<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
The Seagram Company Ltd.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
[VIVENDI UNIVERSAL LOGO]
[SEAGRAM LOGO] [VIVENDI LOGO] [CANAL+ LOGO]
On June 20, 2000, our companies, Vivendi, The Seagram Company Ltd. and
Canal Plus S.A. (CANAL+), announced that they had entered into a merger
agreement and related agreements providing for the combination of the three
companies into Vivendi Universal. We believe the combination of our companies
will enable us to build a fully integrated global media and communications
company capable of providing a diverse array of entertainment and information
over wired and wireless access devices using cable, Internet, satellite and
broadcast networks.
The merger agreement and related agreements provide for the completion of a
series of transactions, including the following:
- Vivendi's merger into its wholly-owned subsidiary Vivendi Universal;
- Vivendi Universal's acquisition of all the businesses of CANAL+ not
subject to a French law that prohibits any person from owning more than
49% of a French television broadcaster; CANAL+'s French premium pay
television channel will be retained by CANAL+. Public CANAL+ shareholders
will retain their 51% interest in CANAL+ and Vivendi Universal will hold
the remaining 49%; and
- Vivendi Universal's combination, through its subsidiaries, with Seagram
in accordance with a plan of arrangement under Canadian law.
When the merger transactions are completed:
- Seagram shareholders, other than those that exercise dissenters' rights,
will receive a number of Vivendi Universal American depositary shares
(ADSs) determined pursuant to an exchange ratio described below. Each
Vivendi Universal ADS will represent one Vivendi Universal ordinary
share. Canadian resident Seagram shareholders may elect to receive
non-voting exchangeable shares of Vivendi Universal's Canadian subsidiary
Vivendi Universal Exchangeco and related Vivendi Universal voting rights
instead of Vivendi Universal ADSs. The exchange ratio will be calculated
by dividing U.S.$77.35 by the U.S. dollar equivalent of the average
closing price of Vivendi ordinary shares on the Paris Bourse over the 20
consecutive trading days ending on the third complete trading day prior
to the completion of the arrangement unless the average closing price of
Vivendi ordinary shares during this period is less than or equal to
U.S.$96.6875 (in which case Seagram shareholders will receive 0.8000 of a
Vivendi Universal ADS for each Seagram common share) or the average
closing price of Vivendi ordinary shares during this period is equal to
or greater than U.S.$124.3369 (in which case Seagram shareholders will
receive 0.6221 of a Vivendi Universal ADS for each Seagram common share).
Because the Seagram meeting may occur on or before the date as of which
the exchange ratio is determined, Seagram shareholders may not know at
the time they vote how many Vivendi Universal ADSs or exchangeable shares
they will receive upon completion of the arrangement;
- Vivendi shareholders will receive one Vivendi Universal ordinary share
for each Vivendi ordinary share they hold. Because each Vivendi ADS
represents one-fifth of a Vivendi ordinary share and each Vivendi
Universal ADS will represent one Vivendi Universal ordinary share,
holders of Vivendi ADSs will receive one Vivendi Universal ADS for every
five Vivendi ADSs they hold; and
- CANAL+ shareholders will receive two Vivendi Universal ordinary shares
for each CANAL+ ordinary share they own and will retain their existing
shares in CANAL+. Because each CANAL+ ADS represents one-fifth of a
CANAL+ ordinary share, holders of CANAL+ ADSs will receive two Vivendi
Universal ADSs for every five CANAL+ ADSs they hold. Those holders will
retain their CANAL+ ADSs as well.
This document provides you with detailed information about the merger
transactions. WE ENCOURAGE YOU TO READ THE DOCUMENT CAREFULLY, INCLUDING THE
SECTION DESCRIBING RISK FACTORS THAT BEGINS ON PAGE 33.
The boards of directors of Vivendi, Seagram and CANAL+ each unanimously
approved the merger agreement and related agreements and recommend that their
respective shareholders vote FOR the applicable merger transactions.
Your vote is very important, regardless of the number of shares you own.
PLEASE VOTE AS SOON AS POSSIBLE TO ENSURE THAT YOUR SHARES ARE REPRESENTED.
<TABLE>
<S> <C> <C>
[/s/ Edgar Bronfman, Jr.] [/s/ Jean-Marie Messier] [/s/ Pierre Lescure]
Edgar Bronfman, Jr. Jean-Marie Messier Pierre Lescure
President and Chairman and Chairman and
Chief Executive Officer Chief Executive Officer Chief Executive Officer
The Seagram Company Ltd. Vivendi Canal Plus S.A.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This document is dated November 2, 2000 and is first being mailed to
securityholders of Seagram and U.S. securityholders of Vivendi and CANAL+ on or
about November 3, 2000.
<PAGE> 3
This document incorporates important business and financial information
about Seagram that is not included in or delivered with this document. This
information is available without charge to shareholders upon written or oral
request at the address and telephone number listed on page 6. To obtain timely
delivery, shareholders must request the information no later than November 28,
2000.
<PAGE> 4
[SEAGRAM LOGO]
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 5, 2000
9:30 A.M., EASTERN TIME
There will be an annual and special meeting of shareholders of The Seagram
Company Ltd. on December 5, 2000, at 9:30 a.m., Eastern time, at the Mount Royal
Centre, 2200 Mansfield St., Montreal, Quebec H3A 3R8 for the following purposes:
1. in accordance with an order of the Ontario Superior Court of Justice,
to consider and vote upon a special resolution (the arrangement
resolution) to approve an arrangement under the Canada Business
Corporations Act to effect the combination of Seagram and Vivendi
Universal, as more particularly described in the attached joint proxy
statement-prospectus;
2. to receive Seagram's annual report to shareholders, which includes
Seagram's consolidated financial statements for the fiscal year ended
June 30, 2000;
3. to elect directors to serve for a term expiring on the earlier of the
effective time of the arrangement and the next annual meeting of
Seagram shareholders;
4. to appoint auditors; and
5. to transact any other business that may properly come before the
meeting or any adjournment or postponement of the meeting.
The arrangement and the other merger transactions are described in more
detail in the attached joint proxy statement-prospectus. The full text of the
arrangement resolution is set out in Annex G to the attached joint proxy
statement-prospectus.
In accordance with the court order referred to above, registered holders of
Seagram common shares have been granted a right to dissent from the arrangement
and to be paid the fair value of their shares. The right to dissent is described
in the attached joint proxy statement-prospectus.
The record date for the meeting is November 1, 2000. If you were a
registered Seagram shareholder at the close of business on the record date, you
are entitled to vote at the meeting. If you became a new owner of Seagram common
shares after the record date but on or before November 25, 2000, you may elect
to vote your shares at the meeting in lieu of the previous owner.
Montreal, Quebec, November 2, 2000
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael C.L. Hallows
Michael C.L. Hallows
Secretary
IMPORTANT
SEAGRAM SHAREHOLDERS THAT ARE UNABLE TO ATTEND THE MEETING IN PERSON ARE
REQUESTED TO COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE
POSTAGE-PAID ENVELOPE PROVIDED FOR THAT PURPOSE.
ON PEUT SE PROCURER L'EDITION FRANCAISE DE CET AVIS DE L'ASSEMBLEE, DE LA
PROCURATION ET DE LA CIRCULAIRE DE SOLICITATION DE PROCURATIONS EN ECRIVANT AU
SECRETAIRE, LA COMPAGNIE SEAGRAM LTEE, 1430, RUE PEEL, MONTREAL (QUEBEC) H3A
1S9; ADRESSE ELECTRONIQUE: shareholders*[email protected].
<PAGE> 5
[VIVENDI LOGO]
NOTICE OF A VIVENDI EXTRAORDINARY SHAREHOLDERS' MEETING
TO BE HELD ON NOVEMBER 28 AND RECONVENED DECEMBER 5, 2000
The shareholders of Vivendi are hereby informed that an extraordinary
shareholders' meeting is to be held on November 28, 2000 for the purposes stated
in the agenda.
In accordance with applicable law, the extraordinary meeting is convened
for the first time on November 28, 2000. If a quorum for the meeting is not met
on November 28, 2000, Vivendi shareholders will be invited to vote at a meeting
on December 5, 2000 at Musee du Louvre, Pyramide du Louvre, 101, rue de Rivoli,
Paris 75001 France. Due to the quorum requirement, it is not contemplated that
there will be any vote until the reconvened meeting on December 5, 2000.
AGENDA
At the extraordinary meeting, shareholders will be asked to consider
proposals (1) to approve all the terms and conditions of the combination of
Vivendi with Seagram and CANAL+, (2) to approve the merger of Vivendi into its
wholly-owned subsidiary Sofiee (which will be renamed Vivendi Universal), and
(3) to take note of the dissolution of Vivendi, all as described in the attached
document.
In order to be invited to attend, to vote by mail or to be represented at
the meeting:
- holders of registered shares must be included in the register of members
no later than five days prior to the date of the meeting;
- holders of bearer shares must request the financial intermediary with
whom their shares are registered in an account to provide a certificate
of non-transferability stating that their shares may not be transferred
prior to the date of the meeting, and must forward the document at least
five days prior to the meeting date to BNP Paribas, Services Assemblees
(shareholders' meeting department), CETT/ATN, 8, rue de Sofia, 75018
Paris, France;
- shareholders wishing to attend the meeting should request their admission
card using a "request for admission card" coupon that may be obtained
from Innisfree M&A Incorporated (see page 5 for contact information); and
- otherwise, shareholders are entitled to submit the attached proxy or
postal voting form.
The prior notice concerning this bulletin provided by Article 130 of Decree
67-236 was published in the "Bulletin des Annonces Legales Obligatoires" on
October 25, 2000.
PURPOSE OF THE RESOLUTIONS TO BE SUBMITTED TO THE EXTRAORDINARY SHAREHOLDERS'
MEETING
The purpose of the resolutions submitted to the extraordinary shareholders'
meeting is to approve all the terms and conditions of the combination of Vivendi
with Seagram and CANAL+, to approve the merger of Vivendi into Vivendi Universal
and to take note of the dissolution of Vivendi. The effectiveness of each
resolution is conditioned upon the approval of each other resolution.
<PAGE> 6
[CANAL+ LOGO]
NOTICE OF A CANAL+ ORDINARY AND EXTRAORDINARY SHAREHOLDERS' MEETING
TO BE HELD ON DECEMBER 5, 2000
The shareholders of CANAL+ are hereby informed that an ordinary and
extraordinary shareholders' meeting is to be held on December 5, 2000 for the
purposes stated in the agenda.
AGENDA
At the ordinary and extraordinary meeting, shareholders will be asked to
consider proposals to approve the contribution transactions described below and
in the attached document in the context of the combination of CANAL+ with
Seagram and Vivendi described in the attached document.
In order to be invited to attend, to vote by mail or to be represented at
the meeting:
- holders of registered shares must be included in the register of members
no later than five days prior to the date of the meeting;
- holders of bearer shares must request the financial intermediary with
whom their shares are registered in an account to provide a certificate
of non-transferability stating that their shares may not be transferred
prior to the date of the meeting, and must forward the document at least
five days prior to the meeting date to Societe Generale, Services
Assemblees, 32 rue du Champ de Tir BP 81236, HH312 Nantes Cedex 3,
France;
- shareholders wishing to attend the meeting should request their admission
card using a "request for admission card" coupon that may be obtained
from Innisfree M&A Incorporated (see page 5 for contact information); and
- otherwise, shareholders are entitled to submit the attached proxy or
postal voting form.
PURPOSE OF THE RESOLUTIONS TO BE SUBMITTED TO THE ORDINARY AND EXTRAORDINARY
SHAREHOLDERS' MEETING
The purpose of the resolutions submitted to the ordinary and extraordinary
shareholders' meeting is to approve the following transactions:
- the contribution by CANAL+ to its wholly-owned subsidiary CANAL+
Distribution of the distribution and marketing business associated with
CANAL+'s French premium pay television channel;
- the contribution by CANAL+ to its wholly-owned subsidiary CANAL+ Regie of
the business of selling advertising on pay television channels;
- the contribution by CANAL+ to its wholly-owned subsidiary SIG 40 of all
of its businesses, including the shares of CANAL+ Distribution and CANAL+
Regie, other than the French premium pay television channel, in the
context of the combination of CANAL+ with Seagram and Vivendi, and the
free distribution to CANAL+ shareholders of the shares of SIG 40 received
by CANAL+ in consideration of the contribution to SIG 40 described above,
subject to shareholder approval of the merger of SIG 40 into Vivendi
Universal;
- the authorization for CANAL+ to cancel CANAL+ ordinary shares that CANAL+
may have acquired; and
- the replacement of CANAL+'s currently authorized share purchase program
with a new program.
The effectiveness of each extraordinary resolution is conditioned upon the
approval of each other extraordinary resolution.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CHAPTER ONE -- INTRODUCTION............... 1
QUESTIONS AND ANSWERS ABOUT THE MEETINGS
AND THE MERGER TRANSACTIONS............. 1
SUMMARY................................... 6
RISK FACTORS.............................. 33
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS.............. 39
CHAPTER TWO -- THE SHAREHOLDER MEETINGS... 40
THE SEAGRAM MEETING....................... 40
THE VIVENDI MEETING....................... 48
THE CANAL+ MEETING........................ 52
CHAPTER THREE -- THE MERGER
TRANSACTIONS............................ 56
STRUCTURE AND BACKGROUND.................. 56
What Shareholders Will Receive in the
Merger Transactions................... 56
Merger Transaction Steps................ 57
Background of the Merger Transactions... 59
Reasons for the Merger Transactions..... 63
Opinions................................ 70
Interests of Directors and Executive
Officers in the Merger Transactions... 96
Management of Vivendi Universal After
the Merger Transactions............... 100
Projections and Objectives.............. 101
Court Approval of the Arrangement and
Completion of the Merger
Transactions.......................... 102
Regulatory Matters...................... 103
Resale of Vivendi Universal ADSs and
Exchangeable Shares Received in the
Merger Transactions................... 105
Ongoing Canadian Reporting
Obligations........................... 106
Eligibility for Investment in Canada.... 106
Accounting Matters...................... 107
Stock Exchange Matters.................. 107
THE MERGER AGREEMENT...................... 108
Conditions to the Arrangement........... 108
No Other Transactions Involving Vivendi,
Seagram or CANAL+..................... 110
Termination............................. 113
Effect of Termination................... 114
Seagram Termination Fee................. 114
Vivendi Termination Fee................. 115
Conduct of Business Pending Completion
of the Arrangement.................... 116
Additional Agreements................... 118
Amendment and Waiver.................... 120
Expenses................................ 120
Representations and Warranties.......... 120
THE OPTION AGREEMENT...................... 121
THE VOTING AGREEMENT...................... 123
THE GOVERNANCE AGREEMENT.................. 124
THE CONTRIBUTION AGREEMENTS............... 128
THE HOLDING COMPANY ALTERNATIVE........... 130
CHAPTER FOUR -- PRO FORMA HISTORICAL AND
INTERIM FINANCIAL INFORMATION........... 134
CHAPTER FIVE -- SECURITIES................ 147
DESCRIPTION OF VIVENDI UNIVERSAL ORDINARY
SHARES.................................. 147
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DESCRIPTION OF VIVENDI UNIVERSAL ADSs..... 151
DESCRIPTION OF EXCHANGEABLE SHARES........ 159
DESCRIPTION OF VIVENDI UNIVERSAL VOTING
RIGHTS.................................. 169
CHAPTER SIX -- COMPARISON OF SHAREHOLDERS'
RIGHTS.................................. 172
CHAPTER SEVEN -- TAX INFORMATION.......... 188
TAX CONSIDERATIONS FOR VIVENDI
SHAREHOLDERS............................ 188
TAX CONSIDERATIONS FOR CANAL+
SHAREHOLDERS............................ 191
TAX CONSIDERATIONS FOR SEAGRAM
SHAREHOLDERS............................ 193
FRENCH TAX CONSIDERATIONS OF HOLDING AND
DISPOSING OF VIVENDI UNIVERSAL SHARES... 204
CHAPTER EIGHT -- THE VIVENDI PARTIES AND
CANAL+.................................. 211
VIVENDI................................... 211
CANAL+.................................... 296
VIVENDI UNIVERSAL AND VIVENDI UNIVERSAL
EXCHANGECO.............................. 325
CHAPTER NINE -- SEAGRAM ANNUAL MEETING
INFORMATION............................. 326
CHAPTER TEN -- LEGAL MATTERS.............. 349
ENFORCEABILITY OF CIVIL LIABILITIES
AGAINST FOREIGN PERSONS................. 349
EXPERTS................................... 350
SHAREHOLDER PROPOSALS..................... 350
LEGAL MATTERS............................. 350
WHERE YOU CAN FIND MORE INFORMATION....... 350
APPROVAL OF PROSPECTUS BY SEAGRAM BOARD OF
DIRECTORS............................... 353
CHAPTER ELEVEN -- FINANCIAL STATEMENTS.... F-1
VIVENDI FINANCIAL STATEMENTS.............. F-2
CANAL+ FINANCIAL STATEMENTS............... F-100
ANNEX A -- Merger Agreement............... A-1
ANNEX B -- Form of Plan of Arrangement.... B-1
ANNEX C -- Form of Support Agreement...... C-1
ANNEX D -- Option Agreement............... D-1
ANNEX E -- Voting Agreement............... E-1
ANNEX F -- Governance Agreement........... F-1
ANNEX G -- Arrangement Resolution......... G-1
ANNEX H -- Notice of Application to
Ontario Superior Court of Justice....... H-1
ANNEX I -- Interim Order.................. I-1
ANNEX J -- Opinion of Goldman, Sachs &
Co...................................... J-1
ANNEX K -- Opinion of Morgan Stanley & Co.
Incorporated............................ K-1
ANNEX L -- Opinion of Merrill Lynch
International........................... L-1
ANNEX M -- Opinion of Lazard Freres
S.A.S. ................................. M-1
ANNEX N -- Section 190 of the Canada
Business Corporations Act............... N-1
ANNEX O -- Vivendi Shareholder
Resolutions............................. O-1
ANNEX P -- CANAL+ Shareholder
Resolutions............................. P-1
</TABLE>
i
<PAGE> 8
CHAPTER ONE -- INTRODUCTION
QUESTIONS AND ANSWERS ABOUT THE MEETINGS AND THE MERGER TRANSACTIONS
Q: WHAT ARE VIVENDI, SEAGRAM AND CANAL+ PROPOSING?
A: We are proposing a series of transactions that we refer to as the "merger
transactions." The merger transactions consist primarily of the following:
- a series of transactions that we refer to as the "Vivendi/CANAL+
transactions," pursuant to which:
- Vivendi will merge into its wholly-owned subsidiary Vivendi Universal;
and
- Vivendi Universal, through its subsidiaries, will acquire CANAL+'s
businesses other than CANAL+'s French premium pay television channel,
which CANAL+ will retain; and
- a combination of Vivendi Universal, through its subsidiaries, with Seagram
(a transaction we refer to as the "arrangement") in accordance with a plan
of arrangement under Canadian law.
Q: WHY ARE VIVENDI, SEAGRAM AND CANAL+ PROPOSING THE MERGER TRANSACTIONS?
A: We are proposing the merger transactions because we believe the combined
strengths of our companies will enable us to build a fully-integrated global
media and communications company capable of providing a diverse array of
entertainment and information over wired and wireless access devices using
cable, Internet, satellite and broadcast networks.
Q: WHAT WILL I RECEIVE IN CONNECTION WITH THE MERGER TRANSACTIONS?
A: If you are a holder of Vivendi ordinary shares, you will receive one Vivendi
Universal ordinary share for each Vivendi ordinary share you own. Each
Vivendi ADS represents one-fifth of a Vivendi ordinary share, and each
Vivendi Universal ADS will represent one Vivendi Universal ordinary share. If
you are a Vivendi ADS holder, therefore, you will receive one Vivendi
Universal ADS for every five Vivendi ADSs you hold.
If you are a Seagram shareholder, you will receive a number of Vivendi
Universal ADSs determined pursuant to an exchange ratio, as described below,
for each Seagram common share you own. Canadian resident Seagram shareholders
may elect to receive instead a number of non-voting exchangeable shares
(exchangeable shares) of Vivendi Universal's Canadian subsidiary, Vivendi
Universal Exchangeco, determined pursuant to the same exchange ratio, subject
to adjustment in limited circumstances. The exchangeable shares will be
substantially the economic equivalent of, and will be exchangeable for, the
Vivendi Universal ADSs. If you elect to receive exchangeable shares, you will
also receive one Vivendi Universal voting right, which will entitle you to
vote on the same basis and in the same circumstances as would one Vivendi
Universal ordinary share, for each exchangeable share you receive.
The number of Vivendi Universal ADSs Seagram shareholders will receive
pursuant to the exchange ratio will be calculated by dividing U.S.$77.35 by
the U.S. dollar equivalent of the average closing price of Vivendi ordinary
shares on the Paris Bourse over the 20 consecutive trading days ending on the
third complete trading day prior to the completion of the arrangement.
However, if the average closing price of Vivendi ordinary shares during this
period is less than or equal to U.S.$96.6875, each Seagram shareholder will
receive 0.8000 of a Vivendi Universal ADS for each Seagram common share. On
the other hand, if the U.S. dollar equivalent of the average closing price of
Vivendi ordinary shares during this period is equal to or greater than
U.S.$124.3369, each Seagram shareholder will receive 0.6221 of a Vivendi
Universal ADS for each Seagram common share.
The following table illustrates how the exchange ratio works. The table shows
some hypothetical examples of the U.S. dollar equivalent of the average
closing price for Vivendi ordinary shares on the Paris Bourse during the 20
consecutive trading day measuring period, the corresponding exchange ratio
and the implied market value paid per Seagram common share. We determined the
implied market value paid per Seagram common share by multiplying each
hypothetical U.S. dollar equivalent average closing price for Vivendi
ordinary shares by the corresponding exchange ratio and assuming the actual
trading
1
<PAGE> 9
value of Vivendi shares received will be equal to the hypothetical U.S. dollar
equivalent average closing price for Vivendi.
<TABLE>
<CAPTION>
IMPLIED
MARKET VALUE
HYPOTHETICAL PAID PER
VIVENDI SEAGRAM
AVERAGE CLOSING EXCHANGE COMMON
PRICE RATIO SHARE
--------------- -------- ------------
<S> <C> <C> <C>
U.S.$140.0000 0.6221 U.S.$87.09
135.0000 0.6221 83.98
130.0000 0.6221 80.87
125.0000 0.6221 77.76
124.3369 0.6221 77.35
120.0000 0.6446 77.35
115.0000 0.6726 77.35
110.0000 0.7032 77.35
105.0000 0.7367 77.35
100.0000 0.7735 77.35
96.6875 0.8000 77.35
95.0000 0.8000 76.00
90.0000 0.8000 72.00
85.0000 0.8000 68.00
80.0000 0.8000 64.00
75.0000 0.8000 60.00
70.0000 0.8000 56.00
65.0000 0.8000 52.00
</TABLE>
If the 20 consecutive day measuring period had ended on October 31, 2000, the
Vivendi U.S. dollar equivalent average closing price would have been
U.S.$71.27, the exchange ratio would have been 0.8000 and the implied market
value paid per Seagram common share (assuming the actual trading value of
Vivendi shares at that time was equal to the Vivendi U.S. dollar equivalent
average closing price for the measuring period ending on that date) would
have been U.S.$57.02. As the 20 consecutive day measuring period will not end
until the third complete trading day prior to the completion of the
arrangement, the actual Vivendi average closing price we will use to
calculate the exchange ratio may be higher or lower than the Vivendi average
closing price had the 20 consecutive day measuring period ended on October
31, 2000. Accordingly, the actual exchange ratio could be lower than 0.8000
(if the actual Vivendi average closing price for the 20 consecutive day
measuring period ending on the third business day prior to the completion of
the arrangement rises above U.S.$96.6875). You may call toll free at
1-800-223-2064 at any time to obtain updated information concerning the
exchange ratio and the implied market value to be paid per Seagram common
share in the arrangement.
In addition, the market value of the securities received by Seagram
shareholders in the arrangement on the date they are received may be higher
or lower than the average price used in the calculation of the exchange
ratio.
Assuming the shareholders approve the merger transactions and the other
closing conditions are met, we expect the merger transactions to be completed
within one week following the last shareholders' meeting.
If you are a holder of CANAL+ ordinary shares, you will receive two Vivendi
Universal ordinary shares for each CANAL+ ordinary share you own and will
retain your ordinary shares in CANAL+. Each CANAL+ ADS represents one-fifth
of a CANAL+ ordinary share. If you are a holder of CANAL+ ADSs, therefore,
you will receive two Vivendi Universal ADSs for every five CANAL+ ADSs you
hold. You will also retain your CANAL+ ADSs.
Q: WHY ARE CANADIAN RESIDENT SEAGRAM SHAREHOLDERS PERMITTED TO ELECT TO RECEIVE
EXCHANGEABLE SHARES IN THE ARRANGEMENT IN LIEU OF VIVENDI UNIVERSAL ADSS?
A: Because Vivendi Universal is a non-Canadian company, Canadian resident
Seagram shareholders that exchange Seagram common shares for Vivendi
Universal ADSs in the arrangement will generally recognize a taxable gain or
a loss upon that exchange under current Canadian tax law. To allow Canadian
resident Seagram shareholders to participate in the arrangement on a
tax-deferred basis, Canadian resident Seagram shareholders may elect to
receive exchangeable shares of a Canadian subsidiary of Vivendi Universal,
Vivendi Universal Exchangeco, instead of Vivendi Universal ADSs. Electing
shareholders will generally be able to receive exchangeable shares without
recognizing gain or loss under Canadian tax law, provided they file a valid
tax election. The exchangeable shares will be substantially the economic
equivalent of, and exchangeable for, Vivendi Universal ADSs.
2
<PAGE> 10
Q: WHAT SHAREHOLDER APPROVALS ARE NEEDED?
A: For Vivendi, the affirmative vote of two-thirds of the votes cast by
shareholders at the Vivendi meeting is required to approve all the terms and
conditions of the combination of Vivendi with Seagram and CANAL+, to approve
the merger of Vivendi into Vivendi Universal and to take note of the
dissolution of Vivendi.
For Seagram, the affirmative vote of two-thirds of the votes cast by
shareholders at the Seagram meeting is required to approve the arrangement
resolution, and the affirmative vote of a simple majority of the votes cast
by shareholders at the Seagram meeting is required to elect directors and
appoint auditors.
For CANAL+, the affirmative vote of two-thirds of the votes cast by
shareholders at the CANAL+ meeting is required to approve the contribution of
CANAL+'s businesses, other than its French premium pay television channel, to
CANAL+'s wholly-owned subsidiary SIG 40 in the context of the combination of
CANAL+ with Seagram and Vivendi, and the free distribution to CANAL+'s
shareholders of CANAL+'s shares of SIG 40 and to authorize the cancellation
of CANAL+ ordinary shares that CANAL+ may have acquired. We refer to SIG 40
in this document as "Canal Holdco" because its activities will be limited to
holding the transferred businesses in connection with the merger
transactions. The affirmative vote of a simple majority of the votes cast by
shareholders at the CANAL+ meeting is required to approve the share
repurchase program to replace CANAL+'s currently authorized program.
Q: WHY IS VIVENDI UNIVERSAL NOT ACQUIRING THE FRENCH PREMIUM PAY TELEVISION
CHANNEL OF CANAL+?
A: French law prohibits any person from owning more than 49% of a French
television broadcaster. To comply with this requirement, CANAL+ will
contribute to Canal Holdco all of its businesses other than the businesses
involved in the operation of the French premium pay television channel, which
CANAL+ will continue to operate. Upon the merger of Vivendi and Vivendi
Universal, Vivendi Universal will indirectly hold 49% of CANAL+.
Q: WHY AM I RECEIVING THIS DOCUMENT?
A: This document serves as a proxy statement of each of Vivendi, Seagram and
CANAL+ and a U.S. prospectus of Vivendi Universal. As a proxy statement, it
is being provided by Vivendi, Seagram and CANAL+ because the board of
directors of each of those companies is soliciting proxies to vote to approve
the applicable merger transactions. As a U.S. prospectus, it is being
provided by Vivendi Universal because Vivendi Universal is offering Vivendi
Universal shares in connection with the merger transactions.
Q: DO I HAVE DISSENTERS' RIGHTS?
A: If you are a registered Seagram shareholder, you have the right to dissent
from the arrangement resolution and to be paid the fair value of your shares.
Vivendi and CANAL+ shareholders have no dissenters' or similar rights in
connection with the merger transactions.
Q: WHAT IF I DO NOT VOTE?
A: If you do not vote, it will reduce the number of votes needed to approve the
merger transactions being voted on by the shareholders of your company.
I AM A SEAGRAM SHAREHOLDER.
Q: WHAT DO I NEED TO DO NOW IF I OWN SEAGRAM COMMON SHARES DIRECTLY?
A: After carefully reading and considering the information contained in this
document, please respond by completing, signing and dating your proxy card
and returning it in the enclosed postage-paid envelope or to Seagram's
secretary as soon as possible so that your shares may be represented at the
Seagram meeting.
In addition, if you are a Canadian resident shareholder electing to receive
exchangeable shares, you must also submit your properly completed and duly
executed letter of transmittal and election form, share certificates and all
other required documents to CIBC Mellon Trust Company, the exchange agent for
Seagram common shares, in the enclosed envelope at one of the addresses
indicated in the letter of transmittal and election form before 5:00 p.m.
(Eastern time) on November 30, 2000. If you submit these materials after that
date and the merger transactions are success-
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<PAGE> 11
fully completed, you will be entitled to receive only Vivendi Universal ADSs.
You do not need to submit a letter of transmittal or your share certificates
before the completion of the merger transactions unless you are a Canadian
resident Seagram shareholder electing to receive exchangeable shares. Whether
or not you are a Canadian resident shareholder, you should vote by returning
your proxy card. If you do not submit your letter of transmittal and share
certificates before the completion of the merger transactions, we will send
you a letter of transmittal after the merger transactions are completed.
Q: WHAT DO I NEED TO DO NOW IF I HOLD MY SEAGRAM COMMON SHARES THROUGH AN
INTERMEDIARY?
A: After carefully reading and considering the information contained in this
document, please follow the directions provided by your intermediary with
respect to voting procedures and, if you are a Canadian resident electing to
receive exchangeable shares, with respect to procedures for making that
election. We ask you to ensure that your instructions are submitted to your
intermediary in sufficient time to ensure that its votes are received by
Seagram on or before 5:00 p.m., Eastern time, on December 1, 2000.
Q: CAN I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY?
A: Yes. You can change your vote by submitting a new proxy to Seagram's
secretary no later than 5:00 p.m., Eastern time, on December 1, 2000 or, if
you are a holder of record, by attending the meeting and voting your shares
in person. You may also revoke your proxy by delivering written notice signed
by you or your attorney-in-fact to Seagram's secretary on or before December
4, 2000 or to the chairman of the Seagram meeting at the meeting.
I AM A VIVENDI OR CANAL+ SHAREHOLDER.
Q: WHAT DO I NEED TO DO NOW IF I OWN VIVENDI OR CANAL+ ADSS?
A: After carefully reading and considering the information contained in this
document, please respond by completing, signing and dating your voting
instruction card and returning it in the enclosed postage-paid envelope to
The Bank of New York, the depositary for Vivendi ADSs and CANAL+ ADSs, no
later than November 24, 2000.
Q: WHAT DO I NEED TO DO NOW IF I HOLD VIVENDI OR CANAL+ ORDINARY SHARES THROUGH
A FRENCH FINANCIAL INTERMEDIARY (INCLUDING THROUGH A U.S. CUSTODIAN THAT
HOLDS THE SHARES THROUGH A FRENCH FINANCIAL INTERMEDIARY)?
A: After carefully reading and considering the information contained in this
document, please follow the directions provided in this document under "The
Vivendi Meeting -- Information Concerning Voting," if you hold Vivendi
ordinary shares, or "The CANAL+ Meeting -- Information Concerning Voting," if
you hold CANAL+ ordinary shares. If you hold ordinary shares in registered
form, you will receive a voting instruction card and the notice of meeting
that will be published in France, including the agenda for the meeting and a
copy of the resolutions that will be submitted to the meeting. A French
prospectus that provides information regarding the matters to be voted on at
the Vivendi and CANAL+ meetings has also been prepared in accordance with
French stock exchange regulations. If you hold Vivendi ordinary shares and
wish to receive a copy of the French prospectus, you should contact Vivendi
at 33 (1) 71 71 10 00 (Direction Juridique). If you hold CANAL+ ordinary
shares and wish to receive a copy of the French prospectus, you should
contact CANAL+ at 33 (1) 44 25 10 00, Direction des Relations avec les
Actionnaires. If you hold ordinary shares in bearer form, you may obtain all
these documents by requesting them from Vivendi or BNP Paribas (if you hold
Vivendi ordinary shares) or from CANAL+ or Societe Generale (if you hold
CANAL+ ordinary shares) using the telephone numbers above or the addresses
provided in this document in the appropriate "Information Concerning Voting"
section.
Under French law, you can give a proxy only to your spouse or to another
shareholder. You can also sign and return a blank proxy. If you sign and
return a blank proxy, your votes will be cast in favor of the applicable
merger transactions.
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<PAGE> 12
Q: CAN I CHANGE MY VOTE AFTER I DELIVER MY VOTING INSTRUCTION OR PROXY?
A: Yes. If you hold Vivendi or CANAL+ ordinary shares, you can revoke your proxy
at any time by notifying Vivendi at Vivendi, 42, avenue de Friedland, 75380
Paris Cedex 08, France, or CANAL+ at 85/89 quai Andre Citroen, 75015 Paris,
France, as applicable, in each case no later than December 4, 2000. If you
hold Vivendi or CANAL+ ADSs, then you can revoke your voting instruction by
delivering a written notice of revocation or duly executed written voting
instruction dated subsequent to the voting instruction being revoked to the
bank or broker through which you have cast your vote or, if you are a
registered holder, to The Bank of New York prior to November 28, 2000 at the
following address: The Bank of New York, P.O. Box 11230, New York, NY,
attention: Vivendi.
I AM A CANAL+ SHAREHOLDER.
Q: IF THE MERGER TRANSACTIONS ARE COMPLETED, WILL MY CANAL+ ORDINARY SHARES
CONTINUE TO BE "LISTED" FOR TRADING?
A: Yes. The CANAL+ ordinary shares will continue to be listed on the Paris
Bourse. CANAL+ will not, however, continue to be included in the CAC 40 or
Euro Stoxx 50 index.
Q: IF THE MERGER TRANSACTIONS ARE COMPLETED, WILL MY VIVENDI UNIVERSAL ORDINARY
SHARES, VIVENDI UNIVERSAL ADSS OR EXCHANGEABLE SHARES (DEPENDING ON WHICH I
HOLD) BE "LISTED" FOR TRADING?
A: Yes. Your Vivendi Universal ordinary shares will be listed on the Premier
Marche of the Paris Bourse.
We expect that your Vivendi Universal ADSs will be listed on The New York
Stock Exchange under the trading symbol "V".
We expect that your exchangeable shares will be listed on The Toronto Stock
Exchange under the trading symbol "VUE".
Q: WHEN DO YOU EXPECT THE MERGER TRANSACTIONS TO BE COMPLETED?
A: We are working to complete the merger transactions as quickly as possible. We
expect to complete the merger transactions before the end of 2000.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger transactions or how to submit your
proxy or voting instructions, or if you need additional copies of this
document or a voting or proxy card, you should call an appropriate number
below:
- Seagram shareholders:
Georgeson Shareholder Communications Inc.
In the United States:
(212) 440-9800 (for banks and brokers)
(800) 223-2064 (toll free for shareholders)
In Canada:
(800) 695-4382 (toll free in English)
(800) 695-4616 (toll free in French)
- Vivendi shareholders and CANAL+ shareholders:
Innisfree M&A Incorporated
(212) 750-5833 (for banks and brokers)
(877) 750-5837 (toll free for shareholders)
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<PAGE> 13
SUMMARY
This summary highlights selected information in this document. It may not
contain all of the information that is important to you. You should carefully
read this entire document, including the annexes, for a more complete
understanding of the merger transactions. In addition, we incorporate by
reference important business and financial information about Seagram into this
document. You may obtain that information without charge by following the
instructions described under "Where You Can Find More Information" that begins
on page 350 of this document.
THE COMPANIES
VIVENDI AND VIVENDI UNIVERSAL (PAGES 211 AND 325)
42 avenue de Friedland
75380 Paris Cedex 08, France
33 (1) 71 71 10 00
Vivendi is one of Europe's largest companies, with revenue in 1999 of
E41.6 billion. Vivendi's businesses are focused primarily on two core
areas: communications and environmental management services. Its communications
division operates a number of leading and increasingly integrated businesses in
the telecommunications, multimedia and publishing, pay television and Internet
industries. Its environment division includes world-class water, waste
management, transportation and energy services operations.
Vivendi Universal is a wholly-owned French subsidiary of Vivendi. In the
course of the merger transactions, Vivendi will merge with and into Vivendi
Universal, with Vivendi Universal continuing as the surviving entity.
THE SEAGRAM COMPANY LTD. (PAGE 350)
1430 Peel Street
Montreal, Quebec H3A 1S9
Canada
1 (514) 987-5200
Seagram operates in four business segments:
- Music, through Universal Music Group, the world's largest recorded music
company, which produces and distributes recorded music globally and also
engages in music publishing;
- Filmed Entertainment, which includes Universal Pictures, and which
produces and distributes motion picture, television and home video
productions worldwide, operates and has ownership in a number of
international cable channels and licenses merchandising and filmed
property rights;
- Recreation and Other, which owns and operates theme parks and
entertainment complexes; and
- Spirits and Wine, which principally produces and markets distilled
spirits, wines, coolers, beers and mixers in more than 190 countries and
territories worldwide. As part of Vivendi Universal's overall strategy
after completion of the proposed merger transactions, Seagram has
commenced a process intended to lead to the sale of the Spirits and Wine
business. No sale is expected to be completed until after the completion
of the merger transactions, and the sale process is not expected to
affect the timing of the merger transactions. In connection with the
anticipated sale of the Spirits and Wine segment, Seagram and Seagram's
wholly-owned subsidiary Joseph E. Seagram & Sons, Inc. (JES) intend to
tender for outstanding debt securities with an aggregate principal amount
of approximately U.S.$7.175 billion.
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<PAGE> 14
CANAL PLUS S.A. (PAGE 296)
85/89 quai Andre Citroen
75015 Paris, France
33 (1) 44 25 13 51
CANAL+ is Europe's leading pay television company, with approximately 14
million subscriptions in 11 countries at the end of 1999. Forty percent of
CANAL+'s subscribers were signed up for digital television services at the end
of 1999. CANAL+ also produces more than 25 theme channels for cable and
satellite distribution in 14 countries and is a European leader in film and
television production, distribution and rights management, with Europe's second
largest film rights library based on number of titles. In addition, CANAL+ is
Europe's leading supplier of software technologies that enable network operators
to deliver secure interactive services over digital television networks. CANAL+
had consolidated revenues of E3.3 billion in 1999, 79% of which came from
subscription fees.
Following the merger transactions, CANAL+'s only business will be to
operate its French premium pay television channel. In 1999, the French premium
pay television channel had nearly 4.6 million subscriptions and generated
subscriber revenues of E1.372 billion.
VIVENDI UNIVERSAL EXCHANGECO INC. (PAGE 325)
199 Bay Street
Commerce Court West
Suite 2800
Toronto, Ontario M5L 1A9
Vivendi Universal Exchangeco is an indirect, wholly-owned Canadian
subsidiary of Vivendi. Following the merger transactions, Vivendi Universal
Exchangeco will be an indirect subsidiary of Vivendi Universal. Vivendi
Universal Exchangeco has not to date engaged in any activities other than those
incident to its formation and those associated with the merger transactions.
Instead of receiving Vivendi Universal ADSs in the merger transactions, Canadian
resident Seagram shareholders may elect to receive exchangeable shares issued by
Vivendi Universal Exchangeco.
THE MERGER TRANSACTIONS (PAGE 56)
The merger transactions are a series of transactions that include the
Vivendi/CANAL+ transactions and the arrangement. Following the Vivendi/CANAL+
transactions, Vivendi Universal will, directly or indirectly, hold 49% of
CANAL+'s French premium pay television channel and 100% of CANAL+'s other
businesses. Following the arrangement, Seagram will be an indirect subsidiary of
Vivendi Universal. For information concerning the background of, reasons for and
other information relating to the merger transactions and the terms of the
agreements governing those transactions, see "The Merger Transactions."
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<PAGE> 15
TRANSACTION DIAGRAM
The following diagrams illustrate in simplified terms the current
structures of Vivendi, Seagram and CANAL+ and the structure of Vivendi Universal
following the merger transactions. For a more complete description of the merger
transactions, see "The Merger Transactions" starting at page 56.
CURRENT STRUCTURE
[CURRENT STRUCTURE FLOW CHART]
POST-MERGER TRANSACTIONS STRUCTURE
[POST-MERGER TRANSACTIONS STRUCTURE FLOW CHART]
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<PAGE> 16
MANAGEMENT OF VIVENDI UNIVERSAL AFTER THE MERGER TRANSACTIONS (PAGE 100)
We expect that Vivendi Universal will be headquartered in Paris and will
have an additional corporate center in New York. Jean-Marie Messier, Vivendi's
chairman and chief executive officer, will fulfill the same responsibilities for
Vivendi Universal. Edgar Bronfman, Jr., Seagram's president and chief executive
officer, will be vice chairman of Vivendi Universal with responsibility for
music and Internet operations. Eric Licoys, Vivendi's chief operating officer
and chief executive officer of Vivendi's subsidiary Havas S.A., will become
co-chief operating officer of Vivendi Universal with Pierre Lescure, CANAL+'s
chairman and chief executive officer.
Vivendi Universal's board of directors will initially consist of Vivendi's
current 14 board members, five new members from Seagram's board of directors,
who will each be appointed to four-year terms, and Pierre Lescure. The Vivendi
Universal board will be reduced to 18 members within two years of the completion
of the arrangement.
We expect that the members of Vivendi Universal's executive committee will
initially be Jean-Marie Messier, Edgar Bronfman, Jr., Eric Licoys, Pierre
Lescure, Vivendi executive vice president Philippe Germond and Vivendi chief
financial officer Guillaume Hannezo.
THE SHAREHOLDER MEETINGS (PAGE 40)
This document is being furnished to Seagram shareholders in connection with
the solicitation by Seagram's board of directors of proxies to be used at the
Seagram shareholders' meeting referred to below. In addition, this document is
being delivered to Vivendi and CANAL+ ADS holders and U.S. registered holders of
Vivendi and CANAL+ ordinary shares in connection with the solicitation of
proxies by Vivendi's and CANAL+'s boards of directors in connection with the
Vivendi and CANAL+ meetings, respectively. A notice of meeting has been
published in France, and a French prospectus has been prepared and made
available to Vivendi and CANAL+ shareholders in accordance with French law.
- The Seagram meeting -- the Seagram meeting will be held on December 5,
2000, 9:30 a.m., Eastern time, at the Mount Royal Centre, 2200 Mansfield
St., Montreal, Quebec H3A 3R8;
- The Vivendi meeting -- the reconvened Vivendi meeting will be held on
December 5, 2000, 5 p.m., French time, at Musee du Louvre, Pyramide du
Louvre, 101, rue de Rivoli, Paris 75001, France.
- The CANAL+ meeting -- the CANAL+ meeting will be held on December 5,
2000, 11 a.m., French time, at UGC Normandie, 116 avenue des Champs
Elysees, Paris 78008, France.
REQUIRED VOTES
Approval of Seagram Shareholders
The affirmative vote of at least two-thirds of the votes cast by Seagram
shareholders at the Seagram meeting on the arrangement resolution is required to
approve the arrangement. The Seagram shareholders that are parties to a voting
agreement with Vivendi described under "The Merger Transactions -- The Voting
Agreement" have agreed to vote shares representing approximately 24% of the
outstanding Seagram common shares in favor of the arrangement. Koninklijke
Philips Electronics N.V. has announced its intention to vote all of the Seagram
common shares it owns (approximately 11% of the outstanding Seagram common
shares) in favor of the arrangement. As of October 23, 2000, Seagram's directors
and executive officers and their affiliates owned approximately 24% of the
outstanding Seagram common shares. The affirmative vote of a simple majority of
the votes cast by Seagram shareholders at the Seagram meeting is required to
elect directors and to appoint auditors.
Approval of Vivendi Shareholders
The affirmative vote of two-thirds of the votes cast by Vivendi
shareholders at the Vivendi meeting is required to approve the resolutions
necessary to complete the merger transactions. As of September 30,
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<PAGE> 17
2000, Vivendi's directors and executive officers and their affiliates owned
approximately 0.05% of the outstanding Vivendi shares.
Approval of CANAL+ Shareholders
The affirmative vote of two-thirds of the votes cast by CANAL+ shareholders
at the CANAL+ meeting is required to approve the resolutions necessary to
complete the merger transactions. Vivendi and Vivendi Universal have agreed to
vote all of the CANAL+ ordinary shares they own (approximately 49% of the
outstanding CANAL+ ordinary shares) in favor of the resolutions necessary to
complete the merger transactions. The affirmative vote of a simple majority of
the votes cast by CANAL+ shareholders at the CANAL+ meeting is required to
approve the resolution relating to a share repurchase program to replace
CANAL+'s currently authorized program. As of September 30, 2000, CANAL+
directors and executive officers who are natural persons owned less than 1% of
the outstanding CANAL+ ordinary shares.
DISSENTING SHAREHOLDER RIGHTS
Registered holders of Seagram common shares that submit a written notice of
dissent from the arrangement resolution PRIOR TO 5:00 P.M., EASTERN TIME, ON THE
BUSINESS DAY PRECEDING THE SEAGRAM MEETING and that comply with other applicable
procedures will be entitled to be paid the fair value of all their Seagram
common shares. See "The Shareholder Meetings -- The Seagram
Meeting -- Dissenting Shareholder Rights." Vivendi and CANAL+ shareholders have
no dissenters' or similar rights in connection with the merger transactions. See
"Comparison of Shareholders' Rights."
AUTHORIZATIONS AND RECOMMENDATIONS
Vivendi's board of directors unanimously authorized Vivendi's chairman to
take all necessary actions to effect the merger transactions and to execute and
deliver the merger agreement and related agreements. Vivendi's board of
directors unanimously recommends that Vivendi shareholders vote FOR the
resolutions necessary to complete the merger transactions and the other
resolutions submitted to Vivendi shareholders at the meeting.
Seagram's board of directors unanimously approved the merger agreement and
related agreements and determined that the arrangement was fair to Seagram's
shareholders and in the best interests of Seagram and Seagram shareholders.
Seagram's board of directors unanimously recommends that Seagram shareholders
vote FOR the arrangement resolution, the election of directors listed under
"Seagram Annual Meeting Information -- Election of Directors of Seagram" and the
appointment of auditors.
CANAL+'s board of directors unanimously approved the merger transactions
and authorized CANAL+'s chairman to take all necessary actions to effect the
merger transactions and to execute and deliver the merger agreement and related
agreements. CANAL+'s board of directors unanimously recommends that CANAL+
shareholders vote FOR the resolutions necessary to complete the merger
transactions and the other resolutions submitted to CANAL+ shareholders at the
meeting.
OPINIONS (PAGE 70)
OPINION OF VIVENDI'S FINANCIAL ADVISOR
In deciding to approve the merger transactions, Vivendi's board of
directors considered, among other factors, the opinion of its financial advisor,
Lazard Freres S.A.S., that, as of the date of its opinion, and based upon and
subject to the assumptions, limitations and qualifications provided in the
opinion, the exchange ratio and the CANAL+ exchange ratio were fair to Vivendi
from a financial point of view. The full text of the Lazard opinion is attached
as Annex M to this document. VIVENDI URGES ITS SHAREHOLDERS TO READ THIS OPINION
IN ITS ENTIRETY.
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<PAGE> 18
OPINIONS OF SEAGRAM'S FINANCIAL ADVISORS
In deciding to approve the merger transactions, Seagram's board of
directors considered the opinions of its financial advisors, Goldman, Sachs &
Co. and Morgan Stanley & Co. Incorporated, that, as of the date of their
respective opinions, and subject to and based on the considerations referred to
in their respective opinions, the exchange ratio pursuant to the merger
agreement and plan of arrangement was fair from a financial point of view to the
holders of the outstanding Seagram common shares. The full texts of the opinions
of Goldman Sachs and Morgan Stanley are attached as Annexes J and K,
respectively, to this document. SEAGRAM URGES ITS SHAREHOLDERS TO READ THESE
OPINIONS IN THEIR ENTIRETY.
OPINION OF CANAL+'S FINANCIAL ADVISOR
In deciding to approve the merger transactions, CANAL+'s board of directors
considered, among other factors, the opinion of its financial advisor, Merrill
Lynch International, that, as of the date of its opinion, and based upon and
subject to the factors and assumptions set forth in the opinion, the CANAL+
exchange ratio, as described in "The Merger Transactions -- Structure and
Background -- Opinions -- Opinion of CANAL+'s Financial Advisor," was fair from
a financial point of view to CANAL+ shareholders other than Vivendi and its
affiliates. The full text of the Merrill Lynch International opinion is attached
as Annex L to this document. CANAL+ URGES ITS SHAREHOLDERS TO READ THIS OPINION
IN ITS ENTIRETY.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER TRANSACTIONS (PAGE
96)
When considering the authorizations or recommendation of the boards of
directors of Vivendi, Seagram and CANAL+ with respect to the merger
transactions, you should be aware that some of the directors and executive
officers of Vivendi, Seagram and CANAL+ are subject to agreements and
arrangements that may cause them to have interests in the merger transactions
that are different from, or in addition to, your interests as a shareholder. See
"The Merger Transactions -- Structure and Background -- Interests of Directors
and Executive Officers in the Merger Transactions."
THE MERGER TRANSACTION AGREEMENTS (PAGE 108)
THE MERGER AGREEMENT
Seagram and Vivendi Universal will combine in accordance with a plan of
arrangement under Canadian law. Following the closing of the arrangement,
Seagram will be an indirect subsidiary of Vivendi Universal.
Conditions to the Arrangement
Each of the parties' obligations to complete the arrangement, which is the
final step in the merger transactions, is subject to the satisfaction or waiver
of specified conditions that include the following:
- the merger transactions must be approved by Vivendi, Seagram and CANAL+
shareholders;
- the final order, described below, issued by the Ontario Superior Court of
Justice in connection with the arrangement must be received on terms
satisfactory to the parties, acting reasonably, and must not be set aside
or modified;
- the Vivendi/CANAL+ transactions must be completed immediately before the
completion of the arrangement;
- no final and non-appealable injunction, order or decree restraining or
enjoining the completion of the merger transactions may be in effect;
- the Vivendi Universal shares to be issued, or reserved for issuance, in
connection with the arrangement must be approved for listing on the Paris
Bourse;
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<PAGE> 19
- the Vivendi Universal ADSs and the Vivendi Universal American depositary
receipts (ADRs) to be issued in connection with the arrangement or upon
the exchange of exchangeable shares must be registered under the
Securities Exchange Act of 1934, as amended, and approved for listing on
the New York Stock Exchange (NYSE) or The NASDAQ Stock Market;
- the exchangeable shares must be approved for listing on The Toronto Stock
Exchange;
- the parties must obtain specified regulatory approvals from various
governmental authorities;
- the parties must comply in all material respects with their respective
covenants in the merger agreement;
- the parties' respective representations and warranties in the merger
agreement must be true and correct as required by the merger agreement;
and
- there must be no material adverse change to Vivendi, CANAL+ or Seagram
since June 19, 2000 that has not been cured.
The obligations of Vivendi, Vivendi Universal Exchangeco and Vivendi
Universal to complete the arrangement are also subject to the satisfaction or
waiver of the condition that holders of not more than 9.9% of Seagram common
shares exercise dissenters' rights in connection with the arrangement.
The obligations of Seagram to complete the arrangement are subject to the
satisfaction or waiver of the following additional conditions:
- each Vivendi Universal voting right must entitle its beneficiary to one
vote on the same basis and in the same circumstances as one Vivendi
Universal ordinary share;
- the boards of directors of Vivendi, Vivendi Universal Exchangeco, Vivendi
Universal and CANAL+ must take all necessary corporate action to permit
the completion of the merger transactions;
- regulatory approvals required to permit the issuance and first resale of
the Vivendi Universal ADSs, exchangeable shares and Vivendi Universal
voting rights and Vivendi Universal ADSs issued in connection with the
arrangement and the Vivendi Universal ADSs issuable upon the exchange of
exchangeable shares must be received;
- favorable opinions of U.S. and Canadian tax counsel on the tax
consequences of the merger transactions to Canadian resident and U.S.
Seagram shareholders must be received by Seagram; and
- transactions specified in the merger agreement must be approved by
Vivendi as sole shareholder of Vivendi Universal.
Termination of the Merger Agreement; Termination Fees
The merger agreement contains provisions addressing the circumstances in
which Vivendi, CANAL+ or Seagram may terminate the merger agreement. The merger
agreement does not permit any party to terminate the merger agreement in order
to accept an alternative transaction, including an alternative transaction that
may be superior. If failing to do so would be inconsistent with its fiduciary
duties (and other criteria are satisfied), however, the board of directors of
any party may change its recommendation that its shareholders approve the
applicable merger transactions if the party receives an unsolicited, superior
acquisition proposal from a third party and may engage in discussions with a
third party if its board concludes that there is a reasonable likelihood that
after engaging in negotiations, it would determine that the acquisition proposal
would constitute a superior proposal. See "The Merger Agreement -- No Other
Transactions Involving Vivendi, Seagram or CANAL+." The merger agreement
provides that, in some circumstances, Vivendi or Seagram would be required to
pay the other a termination fee of U.S.$800 million. The merger agreement also
provides that, in other circumstances, Vivendi may be required to pay Seagram a
termination fee of U.S.$50 million and to reimburse up to
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<PAGE> 20
U.S.$25 million of Seagram's expenses. For more information on those fees and
expenses, and the circumstances in which they may become payable, see "The
Merger Transactions -- The Merger Agreement -- Seagram Termination Fee" and "The
Merger Transactions -- The Merger Agreement -- Vivendi Termination Fee."
THE OPTION AGREEMENT
Vivendi and Seagram have entered into an option agreement pursuant to which
Vivendi has an option to purchase up to 19.9% of the outstanding Seagram common
shares. The option becomes exercisable if Vivendi becomes unconditionally
entitled to receive the Seagram termination fee under the merger agreement.
Vivendi's profit under the option agreement is capped at U.S.$800 million, less
any termination fee paid by Seagram under the merger agreement.
THE VOTING AGREEMENT
Vivendi has entered into a voting agreement with several Seagram
shareholders who are members or affiliates of the Bronfman family. Pursuant to
the voting agreement, those shareholders have agreed to vote shares representing
approximately 24% of the outstanding Seagram common shares in favor of the
arrangement.
THE GOVERNANCE AGREEMENT
Vivendi and Vivendi Universal have entered into a governance agreement with
the Seagram shareholders that are parties to the voting agreement. Pursuant to
the governance agreement, upon the completion of the arrangement, Vivendi
Universal will be required to use its best efforts to appoint and thereafter to
continue for a specified period to have serve on its board of directors a
specified number of designees (initially five) initially chosen by Seagram's
board of directors. Three of the five designees will be members of the Bronfman
family who are parties to the governance agreement. The governance agreement
requires that the number of directors on Vivendi Universal's board of directors
be reduced to 18 by the second anniversary of the completion of the arrangement.
The governance agreement also restricts the transfer of Vivendi Universal
securities held by the Seagram shareholders that are parties to the voting
agreement and contains other provisions relating to the ownership, holding,
transfer and registration of Vivendi Universal securities.
THE VIVENDI/CANAL+ TRANSACTIONS
The Vivendi/CANAL+ transactions will take place in accordance with a series
of contribution and merger agreements and related agreements. In the first step,
Vivendi will contribute its 15% interest in CANAL+ to its wholly-owned
subsidiary Vivendi Universal and will then merge into Vivendi Universal.
The contribution agreements will provide for the following transactions:
- the contribution by CANAL+ to its wholly-owned subsidiary CANAL+
Distribution of the distribution and marketing business associated with
CANAL+'s French premium pay television channel;
- the contribution by CANAL+ to its wholly-owned subsidiary CANAL+ Regie of
the business of selling advertising on pay television channels; and
- the contribution by CANAL+ to its wholly-owned subsidiary Canal Holdco of
all of its businesses, including the shares of CANAL+ Distribution and
CANAL+ Regie, other than the French premium pay television channel and
the subsequent distribution, on a pro rata basis, to CANAL+ shareholders
of the Canal Holdco shares received by CANAL+ in consideration for the
contribution of the transferred businesses, subject to the approval of
the merger of Canal Holdco into Vivendi Universal.
13
<PAGE> 21
The businesses being transferred to Canal Holdco consist primarily of
CANAL+'s interests in:
- distribution and marketing businesses associated with CANAL+'s French
premium pay television channel as well as the business of selling
advertising on pay television channels;
- pay television operations outside of France and digital satellite and
cable television systems;
- thematic channels;
- film and television production, distribution and rights management
businesses;
- technology businesses; and
- Internet businesses.
