.
The minority interest charge in fiscal year 1998 includes $35 million
associated with the gain on the USAi transaction.
The equity in (losses)/earnings of unconsolidated companies declined from
earnings of $62 million to a loss of $45 million primarily due to the impact of
the USA Networks transactions, lower contributions from Cineplex/Odeon and the
Guarantor's spirits and wine joint venture affiliates in Asia and higher
amortization related to certain equity investments.
Income from continuing operations was $880 million in the fiscal year ended
June 30, 1998, compared with $445 million in the prior fiscal year. Excluding
the gain on the USAi transaction (after taxes and
S-32
<PAGE> 34
minority interest), the after-tax gain on the sales of Time Warner shares, and
the after-tax charge for spirits and wine operations in Asia, income from
continuing operations in fiscal year 1998 was $141 million. In the fiscal year
ended June 30, 1997, excluding the after-tax gains on the sales of the DuPont
warrants and Time Warner shares, income from continuing operations was $306
million.
Income from discontinued Tropicana operations, after tax, was $66 million
in the fiscal year ended June 30, 1998, compared with $57 million in the prior
fiscal year. Reported revenues from discontinued operations were $2.0 billion in
the fiscal year ended June 30, 1998 and $1.9 billion in the prior fiscal year.
Operating income was $169 million in the fiscal year ended June 30, 1998 and
$152 million in the prior fiscal year. Results of discontinued operations
include allocations of consolidated interest expense totaling $39 million and
$41 million in the fiscal years ended June 30, 1998 and 1997, respectively. The
allocations were based on the ratio of net assets of discontinued operations to
consolidated net assets.
Net income including discontinued operations was $946 million in the fiscal
year ended June 30, 1998, compared with $502 million in the prior fiscal year.
SPIRITS AND WINE
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
JUNE 30,
------------------
U.S. DOLLARS IN MILLIONS 1997 1998
- ------------------------ ---- ----
<S> <C> <C>
REPORTED REVENUES*.......................................... $4,870 $4,525
------ ------
Operating Income before charges............................. $ 663 $ 524
Charge for Asia............................................. -- (60)
------ ------
OPERATING INCOME............................................ $ 663 $ 464
------ ------
Equity earnings from unconsolidated companies............... $ 14 $ 1
------ ------
SUPPLEMENTAL INFORMATION:
Attributed Revenues......................................... $5,249 $4,757
Adjustment for unconsolidated companies..................... (379) (232)
------ ------
Reported Revenues........................................... $4,870 $4,525
------ ------
Attributed EBITDA........................................... $ 810 $ 590
Adjustment for unconsolidated companies..................... (24) (7)
Depreciation and amortization............................... (123) (119)
------ ------
Operating Income............................................ $ 663 $ 464
</TABLE>
- -------------------------
* Reported revenues include excise taxes of $754 million and $793 million in the
fiscal years ended June 30, 1998 and 1997, respectively.
As a result of the sale of Tropicana, the results of The Seagram Beverage
Company, which were formerly included in the results of the Tropicana Beverage
Group, are now reported in the spirits and wine segment for all periods
presented. The Seagram Beverage Company produces and markets coolers, beers and
mixers in the United States. The results of The Seagram Beverage Company are not
material to the total spirits and wine segment.
Spirits and wine revenues were adversely affected by difficult market
condi-
S-33
<PAGE> 35
tions in Asia Pacific and the impact of unfavorable foreign exchange. Reported
revenues declined seven percent to $4.5 billion. Excluding the impact of
unfavorable foreign exchange, reported revenues would have declined four percent
versus last year. Operating income declined 30 percent to $464 million after the
$60 million charge for Asia. Excluding the impact of unfavorable foreign
exchange and the charge for Asia, operating income would have decreased 10
percent. Operating income, before the charge, as a percent of reported revenues
declined from 13.6 percent to 11.6 percent reflecting the shortfall in the Asian
market where predominantly higher margin products are sold.
In fiscal year 1998 cost of goods sold, before the charge, as a percent of
reported revenues was unchanged at 52.7 percent. Selling, general and
administrative expenses, before the charge, as a percent of reported revenues
increased to 35.7 percent from 33.7 percent as reductions in overhead and brand
spending did not fully compensate for the rapid revenue decline in Asia. Total
brand spending declined 12 percent, or approximately three percent at constant
exchange rates, primarily due to the volume shortfall. However brand equity
spending rose four percent as the Guarantor continued to invest for future
growth by supporting its brands in key markets. The brand equity growth reflects
an increased emphasis on the consumer and is focused behind core strategic
brands in North America, particularly Crown Royal Canadian Whisky and ABSOLUT
VODKA, and in Europe.
Spirits and wine case volumes (including volumes from our unconsolidated
companies in Asia) decreased one percent in fiscal year 1998 as the performance
of the Guarantor's global brands was mixed. Volumes in North America were
strong, in particular for Crown Royal Canadian Whisky, for which shipments grew
seven percent, and Captain Morgan Rum, for which volumes increased 22 percent.
ABSOLUT VODKA, which the Company distributes in major international markets, had
a four percent increase in shipments. Shipments of several global brands
declined due to the market conditions in Asia, including Chivas Regal Scotch
Whisky, Martell Cognac and Royal Salute Scotch Whisky.
The equity in earnings of unconsolidated companies declined from $14
million to $1 million due to the impact of the situation in Asia on the
Guarantor's joint ventures in Korea and Thailand.
Attributed revenues were nine percent weaker than last year at $4.8
billion. Attributed EBITDA decreased 27 percent to $590 million or 20 percent,
before the charge for Asia, to $650 million. The $160 million attributed EBITDA
decrease, before the charge, is due to lower revenues and margins in Asia and
the impact of unfavorable foreign exchange. Excluding the impact of unfavorable
foreign exchange, attributed revenues would have declined five percent and
attributed EBITDA would have decreased 10 percent versus last year. The decline
in revenues in Asia is due to lower shipments in order to deliberately reduce
distributor inventories, particularly in Greater China, and diminished consumer
demand. Margins in Asia deteriorated as demand has shifted away from imported
products to less expensive locally produced spirits. Attributed EBITDA for the
Americas increased nine percent, driven by North America which had higher
revenues and margin increases due to improved mix and sustained price increases.
Attributed EBITDA in Latin America was essentially even with last year.
Attributed EBITDA for Europe & Africa declined one percent, but would have
increased seven percent excluding the impact of unfavorable foreign exchange.
Key growth markets in Europe included the U.K. and Spain.
In the fiscal year ended June 30, 1998, revenues and operating income
generated in North America accounted for 43 percent and 65 percent of total
revenues and oper-
S-34
<PAGE> 36
ating income, respectively. Europe & Africa accounts for 34 percent of spirits
and wine revenues and 26 percent of operating income. Reflecting the difficult
market conditions this year, Asia Pacific's contribution declined to 12 percent
of the total revenues and it had an operating loss. Latin America accounts for
the remaining 11 percent of both revenues and operating income. (This geographic
breakdown, which is used by management to measure the performance of marketing
affiliates, including unconsolidated companies, assigns sales to the region in
which the purchaser is located and is before one-time charges.)
As a result of the economic and currency crises in Asia, the Guarantor
recorded a $60 million charge related to its operations in Asia in the second
quarter of the fiscal year ended June 30, 1998. The charge was comprised of
approximately $30 million for increased bad debt reserves, $15 million for
severance and related costs, and the remainder for other asset write-downs.
After giving effect to this charge, operating income was $464 million compared
with $663 million in the prior fiscal year and attributed EBITDA was $590
million compared with $810 million in the prior fiscal year. While the situation
in Asia continues to be difficult, the Guarantor does not presently anticipate
any further material change in its spirits and wine results in fiscal year 1999
(as compared with fiscal year 1998) due to the Asian currency and economic
situation.
Depreciation and amortization of assets was $96 million in fiscal year 1998
and $101 million in fiscal year 1997. Amortization of goodwill was $23 million
and $22 million in the fiscal years 1998 and 1997, respectively. Spirits and
wine capital expenditures were $170 million and $187 million in fiscal years
1998 and 1997, respectively. Total assets were $5,015 million at June 30, 1998.
ENTERTAINMENT
<TABLE>
<CAPTION>
FISCAL YEARS
ENDED JUNE 30,
------------------
U.S. DOLLARS IN MILLIONS 1997 1998
- ------------------------ ---- ----
<S> <C> <C>
REPORTED REVENUES
Filmed Entertainment..................................... $ 3,168 $ 2,793
Music.................................................... 1,427 1,461
Recreation and Other..................................... 825 695
------- -------
Subtotal................................................... $ 5,420 $ 4,949
------- -------
Gain on sale of Putnam..................................... 64 --
------- -------
REPORTED REVENUES.......................................... $ 5,484 4,949
------- -------
Operating Income
Filmed Entertainment..................................... $ 157 $ 229
Music.................................................... (58) (44)
Recreation and Other..................................... 31 24
------- -------
Subtotal................................................... 130 209
Gain on sale of Putnam..................................... 64 --
------- -------
OPERATING INCOME........................................... $ 194 $ 209
------- -------
Equity earnings/(losses) from unconsolidated companies..... $ 48 $ (46)
</TABLE>
S-35
<PAGE> 37
<TABLE>
<CAPTION>
FISCAL YEARS
ENDED JUNE 30,
------------------
U.S. DOLLARS IN MILLIONS 1997 1998
- ------------------------ ---- ----
<S> <C> <C>
SUPPLEMENTAL INFORMATION:
Attributed Revenues
Filmed Entertainment..................................... $ 3,917 $ 3,926
Music.................................................... 1,500 1,529
Recreation and Other..................................... 1,097 984
------- -------
ATTRIBUTED REVENUES........................................ $ 6,514 $ 6,439
Gain on sale of Putnam..................................... 64 --
Adjustment for unconsolidated companies.................... (1,094) (1,490)
------- -------
REPORTED REVENUES.......................................... $ 5,484 $ 4,949
ATTRIBUTED EBITDA
Filmed Entertainment..................................... $ 373 $ 463
Music.................................................... 72 90
Recreation and Other..................................... 158 159
------- -------
ATTRIBUTED EBITDA.......................................... 603 712
Gain on sale of Putnam..................................... 64 --
Adjustment for unconsolidated companies.................... (207) (213)
Depreciation and amortization.............................. (266) (290)
------- -------
OPERATING INCOME........................................... $ 194 $ 209
</TABLE>
In the fiscal year ended June 30, 1998, Universal contributed $4.9 billion
to reported revenues, 10 percent less than the $5.5 billion contributed in the
prior fiscal year. Operating income increased to $209 million compared with $194
million in fiscal year 1997, which included the $64 million gain on the sale of
Putnam. Excluding the operating contribution of Putnam and the gain on the sale
in the prior fiscal year, reported revenues decreased six percent, while
operating income almost doubled. Operating income for the fiscal year ended June
30, 1998 includes $94 million of income from USA Networks for the period from
October 21, 1997 to February 12, 1998 when the Guarantor owned 100 percent of
USA Networks. (Income for the period in fiscal years 1998 and 1997 when the
Guarantor owned 50 percent of USA Networks and for the period in fiscal year
1998 when the Guarantor owned a 45.8 percent equivalent share of USAi is
included in the equity earnings from unconsolidated companies below operating
income.) Excluding the contribution of Putnam, operating income as a percent of
reported revenues increased from 2.0 percent to 4.2 percent. Total costs, which
consist primarily of production and manufacturing costs, distribution and
selling expenses, artists' costs and participations, labor and amortization, as
a percent of reported revenues declined from 98.0 percent to 95.8 percent in
fiscal year 1998.
The equity in (losses)/earnings of unconsolidated companies declined from
earnings of $48 million to a loss of $46 million primarily due to the impact of
the USA Networks transactions, a lower contribution from Cineplex/Odeon and
higher amortization related to certain equity investments.
FILMED ENTERTAINMENT. In fiscal year 1998, reported revenues decreased 12
S-36
<PAGE> 38
percent. The motion picture group revenues, which accounted for approximately
two-thirds of the $2.8 billion of reported revenues, declined substantially due
to the disappointing box office performance of releases in fiscal year 1998,
including A Simple Wish, Primary Colors and Mercury Rising.
Operating income increased to $229 million which included $94 million of
income from USA Networks for the period when the Guarantor owned 100 percent of
USA Networks. Operating income as a percent of reported revenues increased from
5.0 percent to 8.2 percent. Total costs, which consist primarily of production
and manufacturing costs, distribution and selling expenses, participation costs
and amortization, as a percent of reported revenues declined from 95.0 percent
to 91.8 percent. The increase in operating income as a percent of reported
revenues and the decrease in total costs as a percent of reported revenues
reflects higher film library sales at improved margins and a one-time charge
associated with the termination of The Bubble Factory production deal in the
prior year.
In fiscal year 1998, attributed revenues were essentially even with the
prior year. As a result of the USA Networks and USAi transactions, fiscal year
1998 attributed revenues and attributed EBITDA include 50 percent of USA
Networks from July 1, 1997 to October 21, 1997, 100 percent of USA Networks from
October 22, 1997 to February 11, 1998 and the Guarantor's 45.8 percent
equivalent share of the earnings of USAi thereafter. Attributed revenues were
even with the prior period, in spite of the decline in reported revenues,
because of higher attributed revenues related to the Guarantor's investment in
USAi this year versus USA Networks last year. Attributed EBITDA increased 24
percent to $463 million. Attributed EBITDA benefited from the USA Networks and
USAi transactions as well as the strong performance of the USA cable networks,
which had higher advertising and affiliate revenues. The television group
performance improved due to the transfer of domestic television production and
distribution to USAi, which resulted in lower expenses and deficits for
Universal. Motion picture group operating results declined due to the box office
performance of current releases, which more than offset higher library sales and
profitability.
MUSIC. In fiscal year 1998, reported revenues increased two percent. Major
albums in release in 1998 included those by Chumbawamba, K-Ci & JoJo, Trisha
Yearwood and Smashmouth. In addition, the Company benefited from its significant
investment internationally with the success of Aqua, a group from Denmark whose
album Aquarium sold 8.9 million units in the 1998 fiscal year. The Company has
also developed local artists including Rosana in Spain, Claudinho and Buchecha
in Brazil and Molotov in Mexico.
The operating loss for music declined from $58 million to $44 million.
Total costs, which consist primarily of manufacturing, distribution and selling
expenses, artists' costs and amortization, as a percent of reported revenues
decreased due to a better mix of releases on wholly owned labels. Attributed
revenues increased two percent and attributed EBITDA increased 25 percent to $90
million.
RECREATION AND OTHER. Reported revenues for recreation and other declined
16 percent. Operating income declined to $24 million. The comparison is impacted
by the sale of Putnam during fiscal year 1997. Excluding the contribution of
Putnam from the prior fiscal year, reported revenues increased three percent,
and operating income increased from $9 million to $24 million. Excluding the
contribution of Putnam from the prior fiscal year, total costs, which consist
primarily of labor, selling expenses, costs of merchandise and amortization and
depreciation, as a percent of reported revenues decreased from 98.7 percent to
96.5 percent. The operating
S-37
<PAGE> 39
income increase is attributable to improved performance at Spencer Gifts, which
benefited from new store openings and a slight increase in comparable store
sales, and the Universal Studios new media group, which had strong video game
sales, principally Crash Bandicoot 2.
Attributed revenues declined 10 percent but, excluding the contribution of
Putnam from the prior fiscal year, rose four percent. Attributed EBITDA was
essentially even at $159 million but increased 21 percent excluding the
contribution of Putnam from the prior fiscal year. The attributed EBITDA growth
is primarily due to stronger results at Universal Studios Florida and improved
contribution from new media ventures reflecting the success of the Crash
Bandicoot 2 video game. At Universal Studios Florida, a 50 percent-owned joint
venture, per capita spending rose three percent, largely due to an increase in
the price of admission. Paid attendance declined two percent. However, total
turnstile attendance rose nine percent, driven by a promotion for
second-day-free admission. The promotion resulted in higher revenues and margins
at the theme park. Attributed EBITDA at Universal Studios Hollywood was lower as
a 13 percent decline in paid attendance more than offset a three percent
increase in per capita spending. The attendance shortfall was caused by the
impact of El Nino, as well as difficult comparisons with the prior year which
benefited from the opening of Jurassic Park -- The Ride in June 1996.
ENTERTAINMENT CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
FISCAL YEARS
ENDED JUNE 30,
--------------
U.S. DOLLARS IN MILLIONS 1997 1998
- ------------------------ ----- -----
<S> <C> <C>
Filmed Entertainment..................................... $ 44 $ 94
Music.................................................... 47 31
Recreation and Other..................................... 115 115
---- ----
$206 $240
</TABLE>
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK
QUARTER ENDED SEPTEMBER 30, 1998 VS. QUARTER ENDED SEPTEMBER 30, 1997.
Current assets were $10.0 billion at September 30, 1998 as compared to $7.0
billion at June 30, 1998 as a result of the receipt of the cash proceeds of $3.3
billion from the sale of Tropicana. Current liabilities at September 30, 1998
were $5.1 billion compared to $4.7 billion at June 30, 1998 due primarily to an
increase in income taxes payable resulting from the $1.4 billion pretax gain on
the sale of Tropicana. Shareholders' equity was $10.3 billion at September 30,
1998 compared to $9.3 billion at June 30, 1998. Net debt was $333 million
compared to $2.7 billion at June 30, 1998 reflecting an increase in cash and
short-term investments arising from the investment of the proceeds from the sale
of Tropicana.
Net cash of $449 million was used for operating activities in the three
months ended September 30, 1998, an increase of $353 million compared to the
prior year period, resulting primarily from additional investment in inventories
and films and the payment of income taxes in the quarter.
Cash provided by investing activities was $2.9 billion in the three months
ended September 30, 1998. The $3.3 billion proceeds from the Tropicana
disposition were partially offset by an additional investment in USANi LLC of
$231 million and capital expenditures of $98 million. In the prior year, cash
used for investing activities
S-38
<PAGE> 40
was $110 million, primarily for capital expenditures.
Financing activities in the three months ended September 30, 1998 provided
$129 million as compared to $3 million in the three months ended September 30,
1997.
Cash used for discontinued Tropicana operations to the disposition date of
August 25, 1998 was $3 million as compared to the $26 million of cash provided
by the discontinued Tropicana operations in the three months ended September 30,
1997.
FISCAL YEAR ENDED JUNE 30, 1998 VS. FISCAL YEAR ENDED JUNE 30, 1997. The
Guarantor's financial position strengthened during the fiscal year ended June
30, 1998. Total current assets increased to $7.0 billion at June 30, 1998 from
$6.1 billion at June 30, 1997. The increase is primarily due to additional cash
and short-term investments of $684 million resulting from the proceeds received
from the USAi transaction and the sale of the remaining Time Warner shares,
offset in part by the use of funds for share repurchases. Current liabilities of
$4.7 billion at June 30, 1998 were $1.6 billion higher than at June 30, 1997
largely due to an increase in short-term borrowings to fund the $1.7 billion
acquisition of the incremental 50 percent share of USA Networks. Shareholders'
equity was $9.3 billion at June 30, 1998 compared to $9.4 billion at June 30,
1997. The Guarantor's total long- and short-term debt, net of cash and
short-term investments, increased to $2.7 billion at June 30, 1998 from $2.2
billion at June 30, 1997. The Guarantor's ratio of net debt to total
capitalization (including minority interest) increased from 16 percent to 19
percent, reflecting the higher debt outstanding.
In the fiscal year ended June 30, 1998, operating activities used cash of
$241 million, following net cash provided of $664 million in the fiscal year
ended June 30, 1997. The increased cash requirements in the 1998 fiscal year
reflect reduced income from continuing operations (excluding the gains on the
USAi transaction and the Time Warner share sales) and higher working capital
requirements. The net cash used for operating activities is partially offset by
significant non-cash charges such as depreciation and amortization of assets and
amortization of excess of cost over fair value of assets.
Net cash provided by investing activities was $699 million in fiscal year
1998. The net cash provided includes gross proceeds from the USAi transaction
($1.3 billion) and the sales of 26.8 million Time Warner shares ($1.9 billion).
These cash proceeds were partially offset by the acquisition of the incremental
50 percent interest in USA Networks ($1.7 billion) and capital expenditures of
$410 million: spirits and wine -- $170 million and entertainment -- $240
million. In addition, $386 million of cash was used for sundry investments
including investments in Doosan Seagram Co., Ltd., the Guarantor's spirits and
wine affiliate in Korea, Port Aventura, a theme park located in Spain, and Loews
Cineplex Entertainment Corporation. In fiscal year 1997, net cash provided by
investing activities was $1.7 billion and included gross proceeds from the sale
of 30 million Time Warner shares ($1.39 billion), the sale of the DuPont
warrants ($500 million) and the sale of Putnam ($330 million). These cash
proceeds were partially offset by capital expenditures of $393 million: spirits
and wine -- $187 million and entertainment -- $206 million.
In the fiscal year ended June 30, 1998, the Guarantor made dividend
payments of $231 million and used $753 million to repurchase its common shares.
Financing activities reflect an increase in short-term borrowings of $1.1
billion used to finance the acquisition of the incremental 50 percent interest
in USA Networks. The net result of the cash used for operating activities and
the cash provided by investing activities and financing activities, was net cash
provided by continuing operations of
S-39
<PAGE> 41
$617 million. In the fiscal year ended June 30, 1998, the discontinued Tropicana
operations provided cash of $67 million resulting in an aggregate increase of
$684 million in cash and short-term investments. In the fiscal year ended June
30, 1997, continuing operations provided net cash of $197 million and
discontinued Tropicana operations provided net cash of $16 million, reflected as
a $213 million increase in cash and short-term investments.
-------------------------
The Guarantor has entered into an arrangement to sell to a third party
substantially all films produced or acquired during the term of the agreement
for amounts which approximate cost. The Guarantor will serve as sole distributor
and earn a distribution fee, which is variable and contingent upon the films'
performance. In addition, the Guarantor has the option to purchase the films at
certain future dates.
The Guarantor's working capital position is reinforced by available credit
facilities of more than $9.6 billion. These facilities are used to support the
Guarantor's commercial paper borrowings and are available for general corporate
purposes. The Acquisition will be partially financed through the Guarantor's
recent sale of Tropicana, the after-tax proceeds of which are estimated to be
approximately $3 billion. The Guarantor has obtained approximately $533 million
through a recent offering by the Company of the Company's 8.00% Senior Quarterly
Income Debt Securities due 2038 (QUIDS(SM)) and expects to obtain the remaining
funds necessary for the Acquisition from commercial bank borrowings and/or the
issuance of commercial paper. The Guarantor believes its access to external
capital resources together with internally-generated liquidity will be
sufficient to satisfy existing commitments and plans, and to provide adequate
financial flexibility.
The Guarantor is exposed to changes in financial market conditions in the
normal course of its business operations due to its operations in different
foreign currencies and its ongoing investing and funding activities. Market risk
is the uncertainty to which future earnings or asset/liability values are
exposed due to operating cash flows denominated in foreign currencies and
various financial instruments used in the normal course of operations. The
Guarantor has established policies, procedures and internal processes governing
its management of market risks and the use of financial instruments to manage
its exposure to such risks.
The Guarantor is exposed to changes in interest rates primarily as a result
of its borrowing and investing activities which include short-term investments
and borrowings and long-term debt used to maintain liquidity and fund its
business operations. The Guarantor continues to utilize U.S. dollar-denominated
commercial paper to fund seasonal working capital requirements in the United
States and Canada. The Guarantor also borrows in different currencies from other
sources to meet the borrowing needs of its affiliates. The nature and amount of
the Guarantor's long-term and short-term debt can be expected to vary as a
result of future business requirements, market conditions and other factors.
The Guarantor's operating cash flows denominated in foreign currency as a
result of its international business activities and certain of its borrowings
are exposed to changes in foreign exchange rates. The Guarantor continually
evaluates its foreign currency exposure (primarily British pound, French franc,
German mark and Swiss franc), based on current market conditions and the
business environment. In order to mitigate the effect of foreign currency risk,
the Guarantor engages in hedging activities.
S-40
<PAGE> 42
POLYGRAM SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
PolyGram's selected historical consolidated financial data presented below
as of December 31, 1997 and 1996 and for the fiscal years ended December 31,
1997, 1996 and 1995 were derived from PolyGram's historical consolidated
financial statements and the notes thereto incorporated by reference in the
Guarantor's Current Report on Form 8-K, dated August 25, 1998, as amended, which
is incorporated herein by reference, and have been audited by KPMG Accountants
N.V. In addition, PolyGram's selected historical consolidated financial data
presented below as of December 31, 1995, 1994 and 1993 and for the years ended
December 31, 1994 and 1993 were derived from PolyGram's historical consolidated
financial statements for the years ended December 31, 1995, 1994 and 1993,
respectively, which have been audited by KPMG Accountants N.V. The selected
historical consolidated financial data as of and for the nine months ended
September 30, 1998 and 1997 were derived from PolyGram's unaudited historical
consolidated interim financial reports, which according to PolyGram have been
prepared on the same basis as the PolyGram Consolidated Financial Statements,
reflecting all adjustments necessary, which consist only of normal recurring
adjustments, for a fair presentation of such data. Data as of and for the nine
months ended September 30, 1998 do not purport to be indicative of results to be
expected for the full year.
PolyGram's Consolidated Financial Statements and PolyGram's unaudited
historical consolidated interim financial reports have been prepared in
accordance with Netherlands GAAP, which differs in certain significant respects
from U.S. GAAP. Except as otherwise noted, figures are in millions of Dutch
Guilders.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------
NGL IN MILLIONS 1993 1994 1995 1996 1997 1997 1998
- --------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(NETHERLANDS GAAP):
Net sales.......................... 7,416 8,600 8,798 9,488 11,095 7,201 7,318
Operating income................... 932 1,069 1,084 1,078 1,198 560 280
Financial income and expenses,
net............................. (5) 8 (2) (8) (18) (7) (36)
Income taxes....................... (264) (302) (303) (310) (355) (160) (18)
----- ----- ----- ----- ------ ----- -----
Income after taxes................. 663 775 779 760 825 393 226
Income before extraordinary
items........................... 614 738 741 722 787 355 204
Extraordinary items................ -- -- -- (114) -- -- --
----- ----- ----- ----- ------ ----- -----
Net income......................... 614 738 741 608 787 355 204
===== ===== ===== ===== ====== ===== =====
APPROXIMATE AMOUNTS ON THE BASIS OF
U.S. GAAP:
Net income......................... 534 646 649 507 677 267 125
</TABLE>
S-41
<PAGE> 43
SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
The following sets forth certain summarized consolidated financial
information of
the Company and its subsidiaries.
<TABLE>
<CAPTION>
UNAUDITED
---------------
FIVE-MONTH FISCAL YEARS QUARTER
FISCAL YEAR ENDED TRANSITION ENDED ENDED
JANUARY 31, PERIOD ENDED JUNE 30, SEPTEMBER 30,
---------------------- JUNE 30, --------------- ---------------
1994 1995 1996 1996 1997 1998 1997 1998
---- ---- ---- ------------ ---- ---- ---- ----
(U.S. DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and other income........... 2,961 3,125 2,506 706 2,114 2,144 531 506
Cost of sales.................... 1,721 1,849 1,632 483 1,320 1,356 377 320
Net income (loss)................ 196 621 3,275 57 87 (25) 33 40
Current assets................... 1,905 2,183 1,279 1,251 821 1,821 1,184 4,455
Noncurrent assets................ 7,850 8,737 11,431 11,780 12,662 12,201 12,765 9,330
Current liabilities.............. 1,805 2,462 567 1,013 542 843 959 1,090
Noncurrent liabilities........... 2,630 2,484 3,366 3,171 3,798 3,922 3,820 3,585
Shareholder's equity............. 5,320 5,974 8,777 8,847 9,143 9,257 9,170 9,110
</TABLE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Guarantor's and the Company's respective
consolidated historical ratios of earnings to fixed charges and the Guarantor's
and the Company's consolidated ratios of earnings to fixed charges as adjusted
for the sale of Tropicana, the other transactions described under "Guarantor
Unaudited Pro Forma Financial Information" and the Acquisition (the "pro forma
ratio of earnings to fixed charges"). For a discussion of the assumptions made
in calculating the pro forma ratio of earnings to fixed charges see "Guarantor
Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
FISCAL
FIVE-MONTH YEARS QUARTER
FISCAL YEARS TRANSITION ENDED ENDED
ENDED JANUARY 31, PERIOD ENDED JUNE 30, SEPTEMBER 30,
------------------ JUNE 30, ----------- ---------------
1994 1995 1996 1996 1997 1998 1997 1998
---- ---- ---- ------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GUARANTOR
Ratio of earnings to fixed charges........ 1.93 1.69 1.73 1.21 3.21 5.10 4.21 2.60
Pro forma ratio of earnings
to fixed charges........................ -- -- -- -- -- 2.41 -- (a)
COMPANY
Ratio of earnings to fixed charges........ 2.03 1.94 1.52 (b) 1.72 1.11 3.10 2.30
</TABLE>
- ---------------
(a) Pro forma fixed charges exceeded earnings by $15 million for the quarter
ended September 30, 1998.
(b) Fixed charges exceeded earnings by $37 million for the Transition Period
ended June 30, 1996.
For these ratios, "earnings" was determined by adding "fixed charges"
(excluding capitalized interest) and minority interest in net income to income
from continuing operations after eliminating equity in undistributed earnings.
For these purposes, "fixed charges" consists of interest on all indebtedness
(including capitalized interest), amortization of debt discount and expenses and
an interest factor attributable to rentals.