The contribution agreements will also provide that Canal Holdco will
contribute all of these businesses, other than the Internet businesses, to its
wholly-owned subsidiary Groupe CANAL+.
After the distribution of Canal Holdco shares, Canal Holdco will merge into
Vivendi Universal and Vivendi Universal will hold 100% of Groupe CANAL+. In this
merger, CANAL+ shareholders (other than Vivendi Universal) will receive two
Vivendi Universal ordinary shares for each CANAL+ ordinary share they own and
will retain their existing shares in CANAL+.
CANAL+ will enter into a long-term agreement with CANAL+ Distribution under
which CANAL+ Distribution will transfer back to CANAL+ the rights to the
subscriber lists and contracts relating to CANAL+, and will perform distribution
and marketing services for the French premium pay television channel in exchange
for a fee equal to CANAL+'s aggregate operating and extraordinary revenue, net
of its costs (including operating and extraordinary costs but excluding
financial and interest costs and income taxes) and a guaranteed margin of
approximately E50 million per year.
Completion of the Vivendi/CANAL+ transactions is subject to the
satisfaction or waiver of specified conditions that include the following:
- the Vivendi/CANAL+ transactions must be approved by the shareholders of
the entities involved;
- the final order, described below, issued by the Ontario Superior Court of
Justice, must be received on terms satisfactory to the parties, acting
reasonably, and must not be set aside or modified; and
- the arrangement must be completed.
EFFECTIVE TIME OF THE ARRANGEMENT
We will complete the arrangement when all of the conditions to the
completion of the arrangement are satisfied or waived in accordance with the
merger agreement. The arrangement will become effective immediately following
completion of the Vivendi/CANAL+ transactions and when a certificate of
arrangement is issued under Canadian law. We expect to complete the arrangement
and the other merger transactions before the end of 2000.
THE HOLDING COMPANY ALTERNATIVE (PAGE 130)
Under the terms of the merger agreement, Seagram shareholders that hold
Seagram common shares directly or indirectly through one or more recently
incorporated Canadian holding companies have the option of completing a
corporate reorganization with Seagram prior to the completion of the
arrangement. Choosing this holding company alternative will require an electing
Seagram shareholder to implement a complex corporate structure through which to
hold Seagram common shares. The holding company alternative may have favorable
Canadian federal income tax consequences that are not described in this document
for some Seagram shareholders. Seagram shareholders wishing to avail themselves
of the holding company alternative should consult their own financial, tax and
legal advisors. In order to participate in the holding company alternative, the
Seagram shareholder must advise Seagram in writing, c/o Seagram's secretary at
1430 Peel Street, Montreal, Quebec, H3A 1S9, at or prior to 5:00 p.m.,
14
<PAGE> 22
Eastern time, on November 17, 2000, that the Seagram shareholder wishes to
participate in the holding company alternative and must, at or prior to 5:00
p.m., Eastern time, on November 23, 2000, return to Seagram's secretary at 1430
Peel Street, Montreal, Quebec, H3A 1S9 an executed share exchange agreement
together with any required documentation. See "The Merger Transactions -- The
Holding Company Alternative."
SECURITIES (PAGE 147)
THE VIVENDI UNIVERSAL ADSS
The depositary will issue the Vivendi Universal ADSs pursuant to the
deposit agreement between it and Vivendi Universal. Each Vivendi Universal ADS
will represent one Vivendi Universal ordinary share. The depositary will convert
cash dividends paid by Vivendi Universal to U.S. dollars and will distribute the
net proceeds proportionally to holders of Vivendi Universal ADSs. When Vivendi
Universal conducts shareholder votes, holders of Vivendi Universal ADSs will be
able to vote the ordinary shares underlying their ADSs by following the voting
instructions described in "Securities -- Description of Vivendi Universal ADSs."
THE EXCHANGEABLE SHARES
Vivendi Universal Exchangeco will issue the exchangeable shares. The
exchangeable shares will be exchangeable for Vivendi Universal ADSs and will be
substantially the economic equivalent of the Vivendi Universal ADSs that Seagram
shareholders would have received if they had elected to receive Vivendi
Universal ADSs. Upon the declaration of any dividend or distribution payable to
holders of Vivendi Universal ADSs, Vivendi Universal Exchangeco's board of
directors will declare and pay an economically equivalent dividend or
distribution on the exchangeable shares. In the case of cash dividends, Vivendi
Universal Exchangeco will pay the dividend in the currency in which the Vivendi
Universal ADS dividend was paid or in an equivalent amount in Canadian dollars.
The exchangeable shares will be exchangeable for Vivendi Universal ADSs at any
time during their term at the option of the holder on a one-for-one basis,
subject to adjustment in limited circumstances. See "The Merger
Transactions -- Structure and Background -- Merger Transaction
Steps -- Limitation on Number of Exchangeable Shares and Vivendi Universal
Voting Rights."
IF YOU ARE A CANADIAN RESIDENT SEAGRAM SHAREHOLDER AND CIBC MELLON TRUST
COMPANY DOES NOT RECEIVE YOUR PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL AND ELECTION FORM, SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS PRIOR TO THE DEADLINE FOR ELECTING TO RECEIVE EXCHANGEABLE SHARES, YOU
WILL AUTOMATICALLY RECEIVE VIVENDI UNIVERSAL ADSS IN THE ARRANGEMENT. IF YOU ARE
A CANADIAN RESIDENT SEAGRAM SHAREHOLDER, RECEIPT OF VIVENDI UNIVERSAL ADSS WILL
GENERALLY RESULT IN A TAXABLE EVENT TO YOU AND THE RECEIPT BY YOU OF "FOREIGN
PROPERTY" FOR CANADIAN TAX PURPOSES. IT IS IMPORTANT, THEREFORE, THAT YOU
PROPERLY COMPLETE AND RETURN YOUR LETTER OF TRANSMITTAL AND ELECTION FORM, SHARE
CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS SO THAT THEY MAY BE RECEIVED BY
CIBC MELLON TRUST COMPANY PRIOR TO THE ELECTION DEADLINE OF 5:00 P.M., EASTERN
TIME, ON NOVEMBER 30, 2000 IF YOU WISH TO RECEIVE EXCHANGEABLE SHARES. IN
ADDITION TO SUBMITTING THESE DOCUMENTS, IT IS ALSO IMPORTANT THAT YOU COMPLETE,
SIGN AND RETURN YOUR PROXY CARD TO SEAGRAM'S SECRETARY OR OTHERWISE VOTE ON THE
ARRANGEMENT AND THE OTHER MATTERS AT THE SEAGRAM MEETING.
THE VIVENDI UNIVERSAL VOTING RIGHTS
If you are a Canadian resident Seagram shareholder that elects to receive
exchangeable shares in the arrangement, you will also receive a Vivendi
Universal voting right for each exchangeable share you receive. Under French
law, each Vivendi Universal voting right you hold will be an action en nue
propriete (or bare legal title of the ordinary share), which will give you the
right to vote on the same basis and in the same circumstances as would one
Vivendi Universal ordinary share.
15
<PAGE> 23
REGULATORY MATTERS (PAGE 103)
COURT APPROVAL
The arrangement requires approval of the Ontario Superior Court of Justice
pursuant to a final order. Prior to the mailing of this document, Seagram
obtained an interim order providing for the calling and holding of the Seagram
meeting and other procedural matters. Subject to approval of the arrangement
resolution by the Seagram shareholders at the Seagram meeting, the hearing in
connection with the final order is scheduled to take place on December 6, 2000,
at 10:00 a.m., Eastern time, at the Ontario court at 393 University Avenue,
Toronto, Ontario, Canada.
REGULATORY APPROVALS
Under Canadian law, we may not complete the arrangement until Vivendi files
an application for review with each of the Canadian Minister of Industry and the
Minister of Canadian Heritage and those Ministers determine that the arrangement
is of "net benefit to Canada." Both Ministers approved the arrangement during
the week of October 16, 2000.
Under Canadian competition law, we may not complete the arrangement until
we file a pre-merger notification and the applicable waiting period expires or
we obtain an advance ruling certificate from the Canadian Commissioner of
Competition. The Commissioner of Competition issued an advance ruling
certificate on August 28, 2000.
Under U.S. antitrust laws, we may not complete the merger transactions
until we notify the Antitrust Division of the U.S. Department of Justice and the
U.S. Federal Trade Commission of the merger transactions and file the necessary
report forms and the applicable waiting period expires. The applicable waiting
period expired on August 12, 2000.
Under regulations of the Council of the European Union, we may not complete
the merger transactions until we notify the European Commission of the merger
transactions and the European Commission determines that the transactions do not
create or strengthen a dominant position that would significantly impede
effective competition in the European common market or a substantial part of the
European common market. After consultation with the European Commission
regarding Vivendi Universal's prospective pay-television, Internet portal and
on-line music operations, we have agreed that, following the merger
transactions, Vivendi Universal will divest its interest in BSkyB and will make
its on-line music content available to competitors of Vizzavi, a multi-access
Internet portal being developed through a joint venture with Vodafone Airtouch,
in Europe on a non-discriminatory basis for a period of five years following the
merger transactions. Universal Music Group has the right to ask the Commission
to review this undertaking after three years if market conditions change. In
addition, following the merger transactions, Seagram's Universal Studios,
subject to specified conditions, will not grant to CANAL+ "first window" rights
covering more than 50% of the films produced or co-produced by Universal Studios
for a specified period in some European countries (a "first window" right is the
right to show a film on pay television after it has been released in cinemas and
through video rental but before it is shown on broadcast television). We do not
expect these actions to have a materially detrimental effect on Vivendi
Universal's results of operations. The European Commission approved the
completion of the merger transactions on October 13, 2000.
In addition, we have made filings with or obtained approvals from a number
of other governmental authorities in connection with the merger transactions,
including governmental authorities in Argentina, Brazil, the Czech Republic and
South Africa.
On July 26, 2000, the Conseil Superieur de l'Audiovisuel (CSA), the French
administrative authority that regulates the French television and radio
broadcasting industries, notified Vivendi and CANAL+ that it would not object to
the merger transactions, subject to its final review of the documentation
relating to the Vivendi/CANAL+ transactions.
16
<PAGE> 24
We cannot assure you that we will obtain all approvals necessary to
complete the merger transactions or that governmental authorities will not
impose conditions to the completion of the merger transactions or require
changes to the terms of the agreements governing the merger transactions. These
conditions or changes could result in other conditions to the completion of
merger transactions not being satisfied.
ACCOUNTING MATTERS (PAGE 107)
Vivendi Universal will prepare financial statements using French generally
accepted accounting principles (or GAAP). In accordance with the rules and
regulations of the Securities and Exchange Commission (SEC), Vivendi Universal
will reconcile the financial statements it files with the SEC to U.S. GAAP.
Vivendi Universal intends to account for the arrangement using the "purchase"
method of accounting for business combinations under French GAAP. When it
reconciles its financial statements to U.S. GAAP, it will also account for the
arrangement using the "purchase" method of accounting for business combinations.
STOCK EXCHANGE MATTERS (PAGE 107)
We expect that the Vivendi Universal ordinary shares will be listed for
trading on the Premier Marche of the Paris Bourse.
We expect that the Vivendi Universal ADSs will be listed for trading on the
NYSE under the trading symbol "V".
We expect that the exchangeable shares will be listed for trading on The
Toronto Stock Exchange under the trading symbol "VUE".
TAX INFORMATION (PAGE 188)
Upon completion of the merger transactions:
- U.S. Seagram shareholders will not recognize gain or loss for U.S.
federal income tax purposes in connection with the arrangement, except
for gain or loss recognized because of cash received in lieu of
fractional shares;
- Canadian resident Seagram shareholders that validly elect to receive
exchangeable shares and make a valid tax election may choose not to
recognize gain or loss for Canadian federal income tax purposes in
connection with the arrangement; however, Canadian resident Seagram
shareholders that receive Vivendi Universal ADSs will generally recognize
a gain or loss for Canadian federal income tax purposes;
- Seagram shareholders that are Canadian deferred income plans and validly
elect to receive exchangeable shares will receive a "qualified
investment" that is not "foreign property" for Canadian federal income
tax purposes; Vivendi Universal ADSs will be a "qualified investment"
that is "foreign property" for Canadian federal income tax purposes;
- U.S. Vivendi shareholders should not recognize gain or loss for U.S.
federal income tax purposes in connection with the merger of Vivendi into
Vivendi Universal, except for gain or loss recognized because of cash
received in lieu of fractional shares; and
- U.S. CANAL+ shareholders should not recognize gain or loss for U.S.
federal income tax purposes in connection with the Vivendi/CANAL+
transactions, except for any gain or loss recognized because of cash
received in lieu of fractional shares.
17
<PAGE> 25
SUMMARY OF FINANCIAL DATA
COMPARATIVE MARKET PRICE, TRADING VOLUME,
DIVIDEND DATA AND EXCHANGE RATES
MARKET PRICES AND TRADING VOLUME
VIVENDI AND VIVENDI UNIVERSAL
Vivendi Universal and Vivendi Universal Exchangeco are currently
wholly-owned subsidiaries of Vivendi. Accordingly, there is currently no public
market for the Vivendi Universal ordinary shares or ADSs or the Vivendi
Universal Exchangeco exchangeable shares that will be issued in connection with
the merger transactions.
Vivendi ordinary shares are traded on the Paris Bourse. Vivendi ADSs, each
representing one-fifth of a Vivendi ordinary share, are listed for trading on
the NYSE under the symbol "V". The table below sets forth, for the periods
indicated, the reported high and low sales prices and trading volume of the
Vivendi ordinary shares on the Paris Bourse and the high and low bids and
trading volume for Vivendi ADSs in the United States (which traded over the
counter until September 11, 2000). We have rounded prices to the nearest cent.
<TABLE>
<CAPTION>
VIVENDI ORDINARY SHARES VIVENDI ADSS
------------------------------ ---------------------------------
TRADING TRADING
HIGH LOW VOLUME HIGH LOW VOLUME
------ ----- ----------- ------- ------- -----------
(E) (E) (THOUSANDS) (U.S.$) (U.S.$) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter................... 52.99 38.62 93,681 11.21 8.38 2,072
Second Quarter.................. 65.81 49.75 85,426 15.42 10.71 2,880
Third Quarter................... 71.85 51.69 88,579 15.87 12.83 5,761
Fourth Quarter.................. 72.35 49.40 103,202 17.33 12.08 2,563
1999
First Quarter................... 87.13 72.33 112,200 20.33 15.21 6,143
Second Quarter.................. 81.10 69.60 137,700 17.67 14.38 4,459
Third Quarter................... 83.70 65.05 121,975 17.25 13.75 4,833
Fourth Quarter.................. 92.95 61.10 158,386 18.88 13.25 5,266
2000
First Quarter................... 150.00 79.10 204,800 28.50 16.25 13,438
Second Quarter.................. 122.00 85.30 208,594 25.75 16.25 14,463
Third Quarter................... 97.10 80.30 176,000 18.37 14.00 16,005
Fourth Quarter (through
October 31)................... 91.75 76.15 85,086 15.69 13.00 49,259
</TABLE>
SEAGRAM
Seagram common shares are traded on the NYSE, The Toronto Stock Exchange
and the London Stock Exchange. The table below sets forth, for the periods
indicated, the reported high and low quoted prices and trading volume of the
Seagram common shares on the NYSE and The Toronto Stock Exchange. We have
rounded prices to the nearest cent.
<TABLE>
<CAPTION>
NYSE TORONTO STOCK EXCHANGE
--------------------------------- -----------------------------------
TRADING TRADING
HIGH LOW VOLUME HIGH LOW VOLUME
------- ------- ----------- -------- -------- -----------
(U.S.$) (U.S.$) (THOUSANDS) (CDN.$) (CDN.$) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter................. 39.75 31.44 39,468 56.50 44.70 25,471
Second Quarter................ 46.69 36.81 45,424 67.50 52.65 34,217
Third Quarter................. 41.94 28.69 35,883 62.25 43.80 24,549
Fourth Quarter................ 38.38 25.13 46,002 59.50 38.65 34,176
1999
First Quarter................. 51.25 38.00 64,381 77.35 58.00 41,400
Second Quarter................ 65.00 48.81 82,263 98.00 72.00 35,138
Third Quarter................. 57.19 43.00 57,457 85.40 63.35 29,197
Fourth Quarter................ 49.94 36.63 53,540 73.40 54.50 26,756
</TABLE>
18
<PAGE> 26
<TABLE>
<CAPTION>
NYSE TORONTO STOCK EXCHANGE
--------------------------------- -----------------------------------
TRADING TRADING
HIGH LOW VOLUME HIGH LOW VOLUME
------- ------- ----------- -------- -------- -----------
(U.S.$) (U.S.$) (THOUSANDS) (CDN.$) (CDN.$) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
2000
First Quarter................. 65.19 43.06 80,168 94.95 63.05 42,435
Second Quarter................ 63.13 43.69 89,428 92.60 65.90 51,298
Third Quarter................. 62.69 53.31 82,187 92.00 78.40 24,242
Fourth Quarter (through
October 31)................. 60.75 50.50 48,291 91.50 76.00 9,399
</TABLE>
CANAL+
CANAL+ ordinary shares are traded on the Paris Bourse. CANAL+ ADSs, each
representing one-fifth of a CANAL+ ordinary share, are traded over the counter
in the United States. The table below sets forth, for the periods indicated, the
reported high and low sales prices and trading volume of the CANAL+ ordinary
shares on the Paris Bourse and the high and low bids for CANAL+ ADSs in the
United States. We have rounded prices to the nearest cent.
<TABLE>
<CAPTION>
ORDINARY SHARES ADSS
--------------------------------- ---------------------------------
TRADING TRADING
HIGH LOW VOLUME HIGH LOW VOLUME
------- ------- ----------- ------- ------- -----------
(E) (E) (THOUSANDS) (U.S.$) (U.S.$) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter................ 52.60 42.23 28,793 10.81 9.34 226
Second Quarter............... 45.51 39.88 23,916 9.90 8.59 94
Third Quarter................ 52.37 41.54 23,279 12.12 9.00 92
Fourth Quarter............... 58.66 46.96 25,444 14.37 9.84 1,233
1999
First Quarter................ 80.72 51.55 28,928 17.00 12.12 734
Second Quarter............... 76.37 62.95 28,830 15.75 13.50 875
Third Quarter................ 72.00 55.70 22,597 14.50 12.00 117
Fourth Quarter............... 155.00 56.65 24,770 29.50 12.50 130
2000
First Quarter................ 369.00 111.10 46,181 69.50 23.50 378
Second Quarter............... 255.10 157.20 37,887 44.50 30.75 86
Third Quarter................ 194.50 158.50 25,213 34.63 28.38 377
Fourth Quarter (through
October 31)................ 184.10 152.70 10,065 32.00 25.50 96
</TABLE>
On June 9, 2000, the last trading day before we believe speculation
regarding the merger transactions may have affected the trading values of the
Vivendi and Seagram shares, Vivendi ordinary shares closed at E116.00 per
share on the Paris Bourse, the last bid for Vivendi ADSs was U.S.$21.88 per ADS,
CANAL+ ordinary shares closed at E214.10 per share on the Paris Bourse, the
last bid for CANAL+ ADSs was U.S.$39.00 per ADS and Seagram common shares closed
at U.S.$50.31 on the NYSE and Cdn.$74.60 on The Toronto Stock Exchange. On
October 31, 2000, Vivendi ordinary shares closed at E84.70 per share on the
Paris Bourse, Vivendi ADSs closed at U.S.$14.06 per ADS on the NYSE, CANAL+
ordinary shares closed at E170.5 per share on the Paris Bourse, and Seagram
common shares closed at U.S.$57.12 on the NYSE and at Cdn.$87.40 on The Toronto
Stock Exchange.
We urge you to obtain current market quotations.
19
<PAGE> 27
DIVIDEND DATA
The table below sets forth the total dividends paid per Vivendi ordinary
share, Vivendi ADS, CANAL+ share, CANAL+ ADS and Seagram common share in respect
of each calendar year indicated. The amounts shown for Vivendi and CANAL+
exclude the avoir fiscal, a French tax credit described under "Tax
Information -- Tax Considerations for Vivendi Shareholders" and "Tax
Information -- Tax Considerations for CANAL+ Shareholders." For French
companies, dividends in respect of a given year's results are paid in the
following year. Each of Vivendi and CANAL+ has historically paid annual
dividends in respect of its prior fiscal year, while Seagram has historically
paid quarterly dividends. The payment and amount of Vivendi Universal dividends
will depend on Vivendi Universal's earnings, financial condition and other
factors. We have rounded dividend amounts to the nearest cent.
<TABLE>
<CAPTION>
VIVENDI CANAL+ SEAGRAM
ORDINARY VIVENDI ORDINARY CANAL+ COMMON
SHARE ADS SHARE ADS SHARE
-------- ------- -------- ------- -------
(E) (U.S.$) (E) (U.S.$) (U.S.$)
<S> <C> <C> <C> <C> <C>
1995...................................... 1.72 0.44 0.76 0.15 0.60
1996...................................... 1.83 0.41 0.76 0.20 0.61
1997...................................... 2.29 0.50 0.76 0.16 0.66
1998...................................... 2.75 0.52 0.80 0.16 0.66
1999...................................... 1.00 0.22 0.80 0.65 0.66
</TABLE>
As permitted by the merger agreement, Seagram intends to pay a cash
dividend for the period ending on the date of the completion of the arrangement
and beginning on the record date for the prior quarterly dividend. The dividend
will equal U.S.$0.165 per share, Seagram's current quarterly dividend rate, pro
rated to the extent this period is less than a full quarter.
EXCHANGE RATES
FRENCH FRANC AND EURO/U.S. DOLLAR
Under the provisions of the Treaty on European Union negotiated at
Maastricht in 1991 and signed by the then 12 member states of the European Union
in early 1992, a European Monetary Union, known as EMU, was implemented on
January 1, 1999 and a single European currency, known as the euro, was
introduced. The following 11 member states participate in EMU and have adopted
the euro as their national currency: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. The legal rate
of conversion between the French franc and the euro was fixed on December 31,
1998 at E1.00 = FF6.55957, and we have translated French francs into euros
at that rate. For your convenience, this document contains translations of
certain French franc and euro amounts into U.S. dollars. Unless otherwise
indicated, we have translated U.S. dollar amounts in Vivendi's financial
information from euros at the rate of E1.00 = U.S.$.995, the noon buying
rate in New York City for cable transfers in euros as announced by the Federal
Reserve Bank of New York for customs purposes on December 31, 1999, which is the
equivalent of FF6.59253 to U.S.$1.00. This does not mean that we actually
converted these amounts into U.S. dollars. On June 9, 2000, the last trading day
before we believe speculation regarding the merger transactions may have
affected the trading values of the Vivendi and Seagram shares, the noon buying
rate for euros was E1.00 = U.S.$0.9526. The noon buying rate for euros on
October 31, 2000, was E1.00 = U.S.$0.8486. The noon buying rate for
Canadian dollars on October 31, 2000 was Cdn.$1.00 = U.S.$1.5273.
20
<PAGE> 28
The following table shows the French franc/U.S. dollar exchange rate for
1995 through 1998, based on the noon buying rate, expressed in French francs per
U.S. dollar and the euro/U.S. dollar exchange rate for 1999 and 2000 through
October 31, 2000, based on the noon buying rate, expressed in U.S. dollars per
euro.
<TABLE>
<CAPTION>
PERIOD AVERAGE
YEAR END RATE* HIGH LOW
---- ------ ------- ---- ----
<S> <C> <C> <C> <C>
Euro/U.S. dollar 2000 (through October 31).................. 1.18 1.17 1.20 1.16
Euro/U.S. dollar 1999....................................... 0.99 0.93 1.00 0.85
French franc/U.S. dollar
1998...................................................... 5.59 5.90 6.21 5.38
1997...................................................... 6.02 5.85 6.35 5.19
1996...................................................... 5.19 5.12 5.29 4.90
1995...................................................... 4.30 4.96 5.39 4.78
</TABLE>
CANADIAN DOLLAR/U.S. DOLLAR
The following table shows the Canadian dollar/U.S. dollar exchange rate for
1995 through October 31, 2000, based on the noon buying rate, expressed in
Canadian dollars per U.S. dollar.
<TABLE>
<CAPTION>
PERIOD AVERAGE
YEAR END RATE* HIGH LOW
---- ------ ------- ---- ----
<S> <C> <C> <C> <C>
2000 (through October 31).................................. 1.52 1.51 1.53 1.49
1999....................................................... 1.54 1.49 1.54 1.45
1998....................................................... 1.53 1.48 1.58 1.40
1997....................................................... 1.43 1.38 1.44 1.34
1996....................................................... 1.37 1.36 1.39 1.33
1995....................................................... 1.36 1.37 1.43 1.33
</TABLE>
---------------
* The average of the noon buying rates for French francs, euros or Canadian
dollars, as the case may be, on the last business day of each month during the
relevant period.
21
<PAGE> 29
SELECTED UNAUDITED INTERIM CONSOLIDATED FINANCIAL DATA
SELECTED VIVENDI UNAUDITED INTERIM CONSOLIDATED FINANCIAL DATA
The selected unaudited interim consolidated financial statements below have
been prepared in accordance with French GAAP, which differs in certain
significant respects from U.S. GAAP. Note 15 to Vivendi's consolidated financial
statements as of June 30, 2000 describes the principal differences between
French GAAP and U.S. GAAP as they relate to Vivendi. The information below and
Vivendi's consolidated financial statements are reported in euros. For your
convenience, we have also presented U.S. dollar amounts, calculated at the rate
of U.S.$1.00 to E1.0465, which was the noon buying rate at June 30, 2000.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
U.S.$ E
-------- --------------------------------
(E MILLIONS, EXCEPT PER SHARE DATA) 2000 2000 1999(*) 1999
----------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
AMOUNTS IN ACCORDANCE WITH FRENCH GAAP
NET REVENUE....................................... 18,551.2 19,413.8 18,076.1 18,199.6
Net revenue outside France........................ 8,940.1 9,355.8 8,308.9 6,843.9
Operating income.................................. 1,108.3 1,159.8 840.0 880.3
Exceptional items................................. 1,699.5 1,778.5 94.1 92.0
Goodwill amortization............................. (241.2) (252.4) (147.8) (148.7)
Minority interest................................. (251.2) (262.8) (65.8) (76.3)
NET INCOME........................................ 1,353.6 1,416.5 847.1 782.8
Basic earnings per share.......................... 2.3 2.4 1.7 1.6
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 322.3 337.3 137.9 137.9
CAPITAL EXPENDITURE............................... 2,486.4 2,602.0 1,916.4 1,916.4
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Net sales......................................... 16,427.3 17,191.2 17,487.5 17,611.0
Net income........................................ 509.1 532.8 254.6 190.3
Basic earnings per share.......................... 0.9 0.9 0.5 0.4
Diluted earnings per share........................ 0.8 0.9 0.5 0.4
</TABLE>
<TABLE>
<CAPTION>
AT THE PERIOD ENDED
-------------------------------------------------------------------
U.S.$ E E E
------------- ------------- ---------------- -------------
JUNE 30, 2000 JUNE 30, 2000 DEC. 31, 1999(*) DEC. 31, 1999
------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH FRENCH
GAAP
SHAREHOLDERS' EQUITY................. 11,957.9 12,513.9 10,776.5 10,892.2
Minority interest.................... 3,920.8 4,103.1 3,754.5 4,052.4
TOTAL ASSETS......................... 73,611.4 77,034.3 82,101.9 82,777.0
TOTAL LONG TERM ASSETS............... 42,497.0 44,473.1 44,851.6 45,340.9
NET FINANCIAL DEBT................... 20,691.4 21,653.6 22,832.7 22,832.7
</TABLE>
---------------
* Pro forma presented in accordance with Vivendi accounting policies as of June
30, 2000.
22
<PAGE> 30
VIVENDI RECONCILIATION OF ADJUSTED EBITDA WITH OPERATING INCOME
(MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
E
U.S.$ --------------------
2000 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Telecommunications........................................ 575.9 602.7 569.0
Publishing and Multimedia................................. 162.7 170.3 113.0
Audiovisual and Pay Television............................ 222.4 232.7 4.6
Internet.................................................. (57.2) (59.9) (28.6)
COMMUNICATION............................................... 903.8 945.8 658.0
Water..................................................... 731.3 765.3 561.5
Waste management.......................................... 378.9 396.5 258.3
Energy Services........................................... 225.8 236.3 207.0
Transportation............................................ 120.4 126.0 86.8
FCC....................................................... 135.7 142.0 122.3
Holding Environment....................................... (26.7) (27.9)
ENVIRONMENT................................................. 1,565.4 1,638.2 1,235.9
SITHE....................................................... 155.1 162.3 101.6
CONSTRUCTION AND REAL ESTATE................................ (29.5) (30.9) 132.9
OTHERS...................................................... (74.9) (78.4) (60.9)
ADJUSTED EBITDA*............................................ 2,519.9 2,637.0 2,067.5
Amortization and depreciation............................. (1,288.7) (1,348.6) (1,084.1)
Expenses of replacement and repair of installation........ (122.9) (128.6) (103.1)
OPERATING INCOME............................................ 1,108.3 1,159.8 880.3
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this document, may not be strictly comparable
to similarly titled measures widely used in the United States or reported by
other companies.
SEAGRAM FIRST QUARTER RESULTS
On November 1, 2000, Seagram reported its results for the first quarter of
fiscal 2001 ended September 30, 2000. Seagram's EBITDA (operating earnings
before depreciation, amortization and corporate expenses) rose 32% from the
comparable quarter of fiscal 2000, to $466 million. The results reflected growth
in Seagram's Music, Recreation and Other, and Spirits and Wine businesses, as
well as a turnaround in Seagram's Filmed Entertainment business. Seagram
reported revenues of $3.5 billion, down 3% from the first quarter of fiscal
2000, primarily due to the impact of unfavorable foreign exchange and divested
operations in Seagram's Music and Spirits and Wine businesses. On a constant
exchange basis and excluding the divested operations from the results for the
fiscal 2000 quarter, Seagram's revenue would have represented a 2% increase over
the fiscal 2000 quarter.
Seagram reported operating income of $172 million, versus $72 million for
the same quarter in fiscal 2000. In addition, Seagram reported a net loss of
$369 million or $0.84 per basic share, which included a $390 million non-cash
after-tax charge as a result of a cumulative effect of a change in accounting
principles related to accounting by producers or distributors of films.
Excluding this accounting change, Seagram had net income of $21 million, or
$0.05 per basic share. In the first quarter of fiscal 2000, Seagram reported a
net loss of $124 million, or $0.29 per basic share, which included a $55 million
after-tax gain on the sale of its concert operations and an $84 million non-cash
after-tax charge as a result of a cumulative effect of a change in accounting
principles related to start-up activities. Excluding these items, Seagram's net
loss for the first quarter of fiscal 2000 was $95 million or $0.22 per share.
23
<PAGE> 31
SELECTED UNAUDITED CANAL+ INTERIM CONSOLIDATED FINANCIAL DATA
The selected unaudited interim financial statements below have been
prepared in accordance with French GAAP, which differs in certain significant
respects from U.S. GAAP. See "Financial Statements -- CANAL+ Financial
Statements -- Summary of Significant Differences Between Accounting Policies
Generally Accepted in the United States and France" for more information on the
principal differences as they relate to CANAL+. The information below and
CANAL+'s financial statements are reported in euros. For your convenience, we
have also presented U.S. dollar amounts, calculated at the rate of E1.0465
to U.S.$1.00, which is the noon buying rate at June 30, 2000.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
U.S.$ E E
------------- -------------- --------------
(E MILLION, EXCEPT PER SHARE DATA) 2000 2000 1999
---------------------------------- ---- ---- ----
<S> <C> <C> <C>
AMOUNTS IN ACCORDANCE WITH FRENCH GAAP
INCOME STATEMENT DATA:
Subscription revenues............................... 1,387 1,451 1,277
Advertising and sponsoring revenues................. 76 80 55
Other revenues...................................... 312 327 215
Total revenues...................................... 1,775 1,858 1,547
Operating income.................................... 2 2 42
Net interest income (expense)....................... 4 4 (7)
Net income/(loss)................................... 99 104 (36)
Earnings per share E(1)
Basic............................................. 0.79 0.82 (0.29)
</TABLE>
<TABLE>
<CAPTION>
AT THE PERIOD ENDED
-----------------------------------------------
U.S.$ E E
------------- ------------- -------------
JUNE 30, 2000 JUNE 30, 2000 DEC. 31, 1999
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Net cash (net debt).................................. (2,339) (2,448) (2,346)
(Cash less long- and short-term borrowings)
Long-term borrowings................................. 958 1,003 1,101
Shareholders' equity................................. 1,090 1,141 1,127
Total assets......................................... 7,149 7,481 6,568
</TABLE>
---------------
(1) Per share information is calculated by dividing net income by the weighted
average number of shares outstanding in each year. In addition, earnings per
share has been divided by four to account for a four-for-one stock split
that occurred in July 1999.
<TABLE>
<CAPTION>
AT THE PERIOD ENDED
------------------------------------------------
U.S.$ E E
------------- ------------- -------------
JUNE 30, 2000 JUNE 30, 2000 DEC. 31, 1999
------------- ------------- -------------
<S> <C> <C> <C>
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Total revenues...................................... 1,772 1,854 1,544
Net income.......................................... (86) (90) (134)
Basic earnings per share............................ (0.68) (0.71) (1.07)
Diluted earnings per share.......................... (0.68) (0.71) (1.07)
</TABLE>
24
<PAGE> 32
SELECTED HISTORICAL FINANCIAL INFORMATION
SELECTED VIVENDI HISTORICAL FINANCIAL DATA
The selected historical consolidated financial statements below have been
prepared in accordance with French GAAP, which differs in certain significant
respects from U.S. GAAP. Note 25 to Vivendi's consolidated financial statements
as of December 31, 1999 describes the principal differences between French GAAP
and U.S. GAAP as they relate to Vivendi. The information below and Vivendi's
consolidated financial statements are reported in euros. For your convenience,
we have also presented U.S. dollar amounts, calculated at the rate of
E1.0465 to U.S. $1.00, which is the noon buying rate at June 30, 2000.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
U.S.$ E
-------- ----------------------------------------------------
1999 1999 1998 1997 1996 1995
(MILLIONS, EXCEPT PER SHARE DATA) -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Amounts in accordance with French
GAAP
Revenue........................ 39,773.0 41,622.5 31,737.1 25,476.6 25,293.4 24,843.3
Revenue outside France......... 17,037.1 17,829.3 10,313.0 8,204.8 7,793.0 7,212.2
Operating income............... 2,179.2 2,280.5 1,331.4 595.5 546.4 211.8
Exceptional items, net......... (800.6) (837.8) 249.3 878.6 139.8 (208.4)
Goodwill amortization.......... 584.8 612.0 209.5 374.7 146.8 155.6
Minority interest.............. 5.1 5.3 212.2 (115.1) (56.4) (194.0)
Net income (loss).............. 1,367.8 1,431.4 1,120.8 822.0 297.7 (562.0)
Basic earnings (loss) per
share....................... 2.6 2.7 2.5 2.1 0.8
Dividends per share............ 1.0 1.0 0.9 0.8 0.6 0.6
Amounts in accordance with U.S.
GAAP
Shareholders' Equity........... 16,201.1 16,954.5 10,258.4 -- -- --
Net income..................... 235.2 246.1 565.2 -- -- --
Basic earnings per share....... 0.46 0.48 1.29 -- -- --
Diluted earnings per share..... 0.45 0.47 1.25 -- -- --
BALANCE SHEET DATA (AT PERIOD
END):
Amounts in accordance with French
GAAP
Total Shareholders' Equity..... 10,408.2 10,892.2 7,840.2 6,846.7 5,134.7 4,600.2
Minority interest.............. 3,872.3 4,052.4 2,423.0 1,742.3 825.9 921.5
Total assets................... 79,098.9 82,777.0 48,982.4 39,365.2 36,624.9 35,339.5
Total long term assets......... 43,326.2 45,340.9 26,072.6 20,810.4 19,098.4 18,377.9
Net cash provided by operating
activities.................. 1,346.8 1,409.4 2,897.9 1,601.1 2,502.0 3,112.6
Capital expenditure............ 6,489.7 6,791.5 4,478.2 2,713.3 2,134.4 2,843.2
Net financial debt............. 21,818.1 22,832.6 6,502.1 4,177.0 6,874.6 7,875.7
OTHER DATA
Adjusted EBITDA*............... 5,002.4 5,235.0 3,453.0 2,144.2 2,003.8 1,795.1
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this document, may not be strictly comparable
to similarly titled measures widely used in the United States or reported by
other companies.
For periods presented prior to January 1, 1999, Vivendi's consolidated
financial statements have been prepared in French francs and translated into
euros using the official fixed exchange rate E1 = FF6.55957, applicable
since January 1, 1999 (see Note 2 to Vivendi's consolidated financial
statements).
25
<PAGE> 33
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
U.S.$ E
-------- ------------------------------
1999 1999 1998 1997
(MILLIONS) -------- -------- -------- --------
<S> <C> <C> <C> <C>
Reconciliation of Adjusted EBITDA with
Operating Income:
Telecommunications....................................... 1,311 1,372 674 331
Publishing and Multimedia................................ 398 417 355 --
Audiovisual and Pay Television........................... 82 86 13 (7)
Internet................................................. (49) (51) (4) --
Communication.............................................. 1,743 1,824 1,038 324
Water.................................................... 1,261 1,320 830 787
Waste Management......................................... 591 619 495 355
Energy Services.......................................... 371 388 341 265
Transportation........................................... 174 182 144 97
FCC...................................................... 260 272 119 --
Environment................................................ 2,657 2,781 1,929 1,504
Sithe...................................................... 183 192 256 218
Construction and Real Estate............................... 497 520 291 122
Others..................................................... (78) (82) (61) (24)
Adjusted EBITDA*........................................... 5,002 5,235 3,453 2,144
Amortization and depreciation............................ (2,559) (2,678) (1,832) (1,314)
Expenses of replacement and repair of installation....... (264) (276) (290) (235)
Operating Income........................................... 2,180 2,281 1,331 596
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this document, may not be strictly comparable
to similarly titled measures widely used in the United States or reported by
other companies.
26
<PAGE> 34
SELECTED SEAGRAM HISTORICAL CONSOLIDATED FINANCIAL DATA
Seagram's selected historical consolidated financial data presented below
for the fiscal years ended June 30, 2000, 1999 and 1998 were derived from
Seagram's historical consolidated financial statements and the related notes
contained in Seagram's Annual Report on Form 10-K for the fiscal year ended June
30, 2000, as amended, which is incorporated by reference into this document. In
addition, Seagram's selected historical consolidated financial data presented
below 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 Seagram's historical consolidated financial statements and the
related notes for the fiscal years ended June 30, 1999, 1998 and 1997. You
should read them in conjunction with these financial statements and related
notes.
<TABLE>
<CAPTION>
TRANSITION
FISCAL YEARS ENDED JUNE 30, PERIOD ENDED
------------------------------------- JUNE 30, FISCAL YEAR ENDED
(U.S.$ MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 JAN. 31, 1996
--------------------------------------- ------- ------- ------- ------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Revenues............................................... 15,686 12,312 9,474 10,354 4,112 7,787
Operating income (loss)................................ 753 (250) 553 719 93 435
Interest, net and other expense........................ 661 457 228 147 99 195
Gain on sale of businesses............................. 98 -- -- -- -- --
Gain on USA transactions............................... -- 128 360 -- -- --
Gain on sale of Time Warner shares..................... -- -- 926 154 -- --
Income (loss) from continuing operations before
cumulative effect of accounting change............... 124 (383) 880 445 67 144
Income (loss) from discontinued Tropicana operations,
after tax............................................ -- (3) 66 57 18 30
Gain on sale of discontinued Tropicana operations,
after tax............................................ -- 1,072 -- -- -- --
Discontinued DuPont activities, after tax.............. -- -- -- -- -- 3,232
------- ------- ------- ------- ------- -------
Income before cumulative effect of accounting change... 124 686 946 502 85 3,406
Cumulative effect of accounting change, after tax...... (84) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income......................................... 40 686 946 502 85 3,406
======= ======= ======= ======= ======= =======
PER SHARE DATA
EARNINGS (LOSS) PER SHARE -- BASIC
Continuing operations.................................. 0.28 (1.01) 2.51 1.20 0.18 0.38
Discontinued Tropicana operations, after tax........... -- (0.01) 0.19 0.16 0.05 0.08
Gain on sale of discontinued Tropicana operations,
after tax............................................ -- 2.83 -- -- -- --
Discontinued DuPont activities, after tax.............. -- -- -- -- -- 8.67
------- ------- ------- ------- ------- -------
Income before cumulative effect of accounting change... 0.28 1.81 2.70 1.36 0.23 9.13
Cumulative effect of accounting change, after tax...... (0.19) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income......................................... 0.09 1.81 2.70 1.36 0.23 9.13
======= ======= ======= ======= ======= =======
EARNINGS (LOSS) PER SHARE -- DILUTED
Continuing operations.................................. 0.28 (1.01) 2.49 1.20 0.18 0.38
Discontinued Tropicana operations, after tax........... -- (0.01) 0.19 0.15 0.05 0.08
Gain on sale of discontinued Tropicana operations,
after tax............................................ -- 2.83 -- -- -- --
Discontinued DuPont activities, after tax.............. -- -- -- -- -- 8.54
------- ------- ------- ------- ------- -------
Income before cumulative effect of accounting change... 0.28 1.81 2.68 1.35 0.23 9.00
Cumulative effect of accounting change, after tax...... (0.19) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income......................................... 0.09 1.81 2.68 1.35 0.23 9.00
======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE> 35
<TABLE>
<CAPTION>
TRANSITION
FISCAL YEARS ENDED JUNE 30, PERIOD ENDED
------------------------------------- JUNE 30, FISCAL YEAR ENDED
(U.S.$ MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 JAN. 31, 1996
--------------------------------------- ------- ------- ------- ------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Current assets......................................... 7,799 8,881 6,971 6,131 6,307 6,194
Common stock of DuPont................................. 719 1,123 1,228 1,034 651 631
Common stock of USAi................................... 529 501 306 -- -- --
Common stock of Time Warner............................ -- -- -- 1,291 2,228 2,356
Other noncurrent assets................................ 23,761 24,506 11,940 10,257 10,328 10,230
Net assets of discontinued Tropicana operations........ -- -- 1,734 1,734 1,693 1,549
------- ------- ------- ------- ------- -------
Total assets....................................... 32,808 35,011 22,179 20,447 21,207 20,960
======= ======= ======= ======= ======= =======
Current liabilities.................................... 6,722 8,146 4,709 3,087 4,383 3,557
Long-term debt......................................... 7,378 7,468 2,225 2,478 2,562 2,889
Total liabilities before minority interest............. 18,697 20,245 10,948 9,174 10,163 9,788
Minority interest...................................... 1,882 1,878 1,915 1,851 1,839 1,844
Shareholders' equity................................... 12,229 12,888 9,316 9,422 9,205 9,328
------- ------- ------- ------- ------- -------
Total liabilities and shareholders' equity......... 32,808 35,011 22,179 20,447 21,207 20,960
======= ======= ======= ======= ======= =======
CASH FLOW DATA
Cash flow provided by (used for) operating
activities........................................... 798 935 (241) 664 315 222
Capital expenditures................................... (607) (531) (410) (393) (245) (349)
Other investing activities, net........................ 327 (5,605) 1,109 2,101 (346) 2,260
Dividends paid......................................... (287) (247) (231) (239) (112) (224)
OTHER DATA
Dividends paid per share............................... 0.66 0.66 0.66 0.645 0.30 0.60
Shareholders' equity per share......................... 27.97 29.80 26.84 25.79 24.67 24.91
End of year share price
NYSE (U.S.$)......................................... 58.00 50.38 40.94 40.25 33.63 36.38
Toronto Stock Exchange (Cdn.$)....................... 87.00 73.35 59.95 55.50 45.75 49.75
Average shares outstanding (thousands)................. 434,544 378,193 349,874 369,682 373,858 373,117
Shares outstanding at year end (thousands)............. 437,227 432,555 347,132 365,281 373,059 374,462
</TABLE>
28
<PAGE> 36
SELECTED CANAL+ HISTORICAL FINANCIAL DATA
The selected historical financial statements below have been prepared in
accordance with French GAAP, which differs in certain significant respects from
U.S. GAAP. See "Financial Statements -- CANAL+ Financial Statements -- Summary
of Significant Differences Between Accounting Policies Generally Accepted in the
United States and France" for more information on the principal differences as
they relate to CANAL+. The information below and CANAL+'s financial statements
are reported in euros. For your convenience, we have also presented U.S. dollar
amounts, calculated at the rate of E1.0465 to U.S.$1.00, which is the noon
buying rate at June 30, 2000.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
U.S.$ E
------ ----------------------------------------------------------------
(E MILLIONS, EXCEPT PER SHARE DATA) 1999 1999 1998(1) 1998 1997 1996 1995
----------------------------------- ------ ------ ---------- ------------ ------ ----- -----
(RESTATED) (HISTORICAL)
---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Subscription revenues......... 2,497 2,613 2,253 1,921 1,561 1,358 1,247
Advertising and sponsoring
revenues.................... 102 107 94 82 74 67 69
Other revenues................ 547 572 491 472 437 347 232
Total revenues................ 3,145 3,291 2,838 2,475 2,072 1,773 1,548
Operating income.............. (22) (23) (96) 51 22 226 224
Net interest income (expense)... (38) (40) (38) (3) 9 21 17
Net income/(loss)............. (321) (336) (28) (28) 233 113 102
Earnings per share E(2)
Basic....................... (2.55) (2.67) (0.22) (0.22) 1.98 1.24 1.17
Diluted..................... (2.55) (2.66) (0.22) (0.22) 1.95 1.22 1.15
BALANCE SHEET DATA:
Net cash (net debt)........... (2,242) (2,346) (1,665) (1,206) (1,225) 61 326
(Cash less long- and short-term
borrowings)
Long-term borrowings.......... 1,052 1,101 826 504 432 105 97.9
Shareholders' equity.......... 1,077 1,127 1,545 1,545 1,659 1,443 1,168
Total assets.................. 6,276 6,568 5,527 5,249 5,416 3,299 2,470
Capital expenditures
Decoders.................... 133 139 211 139 174 139 73
Other....................... 926 969 540 663 2,039 809 306
</TABLE>
---------------
(1) Restated to give effect to the full consolidation of the results of
operations of Telepiu, an Italian affiliate that became a consolidated
subsidiary for the first time in 1999. See "The Vivendi Parties and
CANAL+ -- CANAL+ Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Results of Operations -- Year Ended
December 31, 1999 Compared With Year Ended December 31, 1998 -- Significant
One-Time Events -- Consolidation of Telepiu."
(2) Per share information is calculated by dividing net income by the weighted
average number of shares outstanding in each year. In addition, earnings per
share has been divided by four to account for a four-for-one stock split
that occurred in July 1999.
29
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED SELECTED FINANCIAL DATA
The selected June 30, 2000 six-month historical financial data of Vivendi,
CANAL+ and Seagram have been derived from the historical unaudited consolidated
financial statements of Vivendi and CANAL+ as they appear elsewhere in this
document, the audited historical balance sheet of Seagram as of June 30, 2000 as
incorporated by reference into this document and the unaudited historical
statement of income and cash flow of Seagram for the six months ended June 30,
2000. The selected unaudited pro forma consolidated financial data have been
derived from the unaudited pro forma condensed consolidated financial statements
included elsewhere in this document. All selected financial data have been
prepared in accordance with U.S. GAAP with the exception of those items
indicated by a (1) below.
<TABLE>
<CAPTION>
UNAUDITED PRO
FORMA
VIVENDI CANAL+ CONSOLIDATED
----------------- ----------------- -----------------
AS OF AND FOR THE SEAGRAM AS OF AND FOR THE AS OF AND FOR THE
SIX MONTHS --------------------------------------------- SIX MONTHS SIX MONTHS
ENDED AS OF AND FOR THE SIX MONTHS ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 2000 JUNE 30, 2000 JUNE 30, 2000
----------------- --------------------------------------------- ----------------- -----------------
(MILLIONS OF E) (MILLIONS OF U.S.$) (MILLIONS OF E)(2) (MILLIONS OF E) (MILLIONS OF E)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue................. 15,715 7,073 7,402 1,854 22,649
Operating income
(loss)................ 608 115 120 (124) (16)
Exceptional items,
net................... 0 0 0 0 N/A
Goodwill amortization... (263) 175 183 (42) (748)
Minority interest....... (167) (3) (3) 0 (164)
Income (loss) from
continuing
operations............ 533 (393) (411) (90) (471)
Net income (loss)....... 533 (393) (411) (90) N/A
Income (loss) from
continuing operations
per share
Basic................. 0.94 (0.90) (0.94) (0.71) (0.45)
Diluted............... 0.91 (0.90) (0.94) (0.71) (0.45)
Net income (loss) per
share
Basic................. 0.94 (0.90) (0.94) (0.71) N/A
Diluted............... 0.91 (0.90) (0.94) (0.71) N/A
BALANCE SHEET DATA
Total shareholder's
equity................ 16,773 12,229 12,798 2,286 59,039
Minority interest....... 2,183 1,882 1,970 214 4,366
Total assets............ 70,793 32,808 34,334 8,305 139,046
Total long-term
assets................ 44,858 25,009 26,172 5,514 105,506
Net cash provided by
operating
activities............ 337(1) 672 703 (176)(1) N/A
Capital expenditure..... 2,602(1) (409) (428) (298)(1) N/A
Net financial debt...... 21,654(1) N/A N/A N/A N/A
</TABLE>
---------------
(1)Amounts provided for Vivendi and CANAL+ have been determined in accordance
with French GAAP.
(2)For convenience purposes, we have also presented Seagram data in euros,
calculated at the exchange rate of U.S.$1 = E1.0465, which was the noon
buying rate at June 30, 2000.
30
<PAGE> 38
The selected historical financial data of Vivendi, CANAL+ and Seagram as of
and for the year ended December 31, 1999 have been derived from the historical
consolidated financial statements of Vivendi and CANAL+ as they appear elsewhere
in this document and those of Seagram as incorporated by reference into this
document. The selected unaudited pro forma consolidated financial data have been
derived from the unaudited pro forma condensed consolidated financial statements
included elsewhere in this document.
<TABLE>
<CAPTION>
UNAUDITED PRO
FORMA
VIVENDI CANAL+ CONSOLIDATED
----------------- SEAGRAM ----------------- -----------------
AS OF AND FOR THE ---------------------------------------- AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED AS OF AND FOR THE YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
----------------- ---------------------------------------- ----------------- -----------------
(MILLIONS OF E) (MILLIONS OF U.S.$) (MILLIONS OF E)(1) (MILLIONS OF E) (MILLIONS OF E)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue............... 36,543 15,351 16,065 3,282 40,581
Operating income...... (679) 428 448 (179) (1,617)
Exceptional items,
net................. 0 (84) (88) 0 N/A
Goodwill
amortization........ 766 350 366 (69) (1,674)
Minority interest..... 24 11 12 19 101
Income from continuing
operations.......... 246 265 277 (252) (766)
Net income............ 246 181 189 (252) N/A
Income from continuing
operations per
share...............
Basic............... 0.48 0.63 0.66 (2.01) (0.77)
Diluted............. 0.47 0.62 0.65 (2.01) (0.77)
Net income per
share...............
Basic............... 0.48 0.43 0.45 (2.01) N/A
Diluted............. 0.47 0.42 0.44 (2.01) N/A
</TABLE>
---------------
(1)For convenience purposes, we have also presented Seagram data in euros,
calculated at the exchange rate of U.S.$1 = E1.0465, which was the
noon buying rate on June 30, 2000.
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<PAGE> 39
COMPARATIVE PER SHARE DATA AS OF DECEMBER 31, 1999 AND AS OF JUNE 30, 2000
The following table presents historical per share data for Vivendi, CANAL+
and Seagram and unaudited pro forma consolidated per share data and equivalent
pro forma per share data of Seagram and CANAL+ to reflect the consummation of
the merger transactions based upon the historical financial results of Vivendi
and Seagram presented in accordance with U.S. GAAP. The pro forma data are not
necessarily indicative of actual or future operating results or of the financial
position that would have occurred or will occur upon consummation of the merger
transactions. You should read the data presented below in conjunction with the
separate historical consolidated financial statements of Vivendi and CANAL+,
which appear elsewhere in this document, and of Seagram, which are incorporated
in this document by reference.
<TABLE>
<CAPTION>
SEAGRAM
-------------
VIVENDI AS OF AND SEAGRAM
----------------------- FOR THE -------------------------
AS OF AND FOR THE YEAR ENDED AS OF AND FOR THE
YEAR ENDED JUNE 30, YEAR ENDED
DECEMBER 31, 1999 2000 DECEMBER 31, 1999
HISTORICAL PRO FORMA HISTORICAL HISTORICAL PRO FORMA
----------- --------- ------------- ------------- ---------
E E(1) U.S.$ E(2) U.S.$ E(3) E(4)
<S> <C> <C> <C> <C> <C> <C> <C>
Book value per common share............ 28.46 54.91 27.97 29.27 30.62 30.47 43.93
Cash dividends declared per share...... 1.00 1.00 0.66 0.66 0.66 0.62 0.80
Income (loss) per common share from
continuing operations:
Basic................................ 0.48 0.77 0.28 0.28 0.63 0.59 (0.62)
Diluted.............................. 0.47 0.77 0.28 0.28 0.62 0.58 (0.62)
<CAPTION>
UNAUDITED
PRO FORMA
CONSOLIDATED
------------
CANAL+ AS OF AND
---------------------- FOR THE
AS OF AND FOR THE YEAR ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1999 1999
HISTORICAL PRO FORMA HISTORICAL
---------- --------- ------------
E E(5) E(6)
<S> <C> <C> <C>
Book value per common share............ 19.71 109.82 54.91
Cash dividends declared per share...... 0.80 2.00 1.00
Income (loss) per common share from
continuing operations:
Basic................................ (2.01) (1.54) (0.77)
Diluted.............................. (2.01) (1.54) (0.77)
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
VIVENDI SEAGRAM CANAL+ CONSOLIDATED
----------------------- ------------------------- ---------------------- -----------------
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE
SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000 JUNE 30, 2000 JUNE 30, 2000
HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL
----------- --------- ------------- --------- ---------- --------- -----------------
E E(1) U.S.$ E(2) E(4) E E(5) E(8)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Book value per common share.... 27.70 54.11 27.97 29.27 43.29 18.05 108.22 54.11
Cash dividends declared per
share(7)..................... N/A N/A 0.33 0.34 N/A N/A N/A N/A
Income (loss) per common share
from continuing operations:
Basic........................ 0.94 (0.45) (0.90) (0.94) (0.36) (0.71) (0.90) (0.45)
Diluted...................... 0.91 (0.45) (0.90) (0.94) (0.36) (0.71) (0.90) (0.45)
</TABLE>
---------------
(1) The Vivendi exchange ratio to Vivendi Universal is one to one.
(2) Book value per common share for Seagram was translated at the exchange rate
at June 30, 2000 of U.S.$1 = E1.0465.
Cash dividends per share and income (loss) per common share from continuing
operations were translated for the purpose of the Comparative Per Share Data
as of December 31, 1999 at the average exchange rate for the 12 month period
ending June 30, 2000 of U.S.$1 = E0.998, whereas they were translated
at the average exchange rate for the 6 month period ending June 30, 2000 of
U.S.$1 = E1.041 for the purpose of the Comparative Per Share Data as of
June 30, 2000.
(3) Book value per common share for Seagram was translated at the exchange rate
at December 31, 1999 of U.S.$1 = E0.995. Cash dividends per share and
income (loss) per common share from continuing operations were translated at
the average exchange rate for the 12 month period ending December 31, 1999
of U.S.$1 = E0.938.
(4) The Seagram equivalent pro forma per share data are calculated by
multiplying the unaudited pro forma consolidated amounts by 0.8, the
exchange ratio to Vivendi Universal common stock using the July 4, 2000
measurement date described in Note 3 to the pro forma consolidated condensed
statement.
(5) The CANAL+ equivalent pro forma per share data are calculated by multiplying
the unaudited pro forma consolidated amounts by 2, the exchange ratio to
Vivendi Universal common stock using the July 4, 2000 measurement date
described in Note 3 to the pro forma consolidated condensed statement.
(6) Historically, Vivendi's fiscal year-end has been December 31, whereas
Seagram's fiscal year-end has been June 30. Consequently, the unaudited pro
forma consolidated balance sheet and information derived therein is based on
the historical audited consolidated balance sheet of Vivendi and the
historical unaudited consolidated balance sheet of Seagram at December 31,
1999. The unaudited pro forma consolidated statement of income is based on
the historical audited operating results of Vivendi for the year ended
December 31, 1999, and the unaudited historical operating results of Seagram
for the six months ended June 30, 1999 and the six months ended December 31,
1999.
(7) Vivendi and CANAL+ declare dividends on an annual basis.
(8) Historically Vivendi's fiscal year-end has been December 31, whereas
Seagram's fiscal year-end has been June 30. Consequently, the unaudited pro
forma consolidated balance sheet and information derived therein is based on
the historical unaudited balance sheet of Vivendi and the historical audited
consolidated balance sheet of Seagram at June 30, 2000. The unaudited pro
forma consolidated statement of income is based on the historical unaudited
operating results of Vivendi for the six months ended June 30, 2000 and the
unaudited historical operating results of Seagram for the six months ended
June 30, 2000.