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<PAGE> 44
DESCRIPTION OF THE NOTES,
THE DEBENTURES AND THE GUARANTEES
GENERAL
The Notes and Debentures will be issued as four series of debt securities,
in each case pursuant to the Indenture, dated as of September 15, 1991, among
the Company, the Guarantor and The Bank of New York, as trustee. The following
statements with respect to the Notes and Debentures are summaries and are
subject to the detailed provisions of the Trust Indenture Act of 1939, as
amended, and the Indenture. The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all the provisions of the Notes and Debentures
and the Indenture, including the definitions therein of certain terms
capitalized and not otherwise defined in this Prospectus Supplement. Wherever
references are made to particular provisions of the Indenture or terms defined
therein, such provisions or definitions are incorporated by reference as part of
the statements made and such statements are qualified in their entirety by such
references.
2003 Notes
The 2003 Notes will constitute an additional series of unsecured senior
debt securities and will be limited in aggregate principal amount to $ . The
2003 Notes will mature on December , 2003 and will accrue interest from
December , 1998 at a rate of % per annum.
2005 Notes
The 2005 Notes will constitute an additional series of unsecured senior
debt securities and will be limited in aggregate principal amount to $ . The
2005 Notes will mature on December , 2005 and will accrue interest from
December , 1998 at a rate of % per annum.
2008 Notes
The 2008 Notes will constitute an additional series of unsecured senior
debt securities and will be limited in aggregate principal amount to $ . The
2008 Notes will mature on December , 2008 and will accrue interest from
December , 1998 at a rate of % per annum.
2018 Debentures
The 2018 Debentures will constitute an additional series of unsecured
senior debt securities and will be limited in aggregate principal amount to
$ . The 2018 Debentures will mature on December , 2018 and will accrue
interest from December , 1998 at a rate of % per annum.
Each series of Notes and the Debentures will be issued only in book-entry
form through the facilities of DTC and will be sold in denominations of $1,000
and integral multiples thereof. Transfers or exchanges of beneficial interests
in each series of Notes and the Debentures may be effected only through records
maintained by DTC or its nominee. Settlement and secondary trading in each
series of Notes and the Debentures will be in same-day funds. Payments of
principal and interest on each series of Notes and the Debentures will be made
to DTC in immediately available funds.
SEMI-ANNUAL PAYMENTS
Interest on each series of Notes and the Debentures will be payable
semi-annually in arrears on June 30 and December 31 of each year (each an
"Interest Payment Date"), commencing on December 31, 1998 to the persons in
whose names the Notes and Debentures are registered as of the close of business
on the June 15 or December 15 preceding such Interest Payment Date.
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<PAGE> 45
The amount of interest payable for any period will be computed on the basis
of twelve 30-day months and a 360-day year and, for any period shorter than a
full six month interest period, will be computed on the basis of the actual
number of days elapsed in such period. In the event that any date on which
interest is payable on each series of Notes or the Debentures is not a Business
Day, then payment of the amount payable on such date will be made on (i) the
next succeeding day which is a Business Day (and without interest or other
payment in respect of any such delay) with the same force and effect as if made
on such date or (ii) the preceding Business Day if the succeeding Business Day
would fall within a new calendar year (and without reduction in amount due to
such early payment) with the same force and effect as if made on such date. A
"Business Day" shall mean any day other than a day on which banking institutions
in the State of New York are authorized or obligated pursuant to law or
executive order to close.
GUARANTEES
The Guarantor will unconditionally guarantee on a senior basis the due and
punctual payment of principal of and interest on each series of Notes and the
Debentures, when and as the same shall become due and payable, whether at the
maturity date, by declaration of acceleration or otherwise. Interest and
additional amounts paid by the Guarantor may be subject to Canadian withholding
taxes. The withholding tax rate in respect of payments made to residents of the
United States within the meaning of the Canada-United States Income Tax
Convention (1980) would be 10% by virtue of such Convention. The Guarantor will
further agree, however, that any amounts to be paid by the Guarantor under the
Guarantees will be paid without deduction or withholding for or on account of
any and all present or future tax, duty, assessment or governmental charge
imposed upon or as a result of such payment by the Government of Canada, or any
province or other political subdivision or taxing authority thereof or therein,
or if deduction or withholding of any such tax, duty, assessment or charge shall
at any time be required by or on behalf of the Government of Canada or any such
province, political subdivision or taxing authority, the Guarantor will pay such
additional amount in respect of principal and interest as may be necessary in
order that the net amounts paid to the holders of the Notes and Debentures or
the Trustee, as the case may be, pursuant to the Guarantees after such deduction
or withholding shall not be less than the amount provided for in the Notes or
Debentures to be then due and payable; except that no such additional amount
shall be payable in respect of any Notes or Debentures to any holder (a) who is
subject to such tax, duty, assessment or governmental charge in respect of such
Notes or Debentures by reason of his being connected with Canada otherwise than
merely by the holding or ownership of such Notes or Debentures, or (b) who is
not dealing at arm's length with the Guarantor (within the meaning of the Income
Tax Act (Canada) as reenacted or amended from time to time), or (c) with respect
to any estate, inheritance, gift, sales, transfer, personal property or any
other similar tax, duty, assessment or governmental charge, or (d) with respect
to any tax, duty, assessment or governmental charge payable otherwise than by
withholding payments in respect of such Notes or Debentures, or (e) with respect
to any combination of the above.
RANKING
The 2003 Notes, 2005 Notes, 2008 Notes and 2018 Debentures and the
Guarantees will rank equal with the other unsubordinated indebtedness of the
Company and the Guarantor, respectively.
REDEMPTION
The 2003 Notes, 2005 Notes, 2008 Notes and 2018 Debentures will not be
redeemable prior to maturity.
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<PAGE> 46
NEGATIVE PLEDGE
The Guarantees will provide that so long as any of the Notes or Debentures
shall remain outstanding, the Guarantor will not create or suffer to exist any
lien on any of its property without making effective provision whereby the
Guarantees shall be directly secured by such lien equally and ratably with (or
prior to) all other indebtedness secured by such lien as long as such other
indebtedness shall be so secured; provided, however, that the foregoing
restrictions shall not prevent:
(i) any lien existing prior to the time of acquisition of any property
acquired by the Guarantor after September 15, 1991 through purchase, merger,
consolidation or otherwise;
(ii) any lien on any property acquired or constructed by the Guarantor
after September 15, 1991 to secure all or a portion of the price of such
acquisition or construction or funds borrowed to pay all or a portion of the
price of such acquisition or construction;
(iii) extensions, renewals or replacements of any lien referred to in
clauses (i) or (ii) to the extent that the principal amount of indebtedness
secured or evidenced thereby is not increased and that the lien is not extended
to any other property; and
(iv) any lien on property not referred to in clauses (i) through (iii) if,
at the time such lien is created, incurred or assumed or suffered to be created,
incurred or assumed, and after giving effect thereto and to the indebtedness
secured or evidenced thereby, the sum of the aggregate amount of all outstanding
indebtedness of the Guarantor secured or evidenced by liens on property which
are not referred to in clauses (i) through (iii) and which do not equally and
ratably secure the Guarantees shall not exceed 15% of the consolidated net worth
of the Guarantor and its subsidiaries.
DEFEASANCE OF CERTAIN OBLIGATIONS
The Guarantor or the Company, as applicable, may omit to comply with the
covenant described under "Negative Pledge" and the covenant described under
"Description of Securities and Guarantees -- Consolidation, Merger and Sale of
Assets" in the Prospectus if the conditions set forth under "Description of
Securities and Guarantees -- Defeasance of Certain Obligations" in the
Prospectus are satisfied.
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<PAGE> 47
U.S. FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN HOLDERS
The following summary describes the material United States federal income
tax consequences that may be relevant to the purchase, ownership and disposition
of Notes and Debentures. This summary deals only with Notes and Debentures held
as capital assets by Non-United States holders (as defined below) who purchase
the Notes and Debentures upon original issuance at their original offering
price. As used herein, a "Non-United States holder" is any holder of Notes or
Debentures other than a "United States holder." The term "United States holder"
means a beneficial holder of a Note or Debenture that is (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is subject to United States federal
income taxation regardless of its source or (iv) a trust which is subject to the
supervision of a court within the United States and the control of one or more
United States persons as described in section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended (the "Code"). This summary is based upon the
Code, the Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis. HOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE NOTES AND DEBENTURES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER TAX LAWS.
Under current U.S. federal income tax law and subject to the discussion
below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be required with respect
to the payment by the Company or any paying agent of principal or
interest on a Note or Debenture owned by a Non-United States holder,
provided (i) that the beneficial owner of the Notes or Debentures
("Beneficial Owner") does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of section 871(h)(3) of the
Code and the regulations thereunder, (ii) the Beneficial Owner is not a
controlled foreign corporation that is related to the Company through
stock ownership, (iii) the Beneficial Owner is not a bank whose receipt
of interest on a Note or Debenture is described in section 881(c)(3)(A)
of the Code, and (iv) the Beneficial Owner satisfies the statement
requirement (described generally below) set forth in section 871(h) and
section 881(c) of the Code and the regulations thereunder; and
(b) no withholding of United States federal income tax will be required
with respect to any gain or income realized by a Non-United States
holder upon the sale, exchange, retirement or other disposition of a
Note or Debenture.
To satisfy the requirement referred to in (a)(iv) above, the Beneficial
Owner of such Note or Debenture, or a financial institution holding the Note or
Debenture on behalf of such owner, must provide, in accordance with specified
procedures, a paying agent of the Company with a statement to the effect that
the Beneficial Owner is not a United States person. Currently, these
requirements will be met if (1) the Beneficial Owner provides its name and
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<PAGE> 48
address, and certifies, under penalties of perjury, that it is not a United
States person (which certification may be made on an Internal Revenue Service
("IRS") Form W-8 (or successor form)) or (2) a financial institution holding the
Note or Debenture on behalf of the Beneficial Owner certifies, under penalties
of perjury, that such statement has been received by it and furnishes a paying
agent with a copy thereof. Under final Treasury regulations (the "Final
Regulations"), the statement requirement referred to in (a)(iv) above may also
be satisfied with other documentary evidence for interest paid after December
31, 1999 with respect to an offshore account or through certain foreign
intermediaries.
If a Non-United States holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of interest made
to such Non-United States holder will be subject to a 30% withholding tax unless
the Beneficial Owner provides the Company or its paying agent, as the case may
be, with a properly executed (1) IRS Form 1001 (or successor form) claiming an
exemption from, or a reduction of, such withholding tax under the benefit of an
applicable tax treaty or (2) IRS Form 4224 (or successor form) stating that
interest paid on the Note or Debenture is not subject to withholding tax because
it is effectively connected with the Beneficial Owner's conduct of a trade or
business in the United States. Under the Final Regulations, Non-United States
holders will generally be required to provide IRS Form W-8 in lieu of IRS Form
1001 and IRS Form 4224, although alternative documentation may be applicable in
certain situations.
If a Non-United States holder is engaged in a trade or business in the
United States and interest on the Note or Debenture is effectively connected
with the conduct of such trade or business, the Non-United States holder,
although exempt from the withholding tax discussed above, will be subject to
United States federal income tax on such interest on a net income basis in the
same manner as if it were a United States person. In addition, if such holder is
a foreign corporation, it may be subject to a branch profits tax equal to 30%
(or lesser rate under an applicable tax treaty) of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, interest will be included in such foreign corporation's earnings and
profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Note or Debenture generally will not be subject to United
States federal income tax unless (i) such gain or income is effectively
connected with a trade or business in the United States of the Non-United States
holder, (ii) in the case of a Non-United States holder who is an individual,
such individual is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition, and
certain other conditions are met or (iii) in the case of any gain representing
accrued interest on the Notes or Debentures, the requirements described above
are not satisfied.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, no information reporting or backup withholding will be required
with respect to payments made by the Company or any paying agent to Non-United
States holders if a statement described above in (a)(iv) has been received (and
the payor does not have actual knowledge that the Beneficial Owner is a United
States person).
In addition, a 31% backup withholding tax and information reporting may
apply to the proceeds of the sale of a Note or Debenture within the United
States or conducted through certain U.S. related
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<PAGE> 49
financial intermediaries unless the statement described in (a)(iv) above has
been received (and the payor does not have actual knowledge that the Beneficial
Owner is a United States person) or the holder otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished to the IRS.
CANADIAN TAX CONSEQUENCES
Interest and additional amounts paid by the Guarantor may be subject to
Canadian withholding taxes. The withholding tax rate in respect of payments made
to residents of the United States within the meaning of the Canada-United States
Income Tax Convention (1980) would be 10% by virtue of such Convention. A holder
will be required to include in income, for United States federal income tax
purposes, any tax withheld from the payments made pursuant to the Guarantee,
notwithstanding the fact that such withheld tax is not in fact received by such
holder, and any additional amount paid by the Guarantor in respect thereof. A
holder may be entitled to deduct or credit such withholding tax. The rules
governing the foreign tax credit are complex. Holders are urged to consult their
tax advisors regarding the availability of the foreign tax credit and the
application of the foreign credit limitations to their particular circumstances.
S-48
<PAGE> 50
UNDERWRITING
The Company, the Guarantor and the underwriters for the offering named
below (the "Underwriters") have entered into an underwriting agreement and a
pricing agreement with respect to the Notes and Debentures. Subject to certain
conditions, each Underwriter has severally agreed to purchase the respective
aggregate principal amounts of Notes and Debentures indicated in the following
table.
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Amount Amount Amount Amount
of 2003 of 2005 of 2008 of 2018
Underwriters Notes Notes Notes Debentures
------------ --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Goldman, Sachs & Co.............. $ $ $ $
Bear, Stearns & Co. Inc. ........
Morgan Stanley & Co.
Incorporated...................
Chase Securities Inc. ...........
Merrill Lynch, Pierce, Fenner &
Smith Incorporated.............
Salomon Smith Barney Inc.........
------ ------ ------ ------
Total.................. $ $ $ $
====== ====== ====== ======
</TABLE>
------------------------
Notes and Debentures sold by the Underwriters to the public will initially
be offered at the initial public offering prices set forth on the cover of this
Prospectus Supplement. The Underwriters may sell 2003 Notes, 2005 Notes, 2008
Notes and 2018 Debentures to securities dealers which may be sold at a discount
from the initial public offering price of up to %, %, % and
%, respectively, of the principal amount. Securities dealers may resell any
2003 Notes, 2005 Notes, 2008 Notes and 2018 Debentures purchased from the
Underwriters to certain other brokers or dealers at a discount from the initial
public offering price of up to %, % % and %, respectively,
of the principal amount. If all the Notes and Debentures are not sold at the
initial offering price, the Underwriters may change the offering price and the
other selling terms.
The Notes and Debentures are new issues of securities with no established
trading market. The Underwriters have advised the Company that the Underwriters
intend to make markets in the Notes and Debentures, but they are not obligated
to do so and may discontinue market making at any time without notice. No
assurance can be given as to the liquidity of the trading markets for the Notes
and Debentures.