32
<PAGE> 40
RISK FACTORS
By voting in favor of the matters presented relating to the merger
transactions, you will be choosing to invest in Vivendi Universal and/or Vivendi
Universal Exchangeco shares. An investment in these shares involves a high
degree of risk. In addition to the other information contained in or
incorporated by reference into this document, you should carefully consider the
following risk factors in deciding whether to vote for the matters presented in
connection with the merger transactions.
RISKS RELATED TO THE MERGER TRANSACTIONS
SEAGRAM SHAREHOLDERS MAY RECEIVE VIVENDI UNIVERSAL ADSS OR EXCHANGEABLE
SHARES HAVING A TRADING PRICE OF LESS THAN U.S.$77.35 PER SEAGRAM COMMON
SHARE
Seagram shareholders will receive Vivendi Universal ADSs or exchangeable
shares valued under the plan of arrangement at U.S.$77.35 for each Seagram
common share they own so long as the U.S. dollar equivalent of the average
closing price of Vivendi ordinary shares on the Paris Bourse over the 20
consecutive trading days ending on the third complete trading day prior to the
completion of the arrangement is greater than U.S.$96.6875 per share and less
than U.S.$124.3369 per share. If the average closing price of Vivendi ordinary
shares is less than U.S.$96.6875 per share, however, Seagram shareholders will
receive Vivendi Universal ADSs or exchangeable shares valued under the plan of
arrangement at less than U.S.$77.35 per share for each Seagram common share they
own.
As noted, the formula is calculated with reference to the average closing
price of Vivendi ordinary shares during a 20 consecutive trading day period
ending on the third complete trading day prior to the completion of the
arrangement. The market price of the Vivendi Universal ADSs or exchangeable
shares received by Seagram shareholders in the arrangement on the date they are
received may be higher or lower than the average price used in the formula. The
parties to the merger agreement are not permitted to "walk away" from the merger
transactions or resolicit the vote of their shareholders solely because of
changes in the market prices of their shares.
Because the Seagram meeting may occur on or before the date as of which the
average closing price of Vivendi ordinary shares is determined, Seagram
shareholders may not know at the time they vote how many Vivendi Universal ADSs
or exchangeable shares they will receive upon completion of the arrangement. If
the 20 consecutive day measuring period had ended on October 31, 2000, the
Vivendi U.S. dollar equivalent average closing price would have been U.S.$71.27,
the exchange ratio would have been 0.8000 and the implied market value paid per
Seagram common share (assuming the actual trading value of Vivendi shares at
that time was equal to the Vivendi U.S. dollar equivalent average closing price
for the measuring period ending on that date) would have been U.S.$57.02. The
U.S. dollar equivalent market value of Vivendi Universal ADSs or exchangeable
shares Seagram shareholders receive may be higher or lower than U.S.$57.02 per
Seagram common share. The tables included in "Summary of Financial
Data -- Comparative Market Price, Trading Volume, Dividend Data and Exchange
Rates" show recent market prices in euros for the Vivendi ordinary shares and in
U.S. dollars for the Vivendi ADSs, recent market prices for the Seagram common
shares in U.S. dollars and Canadian dollars and recent exchange rates. We urge
you to obtain current market quotations and to call 1-800-223-2064 at any time
to obtain updated information concerning the exchange ratio and the implied
market value to be paid per Seagram common share in the arrangement.
VIVENDI AND CANAL+ SHAREHOLDERS WILL RECEIVE A NUMBER OF VIVENDI UNIVERSAL
SHARES THAT WILL NOT VARY WITH CHANGES IN MARKET PRICES
As part of the merger transactions, Vivendi shareholders and CANAL+
shareholders will receive for each Vivendi share or CANAL+ share they own a
fixed number of Vivendi Universal shares rather than a number of Vivendi
Universal shares determined with reference to the market value of Vivendi
shares. This exchange ratio will not change even if the expected market value of
Vivendi Universal shares declines before the merger transactions are completed.
The market value of Vivendi Universal shares Vivendi shareholders and CANAL+
shareholders receive may be greater or less than the current expected market
33
<PAGE> 41
value of those shares. The tables included in "Summary of Financial
Data -- Comparative Market Price, Trading Volume, Dividend Data and Exchange
Rates" show recent market prices in euros for the Vivendi ordinary shares and
CANAL+ ordinary shares and in U.S. dollars for the Vivendi ADSs and CANAL+ ADSs
and recent exchange rates. We urge you to obtain current market quotations.
THE INTEGRATION OF SEAGRAM AND CANAL+'S TRANSFERRED BUSINESSES INTO VIVENDI
UNIVERSAL MAY BE DIFFICULT AND EXPENSIVE TO ACHIEVE AND MAY NOT RESULT IN
THE BENEFITS THAT WE CURRENTLY ANTICIPATE
The merger transactions will present challenges to Vivendi Universal's
management, including the integration of Seagram's and CANAL+'s operations and
personnel, and special risks, including possible unanticipated liabilities,
unanticipated costs, diversion of management attention and loss of personnel.
The merger transactions, while expected to be accretive to earnings in future
periods, may fail to be accretive or may become accretive later than expected.
Vivendi Universal may not be able to integrate successfully or manage
profitably the operations it will acquire in the merger transactions. Following
the merger transactions, Vivendi Universal may not achieve the revenue or
profitability increases or cost savings currently anticipated to arise from the
merger transactions. To realize the anticipated benefits of the merger
transactions, Vivendi Universal's management must implement a business plan that
will effectively combine operations that are diverse geographically and in terms
of the products and services they offer, as well as in management, compensation
and business culture. If Vivendi Universal's management is not able to implement
a business plan that effectively integrates its operations, the anticipated
benefits of the merger transactions may not be realized.
THE PRICES OF VIVENDI UNIVERSAL SHARES AND EXCHANGEABLE SHARES MAY BE
ADVERSELY AFFECTED BY FACTORS DIFFERENT FROM THOSE AFFECTING THE PRICES OF
VIVENDI, SEAGRAM OR CANAL+ SHARES
Upon completion of the merger transactions, Vivendi shareholders, Seagram
shareholders and CANAL+ shareholders will become holders of Vivendi Universal
shares or exchangeable shares. Vivendi Universal will operate in numerous
markets and industries that differ from the markets and industries in which
Vivendi, Seagram and CANAL+ have historically operated. In addition, Vivendi
Universal will use functional currencies in its conduct of business that differ
from those used by Seagram and CANAL+ and will therefore face foreign currency
risks that are different from those faced by Seagram and CANAL+. Vivendi
Universal's results of operations and the market prices of its shares and the
exchangeable shares may be adversely affected by factors different from those
that affect the results of operations of Vivendi, Seagram and CANAL+ and the
prices of their shares prior to the merger transactions.
DIRECTORS OF VIVENDI, SEAGRAM AND CANAL+ MAY HAVE INTERESTS IN THE MERGER
TRANSACTIONS THAT ARE DIFFERENT FROM THOSE OF THE COMPANIES' SHAREHOLDERS
A number of directors of Vivendi, Seagram and CANAL+ who recommend that you
vote in favor of the applicable merger transactions have employment or severance
agreements or benefit arrangements that provide them with interests in the
merger transactions that may be different than yours. The receipt of
compensation or other benefits in connection with the merger transactions
(including the vesting of stock options and stock appreciation rights), or the
continuation of indemnification arrangements for current directors of Vivendi,
Seagram and CANAL+ following completion of the merger transactions, may
influence these directors in making their recommendation that you vote in favor
of the merger transactions.
THE CANADIAN TAX BENEFITS OF ELECTING TO RECEIVE EXCHANGEABLE SHARES MAY BE
OF LIMITED DURATION
We have structured the arrangement to allow Canadian residents that elect
to receive exchangeable shares in return for their Seagram common shares
generally to do so on a tax-deferred basis, provided they file appropriate tax
elections. Under current law, holders of exchangeable shares will generally
recognize a taxable dividend and/or a capital gain or loss when those shares are
exchanged for Vivendi Universal ADSs. The exchangeable shares are scheduled to
be exchanged 14 days prior to the 30th anniversary of
34
<PAGE> 42
the effective date of the arrangement, but may be exchanged earlier without the
consent of holders of exchangeable shares in some circumstances. Consequently,
holders of exchangeable shares may have limited control over the length of the
period of tax deferral. See "Tax Considerations for Seagram
Shareholders -- Canadian Federal Income Tax Considerations."
CANAL+ WILL OPERATE ONLY CANAL+'S FRENCH PREMIUM PAY TELEVISION CHANNEL,
WHICH IS A BUSINESS THAT HAS NEVER TRADED SEPARATELY FROM THE TRANSFERRED
BUSINESSES, AND WILL EARN ONLY LIMITED INCOME
Following the merger transactions, CANAL+ shareholders will continue to
hold their CANAL+ shares. The only business of CANAL+ after the merger
transactions will be the operation of the French premium pay television channel.
The French premium channel has never been separated from CANAL+'s other
businesses. In addition, CANAL+'s income will be limited by an agreement with
CANAL+'s affiliate CANAL+ Distribution under which it will pay to CANAL+
Distribution a fee equal to its aggregate operating and extraordinary revenue,
net of its costs (including operating and extraordinary costs but excluding
financial and interest costs and income taxes) and a guaranteed margin of
approximately E50 million per year. For a description of this fee arrangement,
see "The Merger Transactions -- The Contribution Agreements -- Operating
Agreements." The merger transactions are expected to affect the trading market
for CANAL+ shares. While CANAL+ shares will continue to be listed on the Paris
Bourse, CANAL+ will no longer be included in the CAC 40 or EuroStoxx 50 index.
RISKS RELATED TO THE OPERATIONS OF VIVENDI UNIVERSAL
VIVENDI UNIVERSAL MAY SUFFER REDUCED PROFITS OR LOSSES AS A RESULT OF
INTENSE COMPETITION
Most of the industries in which Vivendi Universal will operate are highly
competitive and require substantial human and capital resources. Many other
companies serve each of the markets in which Vivendi Universal will compete.
From time to time, its competitors may reduce their prices in an effort to
expand market share. Competitors also may introduce new technology or services
or improve the quality of their service. Vivendi Universal may lose business if
it is unable to match the prices, technologies or service quality offered by its
competitors.
In addition, content and integration of content with communications access
are increasingly important parts of the communications business and are key
elements of Vivendi Universal's strategy. In accordance with that strategy, its
communications business relies on some important third-party content. For
example, CANAL+ acquires rights to show feature films and sports events as
elements of its programming. As the communications business becomes more
competitive, the cost of obtaining this third-party content could increase. Any
of these competitive effects could have an adverse effect on Vivendi Universal's
business and financial performance.
VIVENDI UNIVERSAL MAY NOT BE ABLE TO RETAIN OR OBTAIN REQUIRED LICENSES,
PERMITS AND APPROVALS
Vivendi Universal will need to obtain a variety of permits and approvals
from regulatory authorities to conduct and expand its businesses. The process
for obtaining these permits and approvals is often lengthy, complex and
unpredictable. Moreover, the cost of obtaining permits and approvals may be
prohibitive. If Vivendi Universal is unable to obtain the permits and approvals
it needs to conduct and expand its businesses at a reasonable cost and in a
timely manner, in particular, licenses to provide telecommunications services,
its ability to achieve its strategic objectives could be impaired. In addition,
the regulatory environment in which Vivendi Universal's businesses will operate
is complex and subject to change, and adverse changes in that environment could
also impose costs on, or limit the revenue of, Vivendi Universal.
DEMAND FOR VIVENDI UNIVERSAL'S INTEGRATED COMMUNICATIONS AND ENVIRONMENTAL
MANAGEMENT SERVICES MAY BE LESS THAN VIVENDI UNIVERSAL EXPECTS
Vivendi Universal believes that important factors driving its growth in the
next several years will be increased demand for (1) integrated communications
and content services that are accessible through a
35
<PAGE> 43
variety of communications devices and (2) large-scale, integrated environmental
management services. Although Vivendi Universal expects markets for both types
of services to develop rapidly, its expectations may not be realized. If either
market does not grow as quickly as it expects, or at all, Vivendi Universal's
profitability and the return it earns on many of its investments may suffer.
VIVENDI UNIVERSAL MAY HAVE DIFFICULTY ENFORCING ITS INTELLECTUAL PROPERTY
RIGHTS
The decreasing cost of electronic equipment and related technology has made
it easier to create counterfeit versions of audio and audiovisual products such
as compact discs and videotapes. A substantial portion of Vivendi Universal's
revenue will come from the sale of audio and audiovisual products potentially
subject to counterfeiting. Similarly, advances in Internet technology have
increasingly made it possible for computer users to share audio and audiovisual
information without the permission of the copyright owners and without paying
royalties to holders of applicable intellectual property rights or other rights.
Intellectual property rights to information that is potentially subject to
widespread, uncompensated dissemination on the Internet will represent a
substantial portion of the market value of Vivendi Universal. If Vivendi
Universal fails to obtain appropriate relief through the judicial process, or if
it fails to develop effective means of protecting its intellectual property or
entertainment-related products and services that will generate profits
notwithstanding potentially widespread infringements of its intellectual
property rights, its results of operations and financial position may suffer.
Seagram is currently participating in a lawsuit filed by the Record
Industry Association of America against Napster, Inc. that seeks to enjoin
Napster from providing Internet services that promote infringement of music
copyrights. The court has issued a temporary injunction against Napster, which
has been stayed by an appeals court, and the lawsuit is ongoing. If this lawsuit
is unsuccessful, or if practices similar to those employed or encouraged by
Napster become prevalent, it will become more difficult for Seagram, and, once
the merger transactions are completed, Vivendi Universal, to enforce its
intellectual property rights.
VIVENDI UNIVERSAL MAY NOT BE ABLE TO MEET ANTICIPATED CAPITAL REQUIREMENTS
FOR CERTAIN TRANSACTIONS
Vivendi Universal routinely engages in projects that may require it to seek
substantial amounts of funds through various forms of financing. Its ability to
arrange financing for projects and the cost of capital depends on numerous
factors, including general economic and capital market conditions, availability
of credit from banks and other financial institutions, investor confidence in
Vivendi Universal's businesses, success of current projects, perceived quality
of new projects and tax and securities laws that are conducive to raising
capital. In addition, Vivendi Universal's plans for financing its future
operations and expansion depend in part on the proceeds it will receive from its
expected sale of Seagram's Spirits and Wine business. Vivendi Universal may not
be able to sell that business on acceptable terms and may have to seek
alternative forms of financing as a result. Vivendi Universal may forego
attractive business opportunities and lose market share if it cannot secure
financing on satisfactory terms.
VIVENDI UNIVERSAL'S CONTENT ASSETS MAY NOT BE COMMERCIALLY SUCCESSFUL
A significant amount of Seagram's revenue comes from the production and
distribution of content offerings such as feature films, television series and
records. We expect a significant amount of Vivendi Universal's revenue to come
from the same activities. The success of content offerings depends primarily
upon their acceptance by the public, which is difficult to predict. The
commercial success of a film, series or record depends on the quality and
acceptance of competing offerings released into the marketplace at or near the
same time, the availability of alternative forms of entertainment and leisure
time activities, general economic conditions and other tangible and intangible
factors, all of which can change quickly. Particularly because we expect the
popularity of Vivendi Universal's content offerings to be a significant factor
driving the growth of its communications services, its failure to produce films,
series and records with broad consumer appeal could materially harm its business
and prospects for growth.
36
<PAGE> 44
CURRENCY EXCHANGE RATE FLUCTUATIONS MAY NEGATIVELY AFFECT VIVENDI
UNIVERSAL'S FINANCIAL RESULTS, THE MARKET VALUE OF THE VIVENDI UNIVERSAL
ADSS AND THE EXCHANGEABLE SHARES AND THE VALUE OF DIVIDENDS RECEIVED BY
HOLDERS OF VIVENDI UNIVERSAL ADSS AND EXCHANGEABLE SHARES
Vivendi Universal will hold assets and liabilities, earn income and pay
expenses of its subsidiaries in a variety of currencies. Because its financial
statements will be presented in euros, it must translate its assets,
liabilities, income and expenses in currencies other than the euro into euros at
then-applicable exchange rates when it prepares its financial statements.
Consequently, increases and decreases in the value of the euro will affect the
value of these items in its financial statements, even if their value has not
changed in their original currency. In this regard, an increase in the value of
the euro may result in a decline in the reported value, in euros, of Vivendi
Universal's interests held in other currencies. Fluctuations in the value of the
euro may also affect the market value of the Vivendi Universal ADSs and the
exchangeable shares. In addition, when Vivendi Universal pays dividends to
holders of Vivendi Universal ADSs or exchangeable shares, those dividends will
be converted from euros to U.S. dollars and may be converted from euros to
Canadian dollars. As a result, changes in currency exchange rates could affect
the value of dividends holders of Vivendi Universal ADSs or exchangeable shares
receive.
VIVENDI UNIVERSAL MAY NOT BE SUCCESSFUL IN DEVELOPING NEW TECHNOLOGIES OR
INTRODUCING NEW PRODUCTS AND SERVICES
Many of the industries in which Vivendi Universal will operate are subject
to rapid and significant changes in technology and are characterized by the
frequent introduction of new products and services. Pursuit of necessary
technological advances may require substantial investments of time and resources
and may not succeed in developing marketable technologies. Furthermore, Vivendi
Universal may not be able to identify and develop new product and service
opportunities in a timely manner. Finally, technological advances may render
Vivendi Universal's existing products obsolete, forcing it to write off
investments made in those products and services and to make substantial new
investments.
THE MARKET PRICE OF VIVENDI UNIVERSAL SHARES OR EXCHANGEABLE SHARES MAY BE
SUBJECT TO THE VOLATILITY GENERALLY ASSOCIATED WITH INTERNET AND TECHNOLOGY
COMPANY SHARES
The market for shares of Internet and technology companies has recently
experienced extreme price and volume volatility that has often been unrelated or
disproportionate to the operating performance of those companies. Because the
value of Vivendi Universal will be based in part on its Internet and other
high-technology operations, the price of its shares or the exchangeable shares
may be subject to similar volatility.
PROVISIONS IN MANY OF VIVENDI UNIVERSAL'S ENVIRONMENTAL CONTRACTS MAY
CREATE SIGNIFICANT RESTRICTIONS OR OBLIGATIONS ON VIVENDI UNIVERSAL'S
BUSINESS OR ALLOW VIVENDI UNIVERSAL'S CUSTOMERS TO MODIFY OR TERMINATE
THOSE CONTRACTS
Contracts with governmental authorities make up a significant percentage of
Vivendi Environnement's revenue. For a description of Vivendi Environnement, see
"The Vivendi Parties and CANAL+ -- Vivendi." Vivendi Environnement is subject to
various statutes and regulations that apply to companies contracting with the
government that differ from laws governing private contracts. In civil law
countries such as France, for instance, government contracts often allow the
applicable governmental authority to modify or terminate the contract
unilaterally in certain circumstances. Modifications or terminations of Vivendi
Environnement's government contracts could, to the extent it is not entitled to
compensation in those instances, reduce its revenue and profits.
Some of Vivendi Environnement's contracts allow its customers to assess a
penalty, or to terminate the contract, if Vivendi Environnement fails to meet
specified operating standards. Vivendi Environnement's inability to meet
specified operating standards could hurt its business if customers were to
terminate or reduce their payments under a number of these contracts.
37
<PAGE> 45
VIVENDI UNIVERSAL MAY INCUR ENVIRONMENTAL LIABILITY IN CONNECTION WITH
PAST, PRESENT AND FUTURE OPERATIONS
Vivendi Universal, primarily through its subsidiary Vivendi Environnement,
is subject to extensive and increasingly stringent environmental laws and
regulations. These laws and regulations govern, among other things, the quality
of water intended for human consumption, the collection, treatment and discharge
of waste water, the operation of landfills, the collection and disposal of
hazardous waste and the operation of municipal waste incineration plants. In
some circumstances, Vivendi Universal or Vivendi Environnement could be required
to pay fines or damages under these environmental laws and regulations even if:
- it exercises due care in conducting its operations;
- it complies with all applicable laws and regulations; and
- the quantity of pollutant at issue is very small.
In addition, courts or regulatory authorities may require Vivendi Universal
or Vivendi Environnement to undertake investigatory and/or remedial activities,
curtail operations or close facilities temporarily or permanently in connection
with applicable environmental laws and regulations. Vivendi Universal or Vivendi
Environnement could also become subject to claims for personal injury or
property damage. Being required to take these actions, or to pay environmental
damages, could substantially impair Vivendi Universal's or Vivendi
Environnement's business or affect their ability to obtain new business.
SOME PROVISIONS OF VIVENDI UNIVERSAL'S STATUTS COULD HAVE ANTI-TAKEOVER
EFFECTS
Vivendi Universal's statuts will contain provisions that are intended to
impede the accumulation of Vivendi Universal shares by third parties seeking to
gain a measure of control of Vivendi Universal, or so-called "creeping
takeovers." For example, Vivendi Universal's statuts adjust the rights of
shareholders that own in excess of 2% of its total voting power through the
application of a formula pursuant to which the voting power of those
shareholders will be equal to that which they would possess if 100% of Vivendi
Universal's shareholders were present or represented at the meeting at which the
vote in question takes place. See "The Vivendi Parties and
CANAL+ -- Vivendi -- Description of Business -- Business as a Whole -- Legal
Proceedings" and "Securities -- Description of Vivendi Universal ADSs -- Voting
Rights." In addition, Vivendi Universal's statuts will provide that any person
or group that fails to notify the company within 15 days of acquiring or
disposing of 0.5% or any multiple of 0.5% of the company's shares may be
deprived of voting rights for those shares in excess of the unreported fraction.
For descriptions of other provisions of French law and Vivendi Universal's
statuts that may have anti-takeover effects, see "Securities -- Description of
Vivendi Universal Ordinary Shares -- Anti-Takeover Effects" and "Comparison of
Shareholders' Rights -- Take-Over Bids and Compulsory Acquisition of Shares;
Anti-Takeover Provisions."
AS A "FOREIGN PRIVATE ISSUER," VIVENDI UNIVERSAL WILL BE EXEMPT FROM A
NUMBER OF RULES UNDER THE EXCHANGE ACT AND, ACCORDINGLY, IS PERMITTED TO
FILE LESS INFORMATION WITH THE SEC THAN A COMPANY INCORPORATED IN THE UNITED
STATES
As a "foreign private issuer," Vivendi Universal will be exempt from rules
under the U.S. Securities Exchange Act of 1934 that impose certain disclosure
and procedural requirements in connection with proxy solicitations under Section
14 of the Exchange Act. In addition, Vivendi Universal's officers, directors and
principal shareholders will be exempt from the reporting and "short-swing"
profit recovery provisions of Section 16 of the Exchange Act and the rules
thereunder with respect to their purchases and sales of Vivendi Universal
shares. Moreover, Vivendi Universal will not be required to file periodic
reports and financial statements with the SEC as frequently or as promptly as
U.S. companies whose securities are registered under the Exchange Act. Holders
of exchangeable shares will receive the same disclosure materials furnished to
holders of Vivendi Universal ADSs.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The SEC encourages companies to disclose forward-looking information so
that investors can better understand a company's future prospects and make
informed investment decisions. This joint proxy statement-prospectus contains
"forward-looking statements." These statements may be made directly in this
joint proxy statement-prospectus in connection with Vivendi, Seagram, CANAL+ and
Vivendi Universal, and they may also be made part of this joint proxy
statement-prospectus by reference to other documents filed with the SEC by
Seagram, which is known as "incorporation by reference." These statements may
include statements regarding the period following completion of the merger
transactions.
Words such as "anticipate," "estimate," "expects," "projects," "intends,"
"plans," "believes," "will" and words and terms of similar substance used in
connection with any discussion of future operating or financial performance of
Vivendi, Seagram, CANAL+ and Vivendi Universal or the merger transactions,
identify forward-looking statements. All forward-looking statements are
management's present expectations of future events and are subject to a number
of factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. The risks
related to the businesses of Vivendi, Seagram, CANAL+ and Vivendi Universal and
the risks relating to the merger transactions discussed under "Risk Factors,"
among others, could cause actual results to differ materially from those
described in, or otherwise projected or implied by, the forward-looking
statements. You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this joint proxy
statement-prospectus or the date of the document incorporated by reference in
this joint proxy statement-prospectus. None of Vivendi, Seagram, CANAL+ or
Vivendi Universal is under any obligation, and each expressly disclaims any
obligation, to update or alter any forward-looking statements, whether as a
result of new information, future events or otherwise.
For additional information about Seagram that could cause actual results to
differ materially from those described in, or otherwise projected or implied by,
the forward-looking statements, please see the reports that Seagram has filed or
will file before the date of the Seagram meeting with the SEC and applicable
Canadian securities regulatory authorities that are incorporated by reference in
this document.
All subsequent forward-looking statements attributable to Vivendi, Seagram,
CANAL+ and Vivendi Universal, or any person acting on their behalf, are
expressly qualified in their entirety by the cautionary statements contained or
referred to in this section.
------------------------
VIVENDI, VIVENDI UNIVERSAL AND CANAL+ HAVE PREPARED A FRENCH PROSPECTUS
THAT HAS RECEIVED THE APPROVAL (VISA) OF THE COMMISSION DES OPERATIONS DE BOURSE
(COB) FOR THE PURPOSE OF THE LISTING OF THE VIVENDI UNIVERSAL ORDINARY SHARES ON
THE PREMIER MARCHE OF THE PARIS BOURSE AND THE SUBMISSION OF THE APPLICABLE
VIVENDI/CANAL+ TRANSACTIONS DESCRIBED IN THIS JOINT PROXY STATEMENT-PROSPECTUS
TO THE VIVENDI AND CANAL+ SHAREHOLDERS FOR APPROVAL.
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CHAPTER TWO -- THE SHAREHOLDER MEETINGS
THE SEAGRAM MEETING
DATE, TIME AND PLACE OF THE MEETING
The Seagram meeting is scheduled to be held as follows:
December 5, 2000
9:30 a.m., Eastern time
Mount Royal Centre, 2200 Mansfield St.
Montreal, Quebec H3A 3R8
MATTERS TO BE CONSIDERED
Special Meeting Matters
At the Seagram meeting, if you are a Seagram shareholder, you will be asked
to consider and vote upon the arrangement resolution attached as Annex G to this
joint proxy statement-prospectus. The arrangement resolution:
- authorizes, approves and adopts the arrangement described in this joint
proxy statement-prospectus and the plan of arrangement attached as Annex
B to this joint proxy statement-prospectus;
- confirms, ratifies and approves the merger agreement and the transactions
contemplated by the merger agreement, the actions of the Seagram board of
directors in approving the merger agreement and the transactions
contemplated by the merger agreement and the actions of the Seagram
officers in executing and delivering the merger agreement;
- authorizes Seagram's directors to amend the plan of arrangement and the
merger agreement to the extent permitted by the merger agreement and,
subject to the merger agreement, to determine not to proceed with the
arrangement; and
- authorizes Seagram's officers and directors to execute and deliver
documents and take other actions necessary or desirable in connection
with the arrangement, the merger agreement and the above matters.
Annual Meeting Matters
The meeting will be Seagram's annual meeting of shareholders as well as a
special meeting to consider and vote upon the arrangement resolution.
Accordingly, in addition to the arrangement resolution, Seagram shareholders
will be asked to consider and vote upon the matters normally addressed at
Seagram's annual meeting, as follows:
Election of Directors. At the meeting, if you are a Seagram shareholder,
you will be asked to elect 16 nominees to serve as directors of Seagram for a
term expiring on the earlier of the effective time of the arrangement and
Seagram's annual shareholders' meeting in 2001. You can find information about
each of the nominees under "Seagram Annual Meeting Information -- Election of
Directors of Seagram." Seagram expects each of the nominees to serve if elected.
If a nominee becomes unable to serve prior to the Seagram meeting, Seagram's
board of directors may nominate someone else for election. In that situation,
the proxies will have the right to vote your shares, in their discretion, for
the election of that nominee. You can also find information regarding corporate
governance, compensation of directors and officers and related information under
"Seagram Annual Meeting Information."
Appointment of Auditors. You will also be asked to consider and vote upon
the appointment of PricewaterhouseCoopers LLP as Seagram's auditors and to
authorize Seagram's board of directors to set its remuneration.
PricewaterhouseCoopers have been Seagram's auditors for many years.
Representatives of PricewaterhouseCoopers will be present at the meeting, will
have the opportunity to make a statement should they desire to do so and will be
available to respond to appropriate questions.
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Annual Report and Financial Statements. Seagram's annual report to
shareholders, which includes Seagram's consolidated financial statements for the
2000 fiscal year, will be placed before Seagram shareholders at the meeting as
required by the Canada Business Corporations Act (CBCA). No action is required
or proposed to be taken by Seagram shareholders with respect to this report.
RECORD DATE FOR THE SEAGRAM MEETING
If you were a registered shareholder of Seagram common shares at the close
of business on November 1, 2000, the record date, you are entitled to receive
this joint proxy statement-prospectus, including Seagram's notice of annual and
special meeting, and to vote your shares at the meeting. In addition, if you
became a new owner of Seagram common shares after November 1, 2000 and establish
that you own those shares, you may request, on or prior to November 25, 2000, to
be included on the Seagram shareholders' list. If you are included on that list,
you may vote your shares at the meeting, but the previous owner may not.
QUORUM AND REQUIRED VOTE
In order to conduct business at the Seagram meeting, holders of at least
40% of the outstanding Seagram common shares must be present in person or be
represented by proxy at the meeting. Each common share held of record will
entitle the holder to one vote on each matter that properly comes before the
meeting.
If a quorum is present at the meeting:
- the arrangement resolution must be approved by the affirmative vote of at
least 66 2/3% of the votes cast by holders of Seagram common shares
present in person or by proxy at the meeting; and
- the election of directors and appointment of Seagram's auditors requires
the affirmative vote of a simple majority of the votes cast at the
meeting.
On the record date, 444,307,442 Seagram common shares were outstanding and
held by 5,956 holders of record. Certain members of the Bronfman family and
their affiliates that are Seagram shareholders, including Edgar Bronfman, Jr.,
president and chief executive officer of Seagram, have entered into a voting
agreement with Vivendi pursuant to which those shareholders have agreed to vote
shares representing approximately 24% of the outstanding Seagram common shares
in favor of the arrangement resolution and against any other business
combination transaction (other than the merger transactions or another
transaction with Vivendi and its affiliates) and any transaction or action that
would impede or discourage the arrangement. See "The Merger Transactions -- The
Voting Agreement." In addition, Koninklijke Philips Electronics N.V. has
announced its intention to vote all of the Seagram common shares it owns
(approximately 11% of the outstanding Seagram common shares) in favor of the
arrangement resolution. As of October 23, 2000, Seagram's directors and
executive officers and their affiliates owned approximately 24% of the
outstanding common shares.
PROXIES
In order to vote your common shares at the Seagram meeting, you must attend
the meeting in person or appoint a proxy to vote on your behalf. Because it
would be impossible for all shareholders to attend the meeting, Seagram's board
of directors recommends that you appoint the persons named in the accompanying
proxy form to act as your proxies at the meeting. IN LIEU OF THE PERSONS NAMED
IN THE ACCOMPANYING PROXY FORM, YOU MAY APPOINT ANY OTHER PERSON (WHO DOES NOT
NEED TO BE A SHAREHOLDER) TO REPRESENT YOU AT THE MEETING BY INSERTING THAT
PERSON'S NAME IN THE BLANK SPACE PROVIDED IN THE PROXY FORM OR BY COMPLETING
ANOTHER PROXY FORM. You must return the completed, signed and dated proxy form
in the enclosed postage-paid envelope or to Seagram's secretary at 1430 Peel
Street, Montreal, Quebec H3A 1S9, for delivery no later than 5:00 p.m., Eastern
time, December 1, 2000 or, if the meeting is adjourned or postponed, no later
than 5:00 p.m. on the second business day prior to the adjourned or postponed
meeting.
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You may change your vote by submitting a new proxy to Seagram's secretary
at Seagram's executive office no later than 5:00 p.m., Eastern time, on December
1, 2000 or, if you are a holder of record, by attending the meeting and voting
your shares in person. You may also revoke your proxy by delivering written
notice signed by you or your attorney-in-fact authorized in writing to:
- Seagram's secretary at Seagram's executive office at 1430 Peel St.,
Montreal, Quebec H3A 1S9 or its registered office at any time on or
before December 4, 2000; or
- the chairman of the meeting on the day of the meeting.
If the meeting is adjourned, you may deliver the notice of revocation to
Seagram's executive or registered office on or prior to the last business day
prior to the adjourned meeting or to the chairman at the adjourned meeting.
ATTENDANCE AT THE MEETING WILL NOT ITSELF CONSTITUTE REVOCATION OF A PROXY.
If you appoint the persons named on the enclosed proxy form as your
proxies, they will vote your Seagram common shares in accordance with your
voting instructions. IF YOU PROPERLY EXECUTE AND DELIVER YOUR PROXY FORM
APPOINTING THOSE PERSONS AS PROXIES BUT DO NOT PROVIDE VOTING INSTRUCTIONS, THE
PROXIES WILL VOTE YOUR SHARES:
- FOR APPROVAL OF THE ARRANGEMENT RESOLUTION;
- FOR THE ELECTION OF THE DIRECTORS LISTED UNDER "SEAGRAM ANNUAL MEETING
INFORMATION -- ELECTION OF DIRECTORS OF SEAGRAM"; AND
- FOR THE APPOINTMENT OF PRICEWATERHOUSECOOPERS AS SEAGRAM'S INDEPENDENT
AUDITORS.
If your proxy indicates that you wish to abstain from voting on approval of
any matter, your shares will be considered present at the meeting for purposes
of determining a quorum, but your votes will not be cast with respect to that
matter. An abstention will therefore reduce the number of votes required for
approval of the arrangement resolution.
Seagram does not expect that any matters other than those referred to above
will be brought before the meeting. THE NAMED PROXIES WILL VOTE FOR OR AGAINST
ANY MODIFICATION TO ANY MATTER PRESENTED IN SEAGRAM'S NOTICE OF ANNUAL AND
SPECIAL MEETING, AND ANY OTHER MATTER PRESENTED AT THE MEETING, USING THEIR
DISCRETION, UNLESS YOU WITHHOLD THE AUTHORITY TO DO SO ON THE PROXY CARD.
NON-REGISTERED SHAREHOLDERS
Non-registered shareholders should follow the directions of their
intermediaries with respect to the procedures to be followed for voting.
Generally, non-registered shareholders will not receive the same proxy form as
distributed by Seagram to registered shareholders but will be provided with
either a request for voting instructions or a proxy form executed by the
intermediary but otherwise uncompleted. Intermediaries will then submit votes on
behalf of the non-registered shareholder. If you are a non-registered
shareholder, please submit your voting instructions to your intermediary in
sufficient time to ensure that your votes are received by Seagram on or before
5:00 p.m., Eastern time, on December 1, 2000.
SOLICITATION OF PROXIES
BY USE OF THIS JOINT PROXY STATEMENT-PROSPECTUS, SEAGRAM'S BOARD OF
DIRECTORS IS SOLICITING PROXIES TO BE USED AT THE SEAGRAM MEETING. Seagram and
Vivendi will share the expenses incurred in connection with the printing and
mailing of this joint proxy statement-prospectus. Seagram has retained Georgeson
Shareholder Communications Inc., for a fee of U.S.$125,000 plus additional
charges related to telephone calls and other services, to assist in the
solicitation of proxies from its shareholders. Seagram has also retained RBC
Dominion Securities Inc. as soliciting dealer manager in Canada. RBC Dominion
Securities Inc. will form a soliciting dealer group consisting of members of the
Investment Dealers Association of Canada and members of the Canadian stock
exchanges. Members of the soliciting dealer group will be invited to solicit
Canadian resident Seagram shareholders to vote in favor of the arrangement. A
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solicitation fee of Cdn.$0.35 for each Seagram common share voted in favor of
the arrangement will be payable to the soliciting dealer whose name appears in
the appropriate space on the Seagram proxy form, subject to a maximum fee of
Cdn.$1,500 in respect of each beneficial owner of Seagram common shares resident
in Canada. No solicitation fees will be payable if the arrangement is not
completed. In addition, RBC Dominion Securities Inc. will be paid a fee of
Cdn.$500,000 for managing the solicitation, a portion of which is contingent
upon the successful completion of the arrangement. Seagram will also request
banks, brokers and other intermediaries holding Seagram common shares
beneficially owned by others to send this joint proxy statement-prospectus to,
and obtain proxies from, the beneficial owners and will reimburse the holders
for their reasonable expenses in so doing. CIBC Mellon Trust Company also
assists Seagram in soliciting proxies in Canada as part of its general
engagement by Seagram to provide shareholder services.
Solicitation of proxies by mail may be supplemented by telephone and other
electronic means, advertisements and personal solicitation by Seagram's
directors, officers and employees. No additional compensation will be paid to
directors, officers or employees for that solicitation.
DISSENTING SHAREHOLDER RIGHTS
If you are a registered holder of Seagram common shares, the interim order
issued by the Ontario court in connection with the arrangement gives you the
right to dissent from the arrangement resolution. If the arrangement becomes
effective and you dissent in compliance with Section 190 of the CBCA and the
plan of arrangement, you will have the right to be paid the fair value of the
Seagram common shares you hold, determined as of the close of business on the
day before Seagram shareholders adopt the arrangement resolution.
Under Section 190 of the CBCA, you may dissent only for shares that are
registered in your name. In many cases, people beneficially own shares that are
registered either:
- in the name of an intermediary, such as a bank, trust company, securities
dealer, broker, trustee, administrator of self administered registered
retirement savings plans, registered retirement income funds, registered
educational savings plans and similar plans and their nominees; or
- in the name of a clearing agency in which the intermediary participates,
such as The Canadian Depositary for Securities Limited or The Depository
Trust Company.
If you want to dissent and your shares are registered in someone else's
name, you must contact your intermediary and either:
- instruct your intermediary to exercise the dissenters' rights on your
behalf (which, if the shares are registered in the name of a clearing
agency, will require that the shares first be re-registered in your
intermediary's name); or
- instruct your intermediary to re-register the shares in your name, in
which case you will have to exercise your dissenters' rights directly.
In other words, if your shares are registered in someone else's name, you will
not be able to exercise your dissenters' rights directly unless the shares are
re-registered in your name.
If you want to dissent, you must dissent for all your shares. If you hold
shares on behalf of one or more beneficial owners, Section 190 of the CBCA
allows you to dissent only for all the shares you hold on behalf of any one
beneficial owner that are registered in your name.
If you want to dissent, you must send a written dissent notice to Seagram's
secretary at The Seagram Company Ltd., 1430 Peel Street, Montreal, Quebec H3A
1S9, Canada. Seagram's secretary must receive this dissent notice by 5:00 p.m.,
Eastern time, on the business day before the Seagram meeting. IF YOU DO NOT
COMPLY STRICTLY WITH THIS REQUIREMENT, YOU COULD LOSE YOUR RIGHT TO DISSENT.
THIS REQUIREMENT IS DIFFERENT FROM THE DISSENT PROVISIONS OF SECTION 190 OF THE
CBCA, WHICH WOULD ALLOW DISSENTING SHAREHOLDERS TO PROVIDE A DISSENT NOTICE AT
ANY TIME AT OR BEFORE THE SEAGRAM MEETING.
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If you send Seagram's secretary a dissent notice, you still have the right
to vote at the meeting. However, under the CBCA, if you send a dissent notice
and then vote in favor of the arrangement resolution, you will not be considered
a dissenting shareholder. You do not have to vote against the arrangement
resolution to dissent, however, because you can also abstain.
The CBCA does not provide (and Seagram will not assume) that a vote against
the arrangement resolution or an abstention constitutes a dissent notice.
Similarly, if you give someone a proxy to vote for the arrangement resolution
and then revoke the proxy, your revocation does not constitute a dissent notice.
However, if you want to dissent, you should revoke any proxy that instructs the
proxy holder to vote for the arrangement resolution to prevent the proxy holder
from voting your shares in favor of the arrangement resolution and causing you
to forfeit your dissenters' rights. For instructions on revoking a proxy, see
"-- Proxies."
If you dissent, Seagram is required to notify you that the arrangement
resolution has been adopted within ten days after Seagram's shareholders adopt
the resolution. Seagram is not required to send you a notice if you vote for the
arrangement resolution or withdraw your dissent notice.
If you dissent, you must send Seagram (to its secretary at the address
above) a written demand for payment within 20 days after you receive Seagram's
notice that the arrangement resolution has been adopted. If you do not receive
that notice, you must send a written demand for payment within 20 days after you
learn that the arrangement resolution has been adopted. Your demand for payment
must contain:
- your name and address;
- the number of Seagram common shares for which you are dissenting; and
- a demand for payment of the fair value of those shares.
Within 30 days of sending a demand for payment, you must send Seagram (to
its secretary at the address above) or its transfer agent the certificates
representing your dissenting shares. If you do not send in your certificates,
you forfeit your right to dissent. The Seagram transfer agent will endorse on
your share certificates a notice that you are a dissenting shareholder and will
then send the certificates back to you.
After you send your demand for payment, you will no longer have any rights
as a Seagram shareholder other than the right to be paid the fair value of your
shares unless:
- you withdraw your demand for payment before Seagram makes a written offer
to pay;
- Seagram does not make you a timely written offer to pay and you withdraw
your demand for payment; or
- Seagram's board of directors revokes the arrangement resolution.
In all three cases described above, your rights as a shareholder will be
reinstated, and in the first two cases, your shares will be subject to the
arrangement if it has been completed.
Also, under the plan of arrangement, if you duly exercise your dissenters'
rights and are ultimately determined to have the right to be paid the fair value
of your shares, you will be deemed to have transferred your shares to Seagram at
the effective time of the arrangement. If you exercise your dissenters' rights
but are ultimately determined for any reason not to have the right to be paid
the fair value of your shares, you will be deemed to have participated in the
arrangement like any non-dissenting shareholder who did not elect to receive
exchangeable shares, and you will receive Vivendi Universal ADSs for your
Seagram shares in accordance with the procedures contained in the plan of
arrangement.
If you dissent, within seven days after the later of the effective date of
the arrangement and the date when Seagram receives your demand for payment,
Seagram is required to send you an offer to pay for your shares. That offer must
be in an amount that Seagram's board of directors considers to be the fair value
of the shares. Seagram must also send you a statement with the offer to pay
showing how the fair value was determined. Every offer to pay must be on the
same terms. Seagram must pay for your shares
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within ten days after you accept the offer to pay, but Seagram's offer to pay
you will lapse if Seagram does not receive your acceptance within 30 days after
it has made the offer to pay.
If you do not accept Seagram's offer or if Seagram fails to make you an
offer to pay after you have sent your demand for payment, Seagram may apply to a
court in the Province of Ontario to fix a fair value for the shares of all
dissenting shareholders. If Seagram decides to apply to a court to fix the fair
value, it must do so within 50 days after the effective date of the arrangement
or within any longer period that the court allows. If Seagram fails to apply to
a court, you may apply to an Ontario court for the same purpose within a further
period of 20 days or within any longer period that the court allows. You are not
required to give security for the costs of applying to a court.
If Seagram, you or another dissenting shareholder applies to a court, all
dissenting shareholders whose shares have not been purchased by Seagram will be
joined as parties and will be bound by the court's decision. Seagram will be
required to notify each affected dissenting shareholder of the date, place and
consequences of the application and of the shareholder's right to appear and be
heard in person or by counsel. The court may determine whether any person is a
dissenting shareholder who should be joined as a party, and the court will then
fix a fair value for the shares of all dissenting shareholders. The court will
render a final order against Seagram in favor of each dissenting shareholder and
for the amount of the fair value of the dissenting shareholder's shares. The
court may, in its discretion, allow a reasonable rate of interest on the amount
payable to each dissenting shareholder from the effective date of the
arrangement until the date of payment.
THIS IS ONLY A SUMMARY OF THE DISSENTING SHAREHOLDER PROVISIONS OF THE PLAN
OF ARRANGEMENT AND THE CBCA, WHICH ARE TECHNICAL AND COMPLEX. COMPLETE COPIES OF
THE PLAN OF ARRANGEMENT AND SECTION 190 OF THE CBCA ARE ATTACHED AS ANNEXES B
AND N, RESPECTIVELY, TO THIS JOINT PROXY STATEMENT-PROSPECTUS. IF YOU WANT TO
DISSENT, WE RECOMMEND THAT YOU SEEK LEGAL ADVICE BECAUSE, IF YOU FAIL TO COMPLY
STRICTLY WITH THE PROVISIONS OF THE PLAN OF ARRANGEMENT AND THE CBCA, YOU COULD
FORFEIT YOUR DISSENTERS' RIGHTS. FOR A GENERAL SUMMARY OF SOME OF THE CANADIAN
INCOME TAX IMPLICATIONS TO A DISSENTING SHAREHOLDER, SEE "TAX INFORMATION -- TAX
CONSIDERATIONS FOR SEAGRAM SHAREHOLDERS -- CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS."
PROCEDURES FOR EXCHANGE OF SHARE CERTIFICATES BY SEAGRAM SHAREHOLDERS
If you are a Seagram shareholder, you will find enclosed with this joint
proxy statement-prospectus a letter of transmittal and election form. The letter
of transmittal and election form, when properly completed and duly executed and
returned by mail or by hand delivery to CIBC Mellon Trust Company, as Seagram's
exchange agent, together with a certificate or certificates for Seagram common
shares and all other required documents, will enable Seagram shareholders to
obtain Vivendi Universal ADRs and, in the case of Canadian resident Seagram
shareholders, certificates representing exchangeable shares.
IF YOU ARE A CANADIAN RESIDENT SEAGRAM SHAREHOLDER AND WISH TO ELECT TO
RECEIVE EXCHANGEABLE SHARES IN EXCHANGE FOR SOME OR ALL OF YOUR SEAGRAM COMMON
SHARES, YOUR PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND
ELECTION FORM, CERTIFICATES REPRESENTING THE SEAGRAM COMMON SHARES YOU HOLD THAT
YOU WISH TO EXCHANGE FOR EXCHANGEABLE SHARES AND ALL OTHER REQUIRED DOCUMENTS
MUST BE RECEIVED BY THE EXCHANGE AGENT AT ONE OF THE ADDRESSES INDICATED ON THE
LETTER OF TRANSMITTAL AND ELECTION FORM BEFORE 5:00 P.M., EASTERN TIME, ON
NOVEMBER 30, 2000, OR, IN THE EVENT THE SEAGRAM MEETING IS ADJOURNED OR
POSTPONED, THE THIRD BUSINESS DAY PRIOR TO THE DATE FIXED FOR THE MEETING TO BE
RECONVENED. OTHERWISE, YOU WILL BE ENTITLED TO RECEIVE ONLY VIVENDI UNIVERSAL
ADSS FOR YOUR SEAGRAM COMMON SHARES, AND WILL RECEIVE ONLY VIVENDI UNIVERSAL
ADRS REPRESENTING VIVENDI UNIVERSAL ADSS UPON DELIVERY OF THE CERTIFICATES
REPRESENTING YOUR SEAGRAM COMMON SHARES AND ALL OTHER REQUIRED DOCUMENTATION.
FOR CANADIAN RESIDENTS, THE TAX CONSEQUENCES MAY DIFFER SIGNIFICANTLY DEPENDING
ON WHETHER VIVENDI UNIVERSAL ADSS OR EXCHANGEABLE SHARES ARE RECEIVED IN THE
ARRANGEMENT. IF YOU ARE A CANADIAN RESIDENT, YOU SHOULD CONSIDER CAREFULLY THE
TAX CONSEQUENCES TO YOU IN DETERMINING WHETHER TO ELECT TO RECEIVE VIVENDI
UNIVERSAL ADSS OR EXCHANGEABLE SHARES IN THE ARRANGEMENT. SEE "TAX
INFORMATION -- TAX CONSIDERATIONS FOR SEAGRAM SHAREHOLDERS -- CANADIAN FEDERAL
INCOME TAX CONSIDERATIONS."
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Unless you are a Canadian resident Seagram shareholder who wishes to
receive exchangeable shares, you do not need to submit a letter of transmittal,
your share certificates and any other required documents before the completion
of the merger transactions (but you should vote by returning your proxy card).
If you do not submit your letter of transmittal, share certificates and any
other required documents before the completion of the merger transactions, we
will send you another letter of transmittal after the closing.
If your Seagram common shares are registered in the name of a broker,
investment dealer, bank, trust company or other intermediary, you should contact
that intermediary for instructions and assistance in delivering share
certificates representing those Seagram common shares and, if you are a Canadian
resident Seagram shareholder who wishes to receive exchangeable shares, in
making your election.
If you are a Seagram shareholder entitled to receive Vivendi Universal ADSs
in the arrangement, you will not receive the Vivendi Universal ADRs representing
the Vivendi Universal ADSs to which you are otherwise entitled until you forward
to the exchange agent properly completed and duly executed letters of
transmittal and election forms, certificates representing their Seagram common
shares and other required documents. Furthermore, until you surrender your
certificate(s) representing your Seagram common shares, you will not be recorded
on the register of holders of Vivendi Universal ADSs, nor will you be entitled
to vote your Vivendi Universal ADSs or to receive dividends on your Vivendi
Universal ADSs. In addition, if you do not surrender your certificate(s)
representing your Seagram common shares on or prior to the fifth anniversary of
the completion of the arrangement, you will have all of your rights and
interests as holders of Vivendi Universal ADSs extinguished without compensation
or notice.
Any use by you of the mails to transmit a share certificate for Seagram
common shares and a related letter of transmittal and election form is at your
risk. If you mail these documents, we recommend you use registered mail, with
return receipt requested (if available), properly insured. If the arrangement
resolution is not adopted at the Seagram meeting, or any adjournment or
postponement of the meeting, or if the arrangement is not otherwise completed,
your share certificates for Seagram common shares received by the exchange agent
will be returned to you.
If you comply with the above procedures (including, in the case of Canadian
resident shareholders that elect to receive exchangeable shares, by effecting
deliveries to the exchange agent prior to the election deadline), Vivendi
Universal ADRs representing the appropriate number of Vivendi Universal ADSs or
certificates representing the appropriate number of exchangeable shares,
together with a check in the amount, if any, payable in lieu of a fractional
Vivendi Universal ADS or a fractional exchangeable share will, as soon as
practicable after the effective date of the arrangement: (1) be forwarded to you
at the address specified in the letter of transmittal and election form by
insured first class mail, or (2) be made available at the offices of the
exchange agent at the appropriate address indicated in the letter of transmittal
and election form for pick up by you if you so request in the letter of
transmittal and election form.
The exchange agent, in connection with the exchange of Seagram common
shares for Vivendi Universal ADSs and/or exchangeable shares in the arrangement,
will deliver Vivendi Universal ADRs representing Vivendi Universal ADSs,
certificates representing exchangeable shares or checks in lieu of fractional
Vivendi Universal ADSs or fractional exchangeable shares, as the case may be, in
a name other than the name in which the surrendered share certificates are
registered only if you present the exchange agent with, among other things,
documents required to evidence and effect the unrecorded transfer of ownership
with the signature of the ultimate recipient guaranteed by an eligible
institution or in some other manner satisfactory to the exchange agent.
If any of your certificate(s) for Seagram common shares have been destroyed
or lost, you should immediately complete the letter of transmittal and election
form as fully as possible and return it together with a letter describing the
loss to the exchange agent in accordance with the instructions in the letter of
transmittal and election form. Seagram has instructed the exchange agent to
respond with replacement requirements.
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<PAGE> 54
PRINCIPAL HOLDERS OF SHARES
As of October 23, 2000, descendants of the late Samuel Bronfman, and trusts
established for their benefit, beneficially owned directly or indirectly a total
of 106,359,757 Seagram common shares, which constituted approximately 24% of the
outstanding Seagram common shares. The holders in the following table are the
only holders that, to Seagram's knowledge, own beneficially, or exercise control
or direction over, more than 5% of the outstanding Seagram common shares of
Seagram as of October 23, 2000. Descendants of the late Samuel Bronfman also
hold options to acquire an additional 4,778,736 Seagram common shares that are
exercisable on or within 60 days of October 23, 2000.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES
BENEFICIAL OWNER OF SHARES OUTSTANDING
---------------- ------------ -----------
<S> <C> <C>
The Edgar Miles Bronfman Trust.............................. 60,104,604(1) 13.53%
The C. Bronfman Family Trust,
The Charles Rosner Bronfman Family Trust,
The CB Family Trust,
The Charles R. Bronfman Discretionary Trust,
CRB Associates, Limited Partnership....................... 41,286,760(2) 9.29%
Koninklijke Philips Electronics N.V. ....................... 47,831,952(3) 10.77%
Capital Research and Management Company..................... 32,105,700(4) 7.23%
</TABLE>
---------------
(1) Includes 58,618,088 shares owned indirectly by The Edgar Miles Bronfman
Trust, 375 Park Avenue, New York, New York, a trust established for the
benefit of Edgar M. Bronfman and his descendants (EMBT), through its 99%
interest in Bronfman Associates, a partnership of which Edgar M. Bronfman is
the managing general partner, and 1,486,516 shares owned directly by the
PBBT/Edgar Miles Bronfman Family Trust, a trust established for the benefit
of Edgar M. Bronfman and his descendants (PBBT/EMBFT). The trustees of the
EMBT and the PBBT/EMBFT include Edgar M. Bronfman, Edgar Bronfman, Jr. and
John S. Weinberg.
(2) Includes 14,320,000 shares owned directly by The C. Bronfman Family Trust
(C.BFT), c/o Messrs. Bergman, Horowitz and Reynolds, whose address is 157
Church Street, New Haven, Connecticut, 20,364,000 shares owned by the
Charles Rosner Bronfman Family Trust (CRBFT), c/o Goodman Phillips &
Vineberg, 1501 McGill College Avenue, Montreal, Quebec, 5,000,000 shares
owned by the CB Family Trust (CBFT), c/o Codan Trust Company Limited,
Richmond House, 12 Par-La-Ville Road, Hamilton, Bermuda, and 302,760 shares
owned by The Charles R. Bronfman Discretionary Trust (CRBDT) and 1,300,000
shares owned by CRB Associates, Limited Partnership (CRB Associates), each
c/o Messrs. Bergman, Horowitz and Reynolds, 157 Church Street, New Haven,
Connecticut. The general partners of CRB Associates are the CRBFT, which
holds a 51.04% general partnership interest, and Claridge Israel LLC, which
holds a 48% general partnership interest. Stephen R. Bronfman indirectly
holds a 0.96% limited partnership interest in CRB Associates and is a
trustee of the CRBFT. The managers of Claridge Israel LLC include Charles R.
Bronfman. The members of Claridge Israel LLC are The Charles R. Bronfman
Trust (CR.BT) and The Charles Bronfman Trust (CBT). The C.BFT, the CRBFT,
the CBT, the CBFT, the CR.BT and the CRBDT are trusts established for the
benefit of Charles R. Bronfman and his descendants.
(3) The address of the principal executive offices of Philips is Rembrandt
Tower, Amstelplein 1, 1096 HA Amsterdam, The Netherlands. A description of
certain voting arrangements between Philips and Seagram can be found under
"Seagram Annual Meeting Information -- Transactions with Directors and
Others."
(4) Based on a Schedule 13G filed by Capital Research and Management Company on
February 14, 2000. The address of the principal executive offices of Capital
Research and Management Company is 333 South Hope Street, Los Angeles,
California. Of the shares beneficially owned, 3,693,700 are shares the
beneficial ownership of which Capital Research and Management Company has
the right to acquire.
In addition, as of October 23, 2000, trusts for the benefit of the family
of the late Minda de Gunzburg and members of her immediate family owned,
directly or indirectly, a total of 1,237,212 shares. Edgar M. Bronfman, Charles
R. Bronfman and the late Minda de Gunzburg are siblings. Edgar M. Bronfman and
Charles R. Bronfman are directors and officers of Seagram. Edgar Bronfman, Jr.
is a son of Edgar M. Bronfman and a director and officer of Seagram. Samuel
Bronfman II is a son of Edgar M. Bronfman and a director of Seagram. Stephen R.
Bronfman is the son of Charles R. Bronfman and a director of Seagram.
Under a voting trust agreement dated August 3, 1984, as amended, Charles R.
Bronfman is the voting trustee for certain shares beneficially owned directly or
indirectly by the EMBT, the PBBT/EMBFT, the C.BFT, the CRBFT, the CBFT, CRB
Associates and two charitable foundations. Charles R. Bronfman is a director of
the two charitable foundations, which together owned 3,334,164 shares as of
October 23,
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<PAGE> 55
2000. The voting trust agreement has a term of 20 years and contains no
restrictions on the right of the voting trustee to vote the deposited shares. As
of October 23, 2000, the Bronfman voting trust agreement covered 104,398,768
shares.
Under a voting trust agreement dated as of May 15, 1986, Edgar M. Bronfman,
Charles R. Bronfman, Stanley N. Bergman, Guido Goldman and Leonard M. Nelson are
voting trustees for shares beneficially owned directly or indirectly by trusts
for the benefit of the family of the late Minda de Gunzburg and members of her
immediate family. Messrs. Bergman, Goldman and Nelson, whose address is c/o
First Spring Corporation, 499 Park Avenue, New York, New York, are the trustees
of the trusts. The de Gunzburg voting trust agreement has a term of 15 years and
contains no restrictions on the right of the voting trustees to vote the
deposited shares. As of October 23, 2000, the de Gunzburg voting trust agreement
covered 1,236,332 shares.