In connection with the offerings, the Underwriters may purchase and sell
Notes and Debentures in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of Notes or Debentures than they are required to purchase in the
offering. Stabilizing transactions consist of certain bids or purchases made for
the purpose of preventing or retarding a decline in the market price of the
Notes or Debentures while the offerings are in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a
S-49
<PAGE> 51
portion of the underwriting discount received by it because an Underwriter has
repurchased Notes or Debentures sold by or for the account of that Underwriter
in stabilizing or short covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market prices of the Notes and Debentures. As a result, the prices of
the Notes and Debentures may be higher than the prices that otherwise might
exist in the open market. If these activities are commenced, they may be
discontinued at any time. These transactions may be effected in the
over-the-counter market or otherwise.
The Company and the Guarantor have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
The Company estimates that its share of the total expenses of the
offerings, excluding underwriting discounts and commissions, will be
approximately $ .
Certain of the Underwriters or their affiliates have provided from time to
time and may provide in the future investment banking, commercial banking and
other services to the Company and the Guarantor. The Chase Manhattan Bank, an
affiliate of Chase Securities Inc., is the administrative agent and a lender to
the Company under certain of its credit facilities. Citibank, N.A., an affiliate
of Salomon Smith Barney Inc., is also the syndication agent and a lender to the
Company under certain of its credit facilities. To the extent that the proceeds
of the offerings are used to repay indebtedness under such facilities, such
entities will receive proceeds of the offerings. If more than 10% of the
proceeds of the offerings are paid to affiliates of a member of the National
Association of Securities Dealers, Inc. (the "NASD") who are participating in
the offerings, the offerings will be made pursuant to Rule 2710(c)(8) of the
Conduct Rules of the NASD. John S. Weinberg, a Managing Director of Goldman,
Sachs & Co., is also a director of the Guarantor.
S-50
<PAGE> 52
PROSPECTUS
[SEAGRAM LOGO]
$4,520,000,000
JOSEPH E. SEAGRAM & SONS, INC.
DEBT SECURITIES
CLASS A PREFERRED STOCK
WARRANTS
THE SEAGRAM COMPANY LTD.
GUARANTEES
------------------
Joseph E. Seagram & Sons, Inc. (the "Company") from time to time may offer
its (i) debt securities consisting of debentures, notes and/or other unsecured
evidences of indebtedness ("Debt Securities"), in one or more series, up to an
aggregate initial offering price of not more than $4,500,000,000 (or the
equivalent thereof in foreign denominated currencies or composite currencies),
(ii) Class A Preferred Stock of the par value of $100 per share ("Class A
Preferred Stock"), in one or more series, up to an aggregate initial offering
price of not more than $10,000,000 (or the equivalent thereof in foreign
denominated currencies or composite currencies), and (iii) warrants ("Warrants")
to purchase Debt Securities or Class A Preferred Stock, up to an aggregate
initial offering price of not more than $10,000,000 (or the equivalent thereof
in foreign denominated currencies or composite currencies) (Debt Securities,
Class A Preferred Stock and Warrants are collectively referred to as
"Securities"), or any combination of the foregoing, at prices and on terms to be
determined at or prior to the time of sale.
Specific terms of the Securities in respect of which this Prospectus is
being delivered are set forth in the accompanying Prospectus Supplement
("Prospectus Supplement"), together with the terms of the offering of such
Securities, including the initial public offering price, the currency or
currencies for which such Securities may be purchased and the net proceeds to
the Company from the sale thereof. The Prospectus Supplement also sets forth
with regard to such Securities, without limitation, the following: (i) in the
case of Debt Securities, the specific designation, aggregate principal amount,
authorized denominations, maturity, rate (which may be fixed or variable) and
time of payment of any interest, any redemption, prepayment or sinking fund
provisions, any exchange rights, any subordination provisions, and the currency
or currencies or composite currency or currencies in which principal, premium,
if any, and interest, if any, is payable; (ii) in the case of Class A Preferred
Stock, the designation, number of shares, liquidation preference per share,
dividend rate (or method of calculation thereof), dates on which dividends shall
be payable and dates from which dividends shall accrue, any redemption or
sinking fund provisions, any voting rights and any exchange rights; and (iii) in
the case of Warrants, the number and terms thereof, the designation and the
number of securities issuable upon their exercise, the exercise price, and,
where applicable, the duration and detachability thereof.
The Securities will be fully and unconditionally guaranteed (the
"Guarantees") by The Seagram Company Ltd. (the "Guarantor"). The specific terms
of the applicable Guarantees, which may be subordinated to certain liabilities
and obligations of the Guarantor, are set forth in the Prospectus Supplement.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------
The Securities may be offered for sale to or through underwriters, and may
also be offered directly to other purchasers or through agents. The Prospectus
Supplement sets forth the names of any underwriters or agents involved in the
sale of the Securities in respect of which this Prospectus is being delivered,
the principal amount, if any, to be purchased by underwriters and any
compensation of such underwriters or agents.
------------------
The date of this Prospectus is November 9, 1998.
<PAGE> 53
AVAILABLE INFORMATION
The Guarantor is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Chicago Regional Office, Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Please call the Commission at 1-800-SEC-0330 for further information relating to
the public reference rooms. Copies of such material can also be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material may also
be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. In addition, such materials should be available
for inspection and copying at the library of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005.
The Guarantor and the Company have filed with the Commission a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Guarantor with the
Commission (File No. 1-2275) and are hereby incorporated herein by reference:
1. The Guarantor's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998, as amended.
2. The Guarantor's Current Reports on Form 8-K dated July 20, 1998,
August 4, 1998, August 25, 1998, as amended and September 1, 1998,
as amended.
All documents filed by the Guarantor pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of the Registration Statement or this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
ANY PERSON RECEIVING A COPY OF THIS PROSPECTUS MAY OBTAIN WITHOUT CHARGE,
UPON REQUEST, A COPY OF ANY OF THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN,
EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS (UNLESS ANY SUCH EXHIBIT IS
SPECIFICALLY INCORPORATED BY REFERENCE THEREIN). REQUESTS SHOULD BE DIRECTED TO
THE SECRETARY, JOSEPH E. SEAGRAM & SONS, INC., 375 PARK AVENUE, NEW YORK, NEW
YORK 10152, TELEPHONE (212) 572-7000.
Unless otherwise indicated, currency amounts referred to herein are stated
in U.S. dollars.
2
<PAGE> 54
THE GUARANTOR AND THE COMPANY
The Guarantor, a corporation organized under Canadian federal law on March
2, 1928, operates in two global business segments: spirits and wine and
entertainment. The Guarantor's spirits and wine businesses are engaged
principally in the production and marketing of distilled spirits, wines,
coolers, beers and mixers throughout more than 96 countries and territories. The
Guarantor's approximately 84%-owned entertainment subsidiary, Universal Studios,
Inc., produces and distributes motion picture, television and home video
products; produces and distributes recorded music; and operates theme parks and
retail stores. The Company, an Indiana corporation organized in 1933, is the
U.S. spirits and wine subsidiary of the Guarantor.
The principal executive offices of the Guarantor are located at 1430 Peel
Street, Montreal, Quebec, Canada H3A 1S9 (telephone 514-849-5271). The Company's
principal executive offices are located at 375 Park Avenue, New York, New York
10152 (telephone 212-572-7000).
RECENT DEVELOPMENTS
On June 22, 1998, the Guarantor announced that it had signed definitive
agreements with Koninklijke Philips Electronics N.V. and PolyGram N.V.
("PolyGram") to acquire PolyGram in a transaction valued at approximately $10.4
billion. The agreements call for the Guarantor to pay $8.4 billion in cash and
to issue approximately 47.9 million of its common shares (12 percent of
outstanding common shares after the transaction). The acquisition, which is
subject to the receipt of certain regulatory approvals, is expected to close
during the second quarter of the Guarantor's fiscal year ending June 30, 1999.
On August 25, 1998, the Guarantor completed the sale of Tropicana Products,
Inc. and the Guarantor's global juice business ("Tropicana") for cash proceeds
of approximately $3.3 billion. The proceeds from the sale of Tropicana will be
used by the Guarantor to pay part of the cash portion of the purchase price for
the acquisition of PolyGram.
USE OF PROCEEDS
Except as may otherwise be set forth in a Prospectus Supplement with
respect to a particular series of Securities, the net proceeds to be received by
the Company from the issue and sale from time to time of the Securities will be
added to the general funds of the Company to be used to reduce outstanding
indebtedness, to finance the Company's operations and for other general
corporate purposes, including acquisitions.
The Company expects to make additional borrowings from time to time. The
nature and amount of such borrowings can be expected to vary as a result of
business requirements, market conditions and other factors.
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<PAGE> 55
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
the Guarantor and its subsidiaries and of the Company and its subsidiaries for
the fiscal years ended June 30, 1998 and 1997, the five-month transition period
ended June 30, 1996 and each of the three fiscal years in the period ended
January 31, 1996:
<TABLE>
<CAPTION>
FIVE-MONTH
FISCAL FISCAL TRANSITION
YEAR YEAR PERIOD
ENDED ENDED ENDED FISCAL YEARS ENDED JANUARY 31,
JUNE 30, JUNE 30, JUNE 30, ---------------------------------
1998 1997 1996 1996 1995 1994
-------- -------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges of the Guarantor and
its subsidiaries(a).......... 5.10 3.21 1.21 1.73 1.69 1.93
Ratio of earnings to fixed
charges of the Company and
its subsidiaries(a).......... 1.11 1.72 --(b) 1.52 1.94 2.03
</TABLE>
- ---------------
(a) For the purpose of calculating this ratio, pretax income before discontinued
activities and cumulative effect of accounting change has been increased by
fixed charges (excluding capitalized interest) and the minority interest in
income of subsidiary companies, and excludes, when applicable, unremitted
earnings of companies accounted for under the equity method. Fixed charges
consist of interest on borrowings (including capitalized interest),
amortization of debt discount, the interest portion of rental expense.
(b) Fixed charges exceeded earnings by $37 million for the five-month transition
period ended June 30, 1996.
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<PAGE> 56
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions to which any Prospectus Supplement may
relate. The particular terms and provisions of the series of Debt Securities
offered by a Prospectus Supplement, and the extent to which the general terms
and provisions described below may apply thereto, will be described in the
Prospectus Supplement relating to such Debt Securities.
The Debt Securities and Guarantees with respect to such Debt Securities
(the "Debt Guarantees") will be issued under an Indenture, dated as of September
15, 1991 (the "Indenture"), among the Company, the Guarantor and The Bank of New
York, as Trustee (the "Trustee"), a copy of which Indenture has been
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus is a part. The following brief summaries of certain provisions
of the Debt Securities, the Debt Guarantees and the Indenture do not purport to
be complete and are qualified in their entirety by reference to all the
provisions of the Indenture, including the definitions therein of certain terms.
The Debt Securities will be unsecured obligations of the Company and will
be fully and unconditionally guaranteed by the Guarantor as to payment of
principal, premium, if any, and interest, if any. The Indenture does not limit
the amount of securities that may be issued thereunder and provides that debt
securities may be issued thereunder up to the aggregate principal amount from
time to time authorized by the Company and the Guarantor in one or more series.
Debt Securities of a series may be issuable in registered form without
coupons ("Registered Securities"), in bearer form with or without coupons
attached ("Bearer Securities") or in the form of one or more global securities
(each, a "Global Security"). Bearer Securities, subject to certain exceptions,
will not be offered or sold to persons who are within the United States or to
United States persons. See "Limitations on Issuance of Bearer Securities".
GENERAL
Reference is made to the Prospectus Supplement for the following terms of
the particular series of Debt Securities and Debt Guarantees being offered
thereby: (i) the designation, aggregate principal amount and authorized
denominations of the series of Debt Securities; (ii) the extent and manner, if
any, to which payment on or in respect of Debt Securities of the series and/or
Debt Guarantees thereof will be senior or will be subordinated to the prior
payment of other liabilities and obligations of the Company and/or the
Guarantor, as the case may be; (iii) the percentage or percentages of principal
amount at which the Debt Securities of the series will be issued; (iv) the date
or dates on which the Debt Securities of the series will mature (or manner of
determining the same); (v) if other than the principal amount thereof, the
portion of the principal amount of Debt Securities of the series which shall be
payable upon a declaration of acceleration of the maturities thereof; (vi) the
rate or rates per annum, if any, at which the Debt Securities of the series will
bear interest (or the manner of calculation thereof) and the date or dates from
which such interest will accrue; (vii) the dates on which any interest will be
payable (or manner of determining the same) and the regular record dates for
such Interest Payment Dates for Debt Securities which are Registered Securities;
(viii) the place or places where the principal of (and premium, if any) and
interest, if any, on the Debt Securities of the series and any amounts due under
Debt Guarantees thereof will be payable and each office or agency, as described
below under "Denominations, Registration and Transfer", where the Debt
Securities may be presented for transfer or exchange; (ix) if other than U.S.
dollars, the currency, currencies or currency unit or units, for which such Debt
Securities may be purchased and the currency, currencies or currency unit or
units in which the principal of (and premium, if any) and interest, if any, on
such Debt Securities may be payable; (x) the period or periods within which, and
the terms and conditions upon which, an election may be made by the Company or a
holder, as the case may be, for payment of the principal of (and premium, if
any) and interest, if any, on the Debt Securities of the series in the currency,
currencies or currency unit or units other than that in which the series is
stated to be payable; (xi) whether the Debt Securities are to be issuable as
Registered Securities or Bearer Securities or both, and if Bearer Securities are
issued, the
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<PAGE> 57
circumstances and places for the exchange of Bearer Securities for Registered
Securities; (xii) whether such Debt Securities are to be issued in the form of
one or more temporary or definitive permanent Global Securities and, if so, the
identity of the Depositary for such Global Security or Securities; (xiii) if a
temporary Global Security is to be issued with respect to such series, whether
any interest thereon payable on an interest payment date prior to the issuance
of a definitive permanent Global Security or other definitive Bearer Securities
will be credited to the account of the persons entitled thereto on such Interest
Payment Date; (xiv) if a temporary Global Security is to be issued with respect
to such series, the terms upon which interests in such temporary Global Security
may be exchanged for interests in a definitive permanent Global Security or for
other definitive Debt Securities of the series and the terms upon which
interests in a definitive permanent Global Security, if any, may be exchanged
for definitive Debt Securities of the series; (xv) any mandatory or optional
sinking fund or analogous provision; (xvi) the period or periods, if any, within
which, and the price or prices in the currency, currencies or currency unit or
units in which, such Debt Securities are payable pursuant to any optional or
mandatory redemption provisions; (xvii) whether the provisions of the Indenture
relating to the defeasance of Debt Securities shall apply to the series of Debt
Securities; (xviii) the terms and conditions, if any, upon which the Debt
Securities of such series may be repayable prior to maturity at the option
(which option may be conditional) of the holder thereof (in which case the
Company will comply with the requirements of Section 14(e) and Rule 14e-1 under
the Exchange Act in connection therewith, if then applicable) and the price or
prices in the currency, currencies or currency unit or units in which such Debt
Securities are payable; (xix) any index used to determine the amount of payments
of principal of (and premium, if any) or interest, if any, on the Debt
Securities; (xx) if the amounts of payments of principal of, premium, if any, or
interest, if any, on the Debt Securities of the series may be, at the election
of the Company or a holder thereof, determined with reference to an index based
on a coin or currency (including a composite currency) other than that in which
the Debt Securities of the series are stated to be payable, the manner in which
such amounts are to be determined; (xxi) the terms for exchange, if any, of the
Debt Securities; (xxii) the extent, if any, to which payments by the Guarantor
under the Debt Guarantees will be net of taxes or other charges imposed or
levied by governmental authorities with the power so to do; (xxiii) any
provisions for payment of additional amounts for taxes and any provision for
redemption, in the event the Company must comply with reporting requirements in
respect of any Debt Security or must pay such additional amounts in respect of
any Debt Security; (xxiv) information with respect to book-entry procedures, if
any; and (xxv) any other terms of the Debt Securities not inconsistent with the
Indenture. All Debt Securities of any one series need not be issued at the same
time, and need not bear interest at the same rate or mature on the same date.