An agreement, entered into as of August 3, 1984, as amended, governs the
dispositions of shares that the EMBT, the PBBT/EMBFT, the C.BFT, the CRBFT, the
CBFT, the CRBDT, CRB Associates, the trusts established for the benefit of the
family of the late Minda de Gunzburg and members of her immediate family and
three charitable foundations (including the charitable foundations referred to
above) beneficially own, directly or indirectly. The agreement has a term of 20
years and permits each of the branches of the family to transfer shares within
its family group. However, transfers to third parties are subject to a right of
first refusal in favor of the other branches of the family.
THE VIVENDI MEETING
DATE, TIME AND PLACE OF THE MEETING
This joint proxy statement-prospectus is being furnished in connection with
the solicitation of voting instruction cards by Vivendi's board of directors for
use at the Vivendi meeting to be held:
November 28, 2000
9 a.m., French time
42, avenue de Friedland
75380 Paris, France
If a quorum for the extraordinary meeting is not met on November 28, 2000,
the voting instruction cards will be used at a reconvened Vivendi meeting to be
held:
December 5, 2000
5:00 p.m., French time
Musee du Louvre, Pyramide du Louvre,
101, rue Rivoli, 75001 Paris, France
Given the quorum requirement, it is expected, and the following description
assumes, that there will not be any vote until the reconvened Vivendi meeting on
December 5, 2000.
MATTERS TO BE CONSIDERED
At the Vivendi meeting, shareholders will be asked to consider and vote
upon the following resolutions:
FIRST EXTRAORDINARY RESOLUTION
The extraordinary shareholders' meeting has determined to approve all the
terms and conditions of the combination of Vivendi with Seagram and CANAL+,
which have been summarized in the report of the board of directors to the
extraordinary shareholders' meeting.
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<PAGE> 56
SECOND EXTRAORDINARY RESOLUTION
The extraordinary shareholders' meeting, having taken note of the reports
of the board of directors and of the merger auditor, has determined to approve
the merger of Vivendi into its wholly-owned subsidiary Sofiee (which will be
renamed Vivendi Universal) with retroactive effect as of January 1, 2000.
THIRD EXTRAORDINARY RESOLUTION
The extraordinary shareholders' meeting takes note of the immediate
dissolution of Vivendi resulting from its merger into Sofiee.
FOURTH AND FIFTH EXTRAORDINARY RESOLUTIONS
The extraordinary shareholders' meeting authorizes the board of directors
to verify that the conditions precedent to the merger transactions have been
satisfied and to execute any additional agreements and take any action required
to consummate the merger of Vivendi into Vivendi Universal.
INFORMATION CONCERNING VOTING
If you are a holder of Vivendi ordinary shares, to be admitted to the
meeting, you must either hold Vivendi ordinary shares in registered form, or, if
you hold your shares in bearer form (including through a French financial
intermediary or a U.S. custodian that holds the shares through a French
financial intermediary), present proof of identity and an ownership certificate
issued by an accredited French financial intermediary at least five days before
the meeting. You may vote in person at the meeting, by proxy or by mail. Under
French law, a shareholder can give a proxy only to a spouse or to another
shareholder. You may also sign and return a blank proxy. If you sign and return
a blank proxy, your votes will be cast in favor of the resolutions. Under French
law, you may also vote by mail using a form for voting by mail (formulaire de
vote par correspondance) included on your voting instruction card. Voting by
mail is different from voting by proxy because (1) when you vote by mail, you
vote your shares directly and (2) if you send in a blank form for voting by
mail, your shares will be voted against, rather than for, the resolutions
proposed by the board of directors.
A shareholder that is a corporation must be represented at the meeting by
its legal representative. The legal representative may delegate the
corporation's right to vote by granting a power of attorney in a form obtained
from Vivendi. Under the French commercial code, shares held by entities
controlled directly or indirectly by Vivendi do not have voting rights.
If you hold Vivendi ordinary shares in registered form, you will receive
notice of the meeting, including the agenda for the meeting and a copy of the
resolutions that will be submitted to the meeting. A French prospectus that is
different from this document has also been prepared in accordance with French
stock exchange regulations. Any shareholder may obtain a copy of the French
prospectus and other documents, including the report of the board of directors
to the shareholders' meeting, by contacting Vivendi at 33 (1) 71 71 10 00
(Direction Juridique) or by requesting the documents from Vivendi, 42 avenue de
Friedland, 75380 Paris Cedex 08, France or from BNP Paribas, Services
Assemblees, CETT/ATN, 8, rue de Sofia, 75018 Paris, France. If you hold Vivendi
ordinary shares in bearer form, you may obtain the documents by contacting
Vivendi or BNP Paribas as described above.
Vivendi ADS holders may vote by using the enclosed voting instruction card.
Vivendi ADS holders that wish to vote the Vivendi ordinary shares underlying
their ADSs directly and attend the meeting must surrender their ADRs and
withdraw the ordinary shares, and pay the taxes, governmental charges and fees
of the depositary, all in accordance with the terms of the current deposit
agreement, in order to become registered owners of the Vivendi ordinary shares
underlying their ADSs prior to November 24, 2000.
QUORUM AND REQUIRED VOTE
Under the French commercial code and Vivendi's statuts, persons who hold at
least one-third of a company's outstanding voting rights must be present at an
extraordinary meeting in person, or must vote
49
<PAGE> 57
by mail or by proxy, to fulfill the quorum requirements for the meeting. The
meeting will be adjourned if a quorum is not present. At an extraordinary
meeting resumed after adjournment, at least one-fourth of a company's
outstanding voting rights must be present in person or must vote by mail or by
proxy. At a meeting resumed after adjournment, only questions that were on the
agenda of the adjourned meeting may be discussed and voted upon.
Each Vivendi ordinary share and every five Vivendi ADSs will entitle the
holder to cast one vote on each matter that properly comes before the Vivendi
meeting, subject to the exceptions described under "Comparison of Shareholders'
Rights -- Take-Over Bids and Compulsory Acquisition of Shares; Anti-Takeover
Provisions." The affirmative vote of two-thirds of the votes cast by Vivendi
shareholders represented at the meeting is required to approve the resolutions
necessary to complete the merger transactions. The effectiveness of each
extraordinary resolution is conditioned upon the approval of each other
extraordinary resolution.
VOTING BY HOLDERS OF VIVENDI ADSS; RECORD DATE
Holders of Vivendi ADSs as of November 1, 2000, the record date for Vivendi
ADSs, are entitled to notice of the meeting, and may vote the Vivendi ordinary
shares underlying Vivendi ADSs at the meeting in one of two ways:
- by properly completing, signing and dating the enclosed voting
instruction card and returning it in the enclosed postage-paid envelope
to the depositary by November 28, 2000; a holder of Vivendi ADSs may
cause the depositary to vote the ordinary shares underlying the ADSs in
the manner prescribed in the voting instruction card (as more fully
described below); or
- a holder of Vivendi ADSs may elect to surrender its ADRs and withdraw the
ordinary shares in accordance with the terms of the deposit agreement and
may attend the meeting and vote the ordinary shares in person.
The significant differences between these two alternatives are as follows:
- a holder of Vivendi ADSs will not be entitled to attend the meeting in
person but must instead instruct the depositary to vote the ordinary
shares underlying the ADSs;
- a holder of Vivendi ADSs will not have the opportunity to consider or
vote on any matters that may be presented at the meeting other than those
described in this joint proxy statement-prospectus or any further
solicitation made by Vivendi; and
- a holder of Vivendi ADSs is not entitled to present proposals at the
meeting for consideration at the meeting.
Assuming the shareholders' vote occurs on December 5, 2000 a holder of
ordinary shares must be the registered holder of the ordinary shares on December
4, 2000 (and hold those shares through the date of the meeting) to be eligible
to vote.
Voting Through the Depositary
Upon receipt by the depositary of a properly completed voting instruction
card on or before November 28, 2000, the depositary will, insofar as practicable
and permitted under applicable provisions of French law and Vivendi's statuts,
vote or cause to be voted the Vivendi ordinary shares underlying the Vivendi
ADSs in accordance with any non-discretionary instructions set forth on the
voting instruction card. With respect to voting instruction cards that are
signed but on which no voting instructions have been indicated, the depositary
will vote or cause to be voted the Vivendi ordinary shares in favor of proposals
recommended by Vivendi's board of directors and against proposals opposed by
Vivendi's board of directors.
The depositary will not vote, cause to be voted or attempt to exercise the
right to vote that is attached to Vivendi ADSs if the voting instruction card
with respect to the ADSs is incorrectly completed or
50
<PAGE> 58
illegible. The depositary will take no action to impair its ability to vote or
cause to be voted the number of ordinary shares necessary to carry out the
instructions of all holders of Vivendi ADSs.
Voting Ordinary Shares
Under French law and Vivendi's statuts, only (1) shareholders holding
registered ordinary shares at least one calendar day prior to the date of a
shareholders' meeting and (2) shareholders holding bearer ordinary shares that
have delivered to BNP Paribas, Services Assemblees, CETT/ATN, 8, rue de Sofia,
75018 Paris, France, at least one day before the Vivendi meeting, proof of
identity and an ownership certificate issued by an accredited French financial
intermediary stating that their shares have not been transferred before the date
of the meeting may vote the ordinary shares and attend the meeting. Therefore,
in order for a holder of Vivendi ADSs to attend the meeting and vote the
ordinary shares, the holder must first become a registered owner of ordinary
shares underlying the Vivendi ADSs. To accomplish this, Vivendi ADS holders must
deliver, on or before November 24, 2000, their ADRs to the depositary for
cancellation and pay the fee provided for in the deposit agreement. The
depositary will then request that the Paris office of BNP Paribas, as custodian
of the Vivendi ordinary shares underlying the Vivendi ADSs, register the holder
in the Vivendi share register. The depositary will also ask the custodian to
make arrangements to allow the holder to vote at the extraordinary meeting. The
custodian will not permit any transfer of the ordinary shares during the
"blocked period" of December 4, 2000 to December 6, 2000.
RECEIPT DATE
The depositary must receive the voting instruction card on or before
November 28, 2000 in order to vote the Vivendi ordinary shares underlying the
Vivendi ADSs in accordance with the instructions set forth on the voting
instruction card.
REVOCABILITY OF VOTING INSTRUCTIONS
All Vivendi ADS holders entitled to vote and represented by properly
executed voting instruction cards received prior to November 28, 2000, and not
revoked, will be voted at the meeting in accordance with the instructions
indicated on those voting instruction cards. Any voting instructions given
pursuant to this solicitation may be revoked by the person giving it at any time
before it is voted. A voting instruction may be revoked by filing with the
depositary a written notice of revocation or a duly executed voting instruction
card, in either case dated later than the prior voting instruction card relating
to the same Vivendi ADSs and received by the depositary prior to November 28,
2000. Holders of Vivendi ordinary shares can revoke their proxies by notifying
Vivendi at 42, avenue de Friedland, 75380 Paris Cedex 08, France no later than
December 4, 2000.
PRINCIPAL SHAREHOLDERS
Vivendi is not directly or indirectly owned or controlled by another
corporation or by any governmental authority. On September 29, 2000,
approximately 605,945,528 Vivendi ordinary shares were outstanding and entitled
to cast a total of 625,766,147 votes at the meeting. These shares were held by
more than 700,000 shareholders.
To the best of Vivendi's knowledge, it has no shareholders whose beneficial
ownership represents 5% or more of its share capital or voting rights. The total
number of shares owned by Vivendi's officers and directors and executive
officers as a group (24 persons) represented less than one percent of Vivendi's
outstanding shares and less than one percent of its voting shares as of
September 29, 2000. Pursuant to Vivendi's statuts, each of its directors must
own at least 750 of its shares.
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<PAGE> 59
MATTERS TO BE APPROVED AT THE VIVENDI UNIVERSAL MEETING
By the time of the Vivendi meeting, Vivendi, as the sole shareholder of
Vivendi Universal, will have approved resolutions at a shareholder meeting of
Vivendi Universal including resolutions relating to:
- the approval of the merger of Vivendi into Vivendi Universal;
- the approval of the merger of CANAL Holdco into Vivendi Universal;
- the election of a new board of directors, including five members from
Seagram's board of directors; and
- the amendment of Vivendi Universal's statuts in accordance with the
merger agreement and related agreements.
SOLICITATION OF PROXIES
BY USE OF THIS JOINT PROXY STATEMENT-PROSPECTUS, VIVENDI'S BOARD OF
DIRECTORS IS SOLICITING PROXIES TO BE USED AT THE VIVENDI MEETING. Seagram and
Vivendi will share the expenses incurred in connection with the printing and
mailing of this joint proxy statement-prospectus. Vivendi and CANAL+ have
retained Innisfree M&A Incorporated, for reasonable and customary fees plus
additional charges related to telephone calls and other services, to assist in
the solicitation of proxies from their respective shareholders.
THE CANAL+ MEETING
DATE, TIME AND PLACE OF THE MEETING
This joint proxy statement-prospectus is being furnished in connection with
the solicitation of voting instructions cards by CANAL+'s board of directors for
use at the CANAL+ meeting to be held:
December 5, 2000
11 a.m., French time
UGC Normandie
116, avenue des Champs Elysees
75008 Paris, France
MATTERS TO BE CONSIDERED
At the CANAL+ meeting, shareholders will be asked to consider and vote upon
resolutions on the following matters:
Extraordinary Resolutions
- approval of the contribution by CANAL+ to CANAL+ Distribution, a
wholly-owned subsidiary of CANAL+, of the distribution and marketing
business associated with CANAL+'s French premium pay television channel;
- approval of the contribution by CANAL+ to CANAL+ Regie, a wholly-owned
subsidiary of CANAL+, of the business of selling advertising on pay
television channels;
- approval of the contribution by CANAL+ to Canal Holdco of the
"transferred businesses," meaning all the shares of CANAL+ Distribution
and CANAL+ Regie and all its other businesses except for its French
premium pay television channel, in the context of the combination of
CANAL+ with Seagram and Vivendi; and approval of the distribution to
CANAL+ shareholders of the shares of Canal Holdco received by CANAL+ in
consideration of the contribution of the transferred businesses, subject
to shareholder approval of the merger of Canal Holdco into Vivendi
Universal; and
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<PAGE> 60
- authorization for CANAL+ to cancel ordinary shares of CANAL+ that CANAL+
may have acquired.
Ordinary Resolution
- approval of a share repurchase program to replace CANAL+'s currently
authorized program, with a price based on the market price of CANAL+'s
ordinary shares after the completion of the merger transactions.
INFORMATION CONCERNING VOTING
If you are a holder of CANAL+ ordinary shares, to be admitted to the
meeting, you must either hold CANAL+ ordinary shares in registered form or, if
you hold your shares in bearer form (including through a French financial
intermediary or a U.S. custodian that holds the shares through a French
financial intermediary), present proof of identity and an ownership certificate
issued by an accredited French financial intermediary at least five days before
the meeting. You may vote in person at the meeting, by proxy or by mail. Under
French law, a shareholder can give a proxy only to a spouse or to another
shareholder. You may also sign and return a blank proxy. If you sign and return
a blank proxy, your votes will be cast in favor of the resolutions. Under French
law, you may also vote by mail using a form for voting by mail (formulaire de
vote par correspondance) included on your voting instruction card. Voting by
mail is different from voting by proxy because (1) when you vote by mail, you
vote your shares directly and (2) if you send in a blank form for voting by
mail, your shares will be voted against, rather than for, the resolutions
proposed by the board of directors.
A shareholder that is a corporation must be represented at the meeting by
its legal representative. The legal representative may delegate the
corporation's right to vote by granting a power of attorney in a form obtained
from CANAL+. Under the French commercial code, shares held by entities
controlled directly or indirectly by CANAL+ do not have voting rights.
If you hold CANAL+ ordinary shares in registered form, you will receive
notice of the meeting, including the agenda for the meeting and a copy of the
resolutions that will be submitted to the meeting. A French prospectus that is
different from this document has also been prepared in accordance with French
stock exchange regulations. Any shareholder may obtain a copy of the French
prospectus and other documents, including the report of the board of directors
to the shareholders' meeting, by contacting CANAL+ at 33 (1) 44 25 1000,
Direction des Relations avec les Actionnaires, or by requesting the documents
from CANAL+, Direction des Affaires Juridiques, 85/89 quai Andre Citroen, 75015
Paris, France or from Societe Generale, Service Assemblees, 32, rue du Champ de
Tir, BP 81236, 44312 Nantes Cedex 3, France. If you hold CANAL+ ordinary shares
in bearer form, you may obtain all these documents by contacting CANAL+ or
Societe Generale as described above.
CANAL+ ADS holders may vote by using the enclosed voting instruction card.
CANAL+ ADS holders that wish to vote the CANAL+ ordinary shares underlying their
ADSs directly and attend the meeting must surrender their ADRs and withdraw the
ordinary shares, and pay the taxes, governmental charges and fees of the
depositary, all in accordance with the terms of the deposit agreement, in order
to become registered owners of the CANAL+ ordinary shares underlying their ADSs
prior to November 24, 2000.
QUORUM AND REQUIRED VOTE
Under the French commercial code, persons who hold at least one-third of a
company's outstanding voting rights must be present at an extraordinary
shareholders' meeting in person, or must vote by mail or by proxy, to fulfill
the quorum requirements for the shareholders' meeting. The meeting will be
adjourned if a quorum is not present. At an extraordinary meeting resumed after
adjournment, at least one-fourth of a company's outstanding voting rights must
be present in person or must vote by proxy. At a meeting resumed after
adjournment, only questions that were on the agenda of the adjourned meeting may
be discussed and voted upon.
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<PAGE> 61
Under the French commercial code, persons who hold at least one-fourth of a
company's outstanding voting rights must be present at an ordinary shareholders'
meeting in person or vote by mail or by proxy in order to fulfill the quorum
requirements for the shareholders' meeting. The meeting will be adjourned if a
quorum is not present. At an ordinary meeting resumed after adjournment, no
quorum requirements apply.
Each CANAL+ ordinary share and every five CANAL+ ADSs will entitle the
holder to cast one vote on each matter that properly comes before the CANAL+
meeting, subject to the exceptions described under "Comparison of Shareholders'
Rights -- Take-Over Bids and Compulsory Acquisition of Shares; Anti-Takeover
Provisions." The affirmative vote of two-thirds of the votes cast by CANAL+
shareholders represented at the meeting is required to approve the resolutions
necessary to complete the merger transactions and to authorize the cancellation
of CANAL+ ordinary shares that CANAL+ may have acquired. The effectiveness of
each extraordinary resolution is conditioned upon the approval of each other
extraordinary resolution. The affirmative vote of a simple majority of the votes
cast by CANAL+ shareholders represented at the meeting is required to approve
the resolution relating to a share repurchase program to replace CANAL+'s
currently authorized program.
VOTING BY HOLDERS OF CANAL+ ADSs; RECORD DATE
Holders of CANAL+ ADSs as of November 1, 2000, the record date for CANAL+
ADSs, are entitled to notice of the meeting, and may vote the CANAL+ ordinary
shares underlying CANAL+ ADSs at the meeting in one of two ways:
- by properly completing, signing and dating the enclosed voting
instruction card and returning it in the enclosed postage-paid envelope
to the depositary by November 28, 2000; a holder of CANAL+ ADSs may cause
the depositary to vote the ordinary shares underlying the ADSs in the
manner prescribed in the voting instruction card (as more fully described
below); or
- a holder of CANAL+ ADSs may elect to surrender their ADRs and withdraw
the ordinary shares in accordance with the terms of the deposit agreement
and may attend the meeting and vote the ordinary shares in person.
The significant differences between these two alternatives are as follows:
- a holder of CANAL+ ADSs will not be entitled to attend the meeting in
person but must instead instruct the depositary to vote the ordinary
shares underlying the ADSs;
- a holder of CANAL+ ADSs will not have the opportunity to consider or vote
on any matters that may be presented at the meeting other than those
described in this joint proxy statement-prospectus or any further
solicitation made by CANAL+; and
- a holder of CANAL+ ADSs is not entitled to present proposals at the
meeting for consideration at the meeting.
A holder of ordinary shares must actually be the registered holder of the
ordinary shares on November 30, 2000 (and hold those ordinary shares through the
date of the meeting) to be eligible to vote.
Voting Through the Depositary
Upon receipt by the depositary of a properly completed voting instruction
card on or before November 28, 2000, the depositary will, insofar as
practicable, vote or cause to be voted the number of CANAL+ ordinary shares
underlying the CANAL+ ADSs in accordance with the instructions provided in the
voting instruction card. If you do not send in a voting instruction card, the
depositary will vote or cause to be voted the shares underlying the CANAL+ ADSs
in favor of the resolutions agreed to by CANAL+'s board of directors.
The depositary will not vote, cause to be voted or attempt to exercise the
right to vote that is attached to CANAL+ ADSs if the voting instruction card
with respect to the ADSs is incorrectly completed or
54
<PAGE> 62
illegible. The depositary will take no action to impair its ability to vote or
cause to be voted the number of ordinary shares necessary to carry out the
instructions of all holders of CANAL+ ADSs.
Voting Ordinary Shares
Under French law and CANAL+'s statuts, only (1) shareholders holding
registered ordinary shares at least five calendar days prior to the date of a
shareholders' meeting and (2) shareholders holding bearer ordinary shares that
have delivered to Societe Generale, Service Assemblees, 32, rue du Champ de Tir,
BP 81236, 44312 Nantes Cedex 3, France, at least five days before the CANAL+
meeting, proof of identity and an ownership certificate issued by an accredited
French financial intermediary stating that their shares have not been
transferred before the date of the meeting may vote the ordinary shares and
attend the meeting. Therefore, in order for a holder of CANAL+ ADSs to attend
the meeting and vote the ordinary shares, the holder must first become a
registered owner of ordinary shares underlying the CANAL+ ADSs. To accomplish
this, CANAL+ ADS holders must deliver, on or before November 28, 2000, their
ADRs to the depositary for cancellation and pay the fee provided for in the
deposit agreement. The depositary will then request that the Paris office of
Credit Lyonnais, as custodian of the CANAL+ ordinary shares underlying the
CANAL+ ADSs, register the holder in the CANAL+ share register. The depositary
will also ask the custodian to make arrangements to allow the holder to vote at
the meeting. The custodian will not permit any transfer of the ordinary shares
during the "blocked period" of December 4, 2000 to December 6, 2000.
RECEIPT DATE
The depositary must receive the voting instruction card on or before
November 28, 2000 in order to vote the CANAL+ ordinary shares underlying the
CANAL+ ADSs in accordance with the instructions set forth on the voting
instruction card.
REVOCABILITY OF VOTING INSTRUCTIONS
All CANAL+ ADS holders entitled to vote and represented by properly
executed voting instruction cards received prior to November 28, 2000, and not
revoked, will be voted at the meeting in accordance with the instructions
indicated on those voting instruction cards. Any voting instructions given
pursuant to this solicitation may be revoked by the person giving it at any time
before it is voted. A voting instruction may be revoked by filing with the
depositary a written notice of revocation or a duly executed voting instruction
card, in either case dated later than the prior voting instruction card relating
to the same CANAL+ ADSs and received by the depositary prior to November 28,
2000. Holders of CANAL+ ordinary shares can revoke their proxies by notifying
CANAL+ at CANAL+, Services Juridiques, 85/89 quai Andre Citroen, 75015 Paris,
France no later than December 4, 2000.
PRINCIPAL SHAREHOLDERS
On September 30, 2000, approximately 126,359,868 CANAL+ ordinary shares
were outstanding and entitled to cast a total of 125,819,314 votes at the
meeting.
To the best of CANAL+'s knowledge, it has no shareholders whose beneficial
ownership represents 5% or more of its share capital or voting rights, other
than Vivendi and Vivendi's wholly-owned subsidiary Vivendi Universal, which
together own approximately 49% of CANAL+. Vivendi has agreed in the merger
agreement to vote its CANAL+ shares in favor of the Vivendi/CANAL+ transactions.
The total number of shares owned by CANAL+'s officers and directors and
executive officers who are natural persons as a group (12 persons) represented
less than 1% of CANAL+'s outstanding shares and less than 1% of its voting
shares as of September 30, 2000. Pursuant to CANAL+'s statuts, each of its
directors must own at least one of its shares.
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CHAPTER THREE -- THE MERGER TRANSACTIONS
STRUCTURE AND BACKGROUND
WHAT SHAREHOLDERS WILL RECEIVE IN THE MERGER TRANSACTIONS
TREATMENT OF SEAGRAM COMMON SHARES
In the arrangement, each Seagram common share will be exchanged for a
number of Vivendi Universal ADSs, or, in the case of Seagram common shares held
by electing Canadian residents, exchangeable shares and Vivendi Universal voting
rights, determined pursuant to the exchange ratio set forth in the plan of
arrangement. The plan of arrangement defines "exchange ratio" as the number
(rounded to the nearest 1/10,000) determined by dividing U.S.$77.35 by the
average (rounded to the nearest one hundredth of a cent) of the daily closing
prices for Vivendi ordinary shares on the Paris Bourse (as published by the
SBF-Bourse de Paris and as converted into U.S. dollars at the noon buying rate)
during the 20 consecutive trading days ending on the third complete trading day
prior to the completion of the arrangement. However, the exchange ratio will in
no event be less than 0.6221 or greater than 0.8000. The exchange ratio will be
adjusted to reflect fully the effect of any stock split, stock dividend,
consolidation, reorganization or similar event with respect to Vivendi shares or
Seagram common shares effected before the completion of the arrangement, other
than the Vivendi/CANAL+ transactions. In addition, the number of exchangeable
shares and Vivendi Universal voting rights is subject to adjustment in limited
circumstances, as described under "-- Merger Transaction Steps -- Limitation on
Number of Exchangeable Shares and Vivendi Universal Voting Rights."
TREATMENT OF VIVENDI ORDINARY SHARES
In the merger of Vivendi into Vivendi Universal, each Vivendi ordinary
share will be exchanged for one Vivendi Universal ordinary share.
TREATMENT OF VIVENDI ADSs
Vivendi will enter into an amendment of its deposit agreement with the
depositary to provide that upon the completion of the merger transactions, the
depositary will call for the surrender of outstanding Vivendi ADRs to exchange
them for new Vivendi Universal ADRs that will be issued pursuant to the amended
deposit agreement.
Unlike each Vivendi ADS, which represents one-fifth of a Vivendi ordinary
share, each Vivendi Universal ADS issued in the merger transactions will
represent one Vivendi Universal ordinary share. Because holders of Vivendi
ordinary shares will be entitled to receive in the merger transactions one
Vivendi Universal ordinary share for each Vivendi ordinary share they hold,
holders of Vivendi ADSs will receive one Vivendi Universal ADS for every five
Vivendi ADSs they hold.
TREATMENT OF CANAL+ ORDINARY SHARES
In the merger transactions, holders of CANAL+ ordinary shares will receive
two Vivendi Universal ordinary shares for each CANAL+ ordinary share they hold.
Each CANAL+ ordinary share will remain outstanding as a CANAL+ ordinary share.
TREATMENT OF CANAL+ ADSs
Unlike each CANAL+ ADS, which currently represents one-fifth of a CANAL+
ordinary share, each Vivendi Universal ADS issued in the merger transactions
will represent one Vivendi Universal ordinary share. In the merger transactions,
holders of CANAL+ ordinary shares will retain those shares and will receive two
Vivendi Universal ordinary shares for each CANAL+ ordinary share they hold.
Holders of CANAL+ ADSs will receive two Vivendi Universal ADSs for every five
CANAL+ ADSs they hold. In addition, they will retain their CANAL+ ADSs.
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FRACTIONAL VIVENDI UNIVERSAL ADSS RESULTING FROM ADR EXCHANGES
In the event the exchanges of ADRs in respect of Vivendi ADSs or CANAL+
ADSs described above would otherwise result in the issuance of fractional
Vivendi Universal ADSs, the depositary will sell the amount of Vivendi Universal
shares represented by the aggregate of those fractions and distribute the net
proceeds to holders of Vivendi ADSs and CANAL+ ADSs (net of expenses and
withholding taxes) in proportion to the fractional Vivendi Universal ADSs
otherwise issuable to those holders.
FRACTIONAL VIVENDI UNIVERSAL ADSS OR EXCHANGEABLE SHARES RESULTING FROM THE
ARRANGEMENT
In the event the exchanges of Seagram common shares for Vivendi Universal
ADSs or exchangeable shares described above would otherwise result in the
issuance of fractional Vivendi Universal ADSs or exchangeable shares, the
exchange agent will sell the amount of Vivendi Universal ADSs and exchangeable
shares represented by the aggregate of those fractions and distribute the
proceeds to holders (net of expenses and withholding taxes) in proportion to the
fractional Vivendi Universal ADSs and fractional exchangeable shares,
respectively, otherwise issuable to those holders.
MERGER TRANSACTION STEPS
THE FOLLOWING DESCRIPTIONS OF THE MERGER TRANSACTIONS ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE TRANSACTION AGREEMENTS
THAT ARE ATTACHED AS ANNEXES OR EXHIBITS TO THIS JOINT PROXY-STATEMENT
PROSPECTUS. WE URGE YOU TO READ THE FULL TEXT OF THESE AGREEMENTS.
THE VIVENDI/CANAL+ TRANSACTIONS
Existing Corporate Structure
As of the date of this joint proxy statement-prospectus, Vivendi is the
holder of all of the Vivendi Universal shares. Vivendi also directly holds
approximately 15% of the outstanding CANAL+ shares, and Vivendi Universal
directly holds approximately 34% of the outstanding CANAL+ shares. The remainder
of the outstanding CANAL+ shares are held publicly.
Merger of Vivendi and Vivendi Universal
Vivendi will contribute its CANAL+ shares to Vivendi Universal, and, as a
result, Vivendi Universal will directly hold approximately 49% of the
outstanding CANAL+ shares. Vivendi will then merge into Vivendi Universal, with
Vivendi Universal continuing as the surviving entity.
Separation of CANAL+'s Businesses
After the merger of Vivendi into Vivendi Universal, CANAL+'s businesses
will be separated into two parts, the French premium pay television channel
business and the transferred businesses. See "The Vivendi Parties and
CANAL+ -- CANAL+" for a description of these businesses. The separation will be
accomplished under the contribution agreements, which provide that CANAL+ will
contribute the distribution and marketing business associated with its French
pay television channel to CANAL+ Distribution and will contribute the business
of selling advertising on pay television channels to CANAL+ Regie. CANAL+ will
then contribute all the shares of CANAL+ Distribution and CANAL+ Regie and the
other transferred businesses to Canal Holdco, and Canal Holdco will contribute
all those shares and the other transferred businesses, other than the Internet
business, which it will retain, to its wholly-owned subsidiary Groupe CANAL+.
CANAL+ will retain the French premium pay television channel business.
Merger of Vivendi Universal and Canal Holdco
After the merger of Vivendi into Vivendi Universal and as part of the
separation of CANAL+'s businesses, CANAL+ will distribute all the Canal Holdco
shares to its shareholders on a pro rata basis, subject to shareholder approval
of the merger of Canal Holdco into Vivendi Universal. As a result, Vivendi
Universal will receive approximately 49% of the outstanding Canal Holdco shares,
the remainder being
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distributed to the public shareholders of CANAL+. Immediately after the
distribution of Canal Holdco shares, Vivendi Universal will merge with Canal
Holdco, with Vivendi Universal continuing as the surviving entity. As a result
of this merger, Vivendi Universal will hold 100% of the Groupe CANAL+ shares,
and the Canal Holdco shares distributed to the public shareholders of CANAL+
will be exchanged for Vivendi Universal shares according to an exchange ratio of
two Vivendi Universal ordinary shares for each CANAL+ ordinary share they own.
The CANAL+ shareholders will also retain their existing shares in CANAL+.
Contribution of CANAL+ Shares to Groupe CANAL+
Immediately after the merger between Vivendi Universal and Canal Holdco,
the contribution by Vivendi Universal to Groupe CANAL+ of all of its 49%
interest in CANAL+ will become effective.
Effect of Vivendi/CANAL+ Transactions
After the completion of all the Vivendi/CANAL+ transactions, Vivendi
Universal will hold 100% of CANAL+'s transferred businesses through its 100%
interest in Groupe CANAL+, which, in turn, will hold 49% of the French premium
pay television channel business through its 49% interest in CANAL+. Although the
Vivendi/CANAL+ transactions are described in the sequence in which they will
occur as a legal matter, they are in fact expected to occur effectively
simultaneously, and it will be a condition to each aspect of the Vivendi/CANAL+
transactions that the steps necessary to implement all of those transactions
have taken place and that the arrangement be completed simultaneously.
THE ARRANGEMENT
Upon the issuance of a certificate of arrangement pursuant to the CBCA as
described under "--Court Approval of the Arrangement and Completion of the
Merger Transactions":
- each Seagram common share, other than:
-- elected shares, as described below;
-- Seagram common shares held by shareholders that dissent in respect of
the arrangement resolution in compliance with the requirements
described under "The Shareholder Meetings -- The Seagram
Meeting -- Dissenting Shareholder Rights" and that are ultimately
entitled to be paid the fair value of their Seagram common shares in
cash; and
-- Seagram common shares, if any, held by Vivendi Universal or any of
its affiliates,
will be automatically transferred by its holder, without any act or
formality by the holder, to Vivendi Universal Holdings, a wholly-owned
Canadian subsidiary of Vivendi Universal, in exchange for a number of
Vivendi Universal ADSs determined pursuant to the exchange ratio; and
- each elected share will be automatically transferred by its holder,
without any act or formality by the holder, to Vivendi Universal
Exchangeco in exchange for:
-- a number of exchangeable shares determined pursuant to the exchange
ratio, subject to the limitations set forth under "-- Limitation on
Number of Exchangeable Shares and Vivendi Universal Voting Rights";
and
-- a number of Vivendi Universal voting rights (which will be held by a
custodian for and on behalf of such holder as described under
"Securities -- Description of Vivendi Universal Voting
Rights -- Custody Agreement") equal to that number of exchangeable
shares.
"Elected shares" are Seagram common shares with respect to which their
holders have elected to receive exchangeable shares, in lieu of Vivendi
Universal ADSs, in exchange for those Seagram common shares in accordance with
the procedures set forth under "The Shareholder Meetings -- The Seagram
Meeting -- Procedures for Exchange of Share Certificates by Seagram
Shareholders."
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THE RIGHT TO ELECT TO RECEIVE EXCHANGEABLE SHARES WILL BE AVAILABLE ONLY TO
REGISTERED HOLDERS OF SEAGRAM COMMON SHARES THAT ARE, OR THAT HOLD SEAGRAM
COMMON SHARES ON BEHALF OF, RESIDENTS OF CANADA FOR PURPOSES OF THE INCOME TAX
ACT (CANADA) (CANADIAN TAX ACT) OR PARTNERSHIPS ANY MEMBER OF WHICH IS A
RESIDENT OF CANADA FOR PURPOSES OF THE CANADIAN TAX ACT. TO EXERCISE THIS RIGHT,
A HOLDER MUST SUBMIT THE LETTER OF TRANSMITTAL AND ELECTION FORM SENT WITH THIS
JOINT PROXY STATEMENT-PROSPECTUS, PROPERLY COMPLETED AND DULY EXECUTED, TOGETHER
WITH THE HOLDER'S SEAGRAM COMMON SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, TO THE EXCHANGE AGENT AT THE APPROPRIATE ADDRESS LISTED IN THE LETTER
OF TRANSMITTAL AND ELECTION FORM BEFORE 5:00 P.M., EASTERN TIME, ON NOVEMBER 30,
2000, THE DATE THAT IS THREE BUSINESS DAYS BEFORE THE DATE OF THE SEAGRAM
MEETING. A HOLDER MAY EXERCISE THIS RIGHT WITH RESPECT TO ALL OR ANY PORTION OF
THE HOLDER'S SEAGRAM COMMON SHARES.
Any Canadian resident Seagram shareholder whose shares are registered in
the name of a broker, investment dealer, bank, trust company or other
intermediary and that wishes to receive exchangeable shares should contact that
intermediary for instructions and assistance in making its election and in
delivering share certificates representing those Seagram common shares.
LIMITATION ON NUMBER OF EXCHANGEABLE SHARES AND VIVENDI UNIVERSAL VOTING
RIGHTS
The plan of arrangement provides that no more than 97 million exchangeable
shares and Vivendi Universal voting rights may be issued in exchange for elected
shares. In the event that Canadian resident Seagram shareholders elect to
receive in the aggregate more than 97 million exchangeable shares and Vivendi
Universal voting rights:
- 97 million exchangeable shares will be issued pro rata to the
shareholders electing to receive them in exchange for all the Seagram
common shares with respect to which those elections were made. Each
recipient of exchangeable shares will receive one Vivendi Universal
voting right for each exchangeable share received, which will result in
each holder of exchangeable shares having fewer votes with respect to
Vivendi Universal than if that holder had elected to receive Vivendi
Universal ADSs in the arrangement; and
- the number of Vivendi Universal ADSs receivable upon the exchange of each
exchangeable share will be increased to be equal to a fraction the
numerator of which is the number of exchangeable shares that would have
been received by all holders if there were no maximum number of
exchangeable shares and the denominator of which is 97 million. The terms
of the exchangeable shares will provide that this increase will be taken
into account in order to maintain the economic equivalence of the
dividends and distributions on the exchangeable shares and the dividends
and distributions on the Vivendi Universal ADSs for which they are
exchangeable. In the case of cash dividends payable on Vivendi Universal
ADSs, a corresponding cash dividend will be payable on the exchangeable
shares in an amount per exchangeable share equal to the dividend on the
Vivendi Universal ADSs multiplied by a factor that will initially be the
fraction described above, subject to upward adjustment in limited
circumstances.
Vivendi and Seagram do not anticipate that Seagram shareholders will elect
to receive more than 97 million exchangeable shares and Vivendi Universal voting
rights.
BACKGROUND OF THE MERGER TRANSACTIONS
Edgar Bronfman, Jr., Seagram's president and chief executive officer,
routinely meets with executives of other entertainment and media companies to
discuss developments in the industry. In that connection, in October 1999,
Jean-Marie Messier, Vivendi's chairman and chief executive officer, and Mr.
Bronfman had a breakfast meeting in Paris at which they discussed a variety of
topics related to their businesses, including the Internet. At that meeting they
did not discuss the possibility of combining their businesses.
At a regularly scheduled meeting on February 9, 2000, Seagram's board of
directors invited Seagram's senior management to discuss the impact of industry
developments on Seagram's growth strategies with the assistance of Goldman
Sachs, which has provided financial advisory services to Seagram from time to
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time in the past. Among these developments is the fact that, during the past few
years, the entertainment and media industry has undergone a major consolidation
in which companies with varied product offerings and distribution capabilities
are increasingly joining forces in transactions designed to capitalize on cross-
promotion opportunities among brands and to build the scale and resources
necessary to invest in new media technologies.
In mid-February 2000, Messrs. Messier and Pierre Lescure, CANAL+'s chairman
and chief executive officer, asked Mr. Bronfman to meet with them in New York to
initiate steps to explore the possibility of combining their businesses. On
February 25 and 26, senior executives of Vivendi, Seagram and CANAL+, including
Messrs. Messier, Bronfman and Lescure, Guillaume Hannezo, Vivendi's chief
financial officer, and Brian C. Mulligan, Seagram's executive vice president and
chief financial officer, made presentations regarding their respective
businesses.
During this period, Mr. Bronfman also held preliminary discussions with a
number of other potential strategic partners that had contacted Mr. Bronfman
about possible strategic combinations. None of those discussions progressed
beyond the preliminary stages and none of them involved substantive valuation
discussions.
In conjunction with the initial discussions among the parties, Vivendi and
Seagram began consulting their financial and legal advisors about various
issues. The companies instructed their advisors jointly to attempt to develop
structures for a stock-for-stock business combination that would provide
tax-free treatment and voting rights for Seagram shareholders. During March, the
companies and their advisors discussed various structures for a potential
business combination, including structures that involved only Vivendi and
Seagram as well as structures that also involved CANAL+. On March 22, 2000, Mr.
Messier made a presentation regarding the businesses of Vivendi and CANAL+ to
members of the Bronfman family at Seagram's offices in New York. Executives of
all three companies were in attendance. These meetings were highly preliminary,
as structural issues remained unresolved and valuation issues had not yet been
addressed.
At a regularly scheduled meeting of Seagram's board of directors on March
28, 2000, which was continued on March 29, 2000, Seagram's senior management
conducted a comprehensive overview of Seagram's strategic objectives, including
a review of its progress to date, an assessment of recent industry developments
and an outline of available alternatives to achieve growth. The board also
considered potential impediments to growth in the absence of a strategic
transaction, including Seagram's scale relative to its primary competitors and
the substantial resources required to develop new media distribution
technologies. As part of this review, Mr. Bronfman briefed the board on the
status of his discussions with various potential strategic partners, including
Vivendi and CANAL+. No specific proposals were presented to or acted upon by the
board at this meeting, but it was the consensus of Seagram's board that Mr.
Bronfman should continue to be receptive to exploring possible strategic
combinations.
During April 2000, the parties and their respective advisors began
discussions regarding the structure and mechanics of potential exchange ratios
that could be used in a possible business combination, but did not specifically
address valuation. Also during April 2000, Seagram executives made presentations
to Vivendi's executives and advisors regarding the operations of Seagram's
various divisions.
On April 24, 2000, Messrs. Messier, Bronfman, Hannezo and Mulligan,
together with their respective financial advisors, met to discuss the potential
business combination, its strategic rationale and possible exchange ratios.
Possible exchange ratios of two Vivendi Universal shares for each CANAL+ share
and two-thirds of a Vivendi Universal share for each Seagram share were
discussed. At this time, Messrs. Bronfman and Mulligan and Seagram's financial
advisors also sought price protection in the form of a collar, but no specific
proposals for a collar were discussed. The parties did not reach an agreement
with respect to a business combination that could be proposed to their
respective boards of directors and decided to suspend their discussions.
Following several conference calls between the parties' financial advisors,
Vivendi's and Seagram's chief financial officers spoke on May 5, 2000, during
which call the parties decided to renew discussions to
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revisit whether an agreement on a business combination could be reached. On May
16, 2000, the parties and their financial advisors met in New York to discuss
the possible benefits of a business combination.
At a meeting in New York on June 2, 2000, that included Vivendi's and
Seagram's chief financial officers and the parties' legal and financial
advisors, the parties agreed to the general framework of a final structure for a
possible business combination, subject to confirmatory review of legal and
regulatory matters. Vivendi and Seagram determined at this point that any
transaction would also involve CANAL+, although the terms of the Vivendi/CANAL+
transactions were not addressed. In addition, a timetable for completing mutual
due diligence was agreed. At this meeting, however, the parties did not reach
agreement on a number of key decisions concerning the business combination:
- the exchange ratio;
- the extent to which the parties could consider alternative transactions,
including the ability of the parties to respond to alternative proposals;
the obligation of a party to hold its shareholders meeting and give its
shareholders the opportunity to vote on the proposed business combination
even if its board of directors subsequently were to withdraw its
recommendation and support another transaction; the termination events
and termination fees; and the terms of any stock option and voting
agreements; and
- governance arrangements of the combined company, including the number of
Seagram directors who would be designated to serve on Vivendi Universal's
board of directors.
On June 4, 2000, Vivendi and Seagram entered into a confidentiality
agreement, and from June 6, 2000 through June 19, 2000, Vivendi, Seagram, CANAL+
and their respective advisors intensified their due diligence activities and
negotiated the terms of the merger agreement and related documents and the terms
of the Vivendi/CANAL+ transactions. As part of the negotiations, on June 8,
2000, the parties discussed valuations that would result in exchange ratios of
(1) two Vivendi Universal shares for each CANAL+ share and (2) based on the
Vivendi share price at that time, 0.7 Vivendi Universal share for each Seagram
share, subject to a collar above and below the Vivendi share price. Vivendi
proposed a collar of 10% above and below the Vivendi share price at that time,
which was rejected by Seagram in favor of a collar of 12.5%, which Vivendi
eventually accepted on June 18, 2000. The parties continued to negotiate the
mechanics of the exchange ratio and related collar, including the currency in
which the price of Vivendi shares would be determined and the duration of the
measurement period for calculating the exchange ratio, until the weekend of June
17 and 18, 2000, when those terms were definitively agreed to.
On June 13, 2000, various reports began appearing on the news wires and
other news sources that the parties were in the final stages of negotiating a
business combination. On June 14, 2000, Vivendi and Seagram each issued press
announcements confirming that the parties were in negotiations but stating that
no agreement had been finalized. The Vivendi announcement further indicated that
movements in share prices following those press announcements would not be
reflected in any agreement that might be finalized.
On June 17, 2000, Seagram's board of directors met at Seagram's offices to
receive an update from Seagram's senior management regarding the status of
discussions with Vivendi and CANAL+ and an overview of the proposed merger
transactions and the strategic reasons for the proposed transactions from Mr.
Bronfman. At this meeting, Seagram's financial advisors reviewed with the board
the principal financial terms of the proposed merger transactions as had been
agreed upon as a basis for a transaction, including the exchange ratio, and
provided an assessment of the possible impact of an announcement of the proposed
transactions on the market price of Vivendi's shares. Seagram's outside legal
advisors reviewed the fiduciary obligations of the Seagram board and provisions
of the merger transactions as had been negotiated to that point. Seagram's
senior management and advisors also responded to questions from directors.
On June 18, 2000, Seagram's board of directors convened another special
meeting at which Mr. Bronfman and other members of Seagram's senior management
reviewed the proposed merger transactions in detail. Seagram's legal advisors
provided an overview of the principal terms of the draft
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merger agreement, option agreement and other transaction documents as well as
the principal legal, regulatory and tax issues relating to the proposed merger
transactions. At this meeting, Seagram's senior management also reported to the
board the results of the financial, accounting and legal due diligence conducted
by Seagram's management and advisors, and discussed the potential benefits and
risks of the proposed merger transactions in light of, among other factors, its
review of the business and financial condition of Vivendi and CANAL+. Seagram's
financial advisor, Goldman Sachs, presented a summary of its financial analysis
of the proposed merger transactions. The board also reviewed with Seagram's
legal advisors the proposed terms of the voting, governance and other
arrangements to be entered into by the Bronfman family and considered the
matters described under "-- Interests of Directors and Executive Officers in the
Merger Transactions." Seagram's senior management and advisors also responded to
questions from directors. After discussion, Seagram's board reached a consensus
that senior management should continue to negotiate the terms of definitive
transaction documentation. The board then agreed to consider the matter further
at a meeting the following day.
Following the June 18, 2000 Seagram board meeting, the parties reached
agreement on the principal terms of the definitive transaction documents.
At a special meeting of Seagram's board of directors on June 19, 2000, the
presentations of the prior board meetings were reviewed, and each of Seagram's
financial advisors, Goldman Sachs and Morgan Stanley, delivered its oral
opinion, which was subsequently confirmed in writing, to the effect that, as of
such date, the exchange ratio pursuant to the merger agreement and the plan of
arrangement was fair, from a financial point of view, to Seagram shareholders.
Upon completing its deliberations, the board unanimously determined that the
arrangement was fair to Seagram shareholders and was in the best interests of
Seagram, and determined to recommend that Seagram shareholders vote in favor of
the arrangement.
On June 18, 2000, Vivendi's board of directors met in Paris to consider the
proposed transactions with the assistance of Vivendi's financial advisor. At
this meeting, members of Vivendi's management reviewed the proposed merger
transactions with Vivendi's board, including the strategic reasons for the
proposed merger transactions, the principal terms of the proposed merger
transactions and a financial review of the proposed merger transactions.
Vivendi's financial advisor presented Vivendi's board of directors a summary of
its analysis on the strategic rationale for and financial analyses related to
the proposed merger transactions. Upon completing its deliberations, Vivendi's
board of directors unanimously authorized Vivendi's chairman to take all
necessary actions to effect the proposed merger transactions and to execute and
deliver the merger agreement and related agreements.
On June 19, 2000, CANAL+'s board of directors met to consider the proposed
merger transactions with the assistance of CANAL+'s financial advisor. At this
meeting, members of CANAL+'s management reviewed the proposed merger
transactions with the board, including the strategic reasons for the proposed
merger transactions, the principal terms of the proposed merger transactions and
a financial review of the proposed merger transactions. CANAL+'s financial
advisor presented the board a summary of its analysis of the strategic rationale
for and financial analyses related to the proposed merger transactions and
delivered its oral opinion, which was subsequently confirmed in writing, that
the CANAL+ Exchange Ratio, as described in "-- Opinions -- Opinion of CANAL+'s
Financial Advisor," was fair, from a financial point of view, to CANAL+
shareholders, other than Vivendi and its affiliates. Upon completing its
deliberations, CANAL+'s board unanimously approved the merger transactions and
authorized CANAL+'s chairman to take all necessary actions to effect the merger
transactions and to execute and deliver the merger agreement and related
agreements.
On June 19, 2000, representatives of Vivendi, representatives of Seagram
and representatives of CANAL+ executed the transaction agreements. In addition,
representatives of Vivendi and certain Seagram shareholders who are members or
affiliates of the Bronfman family entered into the voting agreement and the
governance agreement. On the morning of June 20, 2000, Vivendi, Seagram and
CANAL+ issued a joint press release announcing the proposed business
combination.
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REASONS FOR THE MERGER TRANSACTIONS
VIVENDI'S REASONS FOR THE MERGER TRANSACTIONS
In reaching its decision to approve the merger transactions, Vivendi's
board of directors consulted with Vivendi's financial advisors and with
Vivendi's management. Vivendi's board of directors considered a variety of
factors, including the following material factors (the order of which does not
reflect their relative significance):
- Expanding Content. Following the merger transactions, Vivendi Universal
will be among the only companies in the world capable of combining global
and local content with advanced digital distribution technology. Its
content assets will include:
-- the largest recorded music company in the world;
-- one of the largest film studios in the world;
-- the leading pay television programming operation in Europe;
-- a leading creator of personal computer games in the United States;
and
-- a publishing operation that is a worldwide leader in medical and
educational markets.
- Integrating Content and Access. Vivendi's board of directors believes
that by combining an array of popular content assets with the combined
customer and subscriber base of Vivendi, CANAL+ and Seagram, Vivendi
Universal will be well positioned to benefit from, and accelerate,
worldwide growth in wired and wireless Internet services by providing
content, e-services and e-commerce to customers through a variety of
access devices. As a result of the merger transactions, Vivendi's board
of directors believes that:
-- growth of the customer base of Vizzavi, a multi-access Internet
portal Vivendi is developing through a joint venture with Vodafone
Airtouch, will increase due to the addition of Universal's music,
film and television assets, which will substantially enhance
Vizzavi's global, local and personalized content and services in a
wide variety of entertainment and informational formats. In
cooperation with Seagram's Universal Music Group, for example, it is
anticipated that Vizzavi will be able to offer subscribers
personalized, interactive music services and innovative pricing
models designed to increase consumer satisfaction, facilitate sales
and lower costs;
-- Vivendi Universal's access operations will benefit from enhanced
opportunities for cross-promotion, bundled service offerings and
advertising;
-- Vivendi Universal's content operations will benefit from access to
Vivendi's and Vizzavi's subscriber base; and
-- Vivendi Universal will be in a position to capitalize upon its
distribution capabilities in Europe and its expertise in creating
wireless content and services as the growth of wireless services
accelerates in North America and around the world.
- Sale of Valuable Non-Core Assets. Seagram is a world leader in the
spirits and wine industry, owning well-known brands such as Chivas Regal
Scotch Whisky, Crown Royal Canadian Whisky, Captain Morgan rums and
Martell Cognacs. Vivendi's board of directors believes that the expected
sale of Seagram's spirits and wine operations will allow Vivendi
Universal to reduce its outstanding indebtedness substantially.
- Exchange Ratio. Under the terms of the merger agreement, Vivendi will
acquire what it believes to be a superior collection of media and
entertainment assets for a premium that is within the range of premiums
paid in recent comparable U.S. transactions. The Vivendi board of
directors also considered the opinion of Lazard Freres S.A.S. that as of
June 18, 2000 the exchange ratio and the CANAL+ exchange ratio were fair
to Vivendi from a financial point of view.
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During the Vivendi board of directors' consideration of the proposed merger
transactions, Vivendi and its financial advisors presented the Vivendi board of
directors with financial projections for Vivendi Universal that had been
prepared by Vivendi's financial advisors based in part upon projections for
Seagram prepared by third party financial analysts. These projections included
projected revenue for Vivendi Universal of E50.5 billion for 2000 and
E55.1 billion for 2001 and projected adjusted EBITDA of E6.7 billion
for 2000 and E8.6 billion for 2001 excluding, in each case, Seagram's
Spirits and Wine business. Adjusted EBITDA is defined as operating income before
amortization and depreciation, expenses of replacement and repair of
installation and equipment owned by local authorities. Seagram did not
participate in the preparation or review of those projections. As part of
Vivendi Universal's overall strategy after completion of the proposed merger
transactions, Seagram has commenced a process intended to lead to the sale of
the Spirits and Wine business. In connection with the anticipated sale of the
Spirits and Wine segment, Seagram and JES intend to tender for outstanding debt
securities with an aggregate principal amount of approximately U.S.$7.175
billion.
In addition, although Vivendi's board of directors did not consider this
information in its consideration of the proposed merger transactions, Seagram
provided to Vivendi's management financial projections for Seagram that had been
prepared by Seagram's management. These projections included projected revenue
for Seagram of U.S.$15,817 million for 2000 and projected EBITDA of U.S.$1,788
million for 2000.
These projections are included in this joint proxy statement-prospectus
only because this information was considered by the board of directors of
Vivendi in connection with its consideration of the merger agreement. The
projections were not prepared with a view to public disclosure or compliance
with the published guidelines or policies of the SEC, Canadian securities
regulatory authorities or the guidelines established by the American Institute
of Certified Public Accountants, the Canadian Institute of Chartered Accountants
or any relevant French or European body regarding projections or forecasts. The
projections are not presented in accordance with U.S., Canadian or French GAAP,
and the parties' independent auditors have not examined or compiled the
projections and accordingly assume no responsibility for them. Financial
projections are, in general, subjective in many respects and thus susceptible to
interpretations and periodic revision based on actual experience and business
developments. These projections also reflect numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, all of which are difficult to predict, and many of
which are beyond the parties' control. Accordingly, the assumptions may not
prove accurate. It is expected that there will be differences between actual and
projected results, and actual results may be materially better or worse than
those contained in the projections. The inclusion of projections in this joint
proxy statement-prospectus does not indicate that any of Vivendi, Seagram or
CANAL+ or their respective affiliates or representatives considered or consider
the projections to be a reliable prediction of future events, and the
projections should not be relied upon as such. None of Vivendi, Seagram or
CANAL+ or any of their respective affiliates or representatives has made or make
any representation to any person regarding the ultimate performance of Vivendi
Universal compared to the information contained in the projections and, except
as expressly set forth under "-- Projections and Objectives" below, none of them
intends to update or otherwise revise the projections to reflect circumstances
existing after the date when made or to reflect the occurrence of future events
even in the event that any or all of the assumptions underlying the projections
are shown to be in error. For more information that could affect projections
made by the parties, see "Introduction -- Risk Factors."
This discussion of the information and factors considered by Vivendi's
board of directors is not intended to be exhaustive, but includes the material
factors considered. In considering the factors noted above, individual board
members may have given different weight to various factors.
SEAGRAM'S REASONS FOR THE MERGER TRANSACTIONS
Seagram's board of directors believes that the combination of Seagram,
Vivendi and CANAL+ will represent the culmination of Seagram's previously
announced strategy to transform itself into a global entertainment and media
leader. Seagram has already made major strides in implementing this strategy,
beginning with the acquisition of Universal Studios in 1995; its investment in
USA Networks in 1998; and
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its acquisition of PolyGram in 1998, which, in combination with Seagram's music
business, created the largest recorded music company in the world. Seagram has
further enhanced its ability to invest in expansion of its entertainment
businesses by disposing of non-strategic assets, including the Tropicana juice
business, which Seagram sold in 1998. While Seagram's transformation has begun
to deliver the enhanced growth potential envisioned, Seagram's board of
directors believes that in order to realize fully Seagram's growth strategy in
the digital and Internet age, Seagram must be able effectively to deliver its
content across the growing and converging range of media formats, both wired and
wireless.
By combining with Vivendi and CANAL+ to form Vivendi Universal, Seagram
will gain access to Vivendi's broad base of telecommunications assets, including
high-speed wireless transmission, fixed and wireless communications networks,
Internet access providers and cable and satellite transmission networks. The
combination will enable Seagram to distribute its music, film and television
offerings through increasingly popular and varied new media channels on a more
accelerated and cost-effective basis than Seagram could achieve on its own. For
example, Vizzavi, Vivendi's joint venture with Vodafone, will become the default
Internet portal for an extensive footprint of European subscribers and will
serve as an important platform through which Vivendi Universal will develop the
capability for customers to access its varied content offerings through multiple
wired and wireless devices. In addition, the combination will provide Seagram
access to the international customer base of Vivendi and CANAL+, thereby
expanding the international markets for Seagram's traditional entertainment
offerings and increasing Seagram's global reach.