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or foreign currency unit or units or if the
principal of (and premium, if any) or interest, if any, on any series of Debt
Securities is payable in a foreign currency or currencies or foreign currency
unit or units, the restrictions, elections, tax consequences, specific terms and
other information with respect to such issue of Debt Securities and such foreign
currency or currencies or foreign currency unit or units will be set forth in
the Prospectus Supplement relating thereto.
Some of the Debt Securities may be issued as Discounted Securities
(providing that upon redemption or acceleration of the maturity thereof an
amount less than the principal thereof shall become due and payable) to be sold
at a substantial discount below their stated principal amount. Federal income
tax consequences and other special considerations applicable to any Discounted
Securities will be described in the Prospectus Supplement relating thereto.
DEBT GUARANTEES
The Guarantor will fully and unconditionally guarantee the due and punctual
payment of principal, premium, if any, and interest, if any, on the Debt
Securities and the due and punctual payment of mandatory sinking fund payments,
if any, when and as the same shall become due and payable and in the coin or
currency in which the same are payable, whether at the maturity date, by
declaration of acceleration, call for redemption or otherwise.
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<PAGE> 58
DENOMINATIONS, REGISTRATION AND TRANSFER
The Debt Securities of a series will be issuable as Registered Securities,
Bearer Securities or both. Debt Securities of a series may be issuable in the
form of one or more Global Securities, as described below under "Global
Securities". Unless otherwise provided in the Prospectus Supplement with respect
to a series of Debt Securities, Registered Securities denominated in U.S.
dollars will be issued only in denominations of $1,000 or any integral multiple
thereof and Bearer Securities denominated in U.S. dollars will be issued only in
denominations of $5,000 with coupons attached. Unless otherwise provided in the
Prospectus Supplement with respect to a series of Debt Securities, a Global
Security will be issued in a denomination equal to the aggregate principal
amount of Outstanding Securities of the series represented by such Global
Security. The Prospectus Supplement relating to a series of Debt Securities
denominated in a foreign currency or currency unit will specify the
denominations thereof.
In connection with its sale during the "restricted period" as defined in
Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury regulations
(generally, the first 40 days after the closing date and, with respect to unsold
allotments, until sold), no Bearer Security shall be mailed or otherwise
delivered to any location in the United States (as defined below under
"Limitations on Issuance of Bearer Securities") and any such Bearer Security
(other than a temporary Global Security in bearer form) may be delivered only if
the person entitled to receive such Bearer Security furnishes written
certification, in the form required by the Indenture, to the effect that such
Bearer Security is not being acquired by or on behalf of a United States person
(as defined under "Limitations on Issuance of Bearer Securities") or resident of
Canada, or, if a beneficial interest in such Bearer Security is being acquired
by or on behalf of a United States person, that such United States person is a
person described in Section 1.163-5(c)(2)(i)(D)(6) of the United States Treasury
regulations or is a financial institution who has purchased such Bearer Security
for resale during the restricted period and who certifies that it has not
acquired such Bearer Security for purposes of resale directly or indirectly to a
United States person or resident of Canada or to a person within the United
States or its possessions or Canada. See "Global Securities" and "Limitations on
Issuance of Bearer Securities".
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations. In addition, if Debt
Securities of any series are issuable as both Registered Securities and as
Bearer Securities, at the option of the holder upon request confirmed in
writing, and subject to the terms of the Indenture, Bearer Securities (with all
unmatured coupons, except as provided below, and all matured coupons in default)
of such series will be exchangeable for Registered Securities of the same series
of any authorized denominations and of a like aggregate principal amount and
tenor. Unless otherwise indicated in an applicable Prospectus Supplement, any
Bearer Security surrendered in exchange for a Registered Security between a
Regular Record Date or a Special Record Date and the relevant date for payment
of interest shall be surrendered without the coupon relating to such date for
payment of interest and interest will not be payable in respect of the
Registered Security issued in exchange for such Bearer Security, but will be
payable only to the holder of such coupon when due in accordance with the terms
of the Indenture. Except as provided in an applicable Prospectus Supplement,
Bearer Securities will not be issued in exchange for Registered Securities.
Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer duly executed), at the
office of the Security Registrar or at the office of any transfer agent
designated by the Company for such purpose with respect to any series of Debt
Securities and referred to in an applicable Prospectus Supplement, without
service charge and upon payment of any taxes and other governmental charges as
described in the Indenture. Such transfer or exchange will be effected upon the
Security Registrar or such transfer agent, as the case may be, being satisfied
with the documents of title and identity of the person making the request. The
Company has initially appointed the Trustee as Security Registrar under the
Indenture. If a Prospectus Supplement refers to any transfer agents (in addition
to the Security Registrar) initially designated by the Company with respect to
any series of Debt Securities, the Company may at any time rescind the
designation of any such transfer agent or approve a change in
7
<PAGE> 59
the location through which any such transfer agent acts, except that, if Debt
Securities of a series are issuable only as Registered Securities, the Company
will be required to maintain a transfer agent in each Place of Payment for such
series and, if Debt Securities of a series are issuable as Bearer Securities,
the Company will be required to maintain (in addition to the Security Registrar)
a transfer agent in a Place of Payment for such series located outside the
United States. The Company may at any time designate additional transfer agents
with respect to any series of Debt Securities.
In the event of any redemption in part, the Company shall not be required
to (i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of Debt Securities of that series selected
to be redeemed and ending at the close of business on (A) if Debt Securities of
the series are issuable only as Registered Securities, the day of mailing of the
relevant notice of redemption, and (B) if Debt Securities of the series are
issuable as Bearer Securities, the day of the first publication of the relevant
notice of redemption or, if Debt Securities of that series are also issuable as
Registered Securities and there is no publication, the mailing of the relevant
notice of redemption; (ii) register the transfer of or exchange any Registered
Security, or portion thereof, called for redemption, except the unredeemed
portion of any Registered Security being redeemed in part; or (iii) exchange any
Bearer Security called for redemption, except to exchange such Bearer Security
for a Registered Security of that series and like tenor which is immediately
surrendered for redemption.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and interest, if any, on Registered
Securities (other than a Global Security) will be made at the office of such
Paying Agent or Paying Agents as the Company may designate from time to time,
except that at the option of the Company payment of any interest may be made (i)
by check mailed or delivered to the address of the Person entitled thereto as
such address shall appear in the Security Register or (ii) by wire transfer to
an account maintained by the Person entitled thereto as specified in the
Security Register. Unless otherwise indicated in an applicable Prospectus
Supplement, payment of any instalment of interest on Registered Securities will
be made to the Person in whose name such Registered Security is registered at
the close of business on the Regular Record Date for such interest payment.
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and interest, if any, on Bearer Securities
will be payable, subject to any applicable laws and regulations, at the offices
of such Paying Agents outside the United States as the Company may designate
from time to time, except that at the option of the Company, payment of any
interest may be made by check or by transfer to an account maintained by the
payee outside the United States. Unless otherwise indicated in an applicable
Prospectus Supplement, payment of interest on Bearer Securities on any Interest
Payment Date will be made only against surrender of the coupon relating to such
Interest Payment Date. No payment of interest on a Bearer Security will be made
unless on the earlier of the date of the first such payment by the Company or
the date of delivery by the Company of a definitive Bearer Security, including a
permanent Global Security, a written certificate, in the form required by the
Indenture, is provided to the Company stating that on such date the Bearer
Security is not owned by or on behalf of a United States person (as defined
under "Limitations on Issuance of Bearer Securities") or resident of Canada or,
if a beneficial interest in such Bearer Security is owned by or on behalf of a
United States person, that such United States person is a person described in
Section 1.163-5(c)(2)(i)(D)(6) of the United States Treasury regulations or is a
financial institution who has purchased such Bearer Security for resale during
the restricted period and who certifies that it has not acquired such Bearer
Security for purposes of resale directly or indirectly to a United States person
or resident of Canada or to a person within the United States or its possessions
or Canada. No payment with respect to any Bearer Security will be made at any
office or agency of the Company in the United States or by check mailed to any
address in the United States or by transfer to an account maintained in the
United States. Payments will not be made in respect of Bearer Securities or
coupons appertaining thereto
8
<PAGE> 60
pursuant to presentation to the Company or its designated Paying Agents within
the United States or any other demand for payment to the Company or its
designated Paying Agents within the United States. Notwithstanding the
foregoing, payment of principal of (and premium, if any) and interest, if any,
on Bearer Securities denominated and payable in U.S. dollars will be made at the
office of the Company's Paying Agent in the United States if, and only if,
payment of the full amount thereof in U.S. dollars at all offices or agencies
outside the United States is illegal or effectively precluded by exchange
controls or other similar restrictions.
Unless otherwise indicated in an applicable Prospectus Supplement, the
principal office of the Trustee in The City of New York will be designated as
the Company's sole Paying Agent for payments with respect to Debt Securities
which are issuable solely as Registered Securities. Any Paying Agents outside
the United States and any other Paying Agents in the United States initially
designated by the Company for the Debt Securities will be named in the related
Prospectus Supplement. The Company may at any time designate additional Paying
Agents or rescind the designation of any Paying Agents or approve a change in
the office through which any Paying Agent acts, except that, if Debt Securities
of a series are issuable only as Registered Securities, the Company will be
required to maintain a Paying Agent in each Place of Payment for such series,
and if the Debt Securities of a series may be issuable as Bearer Securities, the
Company will be required to maintain (i) a Paying Agent in a Place of Payment
for that series in the United States for payments with respect to any Registered
Securities of the series (and for payments with respect to Bearer Securities of
the series in the circumstances described above, but not otherwise), (ii) a
Paying Agent in a Place of Payment located outside the United States where Debt
Securities of such series and any coupons appertaining thereto may be presented
and surrendered for payment; provided that if the Debt Securities of such series
are listed on the Luxembourg Stock Exchange or any other stock exchange located
outside the United States and such stock exchange shall so require, the Company
will maintain a Paying Agent in Luxembourg or any other required city located
outside the United States, as the case may be, for the Debt Securities of such
series, and (iii) a Paying Agent in a Place of Payment located outside the
United States where (subject to applicable laws) Registered Securities of such
series may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company may be served.
All moneys paid by the Company to a Paying Agent for the payment of
principal of (and premium, if any) and interest, if any, on any Debt Security
which remains unclaimed at the end of two years after such principal, premium or
interest shall have become due and payable will (subject to applicable laws) be
repaid to the Company and the holder of such Debt Security or any coupon will
thereafter look only to the Company for payment thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a Depositary identified in the Prospectus Supplement relating to such
series. Global Securities may be issued in either registered or bearer form and
in either temporary or permanent form. Permanent Global Securities will be
issued in definitive form. Unless and until it is exchanged for Debt Securities
in definitive form, including a permanent Global Security, a temporary Global
Security in registered form may not be transferred except as a whole by the
Depositary for such Global Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company anticipates that the following provisions will apply to
all depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit the accounts of persons held with it with
the respective principal amounts of the Debt Securities represented by such
Global Security. Such accounts shall be designated by the underwriters or agents
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<PAGE> 61
with respect to such Debt Securities or by the Company if such Debt Securities
are offered and sold directly by the Company. Ownership of beneficial interests
in a Global Security will be limited to persons that have accounts with the
Depositary for such Global Security or its nominee ("participants") or persons
that may hold interests through participants. Ownership of beneficial interests
in such Global Security will be shown on, and the transfer of that ownership
will be effected only through, records maintained by the Depositary or its
nominee (with respect to interests of participants) for such Global Security and
on the records of participants (with respect to interests of persons other than
participants). The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture governing such Debt Securities. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have Debt
Securities of the series represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture governing such Debt Securities.
Any payments of principal, premium or interest on Debt Securities
registered in the name of a Depositary or its nominee will be made to the
Depositary or its nominee, as the case may be, as the registered owner of the
Global Security representing such Debt Securities. Neither the Company, the
Trustee for such Debt Securities, any Paying Agent nor the Security Registrar
for such Debt Securities will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Security for such Debt Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Company expects that the Depositary for a series of Debt Securities or
its nominee, upon receipt of any payment of principal, premium or interest, will
credit immediately participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of the Global
Security for such Debt Securities as shown on the records of such Depositary or
its nominee subject to the furnishing of the certificate described above under
"Payment and Paying Agents" in the case of a Global Security in which interests
are exchangeable for Bearer Securities. The Company also expects that payments
by participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such participants. Receipt by owners of beneficial interests
in a temporary Global Security of payments in respect of such temporary Global
Security will be subject, in the case of a Global Security in which interests
are exchangeable for Bearer Securities, to the furnishing of the certificate
described above under "Payment and Paying Agents".
If a Depositary for a series of Debt Securities is at any time unwilling or
unable to continue as depositary or if at any time a Depositary for a series of
Debt Securities ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, and in each case a successor depositary is not
appointed by the Company within 90 days, the Company will issue Debt Securities
of such series in definitive form in exchange for the Global Security
representing such series of Debt Securities. In addition, the Company may at any
time and in its sole discretion determine not to have the Registered Securities
of a series represented by a Global Security and, in such event, will issue
Registered Securities of such series in definitive form in exchange for the
Global Security representing such series of Registered Securities. Further, if
the Company so specifies with respect to the Debt Securities of a series, an
owner of a beneficial interest in a Global Security representing Debt Securities
of such series may, on terms acceptable to the Company and the Depositary for
such Global Security, receive Debt Securities of such series in definitive form.