Strategic Considerations. Seagram's board of directors concluded that the
merger transactions will provide a number of strategic opportunities and
benefits, including the following:
- Greater Access to Internet and New Media Distribution Channels. As the
Internet and other new media technologies continue to evolve and gain
popularity, Seagram's board of directors believes that the ability to use
those technologies to provide innovative content to customers will become
increasingly important to compete effectively. Seagram's board of
directors also believes that Vivendi's focus on wireless technology and
multiple access devices will provide the combined company with a
competitive advantage in the future by enhancing its ability to meet the
next generation of technological developments as well as rapidly changing
consumer preferences. Vivendi Universal's emphasis on multiple wired and
wireless technologies, including mobile telephones, interactive and
digital television and satellite technology, will enhance the combined
company's ability to reach customers at any time and place and enable it
to select optimal delivery channels on a product-by-product basis. In
addition, Seagram's board of directors believes that Vivendi Universal's
strategy of utilizing multiple access devices and distribution channels
will provide an advantage relative to competitors providing Internet
access solely via personal computers.
- Content Enhancement Through Use of Technology. Seagram's board of
directors believes that the distribution technologies to be developed by
Vivendi Universal will not only reach more customers, they will also
allow the combined company to provide product enhancements that will
permit further penetration of its existing customer base. For example,
on-line distribution of music will allow the customer greater ability to
choose among particular music offerings and will enhance Vivendi
Universal's ability to target its marketing efforts to particular
segments of the customer base. Interactive technology efforts also
provide the potential greatly to enhance its film, television and game
offerings.
- Enhanced Scale and Global Reach. During the past several years, the
entertainment and media industry has undergone a significant
consolidation. Seagram's board of directors believes this trend will
continue in the future and that scale and the ability to operate
internationally will become increasingly essential to compete
effectively. The proposed combination will provide Seagram with the added
scale and resources necessary to compete more effectively in this
changing competitive environment. For example, the combination will
provide Seagram with access to the large international customer base of
Vivendi and CANAL+ (including the Vizzavi subscriber base) for
distribution of Universal's music, film and television content. In
addition, the global nature of
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Vivendi Universal will enhance the combined company's ability to compete
in a market that is becoming more global in nature.
- Content Synergies and Cross-Promotion. Seagram's board of directors
believes that the complementary nature of Vivendi's, Seagram's and
CANAL+'s businesses will enhance Vivendi Universal's growth potential by
strengthening its global brands and content. For example, the combination
of the film and television libraries of Universal and CANAL+ will create
one of the world's largest film libraries. The combined company will also
include the world's largest recorded music company, a leading producer of
theme channels and sports content in Europe and a world leader in the
development and distribution of interactive games. In addition, the wide
variety of content produced by Vivendi Universal will enhance its ability
to engage in joint marketing efforts and promotional tie-ins that link
the products and services of Vivendi Universal's various business lines.
- Cost Synergies. Although not a primary factor in its determination,
Seagram's board of directors also considered the cost synergies that can
be achieved through the combination of Seagram, Vivendi and CANAL+,
including through the reduction of corporate overhead and headquarters
expenses, the combination of purchasing functions and the rationalization
of logistics and distribution functions in Europe.
Other Factors Considered. In reaching its decision to approve the merger
agreement and related agreements and to recommend that the Seagram shareholders
approve the arrangement resolution, Seagram's board of directors consulted with
Seagram's financial and legal advisors and with Seagram's senior management and
considered a number of factors, including the following:
- the strategic considerations described above;
- information concerning the respective businesses of Seagram, Vivendi and
CANAL+, including information regarding financial performance and
condition, operations, technology and management and the results of
Seagram's business, accounting and legal due diligence review;
- the exchange ratio and related collar provisions of the plan of
arrangement, which provide that Seagram shareholders will receive Vivendi
Universal ADSs or exchangeable shares valued (based on the average price
set forth in the plan of arrangement) at U.S.$77.35 per share for each
Seagram common share so long as the average price of Vivendi ordinary
shares during a 20 consecutive trading day period prior to the effective
time of the arrangement is not more than 12.5% above nor 12.5% below
U.S.$110.50, the U.S. dollar equivalent of the closing price of the
Vivendi ordinary shares on the Paris Bourse on June 9, 2000;
- the opportunity for the Seagram shareholders to receive Vivendi Universal
ADSs or exchangeable shares valued at a significant premium over the
market price of Seagram common shares prevailing prior to the disclosure
of the merger transactions; assuming the average price of Vivendi shares
for the pre-closing measuring period is within 12.5% above or below the
closing market price of Vivendi ordinary shares on the Paris Bourse on
June 9, 2000 (the last trading day prior to the date on which Seagram
believes speculation about the proposed merger transactions may have
affected the trading values of the Seagram common shares and the Vivendi
ordinary shares), the exchange ratio represents a 53.7% premium over the
closing market price of Seagram common shares on that date; a 53.6%
premium over the average closing price for Seagram common shares during
the 30-day period ending June 16, 2000; a 50.6% premium over the average
closing price for Seagram's shares during the one-year period ending June
16, 2000; and a 19.9% premium over Seagram's all-time high share price of
U.S.$64.50;
- the opportunity for the Seagram shareholders to share in the value
anticipated to be created through the combination of Seagram, Vivendi and
CANAL+ by receiving a continuing equity and voting interest in the
combined company of approximately 27% to 32%;
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- the alternatives reasonably available to Seagram in the absence of the
merger transactions, including operating Seagram as it has in the recent
past, possible alternative business combinations or other strategic
transactions and internal growth scenarios;
- the analyses of and discussions with Seagram's financial advisors and
their opinions as to the fairness of the exchange ratio, from a financial
point of view, to the holders of Seagram common shares (see
"-- Opinions -- Opinions of Seagram's Financial Advisors");
- the corporate governance arrangements established for the merger
transactions, including Vivendi Universal's board and board committee
composition and the designation of key senior management, which are
designed to promote continuity of management from each company and a
smooth integration of businesses;
- the expected tax treatment of the merger transactions for U.S. and
Canadian federal income tax purposes and the determination that the
exchangeable shares should not be considered "foreign property" for
Canadian federal income tax purposes;
- the number and nature of the conditions to the obligations of Vivendi and
CANAL+ to consummate the merger transactions and the risk that those
conditions would not be satisfied;
- the fact that various provisions in the merger agreement impose
obligations on Vivendi and CANAL+ that improve the certainty of closing
the merger transactions;
- the right of the parties to the merger agreement, under certain
circumstances, to respond to, evaluate and negotiate with respect to
other business combination proposals;
- the fact that the U.S.$800 million termination fee, which was insisted
upon by Vivendi, is payable by Vivendi or Seagram in similar
circumstances;
- the Seagram board's conclusion, based on advice of Seagram's financial
advisors, that the termination fee was reasonable in light of the
anticipated benefits of the merger transactions;
- the other terms of the merger agreement and other transaction documents,
including the terms of the contemplated Vivendi/CANAL+ transactions and
of the option and voting agreements entered into in connection with the
merger transactions; and the board's conclusion, based on advice of
Seagram's financial and legal advisors, that those terms and conditions
were reasonable in the context of the contemplated merger transactions
and would not prevent Seagram shareholders from rejecting the merger
transactions in favor of a superior proposal;
- that members of the Bronfman family, Seagram's founding family,
supported, and agreed to vote shares representing approximately 24% of
the outstanding Seagram common shares in favor of, the merger
transactions;
- that the arrangement resolution is subject to approval by not less than
66 2/3% of the votes cast at the Seagram meeting by the Seagram
shareholders, and by the Ontario court, which, Seagram is advised, will
consider, among other things, the fairness of the arrangement to Seagram
shareholders;
- the likelihood that necessary regulatory approvals will be granted;
- that registered Seagram shareholders will have the right to dissent and
be paid the fair value of their Seagram common shares; and
- the interests of Seagram's directors and officers described under
"-- Interests of Directors and Executive Officers in the Merger
Transactions."
Seagram's board of directors also considered the potential adverse
consequences of the merger transactions, including the following:
- the challenge of combining the businesses of three major international
companies;
- the risk that anticipated growth will not be achieved; and
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- the risk of diverting management attention from other strategic
priorities in order to implement the merger transactions.
During the Seagram board of directors' consideration of the proposed merger
transactions, the management of Seagram presented the Seagram board of directors
with financial projections for Vivendi based in part upon Vivendi internal
projections that had been furnished by Vivendi to Seagram. The projections
furnished to Seagram included projected revenue for Vivendi of E39.1
billion for 2000 and E43.5 billion for 2001 and projected EBITDA of
E5.3 billion for 2000 and E6.8 billion for 2001. Adjusted EBITDA is
defined as operating income before amortization and depreciation, expenses of
replacement and repair of installation and equipment owned by local authorities.
These projections are included in this joint proxy statement-prospectus
only because this information was furnished to Seagram by Vivendi and considered
by Seagram in connection with its consideration of the merger agreement. The
projections were not prepared with a view to public disclosure or compliance
with the published guidelines or policies of the SEC, Canadian securities
regulatory authorities or the guidelines established by the American Institute
of Certified Public Accountants, the Canadian Institute of Chartered Accountants
or any relevant French or European body regarding projections or forecasts. The
projections are not presented in accordance with U.S., Canadian or French GAAP,
and the parties' independent auditors have not examined or compiled the
projections and accordingly assume no responsibility for them. Financial
projections are, in general, subjective in many respects and thus susceptible to
interpretations and periodic revision based on actual experience and business
developments. These projections also reflect numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, all of which are difficult to predict, and many of
which are beyond the parties' control. Accordingly, the assumptions may not
prove accurate. It is expected that there will be differences between actual and
projected results, and actual results may be materially better or worse than
those contained in the projections. The inclusion of projections in this joint
proxy statement-prospectus does not indicate that any of Vivendi, Seagram or
CANAL+ or their respective affiliates or representatives considered or consider
the projections to be a reliable prediction of future events, and the
projections should not be relied upon as such. None of Vivendi, Seagram or
CANAL+ or any of their respective affiliates or representatives has made or make
any representation to any person regarding the ultimate performance of Vivendi
Universal compared to the information contained in the projections, and, except
as expressly set forth under "-- Projections and Objectives" below, none of them
intends to update or otherwise revise the projections to reflect circumstances
existing after the date when made or to reflect the occurrence of future events
even in the event that any or all of the assumptions underlying the projections
are shown to be in error. For more information that could affect projections
made by the parties, see "Introduction -- Risk Factors."
This discussion of the information and factors considered by Seagram's
board of directors is not intended to be exhaustive, but includes the material
factors considered. Seagram's board of directors did not assign relative weight
or rank to the various factors it considered. In considering the opinions of its
financial advisors, Seagram's board of directors considered each of these
opinions as a whole and did not assign any particular weight to any individual
analysis performed by its financial advisors. Seagram's financial advisors did
not specify to the Seagram board whether any particular analyses did or did not
support the fairness of the merger transactions from a financial point of view.
In considering the factors noted above, individual board members may have given
different weight to various factors.
CANAL+'S REASONS FOR THE MERGER TRANSACTIONS
In reaching its decision to approve the merger transactions, CANAL+'s board
of directors determined that the merger transactions are the logical
continuation of CANAL+'s own vision over the past several years. CANAL+ has
sought to improve shareholder value by providing premium content combined with
converging distribution platforms. CANAL+'s board of directors determined that
Vivendi Universal creates a favorable environment for the further strengthening
of CANAL+'s traditional activities and that the merger transactions present a
unique opportunity to participate in the creation of a leading, global
multi-platform, multi-content communications business, and to become the
beneficiary of the enormous
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resulting growth potential. In particular, after consultation with CANAL+'s
financial advisors and management, the board of directors of CANAL+ determined
that the transactions will present the following principal advantages for
CANAL+. In particular:
- Increased content for CANAL+'s television distribution platforms. The
merger transactions will help ensure that content will continue to be
available to CANAL+, as Vivendi Universal will be a leading worldwide
provider of premium content. All of CANAL+'s distribution platforms are
expected to benefit from this expanded content:
-- the merger transactions are expected to add complementary content to
the existing CANAL+ portfolio from Universal Studios' film production
and distribution activities and USA Networks' thematic channels and
TV programming production. Overall, CANAL+'s position as the leading
pay TV provider in continental Europe is expected to be enhanced with
access to an enlarged, worldwide library and to new movies, both
local and global;
-- the merger transactions are expected to contribute to the
accelerating development of CANAL+'s digital satellite channel
packages throughout Europe. The channels of the USA Network group
represent a rich source of content with easily adaptable formats, and
provide a way for CANAL+ to broaden its channel offerings. Therefore,
it is expected that the merger transactions will make the
CANALSATELLITE package more attractive to both current and new
subscribers in countries where it is available;
-- all of CANAL+'s distribution platforms are expected to benefit from
the addition of the content provided by Universal Music. CANAL+ will
have greater ability to use its digital distribution system to offer
subscribers the music content they want, as they want it, when they
want it; and
-- the combination with Vivendi will create one of the world's leading
producers of games and leading medical publishers and educational
publishers. It is expected that the combined entity will be able to
enhance effectively the offerings of each of the sister companies in
the field of interactive games, educational programs and distance
learning to offer new interactive services to CANAL+ subscribers.
- Synergies between StudioCanal and Universal Studios. Although Universal
Studios will be kept separate from StudioCanal, it is expected that
StudioCanal will benefit from the synergies that will be created by
Vivendi Universal. For example,
-- StudioCanal may have access to Universal's movies and TV programming;
-- Vivendi Universal, through StudioCanal and United International
Pictures, the European theatrical distribution partnership of
Universal Studios, Paramount Pictures Corporation and
Metro-Goldwyn-Mayer Inc., will be the most comprehensive pan-European
distribution platform for local and international movies;
-- StudioCanal and Universal Studios will be able to cooperate to market
their significant library assets, which would create substantial
cross-selling capabilities and cost synergies; and
-- the merger transactions may encourage the development of the creative
relationship between StudioCanal and Universal Studios that is
already underway through their three-way partnership with Working
Title, a leading United Kingdom film producer. In this way, it is
expected that the merger transactions will help foster the emergence
of European movies with international appeal.
- CANAL+ Exchange Ratio. Each shareholder of CANAL+ will receive two
shares of Vivendi Universal. This represents a premium with respect to
the implied ratio over the 12 months (64%) and six months (8%) preceding
the CANAL+ board meeting, as well as with respect to the closing price on
June 13, 2000, the last trading day prior to the public announcement that
the parties were negotiating a possible business combination (9%). In
addition, CANAL+'s shareholders will retain
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their shares in CANAL+, which will hold CANAL+'s French premium pay television
channel business. CANAL+'s board of directors strongly believes that CANAL+'s
shareholders will achieve greater shareholder value over the long term as a
result of the merger transactions.
- Greater Financial Flexibility. The merger transactions, by combining the
assets of Vivendi, CANAL+ and Seagram, will give CANAL+ greater financial
flexibility.
In addition, CANAL+'s board of directors considered the analyses of and
discussions with CANAL+'s financial advisor and its written opinion as to the
fairness of the CANAL+ Exchange Ratio, from a financial point of view, to the
holders of CANAL+ shares (see "-- Opinions -- Opinion of CANAL+'s Financial
Advisor").
This discussion of the information and factors considered by CANAL+'s board
of directors is not intended to be exhaustive, but includes the material factors
considered. CANAL+'s board of directors did not assign relative weight or rank
to the various factors it considered. In considering the factors noted above,
individual board members may have given different weight to various factors.
OPINIONS
OPINION OF VIVENDI'S FINANCIAL ADVISOR
On June 18, 2000, Lazard Freres S.A.S. delivered its oral opinion to the
board of directors of Vivendi to the effect that, as of June 18, 2000, based
upon and subject to the various considerations set forth in the opinion, each of
the exchange ratio and the Canal Exchange Ratio (as the term is defined in
Schedule I to the merger agreement included in Annex A), were fair to Vivendi
from a financial point of view.
A copy of the full text of the opinion of Lazard dated as of June 18, 2000,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as Appendix M to
this joint proxy statement-prospectus. This summary discussion of the opinion of
Lazard is qualified in its entirety by reference to the full text of that
opinion. The opinion was rendered to Vivendi's board of directors in connection
with its consideration of the merger transactions. Lazard's opinion is directed
only to the fairness of each of the exchange ratio and the CANAL+ Exchange Ratio
from a financial point of view to Vivendi, and does not address any other
aspects of the merger transactions. The opinion is not intended to, and does not
constitute a recommendation to any shareholder of Vivendi, Seagram or CANAL+ as
to how that shareholder should vote with respect to the merger transactions. The
shareholders of Vivendi are urged to read the opinion of Lazard in its entirety.
In connection with its written opinion dated as of June 18, 2000 to the
board of directors of Vivendi, Lazard:
- reviewed the financial terms and conditions of the draft merger agreement
and plan of arrangement;
- analyzed certain historical business and financial information relating
to Vivendi, Seagram and CANAL+;
- reviewed various financial forecasts and other data provided to Lazard by
Vivendi, Seagram and CANAL+ relating to their respective businesses (such
forecasts that were provided to Lazard regarding Seagram being limited in
time and scope);
- held discussions with members of the senior managements of Vivendi and
Seagram with respect to the businesses and prospects of Vivendi, Seagram
and CANAL+ and the strategic objectives of each, and the possible
benefits which might be realized following the merger transactions;
- reviewed public information with respect to certain other companies in
lines of businesses Lazard believed to be generally comparable to the
businesses of Vivendi, Seagram and CANAL+;
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- reviewed the financial terms of business combinations involving companies
in lines of businesses Lazard believed to be generally comparable to the
businesses of Vivendi, Seagram and CANAL+, and in other industries
generally;
- reviewed the historical stock prices and trading volumes of the stock of
Vivendi, Seagram and CANAL+; and
- conducted such other financial studies, analyses and investigations as
Lazard deemed appropriate.
Lazard relied upon the accuracy and completeness of the foregoing
information and did not assume any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of Vivendi, Seagram or CANAL+, or concerning
the solvency of or issues relating to solvency concerning Vivendi, Seagram or
CANAL+. With respect to financial forecasts, including the potential benefits
projected to be realized following the merger transactions and the amount and
treatment of goodwill, if any, in connection with the merger transactions,
Lazard assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Vivendi,
Seagram and CANAL+ as to the future financial performance of Vivendi, Seagram or
CANAL+ respectively. Lazard assumed no responsibility for and expressed no view
as to such forecasts or the assumptions on which they were based.
The written opinion of Lazard was necessarily based on accounting
standards, economic, monetary, exchange rates, market and other conditions as in
effect on, and the information made available to it as of June 18, 2000. Lazard
is not required as part of its engagement with Vivendi to revise its opinion as
of a date after June 18, 2000 and has not done so. In rendering its opinion,
Lazard did not address the relative merits of the merger transactions or
Vivendi's underlying decision to undertake the merger transactions and not
engage in other possible transactions, and did not address any other aspect of
the transactions contemplated by the merger agreement.
In rendering its opinion, Lazard assumed that the merger transactions would
be consummated on the terms described in the merger agreement, without any
waiver of any material term or condition by Vivendi and that obtaining the
necessary regulatory approvals and third-party consents, if any, for the merger
transactions would not have an adverse effect on Vivendi, Seagram or CANAL+ and
that the projected synergies of the merger transactions would be realized
substantially in accordance with such projections, both as to the financial
effect and the timing of those synergies. Lazard also assumed that the
definitive merger agreement would not differ in any material respect from the
draft of the merger agreement furnished to it.
The following is a summary of the material analyses performed by Lazard in
connection with providing its oral opinion to Vivendi's board of directors on
June 18, 2000 and contained in the materials presented to Vivendi's board of
directors on such date.
Historical Stock Price Analysis
Lazard reviewed the historical stock price performance of Vivendi, Seagram
and of CANAL+ for the period of January 1, 1999 to June 13, 2000. Lazard also
calculated the ratios of the closing market prices of Seagram common shares and
CANAL+ ordinary shares to the U.S. dollar equivalent of the average closing
market price of Vivendi ordinary shares, based on the applicable noon buying
rate as reported by the U.S. Federal Reserve Bank. These analyses indicated
average exchange ratios ranging from a low of 0.42 to a high of 0.80 Vivendi
ordinary shares for one Seagram ordinary share and from a low of 0.63 to a high
of 2.54 Vivendi ordinary shares for one CANAL+ common share.
Sum-of-the-Parts Analysis
Sum-of-the-parts analysis of Vivendi. Lazard computed an implied total
equity value of Vivendi and an implied equity value per ordinary share of
Vivendi based on equity valuations of the various business segments after taking
into account the net debt and the minority interests associated with these
businesses. The net debt at the parent company level that had not been taken
into account in the equity value of each
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relevant consolidated asset was further deducted, after adjustments to reflect
changes in the scope of the business that had occurred prior to June 16, 2000.
Further, such debt as well as the percentage ownership in Vivendi Environnement
and the number of exchangeable bonds (Oceanes) were adjusted as if the planned
public offering of Vivendi Environnement had already taken place, based on
prevailing assumptions from Vivendi's management at the time.
The valuation of Vivendi's consolidated assets, namely its Environmental
Services division and its telecommunications, Internet and publishing segments,
was obtained using various methodologies that Lazard deemed appropriate, relying
upon Vivendi's internal projections for the years 2000-2002 as provided by
Vivendi's management. The value of Vivendi's stake in CANAL+ was based upon the
sum-of-the-parts valuation of CANAL+ undertaken by Lazard, as described below.
The value of Vivendi's stake in BSkyB and other publicly quoted companies was
based upon their respective closing market prices on June 15, 2000.
The analysis resulted in an implied total equity value per Vivendi ordinary
share of E138.8.
Sum-of-the-parts analysis of CANAL+. Lazard computed an implied total
equity value of CANAL+ and an implied equity value per ordinary share of CANAL+
based on equity valuations of the various business segments after taking into
account the net debt and the minority interests associated with these
businesses. The net debt at the parent company level that had not been taken
into account in the equity value of each relevant consolidated asset was further
deducted, after adjustments to reflect changes in the scope of the business that
had occurred prior to June 16, 2000.
The valuation of CANAL+'s consolidated assets, namely CANAL+'s French and
foreign Pay-TV operations (except Sogecable), CanalSatellite, CANAL+
Technologies, NumeriCable and CanalNumedia was obtained using various
methodologies that Lazard deemed appropriate and using publicly available
information. The value of CANAL+'s stake in Vizzavi was based upon analyses of
discounted cash flow and analyst estimates, which was consistent with the
methodology used to derive the value of Vivendi's stake in Vizzavi. The value of
CANAL+'s interest in StudioCanal and Sogecable was based upon their respective
closing market prices on June 15, 2000.
The analysis resulted in an implied total equity value per CANAL+ ordinary
share of E250.4. This implied total equity value of CANAL+ arrived at was
further adjusted to reflect the value of public shareholders' interest in CANAL+
S.A. (regulated businesses), which yielded an implied total equity value of
E247.4.
Sum-of-the-parts analysis of Seagram. Lazard computed an implied total
equity value of Seagram and an implied equity value per share of Seagram based
on a total enterprise value of the various business segments, less the
consolidated net debt of Seagram.
The enterprise valuation of Seagram's consolidated media assets, namely
Music, Filmed Entertainment and Recreation and Other was obtained using various
methodologies that Lazard deemed appropriate and using publicly available
information. The total enterprise value arrived at, less the value of minority
interests in those consolidated media assets, was adjusted to take into account
the value of consolidated non-media assets (intended to be sold) and
non-consolidated assets and liabilities. Such assets and liabilities were valued
using a variety of methods and references, including:
- customary valuation methods such as discounted cash flows analysis and
comparable companies trading multiples analysis for the Spirits and Wine
division, further adjusted to reflect the estimated potential taxes
associated with capital gains on its disposal;
- net asset value, adjusted for the value of minority interests, relying on
comparable companies trading multiples analysis and selected comparable
transactions multiples analysis for Seagram's interest in USA Networks;
- discounted value of dividends for Seagram's interest in DuPont;
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- closing market prices for common stock on June 15, 2000, adjusted for the
value of minority interests, for Seagram's interest in unconsolidated
publicly quoted companies, other than USA Networks and DuPont;
- a consensus of equity research analysts' estimates of value, adjusted for
the value of minority interests, for Seagram's non public unconsolidated
assets; and
- discounted cash flow analysis for Seagram's total corporate expenses.
The analysis resulted in an implied total equity value per Seagram common
share ranging between $72.2 and $83.6, with a median value of $77.9.
Pro Forma Merger Analysis. Lazard considered the effect the business
combination among Vivendi, Seagram and CANAL+ could have on the earnings per
share of the combined company, compared with the earnings per share of Vivendi
on a stand-alone basis pro forma for the planned initial public offering of
Vivendi Environnement, for the fiscal years 2001 and 2002. The analysis was
based on estimates of Vivendi and CANAL+'s managements and publicly available
information for Seagram, after giving effect to certain assumptions, including:
- estimated synergies resulting from the business combination; and
- an implied exchange offer ratio of 0.70 of a Vivendi ordinary share for
one Seagram common share.
On a pre-goodwill basis, this analysis indicated that 1) the transaction is
expected to be dilutive to Vivendi's shareholders as a result of the CANAL+
merger, 2) the Seagram merger is expected to be accretive for both Vivendi and
CANAL+ shareholders and 3) the disposal of the Wine and Spirit division would
not result in additional earnings per share dilution for Vivendi's shareholders
in 2002. The total impact of the business combination among Vivendi, Seagram and
CANAL+ is dilutive to Vivendi's shareholders based on (1) earnings per share in
2001 before goodwill of 10% and after goodwill of 18%, and (2) earnings per
share in 2002 before goodwill of 3% and after goodwill of 8%.
The summary set forth above does not purport to be a complete description
of the analyses performed by Lazard, although it is a summary of the material
financial and comparative analyses performed by Lazard in arriving at its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or the summary set forth above without considering the
analyses as a whole could create an incomplete or misleading view of the process
underlying the opinion of Lazard. No company or transaction used in the above
analyses as a comparison is identical to Vivendi, Seagram or CANAL+ or the
transactions contemplated by the merger agreement. In arriving at its opinion,
Lazard considered the results of all such analyses and did not assign relative
weights to any of the analyses. The analyses were prepared for the purpose of
Lazard providing its opinion to Vivendi's board of directors in connection with
its consideration of the merger transactions and do not purport to be appraisals
or necessarily reflect the prices at which businesses or securities actually may
be sold, which may be significantly more or less favorable than as set forth in
these analyses. Lazard made and was provided estimates and forecasts by the
managements of Vivendi, Seagram and CANAL+ based upon numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Vivendi, Seagram, CANAL+
and Lazard. Similarly, any estimate of values or forecast of future results
contained in the analyses is not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses.
In performing its analyses, Lazard made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or their
respective advisors, none of Vivendi, Seagram, CANAL+, Lazard, or any other
person assumes responsibility if future results or actual values are materially
different from those forecasts or estimates contained in the analyses.
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The opinion and presentation of Lazard to Vivendi's board of directors was
only one of many factors taken into consideration by Vivendi's board of
directors in making its determination to approve the merger transactions.
Lazard rendered its opinion in accordance with customary practice in France
and under the express condition that it be interpreted in accordance with the
laws of France.
Lazard is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for estate, corporate and other purposes. Lazard was
selected to act as investment banker to Vivendi's board of directors because of
its expertise and its reputation in investment banking and mergers and
acquisitions.
In the last two years, Vivendi has paid Lazard approximately E40
million in advisory fees. Lazard has provided investment banking services to
Vivendi and its affiliates from time to time, including, among others, having
acted as:
- advisor to Vivendi in connection with the acquisition of United States
Filter Corporation in 1999;
- advisor to Vivendi in connection with the acquisition of Superior
Services in 1999;
- advisor to Vivendi in connection with Vivendi's joint venture with
Vodafone to create the Multi Access Portal in January 2000;
- advisor to Vivendi Environnement in connection with the joint venture of
Dalkia and Electricite de France in July 2000;
- advisor to Vivendi Environnement in connection with the disposal of
Kinetics Group in August 2000;
- advisor to Vivendi in connection with the initial public offering of
Vivendi Environnement in July 2000; and
- advisor to Vivendi in connection with the acquisition of Loot by
Scoot.com Plc in June 2000.
Georges Ralli, a partner of Lazard, is a member of the supervisory board of
Vivendi Environnement.
Pursuant to an engagement letter dated June 5, 2000, Vivendi retained
Lazard to act as its exclusive financial advisor in connection with the
potential transaction contemplated in the engagement letter. Pursuant to the
terms of the engagement letter, Vivendi has agreed to pay Lazard (1) a fee equal
to 0.11% of the equity value of Seagram calculated on the basis of the
outstanding share capital of Seagram and the exchange ratio in the merger
transactions and (2) a fee of E5.0 million in connection with the
Vivendi/CANAL+ transactions. Vivendi has also agreed to reimburse Lazard for all
reasonable out-of-pocket expenses incurred in connection with the merger
transactions.
In the ordinary course of its business, Lazard and its affiliates may
actively trade in the securities of Vivendi, Seagram or CANAL+ for its own
account and for the account of its customers and, accordingly, may at any time
hold a long or short position in those securities.
OPINIONS OF SEAGRAM'S FINANCIAL ADVISORS
Opinion of Goldman Sachs
Goldman Sachs delivered its written opinion, dated as of June 19, 2000, to
Seagram's board of directors to the effect that, as of such date, the exchange
ratio pursuant to the merger agreement and the plan of arrangement was fair,
from a financial point of view, to the holders of Seagram common shares.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED AS OF JUNE 19,
2000, WHICH IDENTIFIES ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE
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OPINION, IS ATTACHED AS ANNEX J TO THIS JOINT PROXY STATEMENT-PROSPECTUS AND IS
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT-PROSPECTUS. YOU SHOULD
READ THE OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- the plan of arrangement;
- the voting agreement;
- the governance agreement;
- annual reports to shareholders and annual reports on Form 10-K of Seagram
for the five fiscal years and the transition period ended June 30, 1999;
- annual reports to shareholders of Vivendi for the five years ended
December 31, 1999;
- annual reports to shareholders of CANAL+ for the five years ended
December 31, 1999;
- the registration statement on Form 20-F of Vivendi as filed on a
confidential basis with the SEC on May 25, 2000;
- the June 15, 2000 draft Offering Memorandum for the global offering of
ordinary shares of Vivendi Environnement;
- certain interim reports to shareholders and quarterly reports on Form
10-Q of Seagram;
- certain interim reports to shareholders of Vivendi;
- certain interim reports to shareholders of CANAL+;
- certain other communications from Seagram, Vivendi and CANAL+ to their
respective shareholders;
- certain internal financial analyses and forecasts for Seagram prepared by
the management of Seagram;
- certain internal financial analyses and forecasts for Vivendi and CANAL+
prepared by their respective managements and provided to Goldman Sachs by
Vivendi and adjusted by the management of Seagram; and
- certain cost savings and operating synergies projected by the management
of Vivendi to result from the transactions contemplated by the merger
agreement and the plan of arrangement.
Vivendi informed Goldman Sachs that Vivendi and CANAL+ did not have, and
therefore Goldman Sachs was not provided with nor did it review, any historical
financial statements or other historical financial information for Vivendi and
its subsidiaries or CANAL+ and its subsidiaries for any period subsequent to
December 31, 1999. Goldman Sachs held discussions with members of the senior
managements of Seagram and Vivendi regarding the strategic rationale for, and
the potential benefits of, the merger transactions and the past and current
business operations, financial condition and future prospects of their
respective companies. Goldman Sachs also held discussions with members of the
senior management of CANAL+ regarding its past and current business operations,
financial condition and future prospects. In addition, Goldman Sachs:
- reviewed the reported price and trading activity for Seagram common
shares, Vivendi ordinary shares and CANAL+ ordinary shares;
- compared certain financial and stock market information for Seagram,
Vivendi and CANAL+ with similar information for certain other companies
the securities of which are publicly traded;
- reviewed the financial terms of certain recent business combinations in
the entertainment industry specifically and in other industries
generally; and
- performed other studies and analyses as Goldman Sachs considered
appropriate.
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Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In addition, Goldman Sachs
did not make an independent evaluation or appraisal of the assets and
liabilities of Seagram, Vivendi or CANAL+ or any of their subsidiaries, and
Goldman Sachs was not furnished with any such evaluation or appraisal. Goldman
Sachs assumed that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the merger transactions will be
obtained without any adverse effect on Seagram, Vivendi or CANAL+ or on the
contemplated benefits of the merger transactions in any respect meaningful to
Goldman Sachs' analysis. Goldman Sachs also assumed that the Vivendi/CANAL+
transactions will be effected in accordance with the exchange ratios specified
in Schedule I to the merger agreement included as Annex A and in the aggregate
on a basis consistent with Schedule I to the merger agreement (other than
inconsistencies that are not meaningful to Goldman Sachs' analysis). The opinion
of Goldman Sachs does not reflect any view with respect to the terms of the
voting agreement or the governance agreement. The opinion of Goldman Sachs was
provided for the information and assistance of the board of directors of Seagram
in connection with its consideration of the merger transactions and such opinion
does not constitute a recommendation as to how any holder of Seagram common
shares should vote with respect to those transactions. Goldman Sachs is not
providing any opinion as to the prices at which the Vivendi Universal ADSs or
the exchangeable shares may trade if and when they are issued or as to the
election of Canadian residents between receiving the Vivendi Universal ADSs and
the exchangeable shares.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion, dated as of June 19,
2000, to Seagram's board of directors.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
(i) Exchange Ratio History. Goldman Sachs calculated the ratio of the
average closing market price of Seagram common shares to the U.S. dollar
equivalent of the average closing market price of Vivendi ordinary shares,
converted based on the noon buying rate of euros for U.S. dollars as reported by
the U.S. Federal Reserve over selected periods ending on June 16, 2000 as
follows:
<TABLE>
<CAPTION>
AVERAGE
PERIOD EXCHANGE RATIO
------ --------------
<S> <C>
1 Month..................................................... 0.485
3 Months.................................................... 0.506
6 Months.................................................... 0.511
1 Year...................................................... 0.565
3 Years..................................................... 0.637
</TABLE>
Goldman Sachs also calculated as of June 9, 2000 and June 16, 2000 the
ratio of the closing market price of Seagram common shares to the U.S. dollar
equivalent of the average closing market price of Vivendi ordinary shares,
converted based on the noon buying rate of euros for U.S. dollars as reported by
the U.S. Federal Reserve on such date. The ratio on June 9, 2000 (the last day
of trading before speculation about the proposed merger transactions may have
affected the trading values of the Seagram and Vivendi shares) was 0.455 and on
June 16, 2000 (the last day of trading prior to the meeting of Seagram's board
of directors) was 0.643.
The exchange ratios calculated were then compared to the low, midpoint and
high possible exchange ratios for Seagram common shares provided by the merger
agreement and the plan of arrangement of 0.622, 0.700 and 0.800, respectively.
(ii) Historical Stock Trading Analysis. Goldman Sachs reviewed the high,
low and average closing market prices of Seagram common shares over the twelve
months prior to June 16, 2000. The high closing market price per Seagram common
share over that period was U.S.$64.50 on March 6, 2000. The low closing market
price per Seagram common share over that period was U.S.$37.00 on October 19,
1999. The average closing market price over that period was U.S.$51.38. The
closing market price on June 9,
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2000 was U.S.$50.31. The historical prices were compared to the implied value of
the transaction on June 16, 2000 to holders of Seagram common shares of
U.S.$76.41 per Seagram common share, determined according to the analysis in
section (iii) below.
(iii) Implied Premium Analysis. Goldman Sachs analyzed the closing market
price of Vivendi ordinary shares on June 9, 2000 and on June 16, 2000. For the
purpose of these calculations, the closing market price of Vivendi ordinary
shares on June 9, 2000 and June 16, 2000 was converted from euros to U.S.
dollars according to the noon buying rate of U.S. dollars for euros as reported
by the U.S. Federal Reserve on such date. The resulting closing market price of
Vivendi ordinary shares in U.S. dollars was U.S.$110.50 on June 9, 2000 and
U.S.$95.52 on June 16, 2000. Goldman Sachs then calculated the effective
exchange ratio under the terms of the merger agreement and the plan of
arrangement assuming (a) the merger had closed on June 9, 2000 and June 16,
2000, respectively, and (b) that the closing market price of Vivendi ordinary
shares on June 9, 2000 and June 16, 2000, respectively, was equal to the
twenty-day average market price for the Vivendi ordinary shares determined in
accordance with the terms of the plan of arrangement. The effective exchange
ratio was 0.700 on June 9, 2000 and 0.800 on June 16, 2000, resulting in an
implied value per Seagram common share of U.S.$77.35 on June 9, 2000 and
U.S.$76.41 on June 16, 2000. Goldman Sachs then compared these implied values
per Seagram common share to the closing market price of Seagram common shares on
selected dates and to the average closing market price of Seagram common shares
over selected periods during the year ending on June 16, 2000. The results of
this analysis are summarized as follows:
<TABLE>
<CAPTION>
IMPLIED PREMIUM IMPLIED PREMIUM
SEAGRAM ASSUMING MERGER ASSUMING MERGER
COMMON SHARE CLOSED ON CLOSED ON
DATE/PERIOD PRICE JUNE 9, 2000 JUNE 16, 2000
----------- ------------ --------------- ---------------
<S> <C> <C> <C>
June 16, 2000.......................... U.S.$61.44 25.9% 24.4%
June 9, 2000........................... 50.31 53.7 51.9
30 Day Average......................... 50.35 53.6 51.8
One Year Average....................... 51.35 50.6 48.8
March 6, 2000 (All-time High).......... 64.50 19.9 18.5
</TABLE>
(iv) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Seagram to corresponding financial
information and public market multiples for:
- the following seven publicly traded companies in the media and
entertainment industry:
-- The Walt Disney Company;
-- EMI Group plc;
-- Fox Entertainment Group, Inc.;
-- The News Corporation Limited;
-- Time Warner Inc.;
-- USA Networks, Inc.;
-- Viacom Inc.-CBS Corp.;
- and the entity expected to result from the merger of America Online, Inc.
(AOL) and Time Warner Inc.
The selected companies analysis is intended to generate information
regarding certain financial measures and ratios that, for purposes of analysis,
might be viewed as comparable to Seagram. Certain financial measures and ratios
of the selected companies were compared to those of Seagram in order to provide
the board of directors of Seagram with a broader view of the relevant market and
the market price of Seagram common shares in relation to the selected companies.
The selected companies were chosen because they are publicly traded companies
with operations that for purposes of analysis may be
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considered similar to Seagram's media and entertainment business segments.
Goldman Sachs' analyses compared the following ratios of the selected companies
to those of Seagram:
- the ratio of adjusted levered market capitalization to the estimated
earnings before interest, taxes, depreciation or amortization, or EBITDA,
for the years 2000, 2001 and 2002, respectively; and
- the ratio of adjusted levered market capitalization to the ratio of the
estimated EBITDA for the year 2001 to the estimated five-year EBITDA
compound annual growth rate (with such growth rate calculated as a
percentage). This ratio reflects the relationship of the enterprise value
of each selected company to that company's estimated EBITDA as a multiple
of its estimated EBITDA growth. This ratio provides a comparison of the
market's assessment of the quality of the long-term estimated EBITDA
growth of Seagram versus the selected companies.
The levered market capitalization of each of the selected companies was
calculated as of June 16, 2000 and the levered market capitalization of Seagram
was calculated as of June 9, 2000. The levered market capitalization was
adjusted to reflect the value of non-EBITDA assets. Non-EBITDA assets are assets
that either (a) are not consolidated at the EBITDA level or (b) are business
segments that generate negative EBITDA. The EBITDA estimates were based on the
most recent available Goldman Sachs Research, except for the Seagram EBITDA
estimates, which were based on estimates prepared by the management of Seagram
in June 2000. The results for Seagram were calculated in two ways, (a) including
the Filmed Entertainment business segment as an EBITDA asset and (b) not
including the Filmed Entertainment business segment as an EBITDA asset. The
AOL/Time Warner Inc. data is based upon estimates by Goldman Sachs Research for
the resulting entity and upon the closing market price for outstanding shares of
AOL on June 16, 2000 plus the additional shares of AOL expected to be issued by
AOL and received by Time Warner Inc. shareholders pursuant to the merger of the
two companies. The results of this analysis are summarized as follows:
<TABLE>
<CAPTION>
SEAGRAM
LEVERED MARKET SEAGRAM (FILMED (FILMED SELECTED SELECTED SELECTED
CAPITALIZATION AS ENTERTAINMENT AS ENTERTAINMENT AS COMPANIES COMPANIES COMPANIES
MULTIPLE OF NON-EBITDA ASSET) EBITDA ASSET) HIGH LOW MEDIAN
----------------- ----------------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
2000E EBITDA..................... 9.4x 11.7x 34.6x 11.4x 18.2x
2001E EBITDA..................... 8.7x 10.6x 25.6x 10.6x 15.0x
2002E EBITDA..................... 8.0x 9.6x 20.4x 9.7x 12.9x
2001E EBITDA/5-Year EBITDA
CAGR........................... 0.5x 0.6x 1.6x 0.8x 1.2x
</TABLE>
(v) Discounted Cash Flow Analysis. Goldman Sachs calculated a range of
implied prices per Seagram common share using (a) a discounted cash flow
valuation of estimated after-tax free cash flows of the businesses of Seagram
through 2005, discounted back to June 30, 2000 using discount rates ranging from
10% to 14% and (b) a terminal value in the year 2005 based on multiples of
estimated 2005 EBITDA ranging from 10.5x to 13.5x, discounted back to June 30,
2000 using discount rates ranging from 10% to 14%. The estimated after-tax free
cash flows utilized were prepared by the management of Seagram as of June 2000.
This analysis assumed an aggregate value of U.S.$8.75 billion for Seagram's
non-EBITDA assets, which excludes the values for Universal Studios Japan and
International Channels that were included in the estimates of free cash flows.
This analysis produced implied prices per Seagram common share ranging from
U.S.$50 to U.S.$69.
(vi) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to ten selected transactions in the entertainment industry
since September 1993. Goldman Sachs' analysis of the selected transactions
compared levered aggregate consideration as a multiple of the latest twelve
months EBITDA of the target company in the selected transactions to similar
information for the merger transactions. The analysis resulted in a range of
multiples for the selected transactions from 12.2x to 25.9x, with a mean of
19.21x and a median of 17.75x. The corresponding multiple of the adjusted
levered aggregate consideration to be paid in the merger transactions to the
latest twelve months EBITDA of Seagram was 17.6x and 17.3x assuming (a) the
merger transactions had closed on June 9, 2000 and on
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June 16, 2000, respectively, and (b) that the closing market price of Vivendi
ordinary shares on June 9, 2000 and June 16, 2000 was equal to the twenty-day
average market price for the Vivendi ordinary shares determined in accordance
with the terms of the plan of arrangement. The levered aggregate consideration
was adjusted to exclude non-EBITDA assets, including the Filmed Entertainment
business segment. The value of publicly traded non-EBITDA assets (i.e.,
Seagram's stakes in USA Networks, Inc., Loews Cineplex Entertainment Corp. and
Interplay Entertainment Corp.) was based upon their respective closing market
prices for common stock on June 16, 2000. The estimated value of non-publicly
traded non-EBITDA assets was based upon various methodologies and information,
less the value of minority interests in those non-publicly traded assets.
(vii) Pro Forma Equity Analysis. Goldman Sachs prepared pro forma analyses
of the relative equity ownership by the current shareholders of Seagram, Vivendi
and CANAL+ of the combined company resulting from the merger transactions.
Goldman Sachs calculated the relative equity ownership arising from the low,
midpoint and high possible exchange ratios for Seagram common shares, 0.622,
0.700 and 0.800, respectively, and the exchange ratio for CANAL+ shares provided
by the merger agreement and the plan of arrangement. The results of this
analysis are summarized as follows:
PRO FORMA EQUITY OWNERSHIP OF COMBINED COMPANY
<TABLE>
<CAPTION>
EXCHANGE SEAGRAM VIVENDI CANAL+
RATIO SHAREHOLDERS SHAREHOLDERS SHAREHOLDERS
-------- ------------ ------------ ------------
<S> <C> <C> <C>
0.622x 27.0% 60.8% 12.2%
0.700x 29.4% 58.8% 11.8%
0.800x 32.3% 56.4% 11.3%
</TABLE>
(viii) Contribution Analysis. Goldman Sachs analyzed the relative
contributions of Seagram, Vivendi and CANAL+ to the combined company resulting
from the merger transactions based upon their respective revenues for 1999,
estimated revenues for 2000, 2001 and 2002, EBITDA for 1999, estimated EBITDA
for 2000, 2001 and 2002 and net debt as of June 30, 2000. The revenue and EBITDA
estimates for 2000, 2001 and 2002 were based on forecasts for Seagram prepared
by the management of Seagram, adjusted by Goldman Sachs to reflect calendar
years, and forecasts for Vivendi and CANAL+ prepared by their respective
managements and adjusted by the management of Seagram. The data for Vivendi and
CANAL+ was converted to U.S. dollars based on the noon buying rate of euros for
U.S. dollars as reported by the U.S. Federal Reserve on June 16, 2000. The data
for CANAL+ represents the 51% of CANAL+ that is not already owned by Vivendi.
The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
CONTRIBUTION
----------------------------------
CY SEAGRAM % VIVENDI % CANAL+ %
----- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues................................. 1999 34.7% 61.3% 3.9%
2000E 32.7 63.7 3.7
2001E 31.7 64.5 3.8
2002E 31.2 64.9 3.9
EBITDA................................... 1999 32.1% 66.7% 1.1%
2000E 30.8 66.9 2.3
2001E 29.2 67.9 2.9
2002E 27.8 68.9 3.3
Net Debt................................. 06/00 30.7% 66.8% 2.6%
</TABLE>
The relative pro forma equity ownership of the combined company by the
holders of Seagram common shares resulting from any possible exchange ratio is
less than the 1999 revenue and from a range of possible exchange ratios other
than 0.800 is less than the 1999 EBITDA pro forma contributions of Seagram to
the combined company. The comparability of the Contribution Analysis and the Pro
Forma Equity Analysis is limited since the revenue and EBITDA contributions used
in the Contribution Analysis are unaffected by the capital structure of Seagram,
Vivendi and CANAL+.
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(ix) Sum of the Parts Analysis of Seagram. Goldman Sachs computed an
implied total equity value of Seagram and an implied total equity value per
Seagram common share based on the total levered value of the various business
segments less the net debt of Seagram. The levered value of the Filmed
Entertainment, Recreation & Other and Music business segments was calculated
based upon 2000 EBITDA estimates for each of these business segments prepared by
the management of Seagram as of June 2000, and a range of multiples was applied
to the Recreation & Other and Music business segments. The value of publicly
traded non-EBITDA assets (i.e., Seagram's stakes in USA Networks, Inc., Loews
Cineplex Entertainment Corp. and Interplay Entertainment Corp.) was based upon
their respective closing market prices for common stock on June 16, 2000. The
estimated value of non-publicly traded non-EBITDA assets was based upon various
methodologies and information, less the value of minority interests in those
non-publicly traded assets. The results of this analysis are summarized as
follows:
<TABLE>
<CAPTION>
IMPLIED VALUE OF SEAGRAM
(U.S. DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA)
--------------------------------------
LOW MEAN HIGH
---------- ---------- ----------
<S> <C> <C> <C>
Implied Total Equity Value.................................. $28,194 $32,236 $36,279
Implied Total Equity Value Per Seagram Common Share......... $ 57 $ 65 $ 73
</TABLE>
(x) Sum of the Parts Analysis of Vivendi. Goldman Sachs computed for
Vivendi an implied enterprise value, an implied equity value and an implied net
asset value per Vivendi ordinary share based on valuations of the business
segments, less the net debt of Vivendi. The value of the assets of the
environmental business segment was based upon 2001 EBITDA projections prepared
by the management of Vivendi as of June 2000 and a range of levered multiples,
except for the valuation of FCC, which valuation range reflected the approximate
value of a call option held by Vivendi's partner in FCC at the low end of the
range and the market value of Vivendi's stake at the high end of the range. The
valuation of Vivendi's non-EBITDA assets was based on various methodologies,
except that (a) the valuation of Vivendi's stakes in BSkyB and Havas Advertising
was based upon their respective closing market prices for common stock on June
16, 2000 and (b) the valuation of CANAL+ was based upon the public market value
of Vivendi's stake in CANAL+ on June 9, 2000 at the low end of the range, and
based upon the sum of the parts valuation of CANAL+ undertaken by Goldman Sachs,
as described in section (xii) below, at the high end of the range. The results
of this analysis are summarized as follows:
<TABLE>
<CAPTION>
IMPLIED VALUE OF VIVENDI
(EUROS IN MILLIONS, EXCEPT
PER SHARE DATA)
-------------------------------
LOW MIDPOINT HIGH
------- -------- --------
<S> <C> <C> <C>
Implied Enterprise Value.................................... E70,697 E88,444 E106,196
Implied Equity Value........................................ E54,410 E72,157 E 89,909
Implied Net Asset Value per Vivendi Ordinary Share.......... E 83 E 111 E 138
</TABLE>
(xi) Selected Sum of the Parts Research Analysis of Vivendi. Goldman Sachs
computed a valuation for Vivendi based on the sum of the parts valuations of the
various business segments of Vivendi contained in the most recent available
reports of selected investment banks and brokerages, as of the respective dates
indicated:
- Goldman, Sachs & Co., April 7, 2000;
- HSBC Investment Bank plc., May 5, 2000;
- Handelsbanken Markets, March 28, 2000;
- Merrill Lynch & Co., March 24, 2000;
- Deutsche Bank AG, March 3, 2000;
- Morgan Stanley Dean Witter, February 18, 2000; and
- Warburg Dillon Read (France) SA, February 2, 2000.
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<PAGE> 88
The component of each of these sum of the parts valuations relating to
publicly traded assets was adjusted by Goldman Sachs to reflect closing market
prices for such assets on June 16, 2000. The analysis led to a range of total
enterprise values for Vivendi from a high of E105,199 million to a low of
E86,102 million, with an average total enterprise value of E94,223
million.
(xii) Sum of the Parts Analysis of CANAL+. Goldman Sachs computed for
CANAL+ an implied enterprise value, an implied equity value and an implied net
asset value per CANAL+ share, based on the total levered value of the
subsidiaries and investments of CANAL+, less the net debt of CANAL+. A number of
valuation methods were used, relying in part upon data provided by the
management of Vivendi as of June 2000 and adjusted by the management of Seagram,
and subscriber data as of December 31, 1999. The results of this analysis are
summarized as follows:
<TABLE>
<CAPTION>
IMPLIED VALUE OF CANAL+
(EUROS IN MILLIONS, EXCEPT PER SHARE DATA)
------------------------------------------
LOW MID POINT HIGH
---------- ------------ ----------
<S> <C> <C> <C>
Implied Enterprise Value................................... E23,000 E27,078 E31,157
Implied Equity Value....................................... E21,938 E26,016 E30,095
Implied Net Asset Value Per CANAL+ Share................... E 171 E 203 E 234
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all these analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Seagram, Vivendi or CANAL+ or the contemplated merger transactions.
The analyses were prepared for purposes of Goldman Sachs providing its
opinion to Seagram's board of directors as to the fairness of the exchange ratio
pursuant to the merger agreement and the plan of arrangement from a financial
point of view to the holders of outstanding Seagram common shares. These
analyses do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of Seagram, Vivendi, CANAL+, Goldman Sachs or
any other person assumes responsibility if future results are materially
different from those forecast.
As described above, Goldman Sachs' opinion to the board of directors of
Seagram was one of many factors taken into consideration by Seagram's board of
directors in making its determination to approve the proposed merger
transactions. The foregoing summary does not purport to be a complete
description of the analyses performed by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Seagram, having provided significant investment banking services
to Seagram from time to time, including, among others, having acted as:
- joint lead manager and bookrunner of a public offering of
U.S.$550,000,000 aggregate principal amount of 8.00% Senior Quarterly
Income Debt Securities due 2038 of JES in November 1998;
- managing underwriter of a public offering of U.S.$3,500,000,000 aggregate
principal amount of Senior Notes and Senior Debentures of JES, in
December 1998;
- global coordinator of a public offering of 37,000,000 Seagram common
shares in June 1999;
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<PAGE> 89
- managing underwriter of a public offering of 20,025,000 7.50% Adjustable
Conversion-rate Equity Security Units of Seagram in June 1999;
- financial advisor to Seagram in connection with the sale of the Mumm and
Perrier Jouet Champagne Houses in July 1999;
- financial advisor to Seagram in connection with the sale of Universal
Concerts in September 1999;
- financial advisor to Seagram in connection with the sale by Rank Group
Plc of its interest in Universal Studios Escape to Blackstone Capital
Partners; and
- financial advisor to Seagram in connection with, and having participated
in certain of the negotiations leading to, the merger agreement and the
plan of arrangement.
John S. Weinberg, a Managing Director of Goldman Sachs, is a director of
Seagram.
Goldman Sachs, and its affiliate Goldman Sachs Paris Inc. et Cie, have
provided significant investment banking services to Vivendi in connection with
numerous transactions and other situations, including having acted as:
- financial advisor to Vivendi in connection with the acquisition of United
States Filter Corporation in April 1999;
- managing underwriter of a public offering of E2,600,000,016
aggregate principal amount of bonds, convertible and/or exchangeable into
new or existing shares of Vivendi or Vivendi Environnement, of Vivendi
Environnement in April 1999;
- managing underwriter of a public offering of 45,444,174 new shares of
Vivendi in May 1999;
- financial advisor to Sithe Energies, Inc., a subsidiary of Vivendi, in
connection with the sale of 21 independent power production plants in May
2000; and
- joint global coordinator and joint bookrunner for the global offering of
75,005,023 ordinary shares of Vivendi Environnement.
Goldman Sachs may also provide investment banking services to Vivendi in
the future.
Goldman Sachs is currently working with another client in its discussions
with Seagram concerning a possible strategic transaction involving Seagram's
Spirits and Wine business.
Goldman Sachs has provided from time to time, and currently is providing,
certain investment banking services to CANAL+.
Seagram selected Goldman Sachs as its financial advisor because it is an
internationally recognized investment banking firm that has substantial
experience in transactions similar to the merger transactions.
Goldman Sachs provides a full range of financial and securities services
and, in the course of its normal trading activities, may from time to time
effect transactions and hold securities, including derivative securities, of
Seagram, Vivendi or CANAL+ for its own account or for the accounts of customers.
Pursuant to a letter agreement dated as of June 12, 2000, Seagram engaged
Goldman Sachs to act as its financial advisor in connection with the potential
transactions contemplated in the letter agreement. Pursuant to the terms of this
engagement letter, Seagram has agreed to pay Goldman Sachs a fee equal to 0.14%
of the total consideration paid for the Seagram common shares in connection with
the merger transactions, calculated according to the terms of the engagement
letter (including the consideration paid to holders of options and an amount to
reflect Seagram's outstanding adjustable conversion-rate equity security units),
provided that the fee will not be less than U.S.$12.5 million. The value of the
Vivendi Universal securities issued as consideration for the Seagram common
shares will be determined on the same basis as the securities are valued for
purposes of determining the exchange ratio. Seagram also has agreed to reimburse
Goldman Sachs for its reasonable out-of-pocket expenses, including attorneys'
fees,
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<PAGE> 90
and to indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws. In addition to acting as
Seagram's financial advisor in connection with the merger transactions, Goldman
Sachs has, during the past two years, advised Seagram on other business
combination transactions and has acted as underwriter in certain of Seagram's
securities offerings, as described above. In connection with the provision of
these services, Goldman Sachs received compensation from Seagram of
approximately $54 million.
Opinion of Morgan Stanley
Seagram retained Morgan Stanley to provide it with financial advisory
services and a financial fairness opinion in connection with the merger
transactions. The Seagram board of directors selected Morgan Stanley to act as
Seagram's financial advisor based on Morgan Stanley's qualifications, expertise,
reputation and its knowledge of the business and affairs of Seagram. At the
meeting of the Seagram board on June 19, 2000, Morgan Stanley rendered its oral
opinion, subsequently confirmed in writing, that, as of June 19, 2000, and based
on and subject to the various considerations in its opinion, the exchange ratio
pursuant to the merger agreement and the plan of arrangement was fair from a
financial point of view to the holders of Seagram common shares.
THE FULL TEXT OF MORGAN STANLEY'S OPINION DATED JUNE 19, 2000, WHICH SETS
FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY MORGAN STANLEY, IS
ATTACHED AS ANNEX K TO THIS JOINT PROXY STATEMENT-PROSPECTUS. MORGAN STANLEY'S
OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF SEAGRAM AND ADDRESSES ONLY THE
FAIRNESS OF THE EXCHANGE RATIO PURSUANT TO THE MERGER AGREEMENT AND THE PLAN OF
ARRANGEMENT FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF SEAGRAM COMMON
SHARES AS OF THE DATE OF THE OPINION. MORGAN STANLEY DID NOT OPINE AS TO ANY
OTHER ASPECT OF THE MERGER TRANSACTIONS (INCLUDING THE FAIRNESS OF THE SOFIEE
EXCHANGE RATIO OR THE CANAL EXCHANGE RATIO (AS THOSE TERMS ARE DEFINED IN
SCHEDULE I TO THE MERGER AGREEMENT INCLUDED AS ANNEX A)), AND ITS OPINION DOES
NOT CONSTITUTE A RECOMMENDATION AS TO HOW ANY SHAREHOLDER OF SEAGRAM, VIVENDI OR
CANAL+ SHOULD VOTE AT THE RESPECTIVE SHAREHOLDERS' MEETINGS TO BE HELD IN
CONNECTION WITH THE MERGER TRANSACTIONS. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION. SEAGRAM SHAREHOLDERS ARE URGED TO, AND SHOULD,
READ THE OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Seagram, Vivendi and CANAL+, respectively;
- reviewed certain internal financial statements and other financial and
operating data concerning Seagram, Vivendi and CANAL+ prepared by the
managements of Seagram, Vivendi and CANAL+, respectively;
- reviewed certain financial analyses and projections for Seagram prepared
by the management of Seagram;
- reviewed certain financial analyses and projections for Vivendi and
CANAL+ prepared by the respective managements of these companies and
adjusted by the management of Seagram;
- reviewed the past and current operations and financial condition and the
prospects of Seagram, Vivendi and CANAL+, which information was based, in
part, on discussions conducted with members of the management of Seagram,
Vivendi and CANAL+;
- reviewed information relating to certain strategic, financial and
operational benefits anticipated from the merger transactions, which
information was based, in part, on discussions conducted with members of
the management of Seagram and Vivendi;
- reviewed the pro forma impact of the merger transactions on the earnings
and capitalization ratios of Vivendi;
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<PAGE> 91
- reviewed the reported prices and trading activity for Seagram common
shares, Vivendi ordinary shares and CANAL+ ordinary shares;
- compared the financial performance of Seagram, Vivendi and CANAL+ and the
prices and trading activity of Seagram common shares, Vivendi ordinary
shares and CANAL+ ordinary shares with those of certain other publicly
traded companies and their securities;
- reviewed the financial terms, to the extent publicly available, of
precedent transactions that Morgan Stanley deemed relevant;
- participated in certain discussions and negotiations among
representatives of Seagram and Vivendi and their financial and legal
advisors;
- reviewed the merger agreement, the plan of arrangement and other related
agreements executed by the parties to the merger transactions; and
- performed other analyses and considered other factors that Morgan Stanley
deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of all of the information reviewed by it for the
purposes of its opinion. With respect to financial projections and the internal
financial statements and the other financial and operating data provided by
Seagram, Vivendi and CANAL+, including information relating to the anticipated
strategic, financial and operational benefits of the merger transactions, Morgan
Stanley assumed that the information provided was reasonably prepared and based
on the best currently available estimates and judgments of the future financial
and operational performance of Seagram, Vivendi and CANAL+, respectively. Morgan
Stanley did not make and did not assume responsibility for making any
independent valuation or appraisal of the assets or liabilities of Seagram,
Vivendi or CANAL+ or any of their subsidiaries, nor was Morgan Stanley furnished
with any valuations or appraisals of those assets and liabilities.
Morgan Stanley also assumed, with Seagram's consent, that the merger
transactions will be consummated in all material respects in accordance with the
terms set forth in the merger agreement and the plan of arrangement, including,
among other things, that the exchange of shares pursuant to the plan of
arrangement will be treated as a tax-free exchange for U.S. Seagram shareholders
and Canadian Seagram shareholders that elect to receive exchangeable shares,
pursuant to the U.S. Internal Revenue Code of 1986 or the Canadian Tax Act, as
applicable. In addition, Morgan Stanley assumed that the Vivendi/Canal
Transactions (as that term is defined in the merger agreement) will be
consummated in all material respects in accordance with the terms set forth in
the Vivendi/Canal Agreements (as that term is defined in the merger agreement).
Morgan Stanley also assumed that in connection with the receipt of the
regulatory approvals required for the proposed merger transactions, no
restrictions will be imposed that would have a material adverse effect on
Seagram, Vivendi or CANAL+, or on the benefits expected to be derived from the
merger transactions. Morgan Stanley's opinion did not address or express any
opinion on the terms of the voting agreement or the governance agreement.
Morgan Stanley's opinion was necessarily based on financial, economic,
market and other conditions in effect on, the information made available to
Morgan Stanley as of, and the financial condition of Seagram, Vivendi and CANAL+
on, the date of the opinion.
Morgan Stanley was not authorized to solicit, and did not solicit, interest
from any party regarding the acquisition of Seagram or any of its assets.
Additionally, Morgan Stanley's opinion does not address Seagram's underlying
business decision to participate in the merger transactions.
THE FOLLOWING IS A SUMMARY OF THE MATERIAL FINANCIAL ANALYSES PERFORMED BY
MORGAN STANLEY IN PREPARING ITS OPINION. SOME OF THESE SUMMARIES OF FINANCIAL
ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY
UNDERSTAND THE FINANCIAL ANALYSES USED BY MORGAN STANLEY, THE TABLES MUST BE
READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE
A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES PERFORMED BY MORGAN STANLEY.
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<PAGE> 92
Historical Public Market Trading Value. Morgan Stanley reviewed the stock
price performance of Seagram based on an analysis of the historical closing
prices and trading volumes of Seagram common shares on the NYSE from January 2,
1997 through June 16, 2000. The following table lists the low, average and high
daily closing prices of Seagram common shares for the periods indicated.
<TABLE>
<CAPTION>
HISTORICAL SEAGRAM COMMON
SHARE PRICES
--------------------------------------
LOW AVERAGE HIGH
---------- ---------- ----------
<S> <C> <C> <C>
Entire Period......................................... U.S.$25.19 U.S.$42.91 U.S.$64.50
One Year ended June 16, 2000.......................... 37.00 51.37 64.50
Six Months ended June 16, 2000........................ 43.13 54.46 64.50
Three Months ended June 16, 2000...................... 43.81 53.72 63.94
One Month ended June 16, 2000......................... 43.81 50.12 62.44
Ten Days ended June 16, 2000.......................... 48.44 54.55 62.44
</TABLE>
Morgan Stanley also reviewed the stock price performance of Vivendi based
on an analysis of the historical closing prices and trading volumes of Vivendi
ordinary shares on the Paris Bourse from December 31, 1996 through June 16,
2000. The following table lists the low, average and high daily closing prices
of Vivendi ordinary shares for the periods indicated.
<TABLE>
<CAPTION>
HISTORICAL VIVENDI ORDINARY
SHARE PRICES
----------------------------
LOW AVERAGE HIGH
------ ------- -------
<S> <C> <C> <C>
Entire Period............................................... E31.38 E 64.30 E141.60
One Year ended June 16, 2000................................ 61.45 92.06 141.60
Six Months ended June 16, 2000.............................. 80.05 110.12 141.60
Three Months ended June 16, 2000............................ 98.45 113.46 129.60
One Month ended June 16, 2000............................... 98.45 110.75 119.20
Ten Days ended June 16, 2000................................ 98.45 109.14 116.00
</TABLE>
Morgan Stanley also reviewed the stock price performance of CANAL+ based on
an analysis of the historical closing prices and trading volumes of CANAL+
ordinary shares on the Paris Bourse from December 30, 1998 through June 16,
2000. The following table lists the low, average and high daily closing prices
of CANAL+ ordinary shares for the periods indicated.
<TABLE>
<CAPTION>
HISTORICAL CANAL+ ORDINARY
SHARE PRICES
-----------------------------
LOW AVERAGE HIGH
------- ------- -------
<S> <C> <C> <C>
Entire Period............................................... E 51.90 E118.59 E360.30
One Year ended June 16, 2000................................ 56.10 141.67 360.30
Six Months ended June 16, 2000.............................. 108.10 214.49 360.30
Three Months ended June 16, 2000............................ 165.00 219.21 276.00
One Month ended June 16, 2000............................... 165.00 201.63 230.10
Ten Days ended June 16, 2000................................ 200.90 206.64 214.10
</TABLE>
Comparative Stock Price Performance. As part of its analysis, Morgan
Stanley reviewed the recent stock price performance of Seagram and compared this
performance with that of the following companies and market index:
<TABLE>
<CAPTION>
MEDIA AND ENTERTAINMENT SPIRITS AND WINE
COMPANIES COMPANIES MARKET INDEX
----------------------- ------------------------ ---------------------------
<S> <C> <C>
The Walt Disney Company Allied Domecq Plc Standard & Poor's 500 Index
Viacom Inc. Brown-Forman Corporation
News Corp Ltd. Diageo Plc
AOL Pernod-Ricard SA
</TABLE>
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<PAGE> 93
Morgan Stanley observed that over the period from December 31, 1998 to June
16, 2000, the closing market prices appreciated as set forth below:
<TABLE>
<CAPTION>
% APPRECIATION
--------------
<S> <C>
Seagram..................................................... 61.7%
The Walt Disney Company..................................... 37.3%
Viacom Inc. ................................................ 84.2%
News Corp Ltd. ............................................. 110.4%
AOL ........................................................ 41.0%
Four Media and Entertainment Companies (equal-weighted
index).................................................... 67.8%
Four Spirits and Wine Companies (equal-weighted index)...... 0.7%
Standard & Poor's 500 Index................................. 19.1%
</TABLE>
Morgan Stanley noted that no company used in this comparative stock price
analysis is identical to Seagram.
Morgan Stanley also compared the closing market price of Seagram common
shares on June 12, 2000 to the closing market price of Seagram common shares on
June 16, 2000, and concluded that this was a period during which speculation
regarding a potential business combination involving Seagram materially affected
the market price of Seagram common shares. This analysis indicated that between
June 12, 2000 and June 16, 2000, the closing market price of Seagram common
shares appreciated 21.4%. Morgan Stanley also noted that on June 14, 2000,
Seagram and Vivendi each made a public announcement stating that the companies
were engaged in discussions regarding a potential business combination.
Morgan Stanley also reviewed the price performance of Vivendi ordinary
shares and CANAL+ ordinary shares and compared these with that of the following
market indices:
- Morgan Stanley Capital International European Wireless
- Morgan Stanley Capital International European Media
- FTSE EUROTOP 300 Utilities Index
- Dow Jones EURO STOXX 50 Index
- CAC-40 Index
Morgan Stanley observed that over the period from December 31, 1998 to June
16, 2000, the closing market prices appreciated as set forth below:
<TABLE>
<CAPTION>
% APPRECIATION
--------------
<S> <C>
Vivendi..................................................... 36.8%
CANAL+...................................................... 245.8%
Morgan Stanley Capital International European Wireless...... 81.9%
Morgan Stanley Capital International European Media......... 59.8%
FTSE EUROTOP 300 Utilities Index............................ (4.4)%
Dow Jones EURO STOXX 50 Index............................... 58.0%
CAC-40 Index................................................ 63.7%
</TABLE>
Morgan Stanley also compared the closing market price of Vivendi ordinary
shares on June 12, 2000 to the closing market price of Vivendi ordinary shares
on June 16, 2000, and concluded that this was a period during which speculation
regarding a potential business combination involving Vivendi materially affected
the market price of Vivendi ordinary shares. This analysis indicated that
between June 12, 2000 and June 16, 2000, the closing market price of Vivendi
ordinary shares decreased 14.7%.
Securities Research Analysts' Future Price Targets. Morgan Stanley
reviewed and analyzed future public market trading price targets for Seagram
common shares and Vivendi ordinary shares prepared and published by securities
research analysts during the period from May 4, 2000 to June 7, 2000, for
Seagram, and from March 3, 2000 to May 18, 2000, for Vivendi. These targets
reflected each analyst's estimate of the future public market trading price of
Seagram common shares and Vivendi ordinary shares
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<PAGE> 94
at the end of the particular time period considered for each estimate. Discount
rates were selected based in part on analyses used to derive an estimated cost
of equity capital for each of Seagram and Vivendi and on the experience and
professional judgment of Morgan Stanley. Using an equity cost of capital of
12.4% as a discount rate for Seagram and an equity cost of capital of 11.7% as a
discount rate for Vivendi, Morgan Stanley discounted the analysts' price
estimates to June 16, 2000, to arrive at a range of present values of these
targets as set forth below:
<TABLE>
<CAPTION>
PRESENT VALUE RANGE
--------------------
LOW HIGH
-------- --------
<S> <C> <C>
Seagram Public Market Trading Price......................... U.S.$ 56 U.S.$ 76
Vivendi Public Market Trading Price......................... E 117 E 156
</TABLE>
To estimate the equity cost of capital for each of Seagram and Vivendi,
Morgan Stanley used a capital asset pricing model (CAPM) methodology and each
company's predicted equity beta, which is a measure of volatility and risk used
to estimate the cost of a company's equity financing. The difference between the
estimated equity cost of capital used for Seagram and Vivendi results from a
slightly higher Seagram equity beta and a higher dividend yield for Vivendi.
Morgan Stanley noted that the public market trading prices published by the
securities research analysts do not reflect current market trading prices for
Seagram common shares or Vivendi ordinary shares and that these estimates are
subject to uncertainties, including the future financial performance of Seagram
and Vivendi and future financial market conditions.
Analysis of Selected Precedent Transactions. As part of its analysis,
Morgan Stanley reviewed the following seven transactions involving large media
and entertainment companies since 1993:
- January 2000 -- Time Warner Inc./EMI Group plc;
- January 2000 -- AOL/Time Warner Inc.;
- September 1999 -- Viacom Inc./CBS Corporation;
- May 1998 -- Seagram/PolyGram N.V.;
- August 1995 -- Time Warner Inc./Turner Broadcasting System, Inc.;
- June 1995 -- Seagram/MCA Inc., and
- September 1993 -- Viacom Inc./Paramount Communications Inc.
For each of these transactions, Morgan Stanley reviewed the prices paid and
calculated the implied multiples of the last twelve months (LTM) earnings before
interest, taxes, depreciation and amortization (EBITDA). This analysis indicated
multiples ranging from 15.3x to 30.1x LTM EBITDA for these transactions, with a
median multiple of 21.8x. Morgan Stanley also analyzed the multiples for Seagram
implied by the merger transactions. Based on EBITDA for Seagram for the LTM
period ended March 31, 2000, the merger consideration implied an EBITDA multiple
of 24.2x, based on a purchase price for Seagram of U.S.$77.35 per share, which
assumes that the Vivendi closing share price is within the Collar (as defined
below), and a multiple of 23.9x, based on the terms of the exchange ratio and a
closing share price for Vivendi of E99.00 on June 16, 2000.
No transaction used in the analysis of selected precedent transactions is
identical to the merger transactions. In evaluating the precedent transactions,
Morgan Stanley made judgments and assumptions with regard to industry
performance, business, economic, market and financial conditions and other
matters, many of which are beyond the control of Seagram and Vivendi, including
the impact of competition on Seagram or Vivendi and the industries in which they
are principally engaged, the growth of these industries and the absence of any
material adverse change in the financial condition and prospects of Seagram or
Vivendi or the industries in which they are principally engaged or in the
financial markets in general.
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Exchange Ratio Analysis. Morgan Stanley compared the low and high exchange
ratios pursuant to the collar arrangement (the Collar) set forth in the plan of
arrangement to the ratio of the closing market prices of Seagram common shares
and Vivendi ordinary shares on June 16, 2000, the last trading day prior to the
meeting of the Seagram board of directors, and June 12, 2000, the day prior to
initial press reports regarding a potential business combination involving
Seagram and Vivendi. Morgan Stanley also compared these ratios to selected
average historical ratios of the closing market prices of Seagram common shares
to Vivendi ordinary shares over various periods from January 4, 1999 to June 16,
2000. Morgan Stanley then calculated the premiums represented by each of the low
end of the Collar and the high end of the Collar over the averages of these
historical ratios. For purposes of calculating the exchange ratios, Morgan
Stanley converted the Vivendi ordinary share prices from euros to U.S. dollars
using the applicable noon buying rate as reported by the U.S. Federal Reserve
Bank. The results of this analysis are set forth below:
<TABLE>
<CAPTION>
0.6221-LOW 0.8000-HIGH
END OF COLLAR END OF COLLAR
MARKET % PREMIUM/ % PREMIUM/
EXCHANGE RATIO (DISCOUNT) (DISCOUNT)
-------------- ------------- -------------
<S> <C> <C> <C>
June 16, 2000....................................... 0.643 (3.3)% 24.4%
June 12, 2000....................................... 0.455 36.7% 75.8%
One Month Average................................... 0.484 28.4% 65.2%
Three Month Average................................. 0.506 22.9% 58.1%
Six Month Average................................... 0.514 20.9% 55.5%
One Year Average.................................... 0.571 8.9% 40.1%
Entire Period Average............................... 0.583 6.7% 37.2%
</TABLE>
Analysis of Premiums Implied by the Merger Transactions. Morgan Stanley
calculated the premiums to the prevailing market prices of Seagram common shares
implied by the exchange ratio pursuant to the merger agreement and the plan of
arrangement. Set forth below are the implied premiums to historical Seagram
market prices based on a purchase price for Seagram of U.S.$77.35 per share,
which assumes that the Vivendi closing share price is within the collar, and the
implied value of the exchange ratio based on Vivendi's closing share price of
E99.00 on June 16, 2000:
<TABLE>
<CAPTION>
% PREMIUM TO MARKET PRICE
---------------------------------------
IMPLIED VALUE OF EXCHANGE
U.S.$77.35 RATIO ON JUNE 16, 2000
---------- -------------------------
<S> <C> <C>
June 16, 2000.............................................. 25.9% 24.4%
June 12, 2000.............................................. 52.8% 50.9%
One Month Prior............................................ 53.5% 51.7%
</TABLE>
For purposes of calculating these implied premiums, Morgan Stanley
converted the Vivendi ordinary share price from euros to U.S. dollars using the
noon buying rate as reported by the U.S. Federal Reserve Bank on June 16, 2000.
Sum of the Parts Analysis. Morgan Stanley performed a "sum of the parts"
analysis of Seagram by assessing the value of each of Seagram's principal
business segments and other assets and then deriving a range of values for
Seagram as a whole. Morgan Stanley considered relevant values for: (i) the
consolidated businesses of Seagram, including the filmed entertainment business,
the music business, the recreation operations and the spirits and wine business;
(ii) Seagram's investments in unconsolidated non-public businesses; and (iii)
Seagram's holdings in public companies. Using various methodologies that Morgan
Stanley deemed appropriate for each business segment and asset analyzed, this
analysis implied a range of equity values per Seagram common share of
approximately U.S.$52 to U.S.$68.
Morgan Stanley also performed a "sum of the parts" analysis of Vivendi.
Morgan Stanley considered relevant values for: (i) Vivendi's consolidated
businesses, including the environmental business, the telecommunications
business and the media and publishing business; (ii) Vivendi's investments in
unconsolidated nonpublic businesses; and (iii) Vivendi's holdings in public
companies. Using various
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methodologies that Morgan Stanley deemed appropriate for each business segment
and asset analyzed, this analysis implied a range of equity values per Vivendi
ordinary share of approximately E85 to E140.
Pro Forma Analysis of the Merger Transactions. Morgan Stanley analyzed the
pro forma impact of the merger transactions on Vivendi and observed that, based
on financial projections prepared by the respective managements of Seagram,
Vivendi and CANAL+, the merger transactions would result in diminution of the
estimated compound annual growth rate in reported revenues and EBITDA for
Vivendi between the calendar years 2000 and 2002. Morgan Stanley's pro forma
analysis did not include the effects of any strategic, financial or operational
benefits anticipated from the merger transactions. Morgan Stanley also noted
that the pro forma analysis suggested that the merger transactions would result
in a more leveraged capital structure for Vivendi, resulting from the addition
of Seagram's net debt, estimated by Seagram's management to be approximately
U.S.$7 billion at the end of the calendar year 2000.
Morgan Stanley performed a variety of financial and comparative analyses
for purposes of providing its opinion to the board of directors of Seagram as to
the fairness of the exchange ratio pursuant to the merger agreement and the plan
of arrangement from a financial point of view to the holders of Seagram common
shares. While the foregoing summary describes the material analyses performed
and factors reviewed by Morgan Stanley for its opinion, it is not intended to be
a description of all the analyses performed and factors reviewed by Morgan
Stanley in arriving at its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. In arriving at its opinion, Morgan Stanley considered the
results of all of its analyses as a whole and did not attribute any particular
weight to any analysis or factor considered by it. Furthermore, Morgan Stanley
believes that selecting any portion of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its opinion.
In addition, Morgan Stanley may have given various analyses and factors more or
less weight than other analyses and factors and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Morgan Stanley's view of the actual value of Seagram, Vivendi or
CANAL+.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Seagram, Vivendi or
CANAL+. Any estimates contained in Morgan Stanley's analyses are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by these estimates. These analyses were
prepared solely as part of Morgan Stanley's analysis of the fairness of the
exchange ratio pursuant to the merger agreement and the plan of arrangement from
a financial point of view to the holders of Seagram common shares and were
conducted in connection with the delivery of its opinion to the board of
directors of Seagram.
The exchange ratio and other terms of the merger transactions were
determined through arm's-length negotiations between Seagram, Vivendi and CANAL+
and were approved by the Seagram board of directors. Morgan Stanley provided
advice to Seagram during the negotiations; however, Morgan Stanley did not
recommend any specific exchange ratio to Seagram or that any specific exchange
ratio constituted the only appropriate exchange ratio for the merger
transactions. In addition, as described above, Morgan Stanley's opinion was one
of many factors taken into consideration by the Seagram board of directors in
making its decision to approve the merger transactions. Consequently, the Morgan
Stanley analyses described above should not be viewed as determinative of the
opinion of the Seagram board of directors with respect to the value of Seagram
or of whether the Seagram board of directors would have been willing to agree to
a different exchange ratio.
The Seagram board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking and financial advisory business, is
continuously involved in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. In the ordinary
course of business,
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Morgan Stanley or its affiliates may from time to time trade in the securities
or indebtedness of Seagram, Vivendi or CANAL+ for its own account, the accounts
of investment funds and other clients under the management of Morgan Stanley and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities or indebtedness.
Pursuant to its engagement, Morgan Stanley provided financial advisory
services and the fairness opinion to Seagram in connection with the merger
transactions, and Seagram has agreed to pay Morgan Stanley a fee of U.S.$10
million in connection with this engagement. Seagram has also agreed to reimburse
Morgan Stanley for any out-of-pocket expenses incurred in performing its
services and to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against various liabilities and
expenses, including various liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement as financial advisor to
Seagram in connection with the merger transactions. In addition to acting as
Seagram's financial advisor in connection with the merger transactions, Morgan
Stanley has, during the past two years, advised Seagram on other business
combination transactions and has acted as underwriter in certain of Seagram's
securities offerings. In connection with the provision of those services, Morgan
Stanley received compensation from Seagram of approximately $27 million.
Subsequent to its engagement in connection with the merger transactions and
the rendering of its fairness opinion, Seagram separately engaged Morgan Stanley
to act as its financial advisor in connection with the potential divestiture of
Seagram's Spirits and Wine business. Seagram has agreed to pay Morgan Stanley a
customary fee for those services.
OPINION OF CANAL+'S FINANCIAL ADVISOR
CANAL+ retained Merrill Lynch International to act as its financial advisor
in connection with the merger transactions. On June 19, 2000, Merrill Lynch
delivered to the CANAL+ board of directors an oral opinion, subsequently
confirmed by a written opinion dated as of June 19, 2000, to the effect that, as
of the date of the opinion, and based upon and subject to the factors and
assumptions set forth in the opinion, the "CANAL+ Exchange Ratio" was fair from
a financial point of view to the holders of CANAL+'s shares, other than Vivendi
and its affiliates. The "CANAL+ Exchange Ratio" was defined in the opinion as
the ratio of two Vivendi Universal shares being delivered to each CANAL+
shareholder for each share in Canal Holdco.
The full text of Merrill Lynch's opinion dated June 19, 2000, which sets
forth the assumptions made, matters considered and qualifications and
limitations on the review undertaken by Merrill Lynch, is, with Merrill Lynch's
prior written consent, attached hereto as Annex L to this joint proxy
statement-prospectus and is incorporated into this joint proxy
statement-prospectus by reference. The summary of Merrill Lynch's fairness
opinion set forth below is qualified in its entirety by reference to the full
text of the opinion. CANAL+ shareholders are urged to read the opinion carefully
in its entirety.
Merrill Lynch's opinion was delivered to the CANAL+ board of directors for
its information and is directed only to the fairness, from a financial point of
view, of the "CANAL+ Exchange Ratio" to CANAL+ shareholders other than Vivendi
and its affiliates, does not address any other aspect of the merger
transactions, including the merits of the underlying decision by CANAL+ to
engage in the merger transactions, and does not constitute a recommendation to
any CANAL+ shareholder as to how any shareholder should vote as to any matter
relating to the merger transactions. In addition, Merrill Lynch did not express
any opinion as to the prices at which the Vivendi shares, the CANAL+ shares, the
Vivendi Universal shares, the exchangeable shares or the Seagram common shares
will trade following the completion of the merger.
In preparing its opinion to the CANAL+ board of directors, Merrill Lynch
performed a variety of financial and comparative analyses, including those
described below. The summary set forth below does not purport to be a complete
description of the analyses underlying Merrill Lynch's opinion or the
presentation made by Merrill Lynch to the CANAL+ board of directors. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and
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relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, a fairness opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Merrill Lynch did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all of the
analyses and factors, or the narrative description of the analyses, would create
a misleading or incomplete view of the process underlying its opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Merrill Lynch or CANAL+. Any estimates contained in the analyses performed by
Merrill Lynch are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, estimates of the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which such businesses
or securities might actually be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. In addition, as described
above, Merrill Lynch's opinion was among several factors taken into
consideration by the CANAL+ board of directors in making its determination to
approve the merger transactions. Consequently, Merrill Lynch's analyses should
not be viewed as determinative of the decision of the CANAL+ board of directors
or CANAL+'s management with respect to the fairness of the "CANAL+ Exchange
Ratio."
In arriving at its opinion, Merrill Lynch, among other things, did the
following:
- reviewed CANAL+'s annual reports and related financial information for
the five fiscal years ended December 31, 1999;
- reviewed Vivendi's annual reports and related financial information for
the five fiscal years ended December 31, 1999;
- reviewed Seagram's annual reports and related financial information for
the five fiscal years ended June 30, 1999;
- reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
CANAL+, Vivendi and Seagram, furnished to Merrill Lynch by CANAL+,
Vivendi and Vivendi's outside advisors, as well as a description of the
amount of the cost savings and other synergies expected to result from
the merger transactions furnished to Merrill Lynch and prepared by CANAL+
and Vivendi;
- conducted discussions with members of senior management of CANAL+ and
Vivendi's outside advisors concerning the businesses and prospects of
CANAL+, Vivendi and Seagram before and after giving effect to the merger
transactions;
- reviewed the historical market prices and trading activity for the CANAL+
shares, the Vivendi shares and the Seagram common shares and compared
them with that of certain publicly traded companies which Merrill Lynch
deemed to be reasonably similar to CANAL+, Vivendi and Seagram,
respectively;
- compared the results of operations of CANAL+, Vivendi and Seagram with
that of certain companies which Merrill Lynch deemed to be reasonably
similar to CANAL+, Vivendi and Seagram, respectively;
- compared the proposed financial terms of the merger transactions with the
financial terms of certain other transactions which Merrill Lynch deemed
to be relevant;
- reviewed the potential pro forma impact of the merger transactions;
- reviewed the merger agreement, including the plan of arrangement; and
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- reviewed such other financial studies and analyses and took into account
such other matters as Merrill Lynch deemed necessary, including Merrill
Lynch's assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and did not assume any responsibility for independently verifying
such information or undertaken an independent evaluation or appraisal of any of
the assets or liabilities of CANAL+, Vivendi or Seagram and was not furnished
with any such evaluation or appraisal. In addition, Merrill Lynch has not
assumed any obligation to conduct any physical inspection of the properties or
facilities of CANAL+, Vivendi or Seagram, nor was it permitted access to
Seagram's or Vivendi's management for the purposes of conducting discussions
concerning each of their respective businesses and prospects.
With respect to the financial forecast information furnished to or
discussed with Merrill Lynch by CANAL+, Vivendi and Vivendi's outside advisors,
Merrill Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgments of the managements of CANAL+ and
Vivendi, and of Vivendi's outside advisors, as to the expected future financial
performance of CANAL+, Vivendi and Seagram, as the case may be. With respect to
the expected synergies furnished to or discussed with Merrill Lynch, Merrill
Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgments of the managements of CANAL+ and
Vivendi as to the expected synergies. Merrill Lynch also assumed that the
transactions comprising the merger transactions, including the spin off of the
transferred business to CANAL+ shareholders, will qualify as tax-free
reorganisations for income tax purposes in the relevant jurisdictions.
Merrill Lynch's opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of the opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the merger
transactions, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the expected benefits of the merger transactions.
In connection with the preparation of its opinion, Merrill Lynch was not
authorized by CANAL+ or its board of directors to solicit, nor did it solicit,
third-party indications of interest for the acquisition of all or any part of
CANAL+.
THE FOLLOWING IS A SUMMARY OF THE MATERIAL FINANCIAL ANALYSES USED BY
MERRILL LYNCH IN CONNECTION WITH PROVIDING ITS OPINION, DATED AS OF JUNE 19,
2000, TO THE CANAL+ BOARD OF DIRECTORS. THE FOLLOWING SUMMARIES OF FINANCIAL
ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. YOU SHOULD READ THESE
TABLES TOGETHER WITH THE TEXT OF EACH SUMMARY.
(i) Historical Stock Trading Analyses
Merrill Lynch reviewed historical trading prices of CANAL+ ordinary shares
during the twelve-month period preceding June 16, 2000. The price of CANAL+
ordinary shares ranged from a low of E55.7 on September 9, 1999 to a high
of E360.0 on March 10, 2000. Merrill Lynch noted that both the pre-leak
implied offer price of E236.0 and the then current implied offer price of
E201.0 per CANAL+ ordinary share, in each case determined by multiplying
the market price of Vivendi ordinary shares by the 2.0 exchange ratio to be paid
to the holders of CANAL+ ordinary shares in the merger, and adjusting such
amounts for the regulated CANAL+ business to be retained by CANAL+ ordinary
shareholders were within that range.
Merrill Lynch reviewed historical trading prices of Vivendi ordinary shares
during the twelve-month period preceding June 16, 2000. The price of Vivendi
ordinary shares during this period ranged from a low of E61.0 during
October 1999 to a high of E150.0 during March 2000. Merrill Lynch noted
that both the
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pre-leak market price of E115.0 per Vivendi ordinary share and the then
current market price of E98.0 per Vivendi ordinary share were within that
range.
Merrill Lynch reviewed historical trading prices of Seagram common shares
during the twelve-month period preceding June 16, 2000. The price of Seagram
common shares during this period ranged from a low of U.S.$37.0 during October
1999 to a high of U.S.$64.5 during March 2000. Merrill Lynch noted that the
pre-leak implied offer price of U.S.$77.4 was higher than this range.
(ii) Review of Research Analyst Price Targets
Merrill Lynch reviewed reports on CANAL+ prepared by various equity
research analysts during the two-month period commencing March 6, 2000 through
May 15, 2000. Each report contained price targets reflecting the relevant
analyst's estimate of the future public market trading price of CANAL+ ordinary
shares at the end of the particular time period considered. Merrill Lynch noted
that the target price per CANAL+ ordinary share in such reports ranged from a
low of E235.0 to a high of E365.0, yielding an implied equity value
ranging from E30.1 billion to E46.8 billion, based on 128.1 million
outstanding CANAL+ ordinary shares on a fully diluted basis. Merrill Lynch noted
that while the then current implied offer price of E201.0 per Seagram
common share was below this range, the pre-leak implied offer price of
E236.0 per Seagram common share was within this range.
Merrill Lynch reviewed reports on Vivendi prepared by various equity
research analysts during the three-month period commencing February 15, 2000
through May 18, 2000. Each report contained price targets reflecting the
relevant analyst's estimate of the future public market trading price of Vivendi
ordinary shares at the end of the particular time period considered. Merrill
Lynch noted that the target price per Vivendi ordinary share in such reports
ranged from a low of E150.0 to a high of E162.0. Merrill Lynch noted
that both the pre-leak market price of E115.0 per Vivendi ordinary share
and the then current market price of E98.0 per Vivendi ordinary share were
below this range.
Merrill Lynch reviewed various reports on Seagram prepared by various
equity research analysts during the six-month period commencing January 6, 2000
through June 15, 2000. Each report contained price targets reflecting the
relevant analyst's estimate of the future public market trading price of Seagram
common shares at the end of the particular time period considered. Merrill Lynch
noted that the target price per Seagram common share ranged from a low of
U.S.$64.0 to a high of U.S.$84.5. Merrill Lynch noted that the pre-leak implied
offer price of U.S.$77.4 per Seagram common share was within this range.
Merrill Lynch noted that the public market trading prices published by the
securities research analysts did not reflect then current market trading prices
for CANAL+ ordinary shares, Vivendi ordinary shares or Seagram common shares and
that these estimates are subject to uncertainties, including the future
financial performance of CANAL+, Vivendi and Seagram and future financial market
conditions.
(iii) Sum of the Parts Valuations
Merrill Lynch performed a "sum of the parts" analysis of CANAL+ by
assessing value ranges for various CANAL+ business units to arrive at a
composite enterprise value range and then adjusting such enterprise value range
for net debt. Merrill Lynch reviewed CANAL+'s percentage ownership of each pay
TV business unit and multiplied CANAL+'s pro rata share of subscribers from each
such business unit by assumed values per subscriber ranging between E1,000
to E2,500. In the case of thematic channels, Merrill Lynch based the equity
value of such business units based on recent transaction prices paid in
connection with such business units, or based upon multiples of revenue ranging
from 7.5x to 8.5x. CANAL+ Technologies was valued at 35.0x -- 45.0x revenue, and
other publicly traded business units were valued at their then current share
prices. Based upon the foregoing analysis, Merrill Lynch derived the following
composite equity valuation range and value per CANAL+ ordinary share as follows:
<TABLE>
<S> <C>
Equity Value Range....................... E24.2 billion -- E31.0
billion
Value Range per Share.................... E189.0 -- E242.0
</TABLE>
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Merrill Lynch noted that both the pre-leak implied offer price of E236.0
and the then current implied offer price of E201.0 per CANAL+ ordinary
share were within this range.
Merrill Lynch performed a "sum of the parts" analysis of Vivendi by
assessing value ranges for various Vivendi business units to arrive at a
composite enterprise value range and adjusting such enterprise value range for
net debt. Merrill Lynch reviewed Vivendi's percentage ownership of each of its
telecommunications, media, environment and other business units and multiplied
Vivendi's pro rata share of the equity of each such business unit by assumed
market values for each business unit derived from various methodologies that
Merrill Lynch deemed appropriate, including discounted cash flow analyses,
public comparable trading analyses, and public and private comparable
transactions analyses. Based upon the foregoing analysis, Merrill Lynch derived
the following composite equity valuation range and value per Vivendi ordinary
share as follows:
<TABLE>
<S> <C>
Equity Value Range....................... E65.5 billion -- E86.9
billion
Value Range per Share.................... E98.0 -- E131.0
</TABLE>
Merrill Lynch noted that both the pre-leak market price of E115.0 per
Vivendi ordinary share and the then current market price of E98.0 per
Vivendi ordinary share were within this range.
Merrill Lynch performed a "sum of the parts" analysis of Seagram by
assessing value ranges for various Seagram business units to arrive at a
composite enterprise value range and then adjusting such composite enterprise
value range for net debt. With respect to Seagram's consolidated assets, Merrill
Lynch applied various multiples it deemed appropriate to estimated earnings
before income, taxes, depreciation and amortization for the year 2000 provided
to it by Vivendi's management and financial advisors. With respect to Seagram's
non-consolidated public investments, including in USA Networks, DuPont, Loews
Cineplex and Interplay, and other non-consolidated private investments, Merrill
Lynch applied a variety of valuation methodologies it deemed appropriate with
respect to such business units, including separate sum of the parts valuations,
estimated market values and discounted future dividend streams. Based upon the
foregoing analysis, Merrill Lynch derived the following composite equity
valuation range and value per Seagram common share as follows:
<TABLE>
<S> <C>
Equity Value Range............... U.S.$29.6 billion -- U.S.$38.2
billion
Value Range per Share............ U.S.$60.3 -- U.S.$77.8
</TABLE>
Merrill Lynch noted that the pre-leak implied offer price of U.S.$77.4 per
Seagram common share was within this range.
(iv) Selected Private Market Transactions Analysis
Merrill Lynch reviewed certain information relating to eleven selected
private transactions in the media industry since September 1996, comparing
enterprise value as a multiple of subscribers. Merrill Lynch arrived at the
following low, average and high figures for implied enterprise value per
subscriber and noted that private market valuations were on average, well below
current public market ratings:
<TABLE>
<S> <C>
High Implied Enterprise Value/Subscriber................ U.S.$3,000
Average Implied Enterprise Value/Subscriber............. U.S.$1,645
Low Implied Enterprise Value/Subscriber................. U.S.$1,020
</TABLE>
Merrill Lynch noted that, based on an implied enterprise value per subscriber
range of U.S.$2,000 to U.S.$2,500, CANAL+ would have an implied equity valuation
range of E25.5 billion to E30.3 billion and that Vivendi's 48.9% stake
would have an implied equity valuation range of E12.5 billion to E14.8
billion. On a per share basis, this analysis yielded an implied price range per
CANAL+ ordinary share ranging from E213 to E251. Merrill Lynch noted
that while the then current implied offer price of E201 per CANAL+ ordinary
share was below this range, the pre-leak implied offer price of E236 was
within this range.
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(v) Implied Premium Analysis
Merrill Lynch reviewed the closing market prices of Vivendi ordinary shares
on June 9, 2000 and on June 16, 2000. Based on the 2.0x exchange ratio to be
provided to the holders of CANAL+ ordinary shares under the merger agreement and
plan of arrangement and accounting for the regulated CANAL+ business to be
retained by the holders of CANAL+ ordinary shares, Merrill Lynch calculated an
implied value per CANAL+ ordinary share ranging from E204 to E238.
Merrill Lynch compared this value range per CANAL+ ordinary share and calculated
an implied premium (discount) to CANAL+'s price per ordinary share over selected
periods ending June 16, 2000 as follows:
<TABLE>
<CAPTION>
CANAL+ IMPLIED PREMIUM IMPLIED PREMIUM
ORDINARY (DISCOUNT) AS OF (DISCOUNT) AS OF
DATE/PERIOD SHARE PRICE JUNE 16, 2000 JUNE 9, 2000
----------- ----------- ---------------- ----------------
<S> <C> <C> <C>
June 16, 2000............................. E201 1% 18%
June 9, 2000.............................. E214 (5)% 11%
Three Month Average....................... E219 (7)% 9%
52-week High.............................. E360 (43)% (34)%
52-week Low............................... E 56 264% 324%
</TABLE>
(vi) Relative Valuation Analysis
Using implied value per share ranges of CANAL+ ordinary shares and Vivendi
ordinary shares derived from the Historical Stock Trading Analyses, Review of
Analyst Price Targets and Sum of the Parts Valuations discussed in sections (i),
(ii) and (iii) above, Merrill Lynch divided the highest and lowest price per
CANAL+ ordinary share by the highest and lowest price per Vivendi ordinary share
resulting from such analyses. Merrill Lynch calculated implied exchange ratio
ranges of Vivendi ordinary shares per CANAL+ ordinary shares as follows:
<TABLE>
<CAPTION>
RANGE OF IMPLIED
ANALYSIS EXCHANGE RATIO
-------- ----------------
<S> <C>
Historical 12-Month Trading Range........................... 0.72x - 2.50x
Analyst Price Targets....................................... 1.41x - 2.39x
Sum of the Parts Valuation.................................. 1.40x - 2.42x
</TABLE>
Merrill noted that the exchange ratio of 2.0 Vivendi ordinary shares for each
CANAL+ ordinary share to be received in connection with the merger transactions
fell within the ranges implied by this Relative Valuation Analysis.
(vii) "Has-Gets" Analysis
Merrill Lynch applied the composite equity value ranges implied by the Sum
of the Parts Valuation discussed in section (iii) above for each of Vivendi,
CANAL+'s non-regulated businesses and Seagram assets and adjusted such amounts
for assumed synergies to arrive at an implied composite equity value range of
E114.4 billion to E150.3 billion for the combined enterprise. Merrill
Lynch applied a range of exchange ratios between 0.622 and 0.800 to be received
by Seagram shareholders pursuant to the merger transactions to such composite
equity values and derived a range of pro forma percentage ownership in the
combined entity to be received by Vivendi, CANAL+, and Seagram shareholders,
respectively. Based upon such analysis, Merrill Lynch estimated that while
CANAL+ shareholders would be contributing approximately 10% of the equity
enterprise value, they would receive between 11% and 12% of the equity value of
the combined enterprise resulting from the merger transactions.
Merrill Lynch is acting as financial advisor to CANAL+ in connection with
the merger transactions and will receive a fee of E10 million from CANAL+
for its services, a significant portion of which is contingent upon the
consummation of all or parts of the merger transactions. In addition, CANAL+ has
agreed to indemnify Merrill Lynch for certain liabilities arising out of its
engagement. Merrill Lynch has in the past provided financial advisory and
financing services to CANAL+. In the past two years, Merrill
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Lynch was paid a fee of approximately U.S.$3.5 million in connection with the
initial public offering of Studio CANAL. Merrill Lynch may continue to provide
these financial advisory and financing services and to receive fees for
rendering these services and may participate in a proposed financing transaction
for a subsidiary of CANAL+. In addition, in the ordinary course of Merrill
Lynch's business, Merrill Lynch may actively trade CANAL+ shares and other
securities of CANAL+, as well as securities of Vivendi and Seagram, for Merrill
Lynch's own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in those securities.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER TRANSACTIONS
When considering the recommendation of the board of directors of each of
Vivendi, Seagram and CANAL+ that shareholders vote in favor of the applicable
merger transactions, you should be aware that those companies' directors and
executive officers are subject to agreements or arrangements that may cause them
to have interests in the merger transactions that are different from, or in
addition to, the interests of their shareholders. Each company's board was aware
of these agreements and arrangements during its deliberations of the merits of
the merger transactions and considered them in its determination to recommend
that shareholders vote for the applicable merger transactions.
BOARD ARRANGEMENTS
The merger agreement and the governance agreement provide for certain
arrangements regarding the composition of Vivendi Universal's board of directors
and board committees. Directors and board committee members appointed in
accordance with those arrangements will be entitled to compensation from Vivendi
Universal on the same basis as Vivendi Universal's other directors and board
committee members. For a summary of the provisions of the governance agreement,
including certain arrangements relating to the ownership of Vivendi Universal
equity by shareholders party to the governance agreement following the closing
of the merger transactions, see "-- The Governance Agreement."
Seagram intends to designate Edgar M. Bronfman, Charles R. Bronfman and
Edgar Bronfman, Jr. to serve as the initial Bronfman designees to the Vivendi
Universal board of directors and Richard H. Brown and Andre Desmarais as the
other designees to Vivendi Universal's board of directors. See "-- The
Governance Agreement -- Designees to Vivendi Universal's Board of Directors."
Edgar M. Bronfman and Edgar Bronfman, Jr. each maintains his principal residence
in New York, New York. Charles R. Bronfman's principal residence is in Palm
Beach, Florida, Richard H. Brown's principal residence is in Dallas, Texas and
Andre Desmarais's principal residence is in Westmount, Canada.
We expect that all 14 current members of Vivendi's board of directors will
become directors of Vivendi Universal. In addition:
- Jean-Marie Messier, chairman and chief executive officer of Vivendi, will
become chairman and chief executive officer of Vivendi Universal;
- Edgar Bronfman, Jr. will become sole vice chairman of Vivendi Universal;
and
- Pierre Lescure, chairman and chief executive officer of CANAL+, will
become co-chief operating officer of Vivendi Universal as well as a
member of its board of directors.
Other than as described above, no Vivendi or CANAL+ officers, directors,
directoral nominees or associates of any of the foregoing have any substantial
personal interest in the merger transactions.
EMPLOYMENT AGREEMENT WITH EDGAR BRONFMAN, JR.
Seagram has agreed to enter into an employment agreement with Edgar
Bronfman, Jr. that will be guaranteed by Vivendi Universal. The employment
agreement will have a four-year term beginning at the effective time of the
arrangement and will automatically be extended for additional one-year periods
unless Seagram or Mr. Bronfman provides 120 days' written notice of termination
prior to the next extension date. The agreement provides that Mr. Bronfman will
be the sole vice chairman of Vivendi Universal and
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Seagram, and will report to Vivendi Universal's chairman, who will be the only
executive senior to Mr. Bronfman. Mr. Bronfman's duties under the employment
agreement will include primary responsibility for music and spirits and wine. In
addition, the operating head(s) of Vizzavi, Vivendi Net and other Internet
investments and activities will report directly to Mr. Bronfman.
Under the employment agreement, Mr. Bronfman will continue to receive an
annual base salary of U.S.$1,000,000 and have an annual target bonus equal to
300% of his base salary payable upon achievement of annual performance targets.
However, Mr. Bronfman will receive a minimum annual bonus of U.S.$2,000,000 for
the first two years of the agreement. Mr. Bronfman will also participate in all
Vivendi Universal and Seagram employee benefit plans at the levels afforded to
other senior executives of Vivendi Universal, but not less than the levels
currently afforded to Mr. Bronfman by Seagram, and will receive additional
perquisites. At the beginning of the term of the agreement, Vivendi Universal
will grant Mr. Bronfman options to purchase 500,000 Vivendi Universal ADSs, and
the chairman of Vivendi Universal will recommend that the compensation committee
grant Mr. Bronfman options to purchase an additional 500,000 Vivendi Universal
ADSs at the compensation committee's first meeting after the effective time of
the arrangement. The exercise price for those options will be the fair market
value of the Vivendi Universal ADSs on the date of grant. The options will vest
and become exercisable in equal annual installments on each of the first three
anniversaries of the effective time of the arrangement, subject to Mr.
Bronfman's continued employment. Mr. Bronfman will also be entitled to future
option grants at the discretion of the compensation committee consistent with
those awarded to Vivendi Universal's other senior executives.
If Mr. Bronfman's employment is terminated by Vivendi Universal or Seagram
(including by a failure to extend the employment agreement) other than for
"cause" or by Mr. Bronfman for "good reason," in each case generally as defined
in his termination protection agreement described under "-- Termination
Protection Agreements," Mr. Bronfman will be entitled to the severance benefits
provided under the termination protection agreement. However, if Mr. Bronfman
terminates his employment for good reason based solely on his right to resign
during the thirteenth month following the effective time of the arrangement, the
new options granted under the employment agreement will not accelerate.
Seagram will also indemnify Mr. Bronfman to the fullest extent permitted by
applicable law and will provide him with customary directors' and officers'
liability insurance. Amounts payable to Mr. Bronfman will be increased in the
event he becomes subject to any U.S. excise tax upon a subsequent change of
control or to any French tax.
TERMINATION PROTECTION AGREEMENTS
Under the terms of termination protection agreements currently in effect
between Seagram and some of its executive officers and other senior executives,
including Edgar Bronfman, Jr. and John D. Borgia, those executives are entitled
to severance and other benefits upon the occurrence of a change of control
followed by a termination of the executive's employment without cause or a
resignation by the executive for "good reason." The completion of the
arrangement would constitute a change of control for purposes of the termination
protection agreements. If an executive party to a termination protection
agreement is also subject to an employment or other agreement that provides for
higher payments or benefits, that agreement will control in lieu of the
termination protection agreement to the extent of those greater benefits.
In the case of the termination protection agreement with Edgar Bronfman,
Jr., good reason includes any voluntary termination by the executive during the
thirteenth month following the change of control, which will occur at the
effective time of the arrangement. In the case of the agreements with certain
other Seagram executives, good reason includes voluntary termination by the
executive during the fourteenth month following the change of control, but only
if the executive is not an executive officer of Vivendi Universal or has
experienced a diminution of title or reporting relationship or a substantial
diminution of responsibilities.
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Each termination protection agreement entitles the relevant executive to
severance payments equal to (1) two times (or three times in the case of some
executives) the sum of the executive's annual base salary and target bonus in
effect on the date of the change of control or the termination date, whichever
is higher, plus (2) a pro rata portion of the executive's target bonus for the
year of termination. In addition, each agreement provides the following
additional severance payments and benefits:
- all unvested stock options outstanding on the date of a change of
control, and all options granted upon conversion or substitution of those
options, will become fully exercisable and will remain exercisable for
the period applicable to vested options under the applicable option
agreement; except that, with respect to Edgar Bronfman, Jr. only, any
termination of employment (other than for cause or by reason of death or
disability) will be treated as a retirement for purposes of options and
other stock-based plans and agreements;
- the continuation of all medical, life insurance and disability benefits
for a period of two years (or three years, in the case of some
executives) following the termination date, except that those benefits
will become secondary to any benefits granted by a new employer;
- the executive's years of service for retirement plan eligibility and
certain other purposes will be increased by two years (or three years, in
the case of some executives);
- all unfunded pension benefits will become fully vested;
- reimbursement of reasonable expenses incurred for outplacement services
during the two-year period (or three-year period, in the case of some
executives) following the executive's termination date;
- the executive will retain all rights to indemnification under applicable
law and Seagram's charter and by-laws as in effect from time to time; and
- directors' and officers' liability insurance coverage of the executive
will be maintained at the same level for a period of two years (or three
years, in the case of some executives) following the termination date.
In the event an executive party to a termination protection agreement
becomes subject to any excise tax, the agreement entitles the executive to
payment in an amount sufficient to ensure a net after-tax benefit to the
executive that is the same as if no excise tax had been charged.
The employment agreement between Seagram and its chief financial officer,
Brian C. Mulligan, which is summarized under "Seagram Annual Meeting
Information -- Executive Compensation -- Employment, Consulting and Termination
Protection Agreements," provides for equivalent severance payments, benefits and
protections upon a change of control as those provided in the termination
protection agreements described above; however, Mr. Mulligan's employment
agreement provides that, if it would produce a greater benefit to Mr. Mulligan,
in lieu of multiplying the annual base salary and target bonus by three, Mr.
Mulligan will be entitled to a discounted lump sum payment of his unpaid salary,
supplemental bonus and target bonus through the end of his employment term (or
12 months if longer) and will be entitled to the continuation of medical
coverage through the end of his employment term (or 12 months, if longer). Mr.
Mulligan's principal residence is in La Canada, California.
CASH RETENTION POOL
The merger agreement provides for the establishment of a cash retention
pool in an aggregate minimum amount of U.S.$50,000,000 for the purpose of
retaining the services of selected key employees through the effective time of
the arrangement and thereafter. Seagram's chief executive officer, in close
cooperation with Vivendi's chief executive officer, will select the employees
eligible to receive awards from the pool and the allocation criteria for those
awards.
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SEAGRAM STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The plan of arrangement provides that employee stock options then
outstanding under Seagram's stock option and stock incentive plans will be
exchanged for options to acquire a number of Vivendi Universal ADSs equal to the
number of Seagram common shares that were subject to the options multiplied by
the exchange ratio, with each holder's total number of Vivendi Universal ADSs
rounded down to the nearest whole Vivendi Universal ADS in the case of holders
subject to tax under the Canadian Tax Act and rounded up in all other cases. The
options issued upon exchange of the Seagram options will be subject to the same
terms and conditions applicable to the Seagram options, except that half of the
otherwise unvested options granted upon exchange will become immediately
exercisable at the effective time of the arrangement (applied pro rata against
each subsequent vesting installment). The remaining half of an employee's
options will become vested and exercisable in the event the employee is
terminated without "cause" or terminates his or her employment because he or she
is required to relocate his or her primary place of employment by more than 35
miles.
The exercise price per Vivendi Universal ADS of the options issued upon
exchange of the Seagram options will be equal to the exercise price per Seagram
common share subject to the option divided by the exchange ratio, rounded up to
the nearest cent in the case of holders subject to tax under the Canadian Tax
Act and rounded down to the nearest cent in all other cases. In the case of
holders subject to tax under the Canadian Tax Act, if the total of all of a
holder's new stock options would have resulted (before rounding) in a holder
receiving a fraction of a Vivendi Universal ADS, then the total exercise price
for those new stock options will be reduced by the exercise price of the
fractional Vivendi Universal ADS.
Stock appreciation rights will be exchanged in the same manner as employee
stock options.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Vivendi and Seagram will:
- jointly and severally indemnify Seagram's past and present directors,
officers and employees for acts and omissions occurring at or prior to
the effective time of the arrangement to the same extent as those
individuals would be indemnified under Seagram's charter, by-laws and
indemnification agreements as in effect on the date of the merger
agreement, and to the fullest extent permitted by law;
- maintain provisions on eliminating liability of directors and provisions
on indemnification of officers, directors and employees in Seagram's
charter and by-laws following the effective time of the arrangement that
are no less favorable to the director, officer or employee than the
corresponding provisions in effect on June 19, 2000; and
- maintain for six years following the effective time of the arrangement,
directors and officers liability insurance with respect to claims arising
from events on or before the effective time of the arrangement, no less
favorable than the Seagram policies currently in effect, except that
Vivendi will not be required to spend in any year more than 200% of the
annual premiums currently paid by Seagram.
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MANAGEMENT OF VIVENDI UNIVERSAL AFTER THE MERGER TRANSACTIONS
DIRECTORS AND OFFICERS
The table below shows the names and current principal occupations of the
persons we expect to become directors of Vivendi Universal if the merger
transactions are completed.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
---- ----------------------------------
<S> <C>
Jean-Marie Messier(1)......... Chairman and CEO of Vivendi
Eric Licoys(1)................ COO of Vivendi
Bernard Arnault(1)............ Chairman and CEO of LVMH
Jean-Louis Beffa(1)........... Chairman and CEO of Compagnie de Saint-Gobain
Jean-Marc Espalioux(1)........ Chairman of the executive board of Accor
Philippe Foriel-Destezet(1)... Chairman of Adecco S.A.
Jacques Friedmann(1).......... Chairman of the supervisory board of AXA
Esther Koplowitz(1)........... Member of the board of directors of Fomento de
Construcciones y Contratas
Henri Lachmann(1)............. Chairman and CEO of Schneider Electric
Thomas Middelhoff(1).......... Chairman of Bertelsmann
Simon Murray(1)............... Chairman of Simon Murray and Co.
Serge Tchuruk(1).............. Chairman and CEO of Alcatel
Rene Thomas(1)................ Honorary Chairman and director of Banque Nationale de Paris
Marc Vienot(1)................ Honorary Chairman and director of Societe Generale
Pierre Lescure(2)............. Chairman and CEO of CANAL+
Edgar M. Bronfman(3).......... Chairman of the Board of Seagram
The Honourable Charles R.
Bronfman, P.C., C.C.(3)..... Co-Chairman of the Board and Chairman of the Executive
Committee of Seagram
Edgar Bronfman, Jr.(3)........ President and CEO of Seagram
Richard H. Brown(3)........... Chairman and CEO of Electronic Data Systems Corporation
Andre Desmarais(3)............ President and Co-CEO of Power Corporation of Canada and
Deputy Chairman of Power Financial Corporation
</TABLE>
---------------
(1) Currently a Vivendi director.
(2) Currently a CANAL+ director.
(3) Currently a Seagram director.
EXECUTIVE OFFICERS
The table below shows the names and responsibilities of the persons we
expect to become the principal executive officers of Vivendi Universal if the
merger transactions are completed.
<TABLE>
<CAPTION>
NAME RESPONSIBILITY
---- --------------
<S> <C>
Jean-Marie Messier............ Chairman and Chief Executive Officer
Edgar Bronfman, Jr. .......... Vice Chairman, Music and Internet Operations
Eric Licoys................... Co-Chief Operating Officer
Pierre Lescure................ Co-Chief Operating Officer
</TABLE>
We expect that Vivendi Universal's executive committee will initially
consist of Jean-Marie Messier, Edgar Bronfman, Jr., Eric Licoys, Pierre Lescure,
Phillipe Germond and Guillaume Hannezo. Vivendi Universal will also create an
integration committee consisting of the executive committee plus two operating
executives from each division, approximately 20 people in all.
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DIRECTORS AND OFFICERS OF VIVENDI WHO WILL BECOME DIRECTORS AND OFFICERS OF
VIVENDI UNIVERSAL
Compensation
The aggregate amount of compensation that Vivendi paid to the persons
expected to become directors and officers of Vivendi Universal for services in
all capacities during the 1999 fiscal year was approximately E4.33 million.
The aggregate amount that Vivendi set aside or accrued to provide pension,
retirement or similar benefits for those persons was approximately E3.34
million during the 1999 fiscal year.
Options to Purchase Securities
As of October 1, 2000, pursuant to the existing share purchase and stock
subscription plans of Vivendi, the persons expected to become directors and
officers of Vivendi Universal held options to purchase 3,784,631 Vivendi shares.
Share Ownership
We expect that the total amount of Vivendi Universal's voting securities
owned by those of its directors and officers that are currently directors or
officers of Vivendi, as a group, will be less than 1%.
Interests of Management in Certain Transactions
Since January 1, 1997, except as described below, no material transactions
have been entered into between Vivendi and any of the persons expected to become
directors and officers of Vivendi Universal or any relative or spouse (or any
relative of such spouse) of any of those persons.