In any such instance, an owner of a beneficial interest in a Global Security
will be entitled to physical delivery in definitive form of Debt Securities of
the
10
<PAGE> 62
series represented by such Global Security equal in principal amount to such
beneficial interest and to have such Debt Securities registered in its name (if
the Debt Securities of such series are issuable as Registered Securities). Debt
Securities of such series so issued in definitive form will be issued (a) as
Registered Securities in denominations, unless otherwise specified by the
Company, of $1,000 and integral multiples thereof if the Debt Securities of such
series are issuable as Registered Securities, (b) as Bearer Securities in the
denomination, unless otherwise specified by the Company, of $5,000 if the Debt
Securities of such series are issuable as Bearer Securities or (c) as either
Registered or Bearer Securities, if the Debt Securities of such series are
issuable in either form. See, however, "Limitations on Issuance of Bearer
Securities" below for a description of certain restrictions on the issuance of a
Bearer Security in definitive form in exchange for an interest in a temporary
Global Security.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities (including any Global Securities issued in bearer form) may not be
offered or sold during the restricted period (as defined under "Denominations,
Registration and Transfer") or delivered in connection with their sale during
the restricted period in the United States or its possessions or to United
States persons (each as defined below) except to the extent permitted under
Section 1.163-5(c)(2)(i)(D) of the United States Treasury regulations (the "D
Rules"), and any distributor (as defined in Section 1.163-5(c)(2)(i)(D)(4) of
the United States Treasury regulations) participating in the offering of Debt
Securities must agree that they will not offer for sale or resale, or sell,
Bearer Securities in the United States or its possessions or to United States
persons, except to the extent permitted under the D Rules, nor deliver Bearer
Securities within the United States.
Bearer Securities and any coupons appertaining thereto will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Sections 165(j) and 1287(a) of the
Internal Revenue Code". Under Sections 165(j) and 1287(a) of the United States
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Code"), holders that are United States persons (as defined below), with certain
exceptions, will not be entitled to deduct any loss on Bearer Securities and
must treat as ordinary income any gain realized on the sale or other disposition
(including the receipt of principal) of Bearer Securities.
As used herein, "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States, an estate the income of which is
subject to United States federal income taxation regardless of its source and a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
"United States" means the United States of America (including the States and the
District of Columbia) and "possessions" of the United States include Puerto
Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the
Northern Mariana Islands.
TAX REDEMPTION; SPECIAL TAX REDEMPTION
If and to the extent specified in an applicable Prospectus Supplement, the
Debt Securities of a series will be subject to redemption at any time, as a
whole but not in part, at a redemption price equal to the principal amount
thereof together with accrued and unpaid interest to the date fixed for
redemption, upon publication of a notice as described below, if (x) the Company
determined that (a) as a result of any change in or amendment to the laws (or
any regulations or rulings promulgated thereunder) of the United States or of
any political subdivision or taxing authority thereof or therein affecting
taxation, or any change in official position regarding application or
interpretation of such laws, regulations or rulings (including a holding by a
court of competent jurisdiction), which change or amendment is announced or
becomes effective on or after a date specified in the applicable Prospectus
Supplement, the Company has or will become obligated to pay on the next
succeeding Interest Payment Date additional amounts with respect to any Debt
Security of such series as described below under "Payment of Additional Amounts"
or
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(b) on or after a date specified in the applicable Prospectus Supplement, any
action has been taken by any taxing authority of, or any decision has been
rendered in a court of competent jurisdiction in, the United States or any
political subdivision or taxing authority thereof or therein, including any of
those actions specified in (a) above, whether or not such action was taken or
decision was rendered with respect to the Company, or any change, amendment,
application or interpretation shall be officially proposed, which, in any such
case, in the written opinion to the Company of independent legal counsel of
recognized standing, will result in a material probability that the Company will
become obligated to pay additional amounts with respect to any Debt Security of
such series on the next succeeding Interest Payment Date, and (y) in any such
case the Company in its business judgment determines that such obligation cannot
be avoided by the use of reasonable measures available to the Company; provided
however, that (1) no such notice of redemption may be given earlier than 90 days
prior to the earliest date on which the Company would be obligated to pay such
additional amounts were a payment in respect of the Debt Securities then due,
and (2) at the time such notice of redemption is given, such obligation to pay
such additional amounts remains in effect.
If the Company shall determine that any payment made outside the United
States by the Company or any Paying Agent of principal or interest due in
respect of any Bearer Security (an "Affected Security") or any coupon
appertaining thereto would, under any present or future laws or regulations of
the United States, be subject to any certification, information or other
reporting requirement of any kind, the effect of which requirement is the
disclosure to the Company, any Paying Agent or any governmental authority of the
nationality, residence or identity (as distinguished from, for example, status
as a United States Alien (as defined below)) of a beneficial owner of such
Affected Security of such series or coupon who is a United States Alien (other
than such a requirement which (a) would not be applicable to a payment made (i)
directly to the beneficial owner or (ii) to a custodian, nominee or other agent
of the beneficial owner, (b) can be satisfied by such custodian, nominee or
other agent certifying to the effect that such beneficial owner is a United
States Alien, provided that, in each case referred to in items (a)(ii) and (b),
payment by such custodian, nominee or other agent to such beneficial owner is
not otherwise subject to any such requirement (other than a requirement which is
imposed on a custodian, nominee or other agent described in (d) of this
sentence), (c) would not be applicable to a payment made by at least one other
Paying Agent of the Company or (d) is applicable to a payment to a custodian,
nominee or other agent of the beneficial owner who is a United States person, a
controlled foreign corporation for United States tax purposes, a foreign person
50% or more of whose gross income for the three-year period ending with the
close of its taxable year preceding the year of payment is effectively connected
with a United States trade or business, or is otherwise related to the United
States), the Company at its election shall either (x) redeem the Affected
Securities of such series, as a whole, at a redemption price equal to the
principal amount thereof, together with accrued and unpaid interest to the date
fixed for redemption, or (y) if the conditions of the next succeeding paragraph
are satisfied, pay the additional amounts specified in such paragraph. The
Company shall make such determination and election as soon as practicable and
give prompt notice thereof (the "Determination Notice") in the manner described
under "Notices" below, stating the effective date of such certification,
information or reporting requirements, whether the Company has elected to redeem
the Affected Securities of such series, or to pay the additional amounts
specified in the next succeeding paragraph, and (if applicable) the last date by
which the redemption of the Affected Securities of such series must take place,
as provided in the next succeeding sentence. If the Company elects to redeem the
Affected Securities of such series, such redemption shall take place on such
date, not later than one year after the publication of the Determination Notice,
as the Company shall elect by notice to the Trustee given not less than 45 or
more than 75 days before the date fixed for redemption. Notice of such
redemption of the Affected Securities of such series will be given to the
holders thereof not less than 30 nor more than 60 days prior to the date fixed
for redemption. Notwithstanding the foregoing, the Company shall not so redeem
the Affected Securities of such series if the Company shall subsequently
determine, not less than 30 days prior to the date fixed for redemption, that
subsequent payments would not be subject to any such requirement, in which case
the Company shall give prompt notice of such determination in the manner
described under "Notices" below and any earlier redemption notice shall be
revoked and of no
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further effect. The right of the holders of Affected Securities called for
redemption to exchange such Affected Securities for Registered Securities (which
Registered Securities will remain Outstanding following such redemption) will
terminate on the 16th day prior to the date fixed for redemption, and no further
exchanges of Affected Securities for Registered Securities shall be permitted
unless the Company shall have made the subsequent determination and given the
notice referred to in the preceding sentence.
If and so long as the certification, information or other reporting
requirements referred to in the preceding paragraph would be fully satisfied by
payment of a withholding tax, backup withholding tax or similar charge, the
Company may elect to pay such additional amounts as may be necessary so that
every net payment made outside the United States following the effective date of
such requirements by the Company or any Paying Agent of principal (or premium,
if any) or interest, if any, due in respect of any Affected Securities of such
series or any coupon to a holder who certifies that the beneficial owner is a
United States Alien (but without any requirement that the nationality, residence
or identity of such beneficial owner be disclosed to the Company, any Paying
Agent or any governmental authority), after deduction or withholding for or on
account of such withholding tax, backup withholding tax or similar charge (other
than a withholding tax, backup withholding tax or similar charge which (a) is
the result of a certification, information or other reporting requirement
described in the second parenthetical clause of the first sentence of the
preceding paragraph or (b) is imposed as a result of presentation of such
Affected Security or coupon for payment more than 10 days after the date on
which such payment becomes due and payable or on which payment thereof is duly
provided for, whichever occurs later), will not be less than the amount provided
for in such Affected Security or coupon to be then due and payable. In the event
the Company elects to pay such additional amounts and as long as payments in
respect of Affected Securities of the appropriate series are subject to any
certification, information or other reporting requirement described in the
preceding paragraph, the Company will have the right, at its sole option, at any
time, to redeem the Affected Securities of such series as a whole, but not in
part, at a redemption price equal to the principal amount thereof, together with
accrued and unpaid interest to the date fixed for redemption. If the Company has
made the determination described in the preceding paragraph with respect to
certification, information or other reporting requirements applicable only to
interest and subsequently makes a determination in the manner and of the nature
referred to in such preceding paragraph with respect to such requirements
applicable to principal, the Company will redeem the Affected Securities of such
series in the manner and on the terms described in the preceding paragraph
unless the Company elects to have the provisions of this paragraph apply rather
than the provisions of the immediately preceding paragraph. If in such
circumstances the Affected Securities of such series are to be redeemed, the
Company shall have no obligation to pay additional amounts pursuant to this
paragraph with respect to principal (or premium, if any) or interest, if any,
accrued and unpaid after the date of the notice of such determination indicating
such redemption, but will be obligated to pay such additional amounts with
respect to interest accrued and unpaid to the date of such determination. If the
Company elects to pay additional amounts pursuant to this paragraph and the
condition specified in the first sentence of this paragraph should no longer be
satisfied, then the Company shall promptly redeem such Affected Securities in
whole but not in part.
In the event that the Company elects or is required to redeem the Debt
Securities of such series pursuant to the provisions set forth in the preceding
three paragraphs, the Company shall deliver to the Trustee a certificate, signed
by an authorized officer, stating that the Company is entitled to redeem the
Debt Securities of such series pursuant to their terms.
Notice of intention to redeem the Debt Securities of such series and all
other notices in accordance with the provisions of the preceding paragraphs will
be given in accordance with "Notices" below. In the case of a redemption, notice
will be given once not more than 60 nor less than 30 days prior to the date
fixed for redemption and will specify the date fixed for redemption.
The term "United States Alien" means any person who, for United States
federal income tax purposes, is a foreign corporation, a nonresident alien
individual, a nonresident alien fiduciary of a foreign estate or trust, or a
foreign partnership one or more of the members of which is, for United States
federal
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income tax purposes, a foreign corporation, a nonresident alien individual or a
nonresident alien fiduciary of a foreign estate or trust.
PAYMENT OF ADDITIONAL AMOUNTS
If and to the extent specified in an applicable Prospectus Supplement, the
Company will, subject to the exceptions and limitation set forth below, pay to
the holder of any Debt Security or coupon who is a United States Alien such
additional amounts as may be necessary in order that every net payment on such
Debt Security or coupon, after withholding by the Company or any of its Paying
Agents for or on account of any present or future tax, assessment or other
governmental charge imposed upon or as a result of such payment by the United
States (or any political subdivision or taxing authority thereof or therein)
will not be less than the amount provided for in such Debt Security or in such
coupon to be then due and payable. However, the Company will not be required to
make any payment of additional amounts for or on account of:
(1) any tax, assessment or other governmental charge that would not
have been so imposed but for (i) the existence of any present or former
connection between such holder (or between a fiduciary, settlor or
beneficiary of, or a person holding a power over, such holder, if such
holder is an estate or trust, or a member or shareholder of such holder, if
such holder is a partnership or corporation) and the United States,
including, without limitation, such holder (or such fiduciary, settlor,
beneficiary, person holding a power, member or shareholder) being or having
been a citizen, resident or treated as a resident thereof or being or
having been engaged in a trade or business or present therein or having or
having had a permanent establishment therein, or (ii) such holder's present
or former status as a personal holding company, foreign personal holding
company, controlled foreign corporation or passive foreign investment
company with respect to the United States or as a corporation that
accumulates earnings to avoid United States federal income tax;
(2) any tax, assessment or other governmental charge which would not
have been so imposed but for the presentation by the holder of such Debt
Security or coupon for payment on a date more than 10 days after the date
on which such payment became due and payable or the date on which payment
thereof is duly provided for, whichever occurs later;
(3) any estate, inheritance, gift, sales, transfer, personal property
tax or any similar tax, assessment or other governmental charge;
(4) any tax, assessment or other governmental charge that is payable
otherwise than by withholding from a payment on a Debt Security or coupon;
(5) any tax, assessment or other governmental charge imposed on a
holder of a Debt Security or coupon that actually or constructively owns
10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote within the meaning of Section 871(h)(3) of the
Code or that is a controlled foreign corporation related to the Company
through stock ownership;
(6) any tax, assessment or other governmental charge imposed as a
result of the failure to comply with applicable certification, information,
documentation or other reporting requirements concerning the nationality,
residence, identity or connection with the United States of the holder or
beneficial owner of a Debt Security or coupon, if such compliance is
required by statute or by regulation of the United States as a precondition
to relief or exemption from such tax, assessment or other governmental
charge;
(7) any tax, assessment or other governmental charge required to be
withheld by any Paying Agent from any payment on a Debt Security or coupon
if such payment can be made without such withholding by at least one other
Paying Agent;
(8) any tax, assessment or other governmental charge imposed with
respect to payments on any Registered Security by reason of the failure of
the holder to fulfill the statement requirement of Sections 871(h) or
881(c) of the Code; or
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(9) any combination of items (1), (2), (3), (4), (5), (6), (7) and
(8);
nor will additional amounts be paid with respect to any payment on a Debt
Security or coupon to a holder who is a fiduciary or partnership or other than
the sole beneficial owner of such payment to the extent such payment would be
required by the laws of the United States (or any political subdivision thereof)
to be included in the income for federal income tax purposes of a beneficiary or
settlor with respect to such fiduciary or a member of such partnership or a
beneficial owner who would not have been entitled to payment of the additional
amounts had such beneficiary, settlor, member or beneficial owner been the
holder of such Debt Security or coupon.
EVENTS OF DEFAULT
The following are defined in the Indenture as Events of Default with
respect to each series of Debt Securities: (a) failure to pay principal or
premium, if any (or to make a mandatory sinking fund payment, if any), when due;
(b) failure to pay any interest within 30 days of the date when due; (c) failure
to perform any other covenant of the Company or the Guarantor contained in the
Indenture (other than a covenant included in the Indenture solely for the
benefit of series of Debt Securities other than that series) for a period of 90
days after written notice thereof is given to the Company and the Guarantor by
the Trustee, or to the Company, the Guarantor and the Trustee by the holders of
at least 25% in aggregate principal amount of the outstanding principal amount
of a series of Debt Securities; and (d) certain events of bankruptcy, insolvency
or reorganization. Additional Events of Default may be established for
particular series of Debt Securities.