In October 1998, Vivendi acquired from Ms. Esther Koplowitz, a member of
Vivendi's board of directors, a 49% interest in the holding company that owns
56.5% of FCC. The parties made the economic effect of the transaction
retroactive to July 1, 1998. Ms. Koplowitz owns the remaining 51% of the holding
company.
The same month, Vivendi and Ms. Koplowitz signed a shareholder's agreement
providing for shared control of the economic activity of the holding company,
FCC and FCC's subsidiaries (the "FCC group"). Specifically, the agreement
provides that Vivendi and Ms. Koplowitz are to be equally represented in the
main executive bodies of the FCC group, i.e., the board of directors and
executive committees of FCC and its subsidiaries.
At the same time, Vivendi entered into an option agreement under which Ms.
Koplowitz has an option to sell Vivendi, at any time between April 18, 2000 and
October 6, 2008, her 51% interest in the holding company at a price based on the
average market value of FCC's shares during the three months preceding the
exercise of the option, up to seven times FCC's EBITDA or 29.5 times FCC's
earnings per share for the previous year, whichever is lower.
PROJECTIONS AND OBJECTIVES
Since entering into the transaction agreements, Vivendi, Seagram and CANAL+
have worked intensively to develop an integration strategy intended to optimize
the operating performance of the combined companies following the completion of
the merger transactions. In connection with these activities, we have developed
the following projections of, and objectives for, operating performance. While
our integration efforts continue, we currently project that, following the
merger transactions, Vivendi Universal (excluding Vivendi Environnement,
Vivendi's remaining real estate business and its interest in Sithe and Seagram's
Spirits and Wine business) will generate in 2000 pro forma revenue of E24.6
billion and pro forma adjusted EBITDA of E3.2 billion, a 35% and more than 100%
increase, respectively, over comparable pro forma figures for 1999.
Our objective for these businesses is to increase revenues at a 10%
compound annual growth rate through 2002 (based upon revenues for the first six
months of 2000 and management's estimates of the internal growth rates of the
relevant businesses over the period). It is also our objective to grow pro forma
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adjusted EBITDA at an approximate 35% compound annual growth rate through 2002.
The pro forma adjusted EBITDA growth objective through 2002 is based upon the
following:
- the results of operations of the relevant businesses for the first six
months of 2000;
- management's belief that demand for Vivendi Universal's products and
services will continue to be strong, producing robust internal growth
over the period;
- management's belief that new revenue streams created by cross-promotion
and increased consumer loyalty as well as the introduction of new
products and services arising from the combination of the three
companies' businesses should produce E220 million in annual pro
forma adjusted EBITDA enhancements by 2002; and
- management's belief that cost savings in overhead, logistics, purchasing,
information technology operations and other items should enhance pro
forma adjusted EBITDA by E420 million annually by 2002.
We also estimate that Vivendi Environnement will generate revenue of
E25.6 billion and pro forma adjusted EBITDA of E3.5 billion in 2000.
Our objective for Vivendi Environnement is to increase revenue by an approximate
8%, and pro forma adjusted EBITDA by an approximate 11-13%, compound annual
growth rate through 2002.
These projections and objectives were not prepared with a view to
compliance with the published guidelines or policies of the SEC, Canadian
securities regulatory authorities or the guidelines established by the American
Institute of Certified Public Accountants, the Canadian Institute of Chartered
Accountants or any relevant French or European body regarding projections or
forecasts. The projections and objectives are not presented in accordance with
U.S., Canadian or French GAAP. In accordance with French GAAS, our independent
auditors have verified that the computations of the projections are compliant
with the assumptions described in this document; however, they have not examined
or compiled the projections and accordingly assume no responsibility for them.
Financial projections and objectives are, in general, subjective in many
respects and thus susceptible to interpretations and periodic revision based on
actual experience and business developments. These projections and objectives
also reflect numerous assumptions with respect to industry performance, general
business, economic, market and financial conditions and other matters, all of
which are difficult to predict, and many of which are beyond our control.
Accordingly, the assumptions may not prove accurate. It is expected that there
will be differences between actual results and our projections and objectives,
and actual results may be materially better or worse than those contained in the
projections and objectives. The inclusion of objectives and projections in this
joint proxy statement-prospectus does not indicate that any of Vivendi, Seagram
or CANAL+ or their respective affiliates or representatives considered or
consider the projections or objectives to be a reliable prediction of future
events, and the projections and objectives should not be relied upon as such.
None of Vivendi, Seagram or CANAL+ or any of their respective affiliates or
representatives has made or makes any representation to any person regarding the
ultimate performance of Vivendi Universal compared to the information contained
in the projections and objectives, and none of them intends to update or
otherwise revise the projections and objectives to reflect circumstances
existing after the date when made or to reflect the occurrence of future events
even in the event that any or all of the assumptions underlying the projections
and objectives are shown to be in error. For more information that could affect
these projections and objectives, see "Introduction -- Risk Factors."
COURT APPROVAL OF THE ARRANGEMENT AND COMPLETION OF THE MERGER TRANSACTIONS
The arrangement requires approval by the Ontario Superior Court of Justice.
Prior to the mailing of this joint proxy statement-prospectus, Seagram obtained
an interim order from the court which provides for the calling and holding of
the Seagram meeting and other procedural matters. A copy of the notice of
application to the court relating to the arrangement and a copy of the interim
order are included in this joint proxy statement-prospectus as Annexes H and I,
respectively.
Subject to the approval of the arrangement resolution by the Seagram
shareholders at the Seagram meeting, the hearing for the final order of the
court to approve the arrangement is scheduled to take place
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before the court on December 6, 2000 at 10:00 a.m., Eastern time, at 393
University Avenue, Toronto, Ontario, Canada. Any Seagram shareholder who wishes
to appear or to be represented and to present evidence or arguments at the
hearing must serve and file a notice of appearance as set out in the notice of
application described above and satisfy any other requirements of the court. The
court will consider, among other things, the fairness and reasonableness of the
arrangement. The court may approve the arrangement in any manner the court may
direct, subject to compliance with any terms and conditions, as the court deems
fit.
If the final order is granted and the other conditions to the completion of
the arrangement contained in the merger agreement are satisfied or waived, a
certificate of arrangement will be issued under the CBCA to give effect to the
arrangement, and any documents necessary to complete the arrangement will be
signed and delivered. Subject to obtaining the final order and satisfying the
conditions to the completion of the arrangement contained in the merger
agreement, we expect to complete the arrangement and the other merger
transactions before the end of 2000.
REGULATORY MATTERS
CANADA
Investment Canada Act
Under the Investment Canada Act (ICA), some transactions involving the
acquisition of control of a Canadian business by a non-Canadian person require
the approval of the Canadian government. Vivendi Universal is a non-Canadian
person for purposes of the ICA. Jurisdiction for review under the ICA is divided
between the Minister of Industry and the Minister of Canadian Heritage. Each of
these Ministers is a member of the federal cabinet of the government of Canada.
The Minister of Industry is responsible for investments involving the
acquisition of Canadian businesses other than "cultural businesses," and the
Minister of Canadian Heritage is responsible for investments involving the
acquisition of Canadian businesses that are considered cultural businesses. The
acquisition by Vivendi Universal of Seagram's spirits and wine business and its
retail gift store activities is subject to review by the Minister of Industry,
and the acquisition by Vivendi Universal of Seagram's music and filmed
entertainment business and its retail gift store activities is subject to review
by the Minister of Canadian Heritage. Before the arrangement can be completed,
both Ministers must determine that it is of "net benefit to Canada."
The ICA contemplates an initial review period of 45 days after Vivendi has
filed its application for review; however, if the relevant Minister has not
completed the review by the expiration of the period, the Minister may
unilaterally extend the period by up to 30 days (or such longer period as may be
agreed to by Vivendi) to permit completion of the review.
In making the "net benefit to Canada" determination, each Minister is
required to take into account, among other things, factors specified in the ICA,
any applicable government policies and any written undertakings that may have
been given by Vivendi. The statutorily prescribed factors to be considered
include the effect of the arrangement on the level and nature of economic
activity in Canada (including the effect on employment, resource processing,
utilization of Canadian products and services and the level of exports from
Canada), the degree and significance of participation by Canadians in the
acquired business, the effect of the arrangement on productivity, industrial
efficiency, technological development, product innovation and product variety in
Canada, the effect of the arrangement on competition within any industry in
Canada, the compatibility of the arrangement with national industrial, economic
and cultural policies (taking into consideration corresponding provincial
policies) and the contribution of the arrangement to Canada's ability to compete
in world markets.
Vivendi filed an application for review on August 4, 2000 with each of the
Department of Industry and the Department of Canadian Heritage. The obligations
of the parties to complete the arrangement are subject to the condition that
each of the Minister of Industry and the Minister of Canadian Heritage
determines that the arrangement is of net benefit to Canada on terms and
conditions satisfactory to Vivendi, acting reasonably. Both Ministers approved
the arrangement during the week of October 16, 2000.
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Competition Act (Canada)
The Competition Act (Canada) provides for substantive review and regulation
of all mergers in Canada. The Competition Act establishes a regime for
pre-merger notification and review of merger transactions that exceed certain
size and voting share thresholds. When a merger exceeds these thresholds, the
parties must either file a pre-merger notification and wait for the expiration
of the applicable waiting period or, instead, obtain an advance ruling
certificate from the Commissioner of Competition under the Competition Act. The
arrangement is a "notifiable transaction" for purposes of Part IX of the
Competition Act. The obligations of the parties to complete the arrangement are
subject to the condition that the Commissioner of Competition has issued either
an advance ruling certificate or a "no action" letter in respect of the
arrangement. The Commissioner of Competition issued an advance ruling
certificate on August 28, 2000. The Commissioner of Competition is the only
person who may challenge the arrangement pursuant to the provisions of the
Competition Act before the Competition Tribunal, which is an administrative body
that has exclusive jurisdiction to review mergers under the Competition Act. If
we complete the arrangement within one year from the date the advance ruling
certificate was issued, the Commissioner of Competition is prevented by the
Competition Act from challenging the arrangement before the Competition Tribunal
solely on the basis of information that is the same or substantially the same as
the information on the basis of which the advance ruling certificate was issued.
UNITED STATES
The merger transactions are subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which prevents
specified transactions from being completed until required information and
materials are furnished to the Department of Justice and the U.S. Federal Trade
Commission and specified waiting periods are terminated or expire. We filed the
required materials with the Department of Justice and the U.S. Federal Trade
Commission on July 13, 2000, and the requisite waiting period expired on August
12, 2000.
The Department of Justice, the Federal Trade Commission, state regulatory
authorities or other persons may challenge the merger transactions on antitrust
grounds either before or after expiration of the waiting period. Such a
challenge could lead to an injunction prohibiting all or some of the merger
transactions. There can be no assurance that a challenge to the merger
transactions will not be made or that, if a challenge is made, we will prevail.
FRANCE
The acquisition by a French public company of another company, French or
otherwise, generally does not require prior approval from any regulatory
authorities in France.
Pursuant to regulations of the Commission des Operations de Bourse (or
COB), an independent French administrative body, Vivendi, Vivendi Universal and
CANAL+ filed a French prospectus with the COB in respect of the merger
transactions and the listing of the Vivendi Universal shares on the Paris Bourse
and has received the approval (visa) of the COB for that prospectus.
On July 26, 2000, the CSA, the French administrative authority that
regulates the French television and radio broadcasting industries, notified
Vivendi and CANAL+ that it would not object to the merger transactions, subject
to its final review of the documentation relating to the Vivendi/CANAL+
transactions.
EUROPEAN UNION
Under Regulation (EEC) N(degrees) 4064/89 of the Council of the European
Union, a business combination may not be implemented until it has been approved
by the European Commission. The European Commission will review the transaction
to determine whether it is compatible with the European common market. An
acquisition that does not create or strengthen a dominant position in the common
market or in a substantial part of the common market is considered to be
compatible with the common market.
In connection with the European Commission's review of the proposed merger
transactions, we made a variety of commitments to address the Commission's
concerns with regard to Vivendi Universal's
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competitive position in the pay-television, Internet portal and on-line music
sectors after the merger transactions. First, we undertook to have Vivendi
Universal dispose of the interest Vivendi currently holds in BSkyB, a U.K. pay
television company. Second, we agreed that Seagram's Universal Music Group will
make its on-line music content available to competitors in Europe of Vizzavi,
the pan-European multi-access portal Vivendi is currently developing with
Vodafone Airtouch, on a non-discriminatory basis for a period of five years
following the merger transactions. Universal Music Group has the right to ask
the Commission to review this undertaking after three years if market conditions
change. Finally, we agreed that, following the merger transactions, Seagram's
Universal Studios, subject to specified conditions, will not grant to CANAL+
"first-window" rights covering more than 50% of the films produced or co-
produced by Universal Studios (a "first-window" right is the right to show a
film on pay television after it has been released in cinemas and through video
rental but before it is shown on broadcast television). The latter commitment is
applicable only in France, Spain, Belgium, Italy, the Netherlands, Denmark,
Sweden, Finland and Norway and will expire five years after the expiration of
the relevant "first window" output agreement between Universal Studios and
CANAL+ or its affiliates (where applicable). We do not expect the fulfillment of
any of these undertakings to have a materially detrimental effect on Vivendi
Universal's results of operations.
On October 13, 2000, the European Commission determined that, taking into
consideration the undertakings described above, the merger transactions are
compatible with the European common market.
OTHER
Vivendi and Seagram have made filings with or obtained approvals from a
number of other governmental regulatory authorities in connection with the
merger transactions, including governmental authorities in Argentina, Brazil,
the Czech Republic and South Africa.
RESALE OF VIVENDI UNIVERSAL ADSS AND EXCHANGEABLE SHARES RECEIVED IN THE MERGER
TRANSACTIONS
FRANCE
The Vivendi Universal ADSs issued in connection with the arrangement may be
exchanged for Vivendi Universal ordinary shares, which may be resold in France
without restriction.
Since Vivendi Universal ordinary shares will be listed securities in
France, the acquisition of those securities by Vivendi and CANAL+ shareholders
in the merger transactions will not be subject to registration transfer tax in
France.
CANADA
Vivendi and Vivendi Universal Exchangeco have applied for rulings or orders
of certain securities regulatory authorities in Canada to permit:
- the issuance of Vivendi Universal ADSs, exchangeable shares and Vivendi
Universal voting rights under the plan of arrangement; and
- the issuance of Vivendi Universal ADSs upon the exchange of exchangeable
shares.
Application has also been made to permit the first resale of those
securities by persons other than a "control person." The receipt of these
rulings and orders is a condition to Seagram's obligation to complete the
arrangement. Relief has also been requested from various ongoing Canadian
disclosure and other requirements. See "-- Ongoing Canadian Reporting
Obligations."
UNITED STATES
The securities a Vivendi, Seagram or CANAL+ shareholder receives as part of
the merger transactions, including the Vivendi Universal ADSs into which the
exchangeable shares will be exchangeable following the merger transactions and
the Vivendi Universal shares underlying the Vivendi Universal ADSs, will be
freely transferable unless the holder is deemed to be an "affiliate" of Vivendi,
Seagram or CANAL+, as the case may be, under the Securities Act. Persons who may
be affiliates of Vivendi, Seagram or CANAL+ for those purposes generally include
individuals or entities that control, are controlled by, or are under common
control with, Vivendi, Seagram or CANAL+, and would not include
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shareholders who are not officers, directors or principal shareholders of
Vivendi, Seagram or CANAL+. Securities received by affiliates may be resold by
them in the United States only in transactions permitted by Rule 145 under the
Securities Act, pursuant to an effective registration statement under the
Securities Act covering the resale of those securities or as otherwise permitted
under the Securities Act. The merger agreement requires Seagram to use its
reasonable best efforts to ensure that its affiliates deliver to Vivendi a
written agreement to the effect that the affiliate will not offer, sell or
otherwise dispose of any of the Vivendi Universal ADSs issued to them in the
arrangement in violation of the Securities Act.
The registration statement on Form F-4, of which this joint proxy
statement-prospectus forms a part, does not cover the resale of the securities
to be received by affiliates of Vivendi, CANAL+ or Seagram in the arrangement or
upon the exchange of exchangeable shares.
Vivendi has agreed to file a registration statement on Form S-8 before the
completion of the arrangement in order to register under the Securities Act the
Vivendi Universal ADSs subject to the stock options and stock appreciation
rights to be issued in exchange for outstanding Seagram employee stock options
and stock appreciation rights pursuant to the plan of arrangement and will
maintain the effectiveness of that registration statement for so long as any of
the new stock options or stock appreciation rights remain outstanding. See
"-- Merger Transaction Steps -- The Arrangement."
ONGOING CANADIAN REPORTING OBLIGATIONS
Upon completion of the arrangement, Vivendi Universal Exchangeco will be
subject to Canadian statutory financial and reporting requirements. Statutory
insiders of Vivendi Universal Exchangeco will be subject to Canadian insider
trading reporting requirements. Application has been made for certain exemptions
from the requirements relating to timely disclosure, filing and sending of
financial statements, the preparation and sending of management information
circulars, the preparation of an annual information form and from the insider
trading reporting requirements. The exemptions are expected to be conditional
upon Vivendi Universal filing with the relevant Canadian securities regulatory
authorities copies of all documents required to be filed with the SEC, holders
of exchangeable shares receiving all disclosure materials furnished to holders
of Vivendi Universal ADSs under the laws of the United States, including copies
of its annual financial statements and all proxy solicitation materials, Vivendi
Universal complying with the NYSE timely disclosure requirements and
disseminating relevant press releases in Canada and Vivendi Universal Exchangeco
complying with Canadian timely disclosure requirements in respect of events that
would be material to its shareholders but would not be material to holders of
Vivendi Universal ADSs.
If these exemptions are obtained, after the completion of the arrangement:
- holders of exchangeable shares will receive annual financial statements
of Vivendi Universal prepared in accordance with French GAAP with a
reconciliation to U.S. GAAP (or international GAAP if it becomes
acceptable in Canada) and any interim financial statements of Vivendi
Universal prepared in accordance with French GAAP that are provided to
holders of Vivendi Universal ADSs, in lieu of financial statements of
Vivendi Universal Exchangeco;
- Vivendi Universal Exchangeco will be exempt from certain Canadian
disclosure and reporting requirements applicable to a reporting issuer;
and
- statutory insiders of Vivendi Universal Exchangeco will be exempt from
insider trading reporting requirements with respect to the shares of
Vivendi Universal Exchangeco.
ELIGIBILITY FOR INVESTMENT IN CANADA
On the date of issue, the exchangeable shares will be eligible investments
under the following statutes (and where applicable, the regulations thereunder):
- Insurance Companies Act (Canada);
- Pension Benefits Standards Act, 1985 (Canada);
- Trust and Loan Companies Act (Canada),
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- Loan and Trust Corporations Act (Ontario);
- Pension Benefits Act (Ontario);
- An Act Respecting Insurance (Quebec), for an insurer, as defined therein,
constituted under the laws of the Province of Quebec, other than a
guarantee fund;
- An Act Respecting Trust Companies and Savings Companies (Quebec), for a
trust company, as defined therein, investing its own funds and deposits
it receives and a savings company, as defined therein, investing its
funds; and
- Supplemental Pension Plans Act (Quebec), for a plan governed thereby,
subject to compliance with the prudent investment standards and general
investment provisions and restrictions of the statutes referred to (and, where
applicable, the regulations thereunder) and, in certain cases, subject to the
satisfaction of additional requirements relating to the investment or lending
policies or goals and, in certain cases, the filing of such policies or goals.
For investment eligibility considerations under the Canadian Tax Act for certain
deferred income plans and for a discussion of whether the exchangeable shares
and Vivendi Universal voting rights are foreign property for purposes of Part IX
of the Canadian Tax Act, see "Tax Information -- Tax Considerations for Seagram
Shareholders -- Canadian Federal Income Tax Considerations -- Eligibility for
Investment in Canada."
ACCOUNTING MATTERS
Vivendi Universal will prepare financial statements using French GAAP. In
accordance with applicable rules and regulations, Vivendi Universal will
reconcile financial statements filed with the SEC to U.S. GAAP. Vivendi
Universal intends to account for the arrangement using the purchase method of
accounting for business combinations under French GAAP as well as under U.S.
GAAP.
STOCK EXCHANGE MATTERS
STOCK EXCHANGE LISTINGS
It is a condition to the merger transactions that:
- the Vivendi Universal ordinary shares to be issued (or reserved for
issuance) in connection with the plan of arrangement, including the
Vivendi Universal ordinary shares underlying the Vivendi Universal ADSs
to be issued in exchange for Seagram common shares and the Vivendi
Universal ADSs to be issued from time to time upon exchange of the
exchangeable shares, be approved for listing on the Paris Bourse as of
the effective time of the arrangement, subject to filing of
documentation, notice of issuance and other customary requirements;
- the Vivendi Universal ADSs be registered under the Exchange Act and
approved for listing on the NYSE or The NASDAQ Stock Market as of the
effective time of the arrangement; and
- the exchangeable shares be approved for listing on The Toronto Stock
Exchange, subject only to filing of required documents, effective as of
the effective time of the arrangement.
DELISTING AND DEREGISTRATION OF SEAGRAM COMMON SHARES FOLLOWING THE
ARRANGEMENT
After the completion of the arrangement, Seagram common shares will be
delisted from the NYSE, The Toronto Stock Exchange and the London Stock Exchange
and will be deregistered under the Exchange Act.
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THE MERGER AGREEMENT
Pursuant to the arrangement, Seagram and Vivendi Universal will combine
pursuant to a merger agreement and a plan of arrangement under Canadian law.
Following the completion of the arrangement, Seagram will be an indirect
subsidiary of Vivendi Universal. The following summaries of the merger agreement
and the other agreements related to the merger transactions are qualified in
their entirety by reference to the complete texts of those agreements, which are
incorporated by reference. Some of these agreements are attached as annexes and
others are attached as exhibits to this joint proxy statement-prospectus.
CONDITIONS TO THE ARRANGEMENT
Each of the parties' obligations to complete the arrangement, which is the
final step of the merger transactions and is expected to occur immediately after
the Vivendi/CANAL+ transactions are completed, are subject to the satisfaction
or waiver of specified conditions, including the following:
- the approval of the arrangement at the Seagram meeting by not less than
two-thirds of the votes cast by Seagram shareholders at the Seagram
meeting;
- the receipt of the final order in form and on terms satisfactory to each
of Vivendi, CANAL+ and Seagram, acting reasonably, and the absence of any
setting aside or modification of the final order in a manner unacceptable
to the parties, acting reasonably, on appeal or otherwise;
- the approval of the merger of Vivendi into Vivendi Universal at the
Vivendi meeting by not less than two-thirds of the votes cast by Vivendi
shareholders;
- the approval of certain of the Vivendi/CANAL+ transactions at the CANAL+
meeting by not less than two-thirds of the votes cast by CANAL+
shareholders at the CANAL+ meeting;
- the completion of the merger of Vivendi into Vivendi Universal and the
other Vivendi/CANAL+ transactions in accordance with the agreements
governing those transactions;
- the absence of any final and non-appealable injunction, order or decree
restraining or enjoining the completion of the merger transactions;
- the registration of the Vivendi Universal ADSs under the Exchange Act;
- the approval for listing on the Paris Bourse of the Vivendi Universal
ordinary shares to be issued, or to be reserved for issuance, in
connection with the arrangement, subject to the filing of required
documentation, notice of issuance and other customary requirements;
- the approval for listing on the NYSE or The Nasdaq Stock Market of the
Vivendi Universal ADSs to be issued in connection with the arrangement or
to be issued from time to time upon the exchange of exchangeable shares,
subject to notice of issuance;
- the approval for listing on The Toronto Stock Exchange of the
exchangeable shares, subject to the filing of required documentation; and
- the receipt or satisfaction of specified regulatory approvals, including
the following:
-- the regulatory approvals described in this joint proxy
statement-prospectus under "-- Structure and Background -- Regulatory
Matters";
-- the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
-- the declaration of effectiveness of the registration statement on
Form F-4, of which this joint proxy statement-prospectus forms a
part, by the SEC; and
-- compliance with the requirements of state blue sky laws.
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The obligations of Vivendi, Vivendi Universal Exchangeco, Vivendi Universal
and CANAL+ to complete the arrangement are subject to the satisfaction or waiver
of the following additional conditions before completion of the arrangement:
- Seagram must have performed or complied in all material respects with all
agreements and covenants required to be performed by it under the merger
agreement;
- Seagram's representations and warranties that are qualified as to
material adverse effect, as described below, must be true and correct and
Seagram's representations and warranties that are not qualified as to
material adverse effect must be true and correct unless the failure to be
true and correct, individually or in the aggregate, has not had a
material adverse effect on Seagram, in each case as of June 19, 2000, the
date of the merger agreement, and as of the date of completion of the
arrangement, except for:
-- representations and warranties relating to Seagram's capital
structure, which must be true and correct in all material respects as
of June 19, 2000 and as of the date of completion of the arrangement;
and
-- representations and warranties that address matters as of another
date, which must be true and correct as of that date;
- the absence of any material adverse change, as described below, to
Seagram between June 19, 2000 and the date of the completion of the
arrangement, which has not been cured; and
- holders of Seagram common shares who have exercised dissent or similar
rights in connection with the arrangement must not represent more than
9.9% of the outstanding Seagram common shares.
Conditions for the benefit of Vivendi, Vivendi Universal Exchangeco,
Vivendi Universal and CANAL+ may be waived by Vivendi.
"Material adverse effect" or "material adverse change," when used in
reference to any party, means any change, effect, event or occurrence:
- that is, or is reasonably likely to be, materially adverse to the
financial condition, businesses or results of operations of the party and
its subsidiaries, taken as a whole, other than any change, effect, event
or occurrence:
-- relating to the economy or securities markets in general;
-- affecting the industries in which the party operates in general; or
-- relating to the announcement and performance of the merger agreement
and the merger transactions and compliance with the covenants
described in the merger agreement; or
- that is materially adverse to the party's ability to complete the merger
transactions.
Seagram's obligations to complete the arrangement are subject to the
satisfaction or waiver of the following additional conditions before completion
of the arrangement:
- each of Vivendi, Vivendi Universal Exchangeco, Vivendi Universal and
CANAL+ must have performed or complied in all material respects with all
agreements and covenants required to be performed by it under the merger
agreement;
- the representations and warranties of each of Vivendi, Vivendi Universal
Exchangeco, Vivendi Universal and CANAL+ that are qualified as to
material adverse effect must be true and correct and the representations
and warranties of each of Vivendi, Vivendi Universal Exchangeco, Vivendi
Universal and CANAL+ that are not qualified as to material adverse effect
must be true and correct unless the failure to be true and correct,
individually or in the aggregate, has not had a
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material adverse effect on Vivendi or CANAL+, in each case as of June 19,
2000 and as of the date of completion of the arrangement, except for:
-- representations and warranties relating to the capital structure of
Vivendi and CANAL+, the due authorization and validity of Vivendi
Universal securities issuable in connection with the merger
transactions and the availability of at least 97,000,000 Vivendi
Universal voting rights as of the completion of the arrangement,
which must be true and correct in all material respects as of June
19, 2000 and as of the date of completion of the arrangement; and
-- representations and warranties that address matters as of another
date, which must be true and correct as of that date;
- each Vivendi Universal voting right must entitle its beneficiary to one
vote on the same basis and in the same circumstances as one Vivendi
Universal ordinary share;
- the adoption of all necessary resolutions by the board of directors of
each of Vivendi, Vivendi Universal Exchangeco, Vivendi Universal and
CANAL+, and the taking of all other necessary corporate action by
Vivendi, Vivendi Universal Exchangeco, Vivendi Universal and CANAL+ to
permit the completion of the merger transactions;
- the absence of any material adverse change to Vivendi or CANAL+ between
June 19, 2000 and the date of the completion of the arrangement which has
not been cured;
- the receipt of all orders from applicable Canadian securities regulatory
authorities to permit the issuance and first resale of the exchangeable
shares, the Vivendi Universal voting rights and the Vivendi Universal
ADSs issued pursuant to the arrangement and the Vivendi Universal ADSs to
be issued from time to time upon exchange of the exchangeable shares;
- Seagram must have received written opinions from:
-- Simpson Thacher & Bartlett, Seagram's U.S. counsel, to the effect
that the merger transactions will constitute a transaction described
in Section 351 of the Internal Revenue Code of 1986, and that no gain
or loss will be recognized by United States shareholders of Seagram
who exchange their Seagram common shares for Vivendi Universal ADSs;
and
-- Osler, Hoskin & Harcourt LLP, Seagram's Canadian counsel, to the
effect that:
-- Canadian resident holders of Seagram common shares who elect to
receive exchangeable shares pursuant to the plan of arrangement
and who make a valid tax election at the minimum permissible
amount will not generally recognize gain or loss under the
Canadian Tax Act at that time; and
-- the exchangeable shares will not, when issued, be "foreign
property" for purposes of the Canadian Tax Act; and
- the approval of the Vivendi/CANAL+ transactions (including the election
of five Seagram designees to the board of directors of Vivendi Universal
and the adoption of the Vivendi Universal statuts with the modifications
specified in the merger agreement) by Vivendi Universal at an
extraordinary meeting of Vivendi Universal shareholders.
Conditions for the benefit of Seagram may be waived by Seagram.
NO OTHER TRANSACTIONS INVOLVING VIVENDI, SEAGRAM OR CANAL+
The merger agreement contains detailed provisions prohibiting Vivendi,
CANAL+ and Seagram from seeking alternative transactions. If there were an
alternative transaction, even one that may be deemed superior, the parties do
not have the right to terminate the merger agreement in order to accept the
alternative transaction and must hold their shareholder meetings to consider the
merger transactions. In addition, under these "no solicitation" provisions, each
of Vivendi, CANAL+ and Seagram has agreed that it will not, directly or
indirectly, through any officer or director of it or any of its subsidiaries,
and that
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it will use reasonable best efforts to cause its and its subsidiaries'
employees, agents and representatives not to:
- solicit, initiate, knowingly encourage or otherwise facilitate the
initiation of any inquiries or proposals regarding any acquisition
proposal, as described below; or
- participate in any discussions or negotiations regarding, or provide any
confidential information with respect to, any acquisition proposal.
"Acquisition proposal" means, with respect to Vivendi, CANAL+ or Seagram,
any bona fide proposal or offer (excluding the merger transactions and any other
proposal or offer made by the other parties or their affiliates) with respect
to:
- any merger, reorganization, business combination, share exchange,
liquidation, dissolution, recapitalization (or, in the case of Seagram,
any consolidation, amalgamation or arrangement) or similar transaction
involving it or any of its material subsidiaries, which, in the case of
an acquisition proposal with respect to Vivendi or CANAL+, if consummated
would result in any person, or the shareholders of that person, owning
securities representing 50% or more of its voting power, or the voting
power of the surviving or ultimate parent entity in the transaction;
- any direct or indirect acquisition, purchase or sale of assets involving
it or any of its material subsidiaries representing 20%, or, in the case
of an acquisition proposal with respect to Vivendi or CANAL+, 50%, or
more of the consolidated assets, including shares of subsidiaries, of it
and its consolidated subsidiaries, taken as a whole; or
- any direct or indirect acquisition, purchase, sale, tender or exchange
offer, shareholders recapitalization or similar transaction involving it,
which if consummated would result in any person, or shareholders of that
person, owning securities representing 20%, or, in the case of an
acquisition proposal with respect to Vivendi or CANAL+, 50% or more of
its voting power, or the voting power of the surviving or ultimate parent
entity in the transaction.
In addition, each of Vivendi, CANAL+ and Seagram has agreed that neither it
nor its board of directors, including any committee thereof, will:
- withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Vivendi, Seagram or CANAL+, as applicable, the approval
or recommendation of its board of directors or any committee of its board
of directors of the merger transactions;
- approve or recommend, or propose publicly to approve or recommend, any
acquisition proposal; or
- accept or enter into, or propose publicly to accept or enter into, any
letter of intent, agreement in principle, merger agreement, acquisition
agreement, option agreement or voting agreement related to any
acquisition proposal.
However, the merger agreement does not prevent the board of directors of
Vivendi, CANAL+ or Seagram from:
- withdrawing, modifying or qualifying, or proposing to withdraw, modify or
qualify, its approval or recommendation of the merger transactions if and
only to the extent that it has received an unsolicited written
acquisition proposal and it concludes in good faith that the acquisition
proposal constitutes a superior proposal, as described below; or
- engaging in any discussions or negotiations with, or providing any
information to, any person in response to an acquisition proposal by that
person if and only to the extent that it concludes in good faith there is
a reasonable likelihood that it, after taking such actions, would
determine that the acquisition proposal could reasonably constitute a
superior proposal.
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However, the board of directors of Vivendi, CANAL+ or Seagram may only take
such action if and only to the extent that:
- the Seagram meeting, the Vivendi meeting or the CANAL+ meeting, as the
case may be, has not occurred;
- after consultation with outside counsel, it determines in good faith that
the failure to take such action would be inconsistent with its fiduciary
duties under applicable law;
- before providing any confidential information or data to any person in
connection with an acquisition proposal by that person, it receives from
that person an executed confidentiality agreement with customary
provisions, except that, if the confidentiality agreement contains
provisions that are less restrictive than the comparable provisions, or
omits restrictive provisions, contained in the confidentiality agreement
between Vivendi and Seagram, then the confidentiality agreement between
Vivendi and Seagram will be automatically amended to contain the less
restrictive provisions or to omit the restrictive provisions, as the case
may be; and
- before providing any information or data to, or entering into discussions
or negotiations with, any person, that party promptly notifies and keeps
informed Vivendi or Seagram, as the case may be, of:
-- any inquiries, proposals or offers received by, any information
requested from or any discussions or negotiations sought to be
initiated or continued with, any of its representatives; and
-- the name of the person and the material terms and conditions of the
inquiries, proposals or offers.
"Superior proposal" means, with respect to Vivendi, CANAL+ or Seagram, any
bona fide written unsolicited proposal made by a third party:
- that if consummated would result in the third party, or the shareholders
of the third party, acquiring, directly or indirectly, securities
representing more than 50% of its voting power, or the voting power of
the surviving or ultimate parent entity in the transaction, or all or
substantially all the assets of it and its subsidiaries, taken as a
whole;
- on terms that its board of directors in good faith reasonably concludes,
following receipt of the advice of its financial advisors and outside
counsel, would, if consummated, be superior from a financial point of
view to its shareholders to the merger transactions (including any
proposal by Seagram or Vivendi, as the case may be, to amend the terms of
the merger transactions), taking into account all of the terms and
conditions of the proposal and the merger transactions; and
- that is reasonably capable of being completed, taking into account all
financial, regulatory, legal and other aspects of the proposal.
In addition, each of Vivendi, CANAL+ and Seagram has agreed under the
provisions of the merger agreement that:
- it will, and will cause its and its subsidiaries' officers, directors,
representatives and agents to, cease immediately all current discussions
and negotiations regarding any proposal that constitutes, or could
reasonably likely constitute, an acquisition proposal, and will promptly
request the return or destruction of all confidential information
provided in connection with any proposal;
- it will use reasonable best efforts to ensure that its and its
subsidiaries' officers, directors and key employees and their financial
advisors and other advisors or representatives are aware of the
obligations under the no solicitation provisions of the merger agreement;
and
- it will not submit to the vote of its shareholders any acquisition
proposal other than the merger transactions.
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However, the merger agreement does not prevent Seagram from calling a
shareholder meeting to consider an acquisition proposal if:
- required by the CBCA;
- Seagram's board of directors receives a written legal opinion that the
failure to do so would be in breach of its statutory duties; and
- it consults with Vivendi before its board of directors calls the
shareholder meeting in order to ensure that the timing, calling and
holding of the meeting, to the extent permitted by applicable law, will
not be inconsistent with the completion of the merger transactions.
Nothing contained in the no solicitation provisions of the merger agreement
will:
- prevent Vivendi, CANAL+ or Seagram from complying with Rule 14a-9, Rule
14d-9 or Rule 14e-2 promulgated under the Exchange Act or with other
specified securities regulations with regard to any acquisition proposal;
- limit the obligation of each of Vivendi, CANAL+ and Seagram to convene
and hold their respective shareholder meetings; or
- permit Vivendi, CANAL+ or Seagram to terminate the merger agreement,
except as specifically provided in the merger agreement.
TERMINATION
The merger agreement may be terminated:
- by Vivendi or CANAL+ if Seagram is in material breach of any of its
covenants or other agreements contained in the merger agreement in a way
that would give rise to the failure of the condition to the completion of
the arrangement relating to its performance or compliance with agreements
and covenants contained in the merger agreement and the breach has not
been cured in the manner contemplated by the merger agreement;
- by Seagram if any of Vivendi, Vivendi Universal Exchangeco, Vivendi
Universal or CANAL+ is in material breach of any of its covenants or
other agreements contained in the merger agreement in a way that would
give rise to the failure of the condition to the completion of the
arrangement relating to its performance or compliance with agreements and
covenants contained in the merger agreement and the breach has not been
cured in the manner contemplated by the merger agreement;
- at any time before the completion of the arrangement, whether before or
after the approvals of the arrangement and the Vivendi/CANAL+
transactions by the shareholders of Vivendi, CANAL+ and Seagram have been
obtained:
-- by the mutual agreement of Vivendi and Seagram;
-- by Vivendi if Seagram's board of directors:
-- fails to recommend or withdraws, modifies or changes in a manner
adverse to Vivendi, Vivendi Universal Exchangeco or CANAL+ its
approval or recommendation of the merger agreement or the merger
transactions (but a communication by the board of directors of
Seagram under Rule 14d-9(f)(3) promulgated under the Exchange Act
or any similar communications in connection with a tender offer
will not be considered a withdrawal, modification or change in its
recommendation); or
-- approves or recommends any acquisition proposal;
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-- by Seagram if:
-- the board of directors of Vivendi or CANAL+ fails to recommend or
withdraws, modifies or changes in a manner adverse to Seagram its
approval or recommendation of the merger agreement or the merger
transactions or approves or recommends any acquisition proposal;
-- the agreements governing the Vivendi/CANAL+ transactions are
terminated;
-- an acquisition proposal with respect to Vivendi or CANAL+ is
consummated before the completion of the arrangement;
-- by Vivendi or Seagram if the approval of the arrangement resolution
by the Seagram shareholders is not obtained because of the failure to
obtain the vote required by the interim order at the Seagram meeting
or any adjournment;
-- by Vivendi, CANAL+ or Seagram if:
-- the approval of the Vivendi/CANAL+ transactions by Vivendi
shareholders or CANAL+ shareholders has not been obtained because
of the failure to obtain the required vote at the Vivendi or the
CANAL+ meetings or any adjournments, as the case may be;
-- any governmental authority passes any law that makes the
completion of the merger transactions illegal or otherwise
prohibited;
-- any court of competent jurisdiction enters any injunction, order
or decree enjoining Vivendi, Seagram, CANAL+, Vivendi Universal or
Vivendi Universal Exchangeco from completing the merger
transactions and the injunction, order or decree becomes final and
nonappealable, except that this right to terminate the merger
agreement will not be available to any party if any action of the
party or its affiliates, or the failure of the party or its
affiliates to perform any of its obligations under the merger
agreement, results in the impediment to the completion of the
merger transactions being imposed or not being lifted; or
-- the arrangement is not completed on or before the outside date, as
described below, except that this right to terminate the merger
agreement will not be available to any party if any action by the
party or its affiliates, or the failure of the party or its
affiliates to perform any of its obligations under the merger
agreement, results in the conditions to the completion of the
arrangement not being satisfied before the outside date.
The "outside date" is March 19, 2001, except that if the conditions to the
completion of the arrangement relating to the receipt of specified regulatory
approvals have not been satisfied by March 19, 2001, Vivendi, Seagram or CANAL+
may unilaterally extend the outside date until June 19, 2001, upon written
notice to the other parties by March 12, 2001.
EFFECT OF TERMINATION
As set forth below, the merger agreement requires Seagram to pay a
termination fee to Vivendi, or Vivendi to pay a termination fee to Seagram, in
specified circumstances.
SEAGRAM TERMINATION FEE
- If Vivendi terminates the merger agreement because:
-- Seagram's board of directors fails to recommend or withdraws,
modifies or changes in a manner adverse to Vivendi, CANAL+ or Vivendi
Universal Exchangeco its approval or recommendation of the merger
agreement or the merger transactions;
-- Seagram's board of directors approves or recommends any acquisition
proposal; or
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-- Seagram is in material breach of its obligations under the no
solicitation provisions of the merger agreement in a way that would
give rise to the failure of the condition to the completion of the
arrangement relating to its performance or compliance with agreements
and covenants contained in the merger agreement and the breach has
not been cured in the manner contemplated by the merger agreement; or
- If Vivendi or Seagram terminates the merger agreement because the
approval of the arrangement by the Seagram shareholders is not obtained
as a result of the failure to obtain the vote required by the interim
order at the Seagram meeting or any adjournment, and both the following
occur:
-- an acquisition proposal with respect to Seagram has been publicly
announced or otherwise communicated to Seagram's senior management,
board of directors or shareholders after June 19, 2000 and before the
Seagram meeting; and
-- within 12 months of the termination of the merger agreement, Seagram
enters into a definitive agreement with respect to an acquisition
proposal, or an acquisition proposal is otherwise consummated,
involving any merger, reorganization, business combination,
arrangement or similar transaction or 40% or more of the consolidated
assets of Seagram and its consolidated subsidiaries, taken as a
whole, or 40% or more of the voting power of Seagram (or the
surviving or ultimate parent entity in the transaction),
then Seagram must pay Vivendi U.S.$800 million less any reimbursement of
expenses made in connection with the termination of the merger agreement, as
described in the next sentence. In addition, if Vivendi or Seagram terminates
the merger agreement because the approval of the arrangement by Seagram
shareholders is not obtained as a result of the failure to obtain the vote
required by the interim order at the Seagram meeting or any adjournment and
Seagram is not obligated to pay the Seagram termination fee at the time the
merger agreement is terminated, then Seagram must reimburse Vivendi for all of
its documented out-of-pocket expenses incurred in connection with or related to
the authorization, preparation, negotiation, execution and performance of the
merger agreement and the merger transactions, up to a maximum reimbursement of
U.S.$25 million.
VIVENDI TERMINATION FEE
- If Seagram terminates the merger agreement because:
-- the board of directors of Vivendi or CANAL+ fails to recommend or
withdraws, modifies or changes in a manner adverse to Seagram its
approval or recommendation of the merger agreement or the merger
transactions;
-- the board of directors of Vivendi or CANAL+ approves or recommends
any acquisition proposal; or
-- Vivendi or CANAL+ is in material breach of its obligations under the
no solicitation provisions of the merger agreement in a way that
would give rise to the failure of the condition to the completion of
the arrangement relating to its performance or compliance with
agreements and covenants contained in the merger agreement and the
breach has not been cured in the manner contemplated by the merger
agreement; or
- If Vivendi or Seagram terminates the merger agreement because the
approval of the Vivendi/ CANAL+ transactions by Vivendi shareholders or
CANAL+ shareholders is not obtained as a result of the failure to obtain
the required vote at the Vivendi or CANAL+ meetings or any adjournments,
as the case may be, and both of the following occur:
-- an acquisition proposal with respect to Vivendi or CANAL+ has been
publicly announced or otherwise communicated to Vivendi's or CANAL+'s
senior management, board of directors or shareholders, respectively,
after June 19, 2000 and before the Vivendi meeting or the CANAL+
meeting, as the case may be; and
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-- within 12 months of the termination of the merger agreement, Vivendi
or CANAL+ enters into a definitive agreement with respect to that
acquisition proposal (or another acquisition proposal with the person
or any of its affiliates who made that acquisition proposal or with
any other person or any of its affiliates who made an acquisition
proposal within 90 days of that acquisition proposal) or any such
acquisition proposal is otherwise consummated,
then Vivendi must pay Seagram U.S.$800 million less any reimbursement of
expenses made in connection with the termination of the merger agreement, as
described in the next sentence. In addition, if Vivendi or Seagram terminates
the merger agreement because the approval of the Vivendi/CANAL+ transactions by
Vivendi shareholders or CANAL+ shareholders is not obtained as a result of the
failure to obtain the required vote at the Vivendi or the CANAL+ meetings or any
adjournments, as the case may be, and Vivendi is not obligated to pay the
Vivendi termination fee at the time the merger agreement is terminated, then
Vivendi must reimburse Seagram for all of its documented out-of-pocket expenses
incurred in connection with or related to the authorization, preparation,
negotiation, execution and performance of the merger agreement and the merger
transactions, up to a maximum reimbursement of U.S.$25 million.
In addition, Vivendi must pay Seagram U.S.$50 million and reimburse
Seagram's out-of-pocket expenses, up to a maximum reimbursement of U.S.$25
million as described in the preceding paragraph, in the following circumstances:
- if Seagram terminates the merger agreement because Vivendi, Vivendi
Universal Exchangeco, Vivendi Universal or CANAL+ is in material breach
of its covenants or other agreements contained in the merger agreement in
a way that would give rise to the failure of the condition to the
completion of the arrangement relating to its performance or compliance
with its agreements and covenants contained in the merger agreement
relating to:
-- the receipt of specified regulatory approvals;
-- the availability of Vivendi Universal voting rights as contemplated
in the plan of arrangement and the custody agreement; or
-- the listing on the NYSE or The NASDAQ Stock Market, and the
registration under the Exchange Act, of the Vivendi Universal ADSs;
and the breach has not been cured in the manner contemplated by the merger
agreement; or
- if Vivendi, CANAL+ or Seagram terminates the merger agreement because the
arrangement has not been completed on or before the outside date and, at
the time of the termination of the merger agreement:
-- the specified regulatory approvals have not been obtained or
-- the conditions to the completion of the arrangement relating to
either of the following have not been satisfied:
-- the approval for listing on the NYSE or The NASDAQ Stock Market,
and the registration under the Exchange Act, of the Vivendi
Universal ADSs, or
-- the entitlement of the beneficiary of each Vivendi Universal
voting right to one vote on the same basis and in the same
circumstances as one Vivendi Universal ordinary share.
CONDUCT OF BUSINESS PENDING COMPLETION OF THE ARRANGEMENT
Under the merger agreement, Seagram has agreed that, during the period
before the completion of the arrangement, except (1) as expressly contemplated
by the merger agreement or the plan of arrangement, (2) to the extent that
Vivendi consents in writing (which consent Vivendi will not unreasonably
withhold or delay) or (3) to the extent required by law, it will, and will cause
its subsidiaries to, carry on its business in the ordinary course consistent
with past practice in all material respects and use
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reasonable best efforts to preserve intact its present business organization and
preserve its relationships with those having material business dealings with it
to the end that its goodwill and ongoing business will not be impaired in any
material respect.
In addition to these agreements regarding the conduct of business by
Seagram generally, each of Vivendi, Seagram, CANAL+, Vivendi Universal and
Vivendi Universal Exchangeco has agreed to some specific restrictions relating
to the following (except in connection with the merger transactions and other
limited exceptions):
- stock splits, consolidations and reclassifications of outstanding shares;
- declaration and payment of dividends and the making of other
distributions on or in respect of outstanding shares (other than regular
cash dividends, and, in the case of Seagram, a pro rata cash dividend for
any period ending on the date of the completion of the arrangement and
beginning on the record date for the prior dividend);
- amendment of organizational documents;
- acquisition of assets and equity of third parties; and
- taking of, or failure to take, actions that would reasonably be expected
to prevent the merger transactions from constituting a transaction
described in Section 351 of the Internal Revenue Code of 1986.
Seagram has also agreed to additional specific restrictions, including
those relating to the following:
- issuance, sale, purchase and redemption of capital stock and other equity
interests and voting debt;
- acceleration of vesting of stock options;
- reorganizations, amalgamations and mergers;
- disposition of assets;
- establishment, adoption and modification of benefit plans, benefit
arrangements and pension plans;
- compensation of directors, officers and other employees;
- guarantee and incurrence of debt;
- extension of loans, advances, capital contributions and investments;
- making of capital expenditures;
- changes in accounting practices; and
- making of tax elections.
Each of Vivendi, Vivendi Universal Exchangeco, Vivendi Universal and CANAL+
has agreed to specific restrictions, including those relating to the following:
- amendment and termination of, and grant of waivers in respect of
conditions contained in, the agreements governing the Vivendi/CANAL+
transactions;
- acquisition and disposition of Vivendi shares during the period beginning
on the tenth business day prior to the 20 trading day measuring period
for the collar discussed under "-- Structure and Background -- Merger
Transaction Steps -- The Arrangement" and ending on the first business
day after the measuring period (Seagram has granted Vivendi a waiver to
permit specified purchases of Vivendi shares prior to the measuring
period);
- disposition and voting of CANAL+ shares and Vivendi Universal shares; and
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- taking of actions that could reasonably be expected to prevent the
exchange by Canadian resident holders of Seagram common shares for
exchangeable shares from being treated as a tax deferred transaction.
ADDITIONAL AGREEMENTS
Each of Vivendi, Seagram, CANAL+, Vivendi Universal and Vivendi Universal
Exchangeco has agreed to cooperate with the others and to do all acts and things
that may be necessary or desirable in order to complete and make effective, as
soon as reasonably practicable, the merger transactions.
In addition to these agreements regarding cooperation between the parties
generally, each of Vivendi, Seagram, CANAL+, Vivendi Universal and Vivendi
Universal Exchangeco has agreed to specified covenants relating to the
following:
- approval of the arrangement or the Vivendi/CANAL+ transactions, as
applicable, by its shareholders;
- receipt of specified regulatory approvals;
- defense of lawsuits and other proceedings affecting the completion of the
merger transactions;
- rescission of injunctions and other orders that may materially adversely
affect the ability of the parties to complete the merger transactions;
- making of registrations, filings and submissions of information required
by governmental authorities relating to the merger transactions;
- receipt of necessary waivers, consents and approvals in connection with
the merger transactions from other parties to material contracts; and
- carrying out the terms of the interim order and final order and
compliance with applicable laws.
Seagram has also agreed to covenants relating to the application for and
receipt of the interim order and the final order.
Each of Vivendi, CANAL+, Vivendi Universal and Vivendi Universal Exchangeco
has also agreed to additional covenants, including those relating to the
following:
- reservation of Vivendi Universal ordinary shares for issuance in
connection with the merger transactions;
- amendment of Vivendi Universal Exchangeco's charter to, among other
things, create exchangeable shares;
- availability of Vivendi Universal voting rights, subject to the
limitations described under "-- Structure and Background -- The Merger
Transaction Steps -- Limitations on Number of Exchangeable Shares and
Vivendi Universal Voting Rights";
- delivery of Vivendi Universal ADSs upon the exchange from time to time of
the exchangeable shares;
- status of Vivendi Universal Exchangeco as a "public corporation" within
the meaning of the Canadian Tax Act;
- the maintenance of a "substantial Canadian presence" for Vivendi
Universal Exchangeco within the current meaning of the Canadian Tax Act;
- listing of the exchangeable shares on The Toronto Stock Exchange;
- listing on the NYSE or The Nasdaq Stock Market, and the registration
under the Exchange Act, of the Vivendi Universal ADSs and Vivendi
Universal ADRs;
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- listing on the Paris Bourse of the Vivendi Universal ordinary shares
underlying the Vivendi Universal ADSs;
- voting of CANAL+ shares owned by Vivendi and Vivendi Universal in favor
of the Vivendi/ CANAL+ transactions, against any action that would
interfere with the merger transactions and against any action that would
result in any material breach by CANAL+ of any representation, warranty
or covenant in the merger agreement;
- voting of Vivendi Universal ordinary shares owned by Vivendi in favor of
the Vivendi/CANAL+ transactions (including the election of the designees
of the Bronfman shareholders described under "-- The Voting Agreement" to
Vivendi Universal's board of directors and the adoption of Vivendi
Universal statuts with specified modifications);
- validity of Vivendi Universal ADSs, Vivendi Universal ADRs, Vivendi
Universal ordinary shares underlying Vivendi Universal ADSs, exchangeable
shares and Vivendi Universal voting rights issued in connection with the
arrangement and Vivendi Universal ADSs to be issued upon the exchange of
exchangeable shares and upon the exercise of Seagram employee stock
options;
- status and ownership of Vivendi Universal Holdings and certain other
subsidiaries of Vivendi as disregarded entities under specified U.S. tax
regulations;
- amendment and termination of certain Seagram benefit plans;
- payment of salaries, bonuses and other benefits to employees of Seagram
and its subsidiaries;
- creation of a cash retention pool for the purpose of retaining certain
key employees of Seagram and its subsidiaries described under
"-- Structure and Background -- Interests of Directors and Executive
Officers in the Merger Transactions";
- reasonable cooperation regarding the continuity of the work force, and
preservation of the human resources, of Seagram and its subsidiaries;
- assumption of obligations and liabilities of Seagram and its subsidiaries
under specified employment agreements;
- entry into of employment agreements and other arrangements described
under "-- Structure and Background -- Interests of Directors and
Executive Officers in the Merger Transactions";
- intention to provide charitable contributions and community support at
levels comparable to those historically provided by Seagram and its
subsidiaries;
- entitlement of all holders of Vivendi Universal ordinary shares,
exchangeable shares and Vivendi Universal voting rights, regardless of
the jurisdiction of their residence, to all the benefits related to those
securities to which holders of Vivendi Universal ordinary shares are
entitled pursuant to French law;
- implementation of the Vivendi/CANAL+ transactions in the manner
contemplated by the merger agreement and on such other terms as are
reasonably acceptable to Seagram;
- terms of the Vivendi Universal ADRs and Vivendi Universal ADSs being
reasonably acceptable to Seagram; and
- assumption by Vivendi of the obligations of Seagram under the adjustable
conversion-rate equity security units issued by Seagram and one of its
subsidiaries.
The merger agreement also contains covenants relating to cooperation among
Vivendi, Seagram and CANAL+ in the preparation of this joint proxy
statement-prospectus and other circulars and filings and additional agreements
among them relating to, among other things, access to information, the holding
company alternative, which is described under "-- The Holding Company
Alternative," public announcements and mutual notice of specified matters.
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AMENDMENT AND WAIVER
The merger agreement may be amended by Vivendi, Seagram and CANAL+ at any
time before or after their respective meetings. All amendments to the merger
agreement must be in writing and signed by Vivendi (on behalf of itself, Vivendi
Universal and Vivendi Universal Exchangeco), Seagram and CANAL+. Any amendment
may (to the extent permitted by applicable laws and regulations and the interim
order and to the extent the waiver or modification does not invalidate any
required shareholder approval of the arrangement), without limitation:
- change the time for performance of any of the obligations or acts of the
parties;
- waive any inaccuracies or modify any representation or warranty contained
in the merger agreement or in any document delivered pursuant to the
merger agreement;
- waive compliance with or modify any of the covenants contained in the
merger agreement or waive or modify performance of any of the obligations
of the parties; or
- waive compliance with or modify any conditions contained in the merger
agreement.
Seagram, on the one hand, and Vivendi (for itself, Vivendi Universal
Exchangeco, Vivendi Universal and CANAL+), on the other hand, may waive or
consent to the modification of any inaccuracy of any representation or warranty
in the merger agreement or to the modification of any covenant in the merger
agreement. All waivers and consents to the modification of any provision of the
merger agreement must be in writing and signed by the party granting the waiver
or consent. The parties do not intend to resolicit proxies following any waiver
under or modification of the merger agreement except to the extent that
shareholder approval following that waiver or modification is required to
complete the merger transactions under applicable law.
EXPENSES
All out-of-pocket expenses of the parties relating to the arrangement and
the merger transactions will be paid by the party incurring the expense, except
as described above in "-- Seagram Termination Fee" and "-- Vivendi Termination
Fee."
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
Vivendi, Seagram and CANAL+ relating to, among other things:
- corporate organization and similar corporate matters;
- capital structure;
- authorization and absence of violations and defaults;
- absence of specified changes and events;
- financial statements and contingent liabilities;
- litigation;
- compliance with environmental laws;
- required reports and other filings filed with governmental authorities
and stock exchanges;
- compliance with applicable laws;
- licenses;
- intellectual property;
- with respect to Vivendi and Seagram only, taxes;
- with respect to Seagram only, compliance with the Employee Retirement
Income Security Act of 1974, as amended, and labor disputes;
- with respect to Seagram only, registration rights;
- with respect to Seagram only, transactions with officers, directors,
specified shareholders and affiliates;
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- with respect to Vivendi only, the due authorization and validity of
Vivendi Universal securities issuable in connection with the merger
transactions; and
- with respect to Vivendi only, the availability of at least 97,000,000
Vivendi Universal voting rights as of the completion of the arrangement.
THE OPTION AGREEMENT
In connection with the execution and delivery of the merger agreement,
Vivendi and Seagram entered into an option agreement pursuant to which Seagram
granted to Vivendi an irrevocable option to purchase, in specified
circumstances, an aggregate of up to 86,862,212 Seagram common shares for
U.S.$77.35 per share.
EXERCISE OF THE OPTION
The option granted by Seagram to Vivendi under the option agreement may be
exercised, in whole or in part, at any time after the date on which Vivendi
becomes unconditionally entitled to receive the Seagram termination fee under
the merger agreement.