If an Event of Default occurs and is continuing with respect to any series
of Debt Securities, the Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Debt Securities of such series may, subject
to any subordination provisions thereof, declare the entire principal amount (or
such lesser amount as may be provided with respect to Discounted Securities) of
all Debt Securities of such series to be due and payable immediately. However,
at any time after a declaration of acceleration with respect to any series of
Debt Securities has been made, but before a judgment or decree based on such
declaration has been obtained, the holders of a majority in principal amount of
the outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. Holders of Debt Securities may not enforce
the Indenture, the Debt Securities or the Debt Guarantees, except as provided in
the Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture, the Debt Securities or the Debt Guarantees. Subject to
certain limitations, holders of a majority in principal amount of the
outstanding Debt Securities of a particular series may direct the Trustee in its
exercise of any trust or power. The Company and the Guarantor each will furnish
the Trustee with an annual certificate of certain of its officers certifying, to
the best of its knowledge, whether the Company or the Guarantor, as the case may
be, is in default and specifying the nature and status of any such default. The
Trustee may withhold from holders of Debt Securities notice of any continuing
default (except a default in payment) if it determines in good faith that the
withholding of such notice is in the interest of such holders.
A judgment for money damages by courts in the United States, including a
money judgment based on an obligation expressed in a foreign currency, will
ordinarily be rendered only in U.S. dollars. New York statutory law provides
that a court shall render a judgment or decree in the foreign currency of the
underlying obligation and that the judgment or decree shall be converted into
U.S. dollars at the exchange rate prevailing on the date of entry of the
judgment or decree.
If, for the purpose of obtaining a judgment in any court with respect to
any obligation of the Company or the Guarantor under any Debt Security or any
related coupon or any Debt Guarantee, as the case may be, it becomes necessary
to convert into any other currency or currency unit any amount in the currency
or currency unit due under such Debt Security or coupon or such Debt Guarantee,
as the case may be, the conversion will be made by the Currency Determination
Agent appointed pursuant to the Indenture with respect to such Debt Security at
the Market Exchange Rate in effect on the date of entry of the judgment (the
"Judgment Date"). If pursuant to any such judgment, conversion is made on a date
(the
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"Substitute Date") other than the Judgment Date and a change has occurred
between the Market Exchange Rate in effect on the Judgment Date and the Market
Exchange Rate in effect on the Substitute Date, the Indenture requires the
Company or the Guarantor, as the case may be, to pay such additional amounts (if
any) as may be necessary to ensure that the amount paid is equal to the amount
in such other currency or currency unit which, when converted at the Market
Exchange Rate in effect on the Judgment Date, is the amount then due under such
Debt Security or coupon or such Debt Guarantee, as the case may be. Neither the
Company nor the Guarantor will, however, be required to pay more in the currency
or currency unit due under such Debt Security or coupon or such Debt Guarantee
at the Market Exchange Rate in effect when payment is made than the amount of
currency or currency unit stated to be due under such Debt Security or coupon or
such Debt Guarantee, and the Company or the Guarantor, as the case may be, will
be entitled to withhold (or be reimbursed for, as the case may be) any excess of
the amount actually realized upon any such conversion over the amount due and
payable on the date of payment.
Directors, officers, employees or shareholders of the Company or the
Guarantor will not have any liability for any obligations of the Company or the
Guarantor under the Debt Securities, the Debt Guarantees or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Debt Securities, by accepting a Debt Security, waives
and releases all such liability. The waiver and the release are part of the
consideration for the issue of the Debt Securities.
The occurrence of an Event of Default under the Indenture may cause the
occurrence of a default under the terms of other indebtedness of the Company or
the Guarantor.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Neither the Company nor the Guarantor may consolidate or amalgamate with or
merge into any other corporation, or convey, transfer or lease its assets
substantially as an entirety to, any person, unless (a) the corporation formed
by or continuing from such consolidation or amalgamation or into which the
Company or the Guarantor is merged or the person which acquires or leases the
assets of the Company or the Guarantor substantially as an entirety (i) is
organized and existing under the laws of any United States jurisdiction or, in
the case of the Guarantor only, under the laws of any Canadian jurisdiction, and
(ii) assumes the Company's obligations on the Debt Securities and under the
Indenture or the Guarantor's obligations under the Debt Guarantees and under the
Indenture, as the case may be, (b) after giving effect to such transaction no
Event of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be continuing, and (c)
certain other conditions are met, provided that the Company or the Guarantor may
consolidate or amalgamate with or merge into a direct or indirect majority-owned
subsidiary of the Company or the Guarantor, as the case may be, if the Company
or the Guarantor, as the case may be, is the surviving corporation and the
condition set forth in clause (b) above is met.
SATISFACTION AND DISCHARGE
Except as may otherwise be set forth in the Prospectus Supplement relating
to a series of Debt Securities, the Indenture provides that the Company shall be
discharged from its obligations under the Debt Securities of such series (with
certain exceptions) at any time prior to the Stated Maturity or redemption of
the Debt Securities of such series when (a) the Company has irrevocably
deposited with the Trustee, in trust, (i) sufficient funds in the currency,
currencies, currency unit or units in which the Debt Securities of such series
are payable to pay the principal of (and premium, if any) and interest, if any,
to Stated Maturity (or redemption) on, the Debt Securities of such series, or
(ii) such amount of direct obligations of, or obligations the principal of (and
premium, if any) and interest, if any, on which are fully guaranteed by, the
government which issued the currency, and are payable in the currency, in which
the Debt Securities of such series are payable, and which are not subject to
prepayment, redemption or call, as will, together with the predetermined and
certain income to accrue thereon without consideration of any reinvestment
thereof, be sufficient to pay when due the principal of (and premium, if any)
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series, or,
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(iii) such amount equal to the amount referred to in clause (i) or (ii) in any
combination of currency or currency unit or government obligations, (b) the
Company has paid all other sums payable with respect to the Debt Securities of
such series, (c) unless otherwise set forth in such Prospectus Supplement, the
Company has delivered to the Trustee an opinion of counsel to the effect that
(i) the Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of the Indenture there has been
a change in applicable United States federal income tax law, in either case to
the effect that, and based upon which such opinion of counsel shall confirm
that, the holders of Debt Securities of such series will not recognize income,
gain or loss for United States federal income tax purposes as a result of such
discharge and will be subject to United States federal income tax on the same
amount and in the same manner and at the same time as would have been the case
if such discharge had not occurred and (d) certain other conditions are met.
Upon such discharge, the holders of the Debt Securities of such series shall no
longer be entitled to the benefits of the Indenture, except for certain rights,
including registration of transfer and exchange of the Debt Securities of such
series and replacement of mutilated, destroyed, lost or stolen Debt Securities,
and shall look only to such deposited funds or obligations.
DEFEASANCE OF CERTAIN OBLIGATIONS
If the terms of the Debt Securities of any series so provide, the Company
and the Guarantor may omit to comply with certain designated covenants in the
Indenture and any such omission with respect to such covenants shall not be an
Event of Default with respect to the Debt Securities of such series, if (a) the
Company deposits or causes to be deposited with the Trustee for the Debt
Securities of such series in trust an amount of (i) cash in the currency or
currency unit in which the Debt Securities of such series are payable (except as
otherwise specified with respect to the Debt Securities of such series), (ii)
government obligations of the type referred to under "Satisfaction and
Discharge" or (iii) a combination of such cash and government obligations, which
amount, in the case of (ii) or (iii), together with the predetermined and
certain income to accrue on any such government obligations when due (without
the consideration of any reinvestment thereof), is sufficient to pay and
discharge when due the entire indebtedness on all such outstanding Debt
Securities of such series and any related coupons for unpaid principal (and
premium, if any) and interest, if any, to the Stated Maturity or any Redemption
Date, as the case may be and (b) certain other conditions are met. The
obligations of the Company and the Guarantor under the Indenture with respect to
the Debt Securities of such series and the related Debt Guarantees, as the case
may be, other than with respect to the covenants referred to above, shall remain
in full force and effect.
MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantor and the Trustee with the consent of the holders of more than 50%
in principal amount of the outstanding Debt Securities of each series issued
under the Indenture affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any instalment of principal of or interest, if
any, on any Debt Security, (b) reduce the principal amount of or interest, if
any, on any Debt Security, or any premium payable upon the redemption thereof,
(c) reduce the amount of principal of a Discounted Security payable upon
acceleration of the Maturity thereof, (d) change the Place of Payment, (e)
change the currency or currency unit of payment of principal of (or premium, if
any) or interest, if any, on any Debt Security, (f) impair the right to
institute suit for the enforcement of any payment on or with respect to any Debt
Security on or after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date), (g) reduce the percentage in principal amount
of outstanding Debt Securities of any series, the consent of the holders of
which is required for modification or amendment of the applicable Indenture or
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults or (h) modify or affect in any manner adverse to a holder of
any of the Debt Securities the terms and conditions of the Debt Guarantees.
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The holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series may on behalf of the holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain restrictive provisions of the Indenture.
The holders of not less than a majority in principal amount of the outstanding
Debt Securities of any series may on behalf of the holders of all Debt
Securities of that series and any coupons appertaining thereto waive any past
default under the Indenture with respect to that series, except a default in the
payment of the principal of (or premium, if any) and interest, if any, on any
Debt Security of that series or in respect of a provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each outstanding Debt Security of that series affected. The Indenture, the Debt
Securities or the Debt Guarantees may be amended or supplemented, without the
consent of any holder of Debt Securities, to cure any ambiguity or inconsistency
or to make any change that does not have a materially adverse effect on the
rights of any holder of Debt Securities.
The Indenture contains provisions for convening meetings of the holders of
Debt Securities of a series if Debt Securities of that series are issuable as
Bearer Securities. A meeting may be called at any time by the Trustee, and also,
upon request, by the Company or the holders of at least 10% in principal amount
of the outstanding Debt Securities of such series, in any such case upon notice
given in accordance with "Notices" below. Any resolution passed or decision
taken at any meeting of holders of Debt Securities of any series duly held in
accordance with the Indenture will be binding on all holders of Debt Securities
of that series and the related coupons. The quorum at any meeting called to
adopt a resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series.
NOTICES
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, notices to holders of Bearer Securities
will be given by publication in a daily newspaper in the English language of
general circulation in The City of New York and in London, and so long as such
Bearer Securities are listed on the Luxembourg Stock Exchange and the Luxembourg
Stock Exchange shall so require, in a daily newspaper of general circulation in
Luxembourg or, if not practical, elsewhere in Western Europe. Such publication
is expected to be made in The Wall Street Journal, the Financial Times and the
Luxemburger Wort. Notices to holders of Registered Securities will be given by
mail to the addresses of such holders as they appear in the Security Register.
TITLE
Title to any Global Security and Bearer Securities and any coupons
appertaining thereto will pass by delivery. The Company, the Trustee and any
agent of the Company or the Trustee may treat the bearer of any Bearer Security
and the bearer of any coupon and the registered owner of any Registered Security
as the absolute owner thereof (whether or not such Debt Security or coupon shall
be overdue and notwithstanding any notice to the contrary) for the purpose of
making payment and for all other purposes.
GOVERNING LAW
The Debt Securities and the Indenture will be governed by and construed in
accordance with the laws of the State of New York.
CONSENT TO SERVICE
Pursuant to the Indenture, the Guarantor has irrevocably designated The
Bank of New York as its authorized agent for service of process in any legal
action or proceeding arising out of or relating to the Indenture, the Debt
Securities or the Debt Guarantees brought in any federal or state court in New
York City and has irrevocably submitted to the jurisdiction of such courts. Such
designation does not
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constitute consent to service of process in any legal action or proceeding
predicated upon the Securities Act.
TRUSTEE
The Trustee acts as depository for funds of, makes loans (which may rank
senior to certain series of Debt Securities) to, and performs other services
for, Seagram in the ordinary course of business. The Trustee also acts as
trustee for the Guarantor's 6.875% Debentures due September 1, 2023, 8.35%
Debentures due January 15, 2022, 8.35% Debentures due November 15, 2006, 6.50%
Debentures due April 1, 2003 and Medium-Term Notes, Series A, that may be issued
from time to time, and as trustee for the following securities issued by the
Company: 9% Guaranteed Debentures due August 15, 2021, 9.65% Guaranteed
Debentures due August 15, 2018, 8 7/8% Guaranteed Debentures due September 15,
2011, 7% Guaranteed Debentures due April 15, 2008, 8 3/8% Guaranteed Debentures
due February 15, 2007 and Guaranteed Medium-Term Notes, Series A, that may be
issued from time to time.
DESCRIPTION OF PREFERRED STOCK
The following brief summary of the Company's preferred stock does not
purport to be complete and is qualified in its entirety by reference to all the
provisions of the Company's Restated Articles of Incorporation and its By-laws.
The particular terms and provisions of Class A Preferred Stock offered by a
Prospectus Supplement, and the extent to which the general terms and provisions
described below may apply thereto, will be described in the Prospectus
Supplement relating to such Class A Preferred Stock.
GENERAL
The authorized capital of the Company currently consists of 250,000 shares
of common stock of the par value of $1 per share ("Common Stock"), of which
250,000 shares of Common Stock were outstanding at June 30, 1998, 129,151 1/2
shares of 6% Non-Cumulative Preferred Stock of the par value of $100 per share
("6% Preferred Stock"), of which 120,694 shares of 6% Preferred Stock were
outstanding at June 30, 1998, and 1,000,000 shares of Class A Preferred Stock,
none of which was outstanding at June 30, 1998. All of the outstanding shares of
Common Stock and 6% Preferred Stock are owned by Seagram Enterprises, Inc., a
wholly owned subsidiary of the Guarantor.
CLASS A PREFERRED STOCK
Class A Preferred Stock may be issuable in one or more series, with the
Board of Directors of the Company (the "Board") vested with authority to
determine, without further shareholder approval, the designations and the
relative preferences, limitations, voting rights, if any, and other rights of
the Class A Preferred Stock and of each series of Class A Preferred Stock.
The specific terms of a particular series of Class A Preferred Stock
offered hereby will be described in a Prospectus Supplement relating to such
series and will include the following: (i) the designation of such series; (ii)
the number of shares initially constituting such series; (iii) the increase, and
the decrease to a number not less than the number of the outstanding shares of
such series, of the number of shares constituting such series theretofore fixed;
(iv) the rate or rates and the times at which dividends on the shares of such
series shall be paid and whether or not such dividends shall be cumulative and,
if such dividends shall be cumulative, the date or dates from and after which
they shall accumulate; (v) whether or not the shares of such series shall be
redeemable and, if such shares shall be redeemable, the terms and conditions of
such redemption, including but not limited to the date or dates upon or after
which such shares shall be redeemable and the amount per share which shall be
payable upon such redemption, which amount may vary under different conditions
and at different redemption dates; (vi) the amount payable on the shares of such
series in the event of the liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary; (vii) whether or not the shares of
such series shall have voting rights, in addition to the voting rights provided
by law and, if such shares shall have such voting rights, the terms and
conditions thereof, including but not limited to the right of the holders of
such
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shares to vote as a separate class either alone or with the holders of shares of
one or more other series or class of stock and the right to have more than one
vote per share; (viii) whether or not a sinking fund shall be provided for the
redemption of the shares of such series, and if such a sinking fund shall be
provided, the terms and conditions thereof; (ix) whether or not the shares of
such series shall be exchangeable for shares of stock of any other class or any
other series of this class or any other securities or series and, if so, the
terms and conditions of exchange, including but not limited to any provision for
the adjustment of the rate or rates or the price or prices of exchange; (x)
whether or not the shares of such series shall have pre-emptive rights to
subscribe to or purchase any shares of Common Stock, 6% Preferred Stock, Class A
Preferred Stock or other securities of the Company; (xi) any other relative
preferences, limitations, or rights; and (xii) a discussion of certain United
States federal and Canadian income tax considerations, if any, applicable to
shares of the series.
GUARANTEES
The Guarantor will fully and unconditionally guarantee the due and punctual
payment, as and when declared, of (i) accumulated and unpaid dividends on
outstanding shares of Class A Preferred Stock, (ii) any amounts due on
liquidation or redemption of outstanding shares of Class A Preferred Stock and
(iii) upon a voluntary or involuntary dissolution, liquidation or winding up of
the Company, the liquidation preference payable in respect of outstanding shares
of Class A Preferred Stock.
6% PREFERRED STOCK
The holders of 6% Preferred Stock are entitled to receive dividends out of
the surplus earnings of the Company, or out of its net profits or surplus paid
in cash, when and as declared by the Board, at a rate of 6% per annum from the
date of issue, payable annually from the 31st day of July in each year. The
holders of 6% Preferred Stock are entitled to no other or further dividends.
Such dividends are noncumulative, so that if any dividends upon outstanding
shares of 6% Preferred Stock are not declared for any dividend period, holders
of such 6% Preferred Stock have no right to the future payment of a dividend for
such dividend period, and dividends may be declared or paid upon Common Stock
and Class A Preferred Stock in subsequent dividend periods without paying the
holders of 6% Preferred Stock any dividends for such previous dividend period in
which dividends were not declared or paid. Subject to the terms of any Class A
Preferred Stock then outstanding, dividends may be declared and paid on Common
Stock at the same time as the annual dividend is declared and paid on 6%
Preferred Stock. Subject to the terms of any Class A Preferred Stock then
outstanding, dividends may be declared and paid at any other time on Common
Stock if simultaneously therewith a dividend at the rate of 6% per annum from
the 31st day of July next preceding such declaration is declared and paid upon
the 6% Preferred Stock then outstanding.
The 6% Preferred Stock may be redeemed at the option of the Board, in whole
or in part, on ten days' written notice to the holders thereof. The redemption
price of each share of 6% Preferred Stock to be redeemed shall be $105, plus any
and all dividends declared by the Board remaining unpaid on such date. From and
after the date fixed as the date of redemption (unless default is made by the
Company in providing funds for payment of the redemption price), all rights of
the holders of redeemed 6% Preferred Stock shall cease and terminate except the
right to receive the redemption price. Redeemed 6% Preferred Stock may not be
reissued, and no 6% Preferred Stock may be issued in lieu thereof or in exchange
therefor, and such 6% Preferred Stock shall be cancelled and deemed to have been
retired, as provided by law.
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of 6% Preferred Stock shall be
entitled to receive out of the assets of the Company (whether from capital or
surplus or both) the full par value of such 6% Preferred Stock, plus all
dividends declared by the Board and remaining unpaid on the date of such
liquidation, dissolution or winding up of the Company, and no more, before any
distribution on assets shall be made to holders of Common Stock and, subject to
the terms of any Class A Preferred Stock then outstanding, the holders of Common
Stock shall be entitled, to the exclusion of holders of 6% Preferred Stock, to
share ratably in the
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assets of the Company remaining after such payment. Subject to the terms of any
Class A Preferred Stock then outstanding, if, upon such liquidation, dissolution
or winding up of the Company, the assets of the Company are insufficient to
permit payment in full to holders of 6% Preferred Stock, then the entire assets
of the Company shall be distributed ratably among the holders of 6% Preferred
Stock then outstanding.
Subject to exclusive rights of any series of Class A Preferred Stock, each
share of 6% Preferred Stock entitles the holder thereof to one vote at all
meetings of shareholders of the Company, which voting rights are identical to
those of holders of Common Stock.
DESCRIPTION OF WARRANTS
The following description of the terms of Warrants sets forth certain
general terms and provisions to which any Prospectus Supplement may relate. The
particular terms and provisions of Warrants offered by a Prospectus Supplement,
and the extent to which the general terms and provisions described below may
apply thereto, will be described in the Prospectus Supplement relating to such
Warrants.
The Company may issue Warrants to purchase Debt Securities ("Debt
Warrants") or Warrants to purchase Class A Preferred Stock ("Preferred Stock
Warrants"). Warrants may be issued independently of or together with any other
securities and may be attached to or separate from such securities. Each series
of Warrants will be issued under a separate Warrant Agreement (each, a "Warrant
Agreement") to be entered into between the Company and a Warrant Agent ("Warrant
Agent"). The Warrant Agent will act solely as an agent of the Company in
connection with the Warrants of such series and will not assume any obligation
or relationship of agency for or with holders or beneficial owners of Warrants.
The Guarantor will fully and unconditionally guarantee all obligations of
the Company with respect to the Warrants.
DEBT WARRANTS
Reference is made to the Prospectus Supplement for the following terms of
the particular series of Debt Warrants being offered thereby: (i) the title of
such Debt Warrants; (ii) the offering price for such Debt Warrants, if any;
(iii) the aggregate number of such Debt Warrants; (iv) the designation and terms
of the Debt Securities purchasable upon exercise of such Debt Warrants; (v) if
applicable, the designation and terms of the securities with which such Debt
Warrants are issued and the number of such Debt Warrants issued with each such
security; (vi) if applicable, the date from and after which such Debt Warrants
and any securities issued therewith will be separately transferable; (vii) the
principal amount of Debt Securities purchasable upon exercise of a Debt Warrant
and the price at which such principal amount of Debt Securities may be purchased
upon exercise; (viii) the date on which the right to exercise such Debt Warrants
shall commence and the date on which such right shall expire; (ix) if
applicable, the minimum or maximum amount of such Debt Warrants that may be
exercised at any one time; (x) whether the Debt Warrants represented by Debt
Warrant certificates or Debt Securities that may be issued upon exercise of the
Debt Warrants will be issued in registered or bearer form; (xi) information with
respect to book-entry procedures, if any; (xii) if other than U.S. dollars, the
currency, currencies or currency unit or units in which the offering price, if
any, and the exercise price are payable; (xiii) if applicable, a discussion of
certain United States federal and Canadian income tax considerations; (xiv) the
antidilution provisions of such Debt Warrants, if any; (xv) the redemption or
call provisions, if any, applicable to such Debt Warrants; and (xvi) any
additional terms of the Debt Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Debt Warrants.
PREFERRED STOCK WARRANTS
Reference is made to the Prospectus Supplement for the following terms of
the particular series of Preferred Stock Warrants being offered thereby: (i) the
title of such Preferred Stock Warrants; (ii) the
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<PAGE> 73
offering price of such Preferred Stock Warrants, if any; (iii) the aggregate
number of such Preferred Stock Warrants; (iv) the designation and terms of the
Class A Preferred Stock purchasable upon exercise of such Preferred Stock
Warrants; (v) if applicable, the designation and terms of the securities with
which such Preferred Stock Warrants are issued and the number of such Preferred
Stock Warrants issued with each such security; (vi) if applicable, the date from
and after which such Preferred Stock Warrants and any securities issued
therewith will be separately transferable; (vii) the number of shares of Class A
Preferred Stock purchasable upon exercise of a Preferred Stock Warrant and the
price at which such shares may be purchased upon exercise; (viii) the date on
which the right to exercise such Preferred Stock Warrants shall commence and the
date on which such right shall expire; (ix) if applicable, the minimum or
maximum amount of such Preferred Stock Warrants that may be exercised at any one
time; (x) if other than U.S. dollars, the currency, currencies or currency unit
or units in which the offering price, if any, and the exercise price are
payable; (xi) if applicable, a discussion of certain United States federal and
Canadian income tax considerations; (xii) the antidilution provisions of such
Preferred Stock Warrants, if any; (xiii) the redemption or call provisions, if
any, applicable to such Preferred Stock Warrants; and (xiv) any additional terms
of such Preferred Stock Warrants, including terms, procedures and limitations
relating to the exchange and exercise of such Preferred Stock Warrants.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell all or part of the Securities from time to time on
terms determined at the time such Securities are offered for sale to or through
underwriters or through selling agents, and also may sell such Securities
directly to other purchasers. The names of any such underwriters or selling
agents in connection with the offer and sale of the Securities will be set forth
in the Prospectus Supplement relating thereto.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company or from purchasers of Securities for whom they may
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the Underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
Securities may be deemed to be underwriters, and any discounts or commissions
received by them from the Company and any profit on the resale of Securities by
them may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such compensation received from the Company will be
described in the Prospectus Supplement.
Underwriters, dealers, selling agents and other persons may be entitled,
under agreements which may be entered into with the Company, to indemnification
by the Company against certain civil liabilities, including liabilities under
the Securities Act.
The Securities will not be qualified for sale under the securities laws of
Canada or any province or territory of Canada, unless a Prospectus Supplement
indicates otherwise with respect to a particular series of Securities, and may
not be offered or sold, directly or indirectly, in Canada or to residents of
Canada in contravention of the securities laws of Canada or any province or
territory thereof. Each underwriter, selling agent and dealer participating in
the distribution of the Securities must agree that it will not offer or sell,
directly or indirectly, any such Securities acquired by it in connection with a
distribution in Canada unless the Prospectus Supplement indicates otherwise or
to residents thereof in contravention of the securities laws of Canada or any
province or territory thereof. Any reoffers or resales in Canada must be made in
compliance with the requirements of applicable securities laws.
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<PAGE> 74
The Securities sold will constitute a new issue of securities with no
established trading market. In the event that Securities of a series offered
hereunder are not listed on a national securities exchange, certain
broker-dealers may make a market in the Securities, but will not be obligated to
do so and may discontinue any market making at any time without notice. No
assurance can be given that any broker-dealer will make a market in the
Securities of any series or as to the liquidity of the trading market for the
Securities.
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the Prospectus Supplement, the Company may authorize
underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase Securities from the Company pursuant to
contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
the Company. The obligations of any purchaser under any such contract will be
subject to the condition that the purchase of the offered Securities shall not
at the time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject. The underwriters and such other agents will not
have any responsibility in respect of the validity or performance of such
contracts.
LEGAL MATTERS
Certain legal matters relating to the validity of the Securities will be
passed upon for the Company by Simpson Thacher & Bartlett, United States counsel
for the Company and the Guarantor, and Goodman Phillips & Vineberg S.E.N.C.,
Canadian counsel for the Guarantor, and for any underwriters or selling agents
by Sullivan & Cromwell, United States counsel for such underwriters or selling
agents. Simpson Thacher & Bartlett and Sullivan & Cromwell, who will pass only
upon matters of United States and New York law, will rely upon Goodman Phillips
& Vineberg S.E.N.C. with respect to matters of Canadian law and Barnes &
Thornburg, Indiana counsel for the Company, with respect to matters of Indiana
law. Goodman Phillips & Vineberg S.E.N.C., who will pass only upon matters of
Canadian law, will rely upon Simpson Thacher & Bartlett with respect to matters
of United States and New York law.
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EXPERTS
The consolidated financial statements of the Guarantor as of June 30, 1998
and 1997 and for the years ended June 30, 1998 and 1997, the five-month period
ended June 30, 1996 and the year ended January 31, 1996 incorporated in this
Prospectus by reference to the Guarantor's Current Report on Form 8-K dated
September 1, 1998 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of PolyGram as of December 31, 1997
and 1996 and for each of the years in the three year period ended December 31,
1997 incorporated in this Prospectus by reference to the Guarantor's Form 8-K,
dated August 25, 1998, as amended, have been audited by KPMG Accountants N.V.,
as stated in their report, and have been so incorporated in reliance upon the
report of such firm given on the authority of said firm as experts in accounting
and auditing.
JURISDICTION RESPECTING THE GUARANTOR
The Guarantor is a Canadian corporation and certain of its directors and
officers and the experts referred to herein are citizens or residents of
countries other than the United States. A substantial portion of the assets of
the Guarantor and of such persons are located outside the United States.
Accordingly, it may be difficult for investors to obtain jurisdiction over the
Guarantor and such directors and officers and experts in courts in the United
States in actions predicated on the civil liability provisions of the United
States federal securities laws or to enforce against the Guarantor or such
persons judgments obtained in such actions; to obtain judgments against the
Guarantor or such persons in original actions in Canadian or other foreign
courts predicated solely upon the United States federal securities laws; or to
enforce against the Guarantor or such persons in Canadian or other foreign
courts judgments of courts in the United States predicated upon the civil
liability provisions of the United States federal securities laws.
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<PAGE> 76
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in the Prospectus Supplement or the
Prospectus. You must not rely on any unauthorized information or
representations. The Prospectus Supplement and the Prospectus is an offer to
sell only the Notes and Debentures offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
the Prospectus Supplement is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement
The Seagram Company Ltd..................... S-1
PolyGram N.V. .............................. S-6
Use of Proceeds............................. S-9
Condensed Consolidated Capitalization of
Guarantor................................. S-9
Guarantor Unaudited Pro Forma Consolidated
Financial Information..................... S-10
Guarantor Unaudited Supplementary Pro Forma
Financial Information..................... S-17
Guarantor Selected Historical Consolidated
Financial Data............................ S-22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ S-24
PolyGram Selected Historical Consolidated
Financial Data............................ S-41
Summary Consolidated Financial Information
of the Company............................ S-42
Ratios of Earnings to Fixed Charges......... S-42
Description of the Notes, the Debentures and
the Guarantees............................ S-43
U.S. Federal Income Tax Consequences to
Foreign Holders........................... S-46
Canadian Tax Consequences................... S-48
Underwriting................................ S-49
Prospectus
Available Information....................... 2
Incorporation of Certain Documents by
Reference................................. 2
The Guarantor and the Company............... 3
Recent Developments......................... 3
Use of Proceeds............................. 3
Ratios of Earnings to Fixed Charges......... 4
Description of Debt Securities.............. 5
Description of Preferred Stock.............. 19
Description of Warrants..................... 21
Plan of Distribution........................ 22
Legal Matters............................... 23
Experts..................................... 24
Jurisdiction Respecting the Guarantor....... 24
</TABLE>
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$2,000,000,000
JOSEPH E. SEAGRAM &
SONS, INC.
$ % Senior Notes due 2003
$ % Senior Notes due 2005
$ % Senior Notes due 2008
$ % Senior Debentures due 2018
Guaranteed as to Payment of
Principal and Interest by
THE SEAGRAM COMPANY LTD.
----------------------------
[SEAGRAM LOGO]
----------------------------
GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
MORGAN STANLEY DEAN WITTER
CHASE SECURITIES INC.
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
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[SEAGRAMS LOGO]