The right to purchase Seagram common shares under the option agreement will
expire on the first to occur of:
- the completion of the arrangement;
- the exercise in full of the right to purchase Seagram common shares under
the option agreement; and
- the date of termination of the merger agreement, unless Vivendi has the
right to receive the Seagram termination fee either upon or following the
termination of the merger agreement upon the occurrence of specified
events, in which case the right to purchase Seagram common shares under
the option agreement will not terminate until the later of:
-- 30 business days after the Seagram termination fee becomes
unconditionally payable; and
-- the expiration of the period in which Vivendi has the potential right
to receive the Seagram termination fee.
Any purchase of Seagram common shares by Vivendi under the option agreement
will occur only if:
- the purchase would not otherwise violate any applicable material law,
statute, ordinance, rule or regulation;
- no material judgment, order, writ, injunction, ruling or decree of any
governmental authority is promulgated, enacted, entered into or enforced
by any governmental authority that prohibits the delivery of the Seagram
common shares subject to the option agreement; and
- the Seagram common shares to be purchased have been approved for listing
on the NYSE (subject to notice of issuance) and The Toronto Stock
Exchange (subject to customary conditions); this condition is not
applicable, however, if Vivendi elects to receive cash, in lieu of
purchasing shares, as described under "-- Cash Payment in Respect of the
Option."
Each of Vivendi and Seagram has agreed to use reasonable best efforts to:
- promptly make and process all necessary filings and applications, obtain
all consents and approvals and comply with all applicable laws; and
- have any judgment, order, writ, injunction, ruling or decree of any
governmental authority vacated or reversed.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The number and type of securities subject to the option agreement and the
exercise price will be adjusted for any change in the number of outstanding
Seagram common shares in the event of any extraordinary change in the corporate
or capital structure of Seagram that would have the effect of diluting or
otherwise diminishing Vivendi's rights under the option agreement. Accordingly,
Vivendi will receive,
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upon exercise of the option, the number and kind of shares or other securities
or property that it would have received if the option had been exercised
immediately before the event or record date for the event, as applicable. In
addition, if additional Seagram common shares become outstanding or if Seagram
common shares are redeemed or otherwise cease to be outstanding after June 19,
2000, the date of the option agreement, the total number of Seagram common
shares subject to the option will be increased or decreased, as the case may be,
to 19.9% of all the issued and outstanding Seagram common shares.
In the event that Seagram enters into any agreement:
- to consolidate with or amalgamate or merge into any person other than
Vivendi, CANAL+ or any of their affiliates, and Seagram will not be the
surviving corporation in the consolidation, amalgamation or merger;
- to permit any person, other than Vivendi, CANAL+ or any of their
affiliates, to merge into Seagram with Seagram as the surviving
corporation if, in connection with the merger:
-- the then-outstanding Seagram common shares will be changed into or
exchanged for shares or other securities of Seagram or any other
person or cash or any other property; or
-- the then-outstanding Seagram common shares will, after the merger,
represent less than 50% of the outstanding shares and share
equivalents of the surviving corporation; or
- to sell or otherwise transfer all or substantially all of its assets to
any person, other than Vivendi, CANAL+ or any of their affiliates,
then, in each case, the option granted under the option agreement will be
appropriately adjusted so that, unless exercised earlier by Vivendi, Vivendi
will receive, upon exercise of the option, the percentage and class of shares or
other securities or property that Vivendi would have received under the option
agreement had the option been exercised immediately before the consolidation,
amalgamation, merger, sale or transfer, as applicable.
CASH PAYMENT IN RESPECT OF THE OPTION
Under the option agreement, Vivendi has the right, at any time the option
is exercisable, to elect, in lieu of purchasing Seagram common shares, to
receive a cash payment in an amount equal to the product of:
(1) the difference between:
-- the higher of:
-- the highest price per share offered (and not withdrawn) or
paid in connection with any acquisition proposal with respect
to Seagram announced or made after June 19, 2000; and
-- the average of the closing prices of Seagram common shares on
the NYSE during the 20 trading day period immediately
preceding the date on which Vivendi gives notice of the
election to receive cash; and
-- the exercise price; multiplied by
(2) the number of Seagram common shares subject to the option with
respect to which Vivendi has elected to receive cash.
PROCEEDS LIMITATIONS
The option agreement provides that in no event will Vivendi's total profit
relating to the option agreement, plus any Seagram termination fee, exceed in
the aggregate U.S.$800 million.
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If the total profit that Vivendi would otherwise receive exceeds the
maximum amount permissible, Vivendi must, in its sole discretion:
- reduce the number of Seagram common shares subject to the option
agreement;
- deliver to Seagram for cancellation Seagram common shares previously
purchased pursuant to the option agreement;
- pay cash to Seagram; or
- take any combination of these actions,
so that its total profit does not exceed the maximum amount.
LISTING AND REGISTRATION RIGHTS
The option agreement provides that after any event that causes the option
to become exercisable, Seagram will use its reasonable best efforts to cause the
Seagram common shares subject to the option agreement to be approved for listing
on the NYSE and The Toronto Stock Exchange, subject to notice of issuance, and
to take all appropriate action to consummate the transactions contemplated by
the option agreement. The option agreement also provides that Vivendi has
specified rights to require Seagram to register under the Securities Act or
qualify for resale under applicable Canadian securities laws all Seagram common
shares purchased by Vivendi pursuant to the option agreement.
TRANSFER AND VOTING RESTRICTIONS
The option agreement also contains restrictions on Vivendi's ability to
transfer the Seagram common shares it obtains upon exercising the option. In
addition, in most circumstances and unless Seagram otherwise consents, Vivendi
must vote any Seagram common shares it obtains upon exercising the option either
in proportion to the votes of all other Seagram shareholders or as recommended
by Seagram's board of directors.
THE VOTING AGREEMENT
In connection with the execution and delivery of the merger agreement,
Vivendi entered into a voting agreement with Edgar Bronfman, Jr., Seagram's
president and chief executive officer, and certain other Seagram shareholders
that are members or affiliates of the Bronfman family (the "Bronfman
shareholders") under which these shareholders have agreed to vote shares
representing approximately 24% of the Seagram common shares in favor of the
arrangement and against any action that would impede or discourage the
arrangement.
The voting agreement prohibits, subject to limited exceptions, any of the
Bronfman shareholders from selling, transferring, giving, assigning, pledging,
hypothecating, encumbering or otherwise disposing of any Seagram common shares
or options to acquire Seagram common shares except to specified persons that
agree in writing to be bound by the terms of the voting agreement. The Bronfman
shareholders may, however, collectively dispose of Seagram common shares having
a market value of no more than U.S.$100 million in the aggregate without
complying with certain restrictions on transfers.
The voting agreement also prohibits each Bronfman shareholder (except in
such shareholder's capacity as a director or officer of Seagram) from directly
or indirectly negotiating with, soliciting, initiating or encouraging the
submission of proposals or offers from, or providing information to, any person
relating to an acquisition proposal with respect to Seagram.
The voting agreement terminates upon the earlier to occur of the completion
of the arrangement and the termination of the merger agreement in accordance
with its terms.
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THE GOVERNANCE AGREEMENT
In connection with the execution and delivery of the merger agreement,
Vivendi and Vivendi Universal entered into a governance agreement with the
Bronfman shareholders.
DESIGNEES TO VIVENDI UNIVERSAL'S BOARD OF DIRECTORS
Under the governance agreement, Vivendi Universal is required to use best
efforts to cause the election to, and the continuation for a four-year term on,
its board of directors of five members of Seagram's board of directors. Three of
the five designees will be members of Seagram's board who are parties to the
governance agreement, and the remaining two designees will be selected from
members of Seagram's board of directors as of June 19, 2000, the date of the
merger agreement and the governance agreement, and will be unaffiliated with the
Bronfman family (the "non-Bronfman designees"). Vivendi Universal's board of
directors will initially consist of 20 members. The number of directors will be
reduced to 18 by January 1, 2003, subject to French law as it relates to
employee shareholder representatives on the board.
Following the expiration of the initial four-year period, and for so long
as the Bronfman shareholders continue beneficially to own the applicable
percentage of the number of Vivendi Universal voting securities (as described
below) owned by them immediately following the effective time of the
arrangement, Vivendi Universal will use its best efforts to cause the election
of the number of individuals designated by the Bronfman shareholders indicated
below:
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER OF
INITIAL INVESTMENT BRONFMAN DESIGNEES
------------------ ------------------
<S> <C>
more than 75%............................................... 3
more than 50% but less than or equal to 75%................. 2
more than 25% but less than or equal to 50%................. 1
</TABLE>
After the initial four-year term, the renomination of the non-Bronfman
designees will be at the discretion of Vivendi Universal.
"Vivendi Universal voting securities" are securities that generally entitle
the holder to vote for members of Vivendi Universal's board of directors, or
securities issued in substitution for such securities, including Vivendi
Universal ordinary shares, Vivendi Universal ADSs and exchangeable shares.
DESIGNEES TO THE COMMITTEES OF VIVENDI UNIVERSAL'S BOARD OF DIRECTORS
For so long as either (1) the Bronfman shareholders have the right to
designate at least two members of Vivendi Universal's board of directors or (2)
the Bronfman shareholders are collectively the largest holders of Vivendi
Universal voting securities other than Vivendi Universal and its affiliates,
Vivendi Universal must:
- appoint and maintain a designee of the Bronfman shareholders as the
chairman of the compensation committee of its board of directors;
- cause the chairman of the compensation committee to be appointed and
maintained as a member of the nominating committee of its board of
directors;
- cause the nominating committee to be responsible for proposing the
nomination of all directors, other than the Bronfman designees;
- cause a designee of the Bronfman shareholders to be appointed and
maintained as a member of the audit committee of its board of directors;
and
- cause a designee of the Bronfman shareholders to be appointed and
maintained as a member of any subsequently formed executive or similar
committee if the failure of the Bronfman shareholders to participate
would be inconsistent with the purposes of the board and committee
participation rights described above.
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TRANSFER RESTRICTIONS
The governance agreement prohibits each Bronfman shareholder from disposing
of any Vivendi Universal voting security the shareholder beneficially owns,
without the consent of Vivendi Universal:
- prior to the date that is 90 days after the completion of the
arrangement, other than:
-- dispositions of Vivendi Universal voting securities by the Bronfman
shareholders having an aggregate current market value of no more than
U.S.$100 million, less any dispositions pursuant to provisions
comparable to those in the voting agreement;
-- to specified persons who agree in writing to be bound by the terms of
the governance agreement; or
-- specified encumbrances in connection with bona fide financings with
financial institutions; and
- thereafter, other than:
-- to Vivendi Universal or its affiliates;
-- to specified persons that agree in writing to be bound by the terms
of the governance agreement;
-- pursuant to specified underwritten offerings, market transfers or
private placements that would not result in the ultimate purchaser
beneficially owning more than 5% of the outstanding Vivendi Universal
voting securities to the transferor's knowledge after due inquiry;
-- pursuant to specified tender offers;
-- specified encumbrances in connection with bona fide financings with
financial institutions;
-- any disposition arising as a result of a merger or similar
transaction involving Vivendi Universal; or
-- any disposition to the extent necessary to satisfy specified Canadian
federal and provincial tax obligations relating to the exchangeable
shares.
RIGHT OF FIRST OFFER AND REGISTRATION RIGHTS
The governance agreement provides that, before any Bronfman shareholder
completes some types of dispositions of Vivendi Universal voting securities in
excess of specified percentages of the initially outstanding Vivendi Universal
voting securities, the Bronfman shareholder must offer to sell the Vivendi
Universal voting securities to Vivendi Universal. The governance agreement also
provides that the Bronfman shareholders have rights to require Vivendi Universal
to register their Vivendi Universal voting securities under the Securities Act.
STANDSTILL
The governance agreement prohibits the Bronfman shareholders and their
affiliates from acquiring, or agreeing to acquire, beneficial ownership of any
Vivendi Universal voting securities or securities convertible into, or
exchangeable or exercisable for, Vivendi Universal voting securities (except by
way of stock dividends, stock reclassifications or other distributions made
available to holders of Vivendi Universal voting securities generally) to the
extent that the acquisition would result in the Bronfman shareholders
beneficially owning, collectively, more than 10% of the outstanding Vivendi
Universal voting securities.
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In addition, the governance agreement restricts the Bronfman shareholders
and their affiliates from taking various actions, subject to exceptions for
actions taken among those shareholders and their affiliates, including:
- effecting, offering, engaging in, causing or participating in, or
assisting any other person in effecting, offering, engaging in, causing
or participating in:
-- the acquisition of beneficial ownership of Vivendi Universal voting
securities that would result in a breach of the standstill provisions
of the governance agreement;
-- any tender or exchange offer, merger, consolidation, liquidation or
other extraordinary transaction involving Vivendi Universal or any
material portion of its business or any purchase of all or any
substantial part of the assets of Vivendi Universal or any material
portion of its business; or
-- any solicitation of proxies with respect to Vivendi Universal or any
of its affiliates or any action resulting in any Bronfman shareholder
or any of its affiliates becoming a participant in any election
contest with respect to Vivendi Universal or any of its subsidiaries;
- proposing any matter for submission to a vote of shareholders of Vivendi
Universal or any of its affiliates;
- seeking election to, placement of a representative on, or removal of any
director of Vivendi Universal, except with respect to the Bronfman
designees;
- granting any proxy, or executing any written consent, with respect to any
Vivendi Universal voting securities;
- forming or participating in a "group" (as defined in the Exchange Act)
with respect to any Vivendi Universal voting securities or depositing any
Vivendi Universal voting securities into any voting trust or similar
arrangement;
- taking any other action seeking to affect the control of the management
or board of directors of Vivendi Universal or any of its affiliates;
- entering into any discussions, negotiations or arrangements with any
person with respect to any of the foregoing or advising, assisting or
encouraging others to take any action with respect to any of the
foregoing;
- disclosing to any person, or otherwise inducing, encouraging or
facilitating, any intention, plan or arrangement inconsistent with the
foregoing that would result in Vivendi Universal or any of its affiliates
or any Bronfman shareholder or any of their affiliates being required to
make such disclosure in any filing with a governmental authority or being
required to make a public announcement; or
- requesting that Vivendi Universal or any of its affiliates, directors,
officers, employees, representatives or agents amend or waive the
governance agreement or the organizational documents of Vivendi Universal
or any of its affiliates.
Under the governance agreement, the Bronfman shareholders are deemed to act
in concert with respect to the arrangements contemplated by the governance
agreement and matters related to Vivendi Universal upon which the Bronfman
shareholders are entitled to vote.
EFFECTIVENESS AND TERMINATION
The provisions of the governance agreement become effective only upon the
completion of the arrangement and terminate upon the termination of the merger
agreement in accordance with its terms. In
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addition, the governance agreement provides that the rights and obligations of
the Bronfman shareholders and their permitted transferees generally will
terminate upon the earlier of:
- the 30th anniversary of the completion of the arrangement; and
- the date on which the Bronfman shareholders are no longer entitled to
designate any members of the Vivendi Universal board, except that the
transfer restrictions and standstill provisions will automatically be
reinstated if, within 12 months of such termination, the Bronfman
shareholders acquire beneficial ownership of a number of Vivendi
Universal voting securities that would have entitled the Bronfman
shareholders to designate at least one member of the Vivendi Universal
board.
The rights and obligations of the Bronfman shareholders under the transfer
restrictions and standstill provisions of the governance agreement will
terminate immediately if:
- any person or group becomes the beneficial owner of more than one-third
of the Vivendi Universal voting securities; or
- Vivendi Universal breaches in any material respect the terms of the
governance agreement and the breach is not cured within ten days after
notice of the breach by any Bronfman shareholder.
In addition, the rights and obligations of Vivendi Universal to elect
Bronfman shareholder designees to its board of directors or committees of its
board of directors and the registration rights provisions will terminate as to
any Bronfman shareholder in the event that the shareholder breaches in any
material respect the terms of the governance agreement and the breach is not
cured within ten days after notice of the breach by Vivendi Universal.
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THE CONTRIBUTION AGREEMENTS
PURPOSE OF THE CONTRIBUTION AGREEMENTS
The contribution agreements are the agreements that will govern the
contribution by CANAL+ of its transferred businesses to Canal Holdco and the
subsequent distribution of the Canal Holdco shares to CANAL+ shareholders.
CANAL+ shareholders will be asked to vote on resolutions relating to this
contribution at the CANAL+ meeting. See "The Shareholder Meetings -- The CANAL+
Meeting."
CANAL+ currently holds some of its interests in the transferred businesses
through shares in subsidiaries and affiliates. The contribution agreements
provide that these shares will be contributed to Canal Holdco. Specifically, the
assets that CANAL+ will contribute to Canal Holdco include its interests in:
- CANALSATELLITE, which operates CANAL+'s digital satellite service in
France;
- NC Numericable, which operates cable television systems in France;
- Telepiu, Sogecable and other companies that operate premium pay
television channels and digital satellite services outside of France;
- Multithematiques, which produces thematic channels for cable and
satellite television systems;
- StudioCanal, which produces and distributes films and television
programs, and manages CANAL+'s film and television rights library;
- CANAL+ Technologies, which develops software and technology that encrypts
and decodes pay television programming and that permits viewers to have
access to interactive services;
- CanalNumedia, which holds CANAL+'s Internet businesses; and
- certain other related businesses and companies.
In addition, the contribution agreements provide that, prior to completion
of the contribution, CANAL+ will contribute the business of distributing and
marketing its French premium pay television channel, including exclusive rights
to use (but not to own) the channel's French subscriber base and all rights
attached to its agreements with subscribers, to CANAL+ Distribution, and will
contribute its business of selling advertising on pay television channels to
CANAL+ Regie. All the shares of those subsidiaries will be contributed to Canal
Holdco.
CANAL+ will also contribute to Canal Holdco certain related assets,
including primarily trademarks, equipment (principally office equipment),
fixtures, accounts receivable, cash and marketable securities. Canal Holdco will
agree to assume all of CANAL+'s liabilities relating to these assets, as well as
certain financial liabilities.
The contribution agreements also provide that Canal Holdco will contribute
to its new wholly-owned subsidiary called Groupe CANAL+ all of the businesses,
assets and liabilities that it receives from CANAL+, other than the 50% interest
in Vivendi Net and, its 100% interest in CanalNumedia and a E53 million bond,
which will remain with Canal Holdco and will upon the merger of Canal Holdco
into Vivendi Universal be directly held and assumed by Vivendi Universal.
In connection with the contributions to Canal Holdco, the Canal Holdco
shares received by CANAL+ will be distributed to CANAL+ shareholders, subject to
approval of the merger between Canal Holdco and Vivendi Universal by their
respective shareholders. Upon the distribution of Canal Holdco shares, Canal
Holdco will merge into Vivendi Universal and Vivendi Universal will hold 100% of
Groupe CANAL+. Finally, Vivendi Universal will contribute to Groupe CANAL+ all
of its 49% interest in CANAL+.
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In connection with the contribution to Canal Holdco, CANAL+ agreed to grant
Groupe CANAL+ options:
- to purchase Compagnie du Numerique Hertzien for El; this option may
be exercised any time within one year of the third anniversary of the
completion of the merger transactions;
- to purchase SESI (i-Television) for E45,700; this option may be
exercised any time within one year of the time any required regulatory
approvals are obtained. If this right is exercised, Groupe CANAL+ will
also acquire for their nominal value, including accrued interest, the
shareholders' loans granted by CANAL+ to SESI; and
- to acquire SGSI for E1; this option may be exercised at any time
within one year of the time any required regulatory approvals are
obtained.
All of the transactions contemplated in the contribution agreements are
expected to occur effectively simultaneously on a single closing date, which
will be the date on which all of the conditions to closing have been satisfied
or waived. The completion of the transactions described above is contingent upon
the completion of Vivendi Universal's combination with Seagram.
TERMS OF THE CONTRIBUTION
The terms of the contribution include the following:
- for accounting and French tax purposes, the transactions will be deemed
to have taken place on January 1, 2000;
- as of the date of completion of the transactions, Groupe CANAL+ will be
substituted for CANAL+ with respect to all the rights and obligations
relating to the transferred assets, will take over all contracts relating
to the transferred assets, and will have the right to commence, continue
or halt any judicial action or settlements relating to the rights and
obligations making up the transferred assets;
- in cases where the agreement or authorization of a third party may be
necessary for the transfer of the transferred assets, CANAL+ will seek
agreement or authorization without delay and will use its best efforts to
obtain the necessary agreement or authorization prior to the general
shareholders' meetings of CANAL+ and Canal Holdco. If certain agreements
or authorizations are not obtained prior to the date fixed for the
general shareholders' meetings, the parties will negotiate in good faith
mutually acceptable terms allowing the parties to achieve the economic
effect of a transfer of the rights and obligations making up the property
or contracts in question;
- in accordance with applicable French law, creditors of CANAL+ whose
claims arose prior to the public announcement of the proposed
contribution agreement may object (but without any right of veto) within
30 days after publication of the announcement of the proposed
contribution agreement in the French journal for legal announcements.
Their objections will be heard by the Commercial Court of Paris, which
may grant creditors some forms of relief, but may not enjoin the
contribution;
- all CANAL+ employees who work for CANAL+ and whose work relates primarily
to the transferred businesses will become employees of Groupe CANAL+ by
operation of law;
- the transferred assets will not include:
-- CANAL+'s broadcast license;
-- the intellectual property relating to CANAL+'s business of producing
programs for the French premium pay television channel;
-- contracts relating to the production and broadcast of programs for
the CANAL+ channel; and
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-- ownership of the French subscriber base of the CANAL+ French premium
pay television channel (but the transferred assets will include
exclusive rights to use such subscriber base for all commercial
purposes).
OPERATING AGREEMENTS
CANAL+ will enter into an agreement with CANAL+ Distribution, which will be
a subsidiary of Groupe CANAL+, under which CANAL+ Distribution will grant back
to CANAL+ the rights to CANAL+'s subscriber base and the related subscriber
contracts for the purposes of the commercial exploitation of the French premium
pay television channel. CANAL+ Distribution will also agree to provide
distribution and marketing services to CANAL+. In exchange, CANAL+ will pay to
CANAL+ Distribution a fee equal to its aggregate operating and extraordinary
revenue, net of its costs (including operating and extraordinary costs but
excluding financial and interest costs and income taxes) and a guaranteed margin
of approximately E50 million per year. In the event that the calculation of
CANAL+ Distribution's fee results in a negative number, CANAL+ Distribution will
pay the negative amount to CANAL+. CANAL+ will also enter into an agreement with
CANAL+ Regie, which will be a subsidiary of Groupe CANAL+, under which CANAL+
Regie will provide advertising sales services to CANAL+ for a customary fee.
Upon expiration of the CANAL+ Distribution agreement, CANAL+ Regie may
terminate the advertising sales services agreement, in which case CANAL+ will
pay CANAL+ Regie an indemnity not exceeding ten times the last annual commission
paid by CANAL+ to CANAL+ Regie. The foregoing was taken into account in
determining the economic terms of the transactions.
If Groupe CANAL+ ceases to control CANAL+ or to hold at least two-thirds of
the share capital and voting rights of CANAL+ Distribution, in circumstances
that would result in the termination or unilateral modification of the CANAL+
Distribution agreement in a manner attributable to CANAL+ Distribution, CANAL+
will have the right to purchase from CANAL+ Distribution, at fair market value
(as determined by a group of experts), the rights to the subscriber base and the
rights and obligations to the subscriber contracts for purposes of the operation
of a premium pay television channel in the French language in France,
Switzerland and Monaco. This call right would also become exercisable if CANAL+
Distribution refused to renew the CANAL+ Distribution agreement when it expires
or if, for any reason, that agreement terminates before the expiration of its
term, unless the termination is attributable to CANAL+. If CANAL+ exercises this
call right, CANAL+ Distribution will lose its rights to the subscriber base in
connection with the operation of a premium pay television channel in the French
language in France, Switzerland and Monaco for the entire residual term of the
contribution in kind of the subscriber base. Furthermore, in that case, CANAL+
Distribution and its group will undertake not to operate or commercialize a
premium pay television channel in the French language in France, Switzerland and
Monaco for a period of two years. Therefore, CANAL+ Distribution would no longer
benefit from the development of the subscriber base (including, without
limitation, development resulting from new subscribers).
THE HOLDING COMPANY ALTERNATIVE
Under the terms of the merger agreement, Seagram shareholders that hold
Seagram common shares directly or indirectly through one or more recently
incorporated federal Canadian holding companies have the option of completing a
corporate reorganization with Seagram prior to the effective time of the
arrangement. Under this "holding company alternative," Seagram will purchase all
of the issued and outstanding shares of the Canadian holding company in exchange
for the issuance by Seagram of the same number of Seagram common shares as are
held by the holding company at the time of such purchase and sale. A participant
in the holding company alternative will receive, directly or indirectly, the
same consideration under the arrangement that would otherwise have been received
by the participant's holding company. Each holding company will become a
wholly-owned subsidiary of Seagram pursuant to the
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holding company alternative. Seagram intends voluntarily to dissolve or
amalgamate with all those holding companies under the CBCA prior to the
effective time of the arrangement.
CHOOSING THE HOLDING COMPANY ALTERNATIVE WILL REQUIRE A SEAGRAM SHAREHOLDER
TO IMPLEMENT A COMPLEX CORPORATE STRUCTURE THROUGH WHICH TO HOLD SEAGRAM COMMON
SHARES. THE HOLDING COMPANY ALTERNATIVE MAY HAVE FAVORABLE CANADIAN FEDERAL
INCOME TAX CONSEQUENCES FOR SEAGRAM SHAREHOLDERS THAT ARE NOT DESCRIBED IN THIS
JOINT PROXY STATEMENT-PROSPECTUS. SEAGRAM SHAREHOLDERS WISHING TO AVAIL
THEMSELVES OF THE HOLDING COMPANY ALTERNATIVE SHOULD CONSULT THEIR OWN
FINANCIAL, TAX AND LEGAL ADVISORS. SEAGRAM SHAREHOLDERS WISHING FURTHER
INFORMATION WITH RESPECT TO THE HOLDING COMPANY ALTERNATIVE SHOULD CONTACT
SEAGRAM'S SECRETARY AT 1430 PEEL STREET, MONTREAL, QUEBEC H3A 1S9.
A Seagram shareholder will be permitted to participate in the holding
company alternative provided that all of the following terms and conditions are
satisfied:
- the Seagram shareholder advises Seagram c/o Seagram's secretary at 1430
Peel Street, Montreal, Quebec H3A 1S9, at or prior to 5:00 p.m. Eastern
time on November 17, 2000, in writing, that the shareholder wishes to
participate in the holding company alternative;
- the Seagram shareholder holds or will hold Seagram common shares
indirectly through a holding company that was incorporated under the CBCA
after November 1, 2000 and was used solely in relation to the holding
company alternative and has at all times since its incorporation been
validly in existence and in good standing under the CBCA, a resident of
Canada and a taxable Canadian corporation for the purposes of the
Canadian Tax Act;
- the Seagram shareholder and the holding company enter into a share
exchange agreement, as described below, with, among others, Seagram, in a
form and substance satisfactory to Vivendi and Seagram, acting
reasonably;
- the Seagram shareholder provides Vivendi and Seagram with security
satisfactory to Vivendi and Seagram in respect of the Seagram
shareholder's obligations under the share exchange agreement;
- the holding company does not declare or pay dividends (except as agreed
to by Vivendi and Seagram) or effect other distributions or redemptions,
except that in the event that the holding company receives a dividend
from Seagram, the holding company will declare and pay a dividend and/or
redeem shares in the same amount and form immediately following the
receipt of the dividend by the holding company and prior to the
completion of the holding company alternative;
- the share exchange agreement, together with any accompanying required
documentation is returned to Seagram's secretary at 1430 Peel Street,
Montreal, Quebec H3A 1S9 at or prior to 5:00 p.m. Eastern time on
November 23, 2000;
- if the Seagram shareholder is not a resident of Canada within the meaning
of the Canadian Tax Act, the holder provides to Seagram, at the time the
holding company alternative is completed, a certificate under section 116
of the Canadian Tax Act in form and substance satisfactory to Vivendi and
Seagram, acting reasonably, or enters into arrangements satisfactory to
Vivendi and Seagram, acting reasonably, if a section 116 certificate is
not available at that time;
- any exemptions requested from any applicable Canadian securities
regulatory authority and the court in the interim order are obtained; and
- all other terms and conditions of the holding company alternative are
satisfactory to Vivendi and Seagram, acting reasonably.
Seagram has applied for and obtained orders from the applicable Canadian
securities regulatory authorities exempting Seagram from the issuer bid
requirements of the Canadian provincial securities legislation in connection
with the holding company alternative. The interim order of the Ontario Superior
Court of Justice obtained in connection with the arrangement also exempts
Seagram from the take-over bid requirements of the CBCA in connection with the
holding company alternative.
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The Seagram shareholder must prepare, at the shareholder's expense, all tax
returns of the holding company in respect of all periods ending on or prior to
the completion of the holding company alternative, and must not file such
returns without the prior approval of Vivendi and Seagram of all such returns as
to form and substance.
The form of the share exchange agreement referred to above must contain
customary representations and warranties, covenants and conditions for
transactions of this nature, including representations and warranties that a
Seagram shareholder must make in respect of the shareholder's holding company to
the effect that:
- the holding company is a corporation duly incorporated and validly
existing and in good standing under the CBCA;
- all of the issued and outstanding shares of the holding company are held
directly or indirectly by the Seagram shareholder;
- upon completion of the holding company alternative, Seagram will acquire
the sole legal and beneficial ownership of all of the issued and
outstanding shares of the holding company;
- the holding company has no material assets other than the Seagram common
shares and, upon completion of the holding company alternative, will have
no liabilities whatsoever;
- since incorporation, the sole activity of the holding company has been
the acquisition and ownership of the Seagram common shares;
- upon completion of the holding company alternative, the holding company
will not be a party to nor bound or affected by any agreements,
commitments or undertakings of any nature whatsoever other than the share
exchange agreement and except as agreed to by Seagram and Vivendi;
- in respect of tax matters, among other things, the holding company:
-- has duly and timely paid all taxes which are or have been due and
payable by it;
-- has duly and timely filed all tax returns with the appropriate taxing
or other governmental authority; and
-- is a taxable Canadian corporation and is not a non-resident-owned
investment corporation for purposes of the Canadian Tax Act; and
- that there are no suits, actions, litigation, or other proceedings in
progress, pending or threatened against or relating to the holding
company.
The form of share exchange agreement will also provide for:
- the payment by the Seagram shareholder of any material (or, if required
by any regulatory authority, all) costs and expenses incurred in
connection with any transaction by Vivendi, Seagram, Vivendi Universal
Holdings and Vivendi Universal Exchangeco and any corporation acquired by
any one of them;
- an indemnity in favor of Vivendi, Seagram, Vivendi Universal Holdings and
Vivendi Universal Exchangeco and any corporation acquired by any one of
them from the Seagram shareholder and any vendor of Seagram common shares
beneficially owned by the shareholder from all claims, demands,
proceedings, losses, damages, liabilities, deficiencies, taxes, costs and
expenses suffered or incurred by Vivendi, Seagram, Vivendi Universal
Holdings, Vivendi Universal Exchangeco or any holding company acquired by
any of them (and their directors, officers, employees and agents), in
connection with the holding company alternative as a result of:
-- any breach by the Seagram shareholder or vendor of any
representation, warranty, obligation or covenant of the Seagram
shareholder or vendor to Seagram;
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-- any liability sustained, incurred, assumed or acquired by the
holding company on or before the completion of the holding company
alternative; and
-- any liability that would not have been sustained, suffered or
incurred by Vivendi, Seagram, Vivendi Universal Holdings or Vivendi
Universal Exchangeco but for the completion of the holding company
alternative; and
- a release of Vivendi, Seagram, Vivendi Universal Holdings and Vivendi
Universal Exchangeco (and their respective directors, officers, employees
and agents) and their advisors from all liabilities suffered or incurred
as a result of certain information provided by any of them to the
shareholder in connection with the holding company alternative.
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CHAPTER FOUR -- PRO FORMA HISTORICAL AND INTERIM FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
INTRODUCTION
The following unaudited pro forma consolidated condensed financial
statements have been prepared to present the effects of the disposals made in
the 2000 fiscal year as well as the proposed business combination of Vivendi
Universal and Seagram. The acquisition of Vivendi by Vivendi Universal is
considered to be a reverse acquisition by Vivendi of Vivendi Universal for
accounting purposes. Because Vivendi Universal is Vivendi's wholly-owned holding
company subsidiary, that transaction has no impact on the historical Vivendi
consolidated financial statements or on the unaudited pro forma financial
statements.
The unaudited pro forma financial statements have been derived from, and
should be read in conjunction with, the historical and interim consolidated
financial statements, including the notes thereto, of both Vivendi and Seagram.
The December 31, 1999 consolidated financial statements of Vivendi and the June
30, 2000 unaudited consolidated financial statements of Vivendi are included in
this joint proxy-statement-prospectus. The consolidated financial data of
Seagram are included in its Annual Report on Form 10-K for the fiscal year ended
June 30, 2000, which is incorporated by reference in this joint proxy
statement-prospectus. See "Where You Can Find More Information."
The unaudited pro forma financial statements are presented for
informational purposes only and are not necessarily indicative of the financial
position or results of operations of Vivendi Universal or Vivendi that would
have occurred had the transactions been consummated as of the dates indicated.
In addition, the unaudited pro forma financial statements are not necessarily
indicative of the future financial condition or operation results of Vivendi
Universal.
TERMS OF THE MERGER TRANSACTIONS
In Vivendi Universal's combination with Seagram, holders of Seagram common
shares will receive a number of Vivendi Universal ADSs, each representing one
share of Vivendi Universal, or in the case of electing Canadian resident holders
of Seagram common shares, exchangeable shares, in each case determined with
reference to an exchange ratio set forth in the plan of arrangement (in the case
of exchangeable shares, subject to adjustment in limited circumstances). The
exchange ratio will be equal to U.S.$77.35 divided by the U.S. dollar equivalent
of the average of the daily closing prices of the Vivendi ordinary shares on the
Paris Bourse during a measuring period preceding the closing, unless the average
is equal to or less than U.S.$96.6875 (in which case the ratio will be 0.8000)
or the average is equal to or greater than U.S.$124.3369 (in which case the
exchange ratio will be 0.6221). The measuring period is the twenty consecutive
trading days ending on the third complete trading day prior to the completion of
the arrangement.
In connection with the proposed business combination of Vivendi Universal
and Seagram, Vivendi will enter into a series of transactions involving CANAL+,
an entity approximately 49% owned by Vivendi and included in its consolidated
financial statements. Vivendi Universal will acquire all the businesses of
CANAL+ other than the French premium pay television channel business. CANAL+
shareholders will receive two Vivendi Universal ordinary shares for each CANAL+
ordinary share they hold and will retain their existing shares in CANAL+, which
will retain the French premium pay television channel business. Vivendi will
remain a 49% shareholder in CANAL+. Accordingly, the pro forma adjustments
include the effects of this acquisition. In addition, the pro forma adjustments
recognize the amortization of goodwill over 40 years, as well as the revenues
and expenses of CANAL+ for the full year ended December 31, 1999 and the
six-month period ended June 30, 2000. Vivendi has not yet determined the fair
values of the assets acquired and liabilities assumed from CANAL+ or the
amortization periods for intangible assets. As a result, the final allocation of
the excess of the purchase price over the book value of the net assets acquired
could differ from that used in the preparation of the unaudited historical and
interim pro forma
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UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
financial statements, and that difference could be material. The final
allocation is expected to be completed within one year of the completion of the
merger transactions.
Vivendi Universal intends to account for the combination with Seagram using
the purchase method of accounting for business combinations. Vivendi has not yet
determined the fair values of the assets acquired and liabilities assumed from
Seagram or the amortization periods for intangible assets. As a result, the
final allocation of the excess of the purchase price over the book value of the
net assets acquired could differ from that used in the preparation of the
unaudited pro forma financial statements, and that difference could be material.
The final allocation is expected to be completed within one year of the
completion of the transactions. Therefore, pro forma adjustments for the Seagram
transactions primarily include the application of purchase accounting, i.e., the
allocation of the purchase price of Seagram to the Spirits and Wine segment to
be sold as described below, the recording of the excess of the purchase price
over the book value of net assets acquired as goodwill, and the related
amortization of this goodwill in the unaudited pro forma statement of income.
Seagram has acquired a substantial part of its music business in 1998 and
its film business in 1995 in business combinations accounted for as purchases.
Therefore, no adjustments have been made to the historical Seagram intangible
assets in the unaudited pro forma financial statements. For pro forma purposes,
Vivendi has allocated the entire excess purchase price to goodwill, which is
amortized over 40 years.
The final purchase price allocation may result in different amortization
periods and methods for intangible assets than that presented in these unaudited
pro forma financial statements. A change in amortization periods would affect
the amount of annual amortization expense.
No potential incremental costs or benefits that may result from the
transactions, or costs incurred to effect such transactions, have been reflected
in the accompanying unaudited pro forma consolidated condensed statement of
income. Furthermore, management has not made any adjustments to income tax
provisions to reflect changes that may arise as a result of Seagram and CANAL+
becoming consolidated tax entities of Vivendi Universal.
PLANS TO DISPOSE OF SEAGRAM'S SPIRITS AND WINE SEGMENT
Seagram and Vivendi have decided to dispose of Seagram's Spirits and Wine
segment and hope to complete the sale as soon as practicable following the
business combination of Vivendi Universal and Seagram. Accordingly, the
unaudited pro forma financial information excludes this segment and accounts for
it as a discontinued operation in accordance with EITF 87-11. Vivendi Universal
estimates that the selling price of the Spirits and Wine segment will range from
U.S.$8 billion to U.S.$11 billion. For the purpose of the unaudited pro forma
financial statements, the purchase price of Seagram has been partially allocated
to the assets to be sold for an amount of U.S.$9,500 million, the average of the
range. Presently, Vivendi Universal is not in a position to compute the tax
effect of the disposal, which therefore has not been reflected in the pro forma
financial statements.
As a preliminary step toward the anticipated sale of the Spirits and Wine
business, Seagram and JES intend to tender for all of their outstanding debt
securities which would otherwise mature between April 2001 and December 2028.
The debt securities, including the subordinated deferrable notes which are part
of the adjustable conversion-rate equity securities units (ACES) issued by JES
and Seagram, have an aggregate principal amount of approximately U.S.$7.175
billion. Seagram and JES intend to commence the tender offers for all of the
debt securities substantially concurrent with delivery of this joint proxy
statement-prospectus, except for the tender offers for JES's Senior Quarterly
Income Debt Securities and the subordinated deferrable notes which are part of
the ACES units, which are expected to be commenced at a later date. Seagram and
JES anticipate that the tender offers commenced substantially concurrent with
the delivery of this joint proxy statement-prospectus will close several
business days after completion
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UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
of the merger transactions. Consummation of these tender offers will be
conditioned upon, among other things, completion of the merger transactions and
receipt of consents required to adopt proposed amendments to the debt securities
and the indentures pursuant to which they were issued. Vivendi is arranging
certain bridge financing facilities with various financial institutions to
provide funding for Seagram and JES for the tender offers and consent
solicitations. Vivendi intends to repay amounts drawn under these bridge
financing facilities from the proceeds of the sale of the Spirits and Wine
segment. The consequences of consummation of the tender offers and consent
solicitations have not been reflected in the accompanying pro forma consolidated
condensed financial statements.
PLAN TO DISPOSE OF VIVENDI'S INTEREST IN BSkyB
In connection with the European Commission's approval of the merger
transactions pursuant to the relevant European merger regulations, Vivendi has
committed to divest of almost all of its current stake in BSkyB, the leading
pay-television broadcasting service in the United Kingdom and Ireland, within a
period of two years from the completion of the merger transactions. Accordingly,
the unaudited pro forma financial information excludes this investment. In the
absence of any detailed plan of disposition, this pro forma information does not
reflect the receipt or application of any amounts to be received in connection
with this disposition. Based on the average market price of BSkyB shares over
the past three months, Vivendi Universal estimates that the total proceeds of a
sale of its interest in BSkyB would have been approximately E6.1 billion
net of tax of approximately E2.7 billion.
The actual selling price will be determined at the time of the sale and may
vary significantly from this estimate.
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UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------------------------------------------------------------------------
PRO FORMA DISPOSITION OF DIVESTITURE OF PRO FORMA
VIVENDI SEAGRAM ADJUSTMENTS BUSINESS(E) INVESTMENT(G) COMBINED
------- ------- ----------- -------------- -------------- ---------
(E MILLION)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Accounts receivable........... 17,401 2,110 1,141(d) 0 (2) 20,650
Other current assets.......... 8,534 2,947 1,650(d) 0 13,131
------ ------ ------- ---- ------ -------
Total current
assets............ 25,935 5,057 2,791 0 (2) 33,787
Investments................... 6,775 5,863 (1,435)(d) (121) 284 11,366
Goodwill, net................. 17,364 11,816 27,161(a) 0 (3,262) 53,079
Other intangible assets,
net......................... 4,931 3,970 2,072(d) 0 10,973
Property, plant and equipment,
net......................... 15,788 2,545 934(d) 0 19,267
Other assets.................. 0 638 0 0 638
Net assets of discontinued
operations.................. 0 3,397 6,545(f) 0 9,942
------ ------ ------- ---- ------ -------
Total assets........ 70,793 33,286 38,068 (121) (2,980) 139,046
====== ====== ======= ==== ====== =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Accounts payable.............. 15,935 6,039 1,590(d) 0 (520) 23,044
Other current liabilities..... 12,522 2,890 2,176(d) 0 17,588
------ ------ ------- ---- ------ -------
Total current
liabilities....... 28,457 8,929 3,766 0 (520) 40,632
Long-term debt................ 17,902 7,721 1,752(d) 0 27,375
Other long-term liabilities... 5,478 1,870 287(d) 0 7,635
------ ------ ------- ---- ------ -------
Total liabilities... 51,837 18,520 5,805 0 (520) 75,642
Minority interests............ 2,183 1,969 214(d) 0 4,366
------ ------ ------- ---- ------ -------
Total shareholders' equity.... 16,773 12,797 45,966(b) (121) (2,460) 59,038
(13,917)(c)
------ ------ ------- ---- ------ -------
Total liabilities
and shareholders'
equity............ 70,793 33,286 38,068 (121) (2,980) 139,046
====== ====== ======= ==== ====== =======
</TABLE>
---------------
(a) Represents the excess of the purchase price for Seagram net of selling price
of assets to be sold over the net book value of net assets acquired for
E13,117 million plus the excess of the purchase price over net book
value of the CANAL+ minority interests acquired for E11,268 million
plus the net effect of the consolidation of CANAL+ for E2,776 million.
(b) Represents additional paid-in capital of Vivendi common stock to be issued
in the transactions.
(c) Represents elimination of paid-in capital, retained earnings and accumulated
other comprehensive income of Seagram.
(d) Represents the effect of consolidating CANAL+'s gross assets and liabilities
under US GAAP as the prior investment was carried under the equity method.
(e) Represents the divestiture of the remaining investment in Vinci. The gain
realized during the first semester of 2000 on the sale of the 32.3% stake in
Vinci is included in Vivendi's shareholders' equity.
(f) Represents the portion of Seagram's goodwill allocated to Spirits and Wine
segment (selling price E9,942 million to be compared to historical book
value of assets of E3,397 million).
(g) Represents the divestiture of the investment in BSkyB and of the holding
company BSBH whose sole asset is its stake in BSkyB and which is 100% owned
and consolidated by Vivendi.
137
<PAGE> 145
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED INCOME STATEMENT
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------------------------------------------
PRO FORMA DISPOSITION OF DIVESTITURE OF PRO FORMA
VIVENDI SEAGRAM ADJUSTMENTS (I) BUSINESS (J) INVESTMENT (K) COMBINED
------- ------- --------------- -------------- -------------- ---------
(IN MILLIONS OF E, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues(*)................ 15,715 5,080 1,854 0 22,649
Cost of revenues(*)............ (11,157) (3,033) (1,409) 0 (15,600)
Selling, general and
administrative............... (3,554) (1,956) (457) 0 (5,967)
------- ------ ------- ---- --- -------
Operating margin............. 1,003 91 (12) 0 0 1,082
Amortization of goodwill....... (263) (182) (347)(h) 0 45 (748)
Other operating expenses,
net.......................... (280) 0 (70) 0 (350)
------- ------ ------- ---- --- -------
Operating income (loss)...... 459 (92) (429) 0 45 (16)
Interest expense, net.......... (342) (352) (31) 0 (725)
Other income, net.............. 1,129 0 181 (279) 1,031
------- ------ ------- ---- --- -------
Income before taxes, minority
interest and equity
interest.................. 1,246 (443) (279) (279) 45 290
Income tax expense (benefit)... (420) (134) (70) 39 (585)
------- ------ ------- ---- --- -------
Income before minority
interest and equity
interest.................. 827 (578) (349) (240) 45 (296)
Equity interest earnings
(losses)..................... (126) 23 (2) (13) 107 (11)
Minority interest.............. (167) 3 0 0 (164)
------- ------ ------- ---- --- -------
Income (loss) from continuing
operations................ 533 (552) (351) (253) 152 (471)
======= ====== ======= ==== === =======
Operations per share
Basic.......................... 0.94 (0.45)
Diluted........................ 0.91 (0.45)
Average common shares (in
millions)
Basic.......................... 566.1 1,051,6
Diluted........................ 684.9 1,070.4
</TABLE>
---------------
(*) Includes excise taxes collected on behalf of local authorities for E922
million for Vivendi.
(h) Represents the semester amortization of goodwill over 40 years totaling
E164 million related to goodwill arising from the acquisition of
Seagram and E141 million related to goodwill arising from the
acquisition of CANAL+. The additional E42 million is the amortization
of goodwill previously recorded in the CANAL+ financial statements.
(i) Represents the consolidation of the operating results of CANAL+ for the
semester ended June 30, 2000 not previously included in the Vivendi income
statement in accordance with U.S. GAAP, cumulated with the amortization of
goodwill generated by the transaction as described in footnote (h) above.
(j) Represents the divestiture of the remaining stake in Vinci together with the
reversal of the gain realised on the sale of 32.3% of Vinci shares during
the first semester 2000. This gain amounts to E279 million and the
related income tax amounts to E39 million.
(k) Represents the divestiture of the investment in BSkyB and of the holding
company BSBH whose sole asset is its stake in BSkyB and which is 100% owned
and consolidated by Vivendi.
The accompanying notes are an integral part of these pro forma financial
statements.
138
<PAGE> 146
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED INCOME STATEMENT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
PRO FORMA DISPOSITION OF DIVESTITURE OF PRO FORMA
VIVENDI SEAGRAM ADJUSTMENTS(M) BUSINESS(N) INVESTMENT(O) COMBINED
------- ------- -------------- -------------- -------------- ---------
(E MILLION)
<S> <C> <C> <C> <C> <C> <C>
Net revenues(*)................ 36,543 9,637 3,286 8,885 40,581
Cost of revenues(*)............ 26,719 5,814 2,472 7,789 27,216
Selling, general and
administrative............... 8,293 3,713 790 994 11,802
------ ----- ----- ----- --- -------
Operating margin............. 1,531 110 24 102 0 1,563
Amortization of goodwill....... 766 307 677(l) 46 30 1,674
Other operating expenses....... 1,442 (55) 120 0 1,507
------ ----- ----- ----- --- -------
Operating income (loss)...... (677) (142) (772) 56 (30) (1,617)
Interest expense, net.......... 371 622 45 (84) 1,122
Other income, net.............. 533 212 100 7 838
------ ----- ----- ----- --- -------
Income (loss) before taxes,
minority interest and equity
interest..................... (515) (552) (718) 147 (30) (1,902)
Income tax expense (benefit)... (716) (260) 106 (105) (765)
------ ----- ----- ----- --- -------
Income (loss) before minority
interest and equity
interest..................... 201 (292) (824) 252 (30) (1,138)
Equity interest earnings
(losses)..................... 21 127 23 (42) (58) 271
Minority interest.............. (24) 10 (17) 70 (101)
------ ----- ----- ----- --- -------
Income (loss) from continuing
operations................... 246 (175) (784) 140 (88) (766)
Income (loss) from continuing
operations per share:
Basic........................ 0.48 (0.77)
Diluted...................... 0.47 (0.77)
Average common shares (in
millions):
Basic........................ 511.3 991.1
Diluted...................... 525.2 1,005.0
</TABLE>
---------------
(*) Includes excise taxes collected on behalf of local authorities for
E2,112 million for Vivendi.
(l) Represents the annual amortization of goodwill over 40 years, totalling
E328 million related to goodwill arising from the acquisition of
Seagram and E278 million related to goodwill arising from the
acquisition of CANAL+. The additional E71 million is the amortization
of goodwill previously recorded in the CANAL+ financial statements.
(m) Represents the consolidation of the operating results of CANAL+ for the year
ended December 31, 1999 not previously included in the Vivendi income
statement in accordance with U.S. GAAP cumulated with the amortization of
goodwill generated by the transactions as described in footnote (l) above.
(n) Represents the deconsolidation of the operating results of Vinci, partially
disposed in the year 2000.
(o) Represents the divestiture of the investment in BSkyB and of the holding
company BSBH whose sole asset is its stake in BSkyB and which is 100% owned
and consolidated by Vivendi.
The accompanying notes are an integral part of these pro forma financial
statements.
139
<PAGE> 147
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
These unaudited pro forma consolidated condensed financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States ("U.S. GAAP") to illustrate the effects of the business
combination on the historical financial position and operating results of
Vivendi and Seagram. The unaudited pro forma consolidated condensed balance
sheet of Vivendi Universal at June 30, 2000 gives effect to the business
combination as if it occurred at June 30, 2000. The unaudited pro forma
consolidated condensed statements of income for the year ended December 31, 1999
and six months ended June 30, 2000 give effect to the business combination as if
it occurred at January 1, 1999 and January 1, 2000, respectively. For purposes
of preparing unaudited pro forma financial statements, Vivendi has been
determined to be the acquirer of Seagram and CANAL+'s transferred businesses.
Historically, Vivendi's fiscal year-end has been December 31, whereas
Seagram's fiscal year-end has been June 30. Consequently, the unaudited interim
pro forma consolidated condensed balance sheet is based on the interim unaudited
consolidated balance sheet of Vivendi at June 30, 2000 and the historical
audited consolidated balance sheet of Seagram at June 30, 2000. The unaudited
pro forma consolidated condensed statement of income at December 31, 1999 is
based on the historical operating results of Vivendi for the year ended December
31, 1999, and the unaudited historical operating results of Seagram for the six
months ended June 30, 2000 and the six months ended December 31, 1999. The
unaudited interim pro forma consolidated condensed statement of income is based
on the interim unaudited operating results of Vivendi for the six months ended
June 30, 2000 and the unaudited historical operating results of Seagram for the
six months ended June 30, 2000.
The unaudited consolidated condensed balance sheet of Seagram was
translated from U.S. dollars to euros at the June 30, 2000 exchange rate of
U.S.$1.0465. The unaudited consolidated condensed income statement of Seagram
was translated from U.S. dollars to euros at the average exchange rate for the
six-month period ended June 30, 2000 of U.S.$1.0410. Certain Seagram historical
financial statement amounts have been reclassified for pro forma presentation.
2) CONVERSION OF VIVENDI HISTORICAL FINANCIAL INFORMATION TO U.S. GAAP
Vivendi has prepared its historical consolidated financial statements in
accordance with already defined French GAAP. French GAAP differs in certain
significant respects from U.S. GAAP. A discussion of the principal differences
between French GAAP and U.S. GAAP, as they relate to Vivendi, is presented in
Note 25A and Note 15A to Vivendi's financial statements at December 31, 1999 and
at June 30, 2000, respectively. Reconciliations of shareholders' equity and net
income from French GAAP to U.S. GAAP are presented in Note 25B and Note 15B to
Vivendi's financial statements at December 31, 1999 and at June 30, 2000,
respectively.
140
<PAGE> 148
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the conversion of the condensed unaudited
consolidated balance sheet and consolidated income statement of Vivendi from
French GAAP to U.S. GAAP.
<TABLE>
<CAPTION>
U.S. GAAP
ADJUSTMENTS
FRENCH ----------------- U.S.
JUNE 30, 2000 GAAP (A) (B) GAAP
------------- ------ ------ ------- ------
(IN MILLIONS OF E)
<S> <C> <C> <C> <C>
ASSETS
Accounts receivable.................................... 17,834 690 (1,123) 17,401
Other current assets................................... 14,727 (4,210) (1,983) 8,534
------ ------ ------- ------
Total current assets......................... 32,561 (3,520) (3,106) 25,935
Investments............................................ 6,129 299 348 6,775
Goodwill, net.......................................... 10,210 10,207 (3,053) 17,364
Other intangible assets, net........................... 8,683 (1,687) (2,065) 4,931
Property, plant and equipment, net..................... 19,452 565 (4,229) 15,788
------ ------ ------- ------
Total assets................................. 77,034 5,863 (12,105) 70,793
====== ====== ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable....................................... 18,348 797 (3,210) 15,935
Other current liabilities.............................. 14,891 54 (2,423) 12,522
------ ------ ------- ------
Total current liabilities.................... 33,239 851 (5,633) 28,457
Long-term debt......................................... 18,980 2,299 (3,376) 17,902
Other long-term liabilities............................ 8,198 (2,209) (511) 5,478
------ ------ ------- ------
Total liabilities............................ 60,417 940 (9,521) 51,837
Minority interests..................................... 4,103 663 (2,584) 2,183
------ ------ ------- ------
Total shareholders' equity................... 12,514 4,259 0 16,773
------ ------ ------- ------
Total liabilities and shareholders' equity............. 77,034 5,863 (12,104) 70,793
====== ====== ======= ======
</TABLE>
(A) Adjustments and Reclassifications from Implementation of U.S.
GAAP -- The entries that result in an adjustment to total shareholders' equity
as determined under French GAAP are explained in Note 15A of Vivendi's Financial
Statements. See "Financial Statements -- Vivendi Financial Statements." The
detail of these entries is presented in Note 15B of Vivendi's Financial
Statements. In addition, these entries reflect the recording of those U.S. GAAP
adjustments and reclassifications that do not result in an adjustment to total
shareholders' equity as determined under French GAAP. Because they did not
impact shareholders' equity, these differences between French GAAP and U.S. GAAP
have not been discussed elsewhere. These entries are comprised of the following:
i) Capital leases -- The criteria for capital lease classification
under French GAAP are more restrictive than are those under U.S. GAAP.
Accordingly, certain leases that have been classified as operating leases
under French GAAP have been reclassified as capital leases. The adjustments
reflect the recognition of an asset and a corresponding debt obligation.
ii) Transfer of receivables -- Under U.S. GAAP criteria, certain sales
of accounts receivable are not considered to be sales. Accordingly, the
related assets must continue to be recognized along with a corresponding
liability.
iii) Recognition of debt -- A Vivendi subsidiary has entered into an
agreement with its creditors to offset amounts owed against receivables.
Under U.S. GAAP, a liability for the total amount owed would be recorded
and the receivable would not be adjusted.
141
<PAGE> 149
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(B) CANAL+ and Proportionate Consolidation -- These entries reflect the
deconsolidation of CANAL+ and of entities proportionally consolidated under
French GAAP and the application of the equity method to account for Vivendi's
investment in these entities. These entries also reflect the adjustment of
assets and liabilities of CANAL+ and of entities proportionately consolidated to
reflect the implementation of U.S. GAAP by those entities.
In Note 25C and Note 15C of Vivendi's Financial Statements at December 31,
1999 and at June 30, 2000, respectively, Vivendi has presented an income
statement in a format consistent with U.S. GAAP and the provisions of Regulation
S-X. The income statements presented reflect the recording of entries that
resulted in an adjustment of net income determined under French GAAP. These
condensed income statements do not reflect the deconsolidation of entities
proportionately consolidated under French GAAP, as these entries did not result
in an adjustment to net income.
The tables below summarize the adjustments to the unaudited condensed
income statements in U.S. GAAP format presented in Notes 25C and 15C of
Vivendi's Financial Statements to U.S. GAAP:
<TABLE>
<CAPTION>
U.S. GAAP
ADJUSTMENTS
PER -----------
JUNE 30, 2000 (E MILLIONS) NOTE 15C (X) U.S. GAAP
-------------------------- -------- ----------- ---------
<S> <C> <C> <C>
Net revenues(*)........................................ 17,191 (1,476) 15,715
Cost of revenues(*).................................... (12,364) 1,207 (11,157)
Selling, general and administrative.................... (3,661) 107 (3,554)
------- ------ -------
Operating margin..................................... 1,166 (163) 1,003
Amortization of goodwill............................... (268) 5 (263)
Other operating expenses, net.......................... (290) 9 (280)
------- ------ -------
Operating income..................................... 608 (149) 459
Interest expense, net.................................. (396) 54 (342)
Other income, net...................................... 1,140 (11) 1,129
------- ------ -------
Income before taxes, minority interest and equity
interest.......................................... 1,352 (106) 1,246
Income tax expense (benefit)........................... (459) 39 (420)
------- ------ -------
Income before minority interest and equity
interest.......................................... 893 (67) 827
Equity interest earnings (losses)...................... (158) 32 (126)
Minority interest...................................... (202) 35 (167)
------- ------ -------
Income (loss) from continuing operations............. 533 0 533
======= ====== =======
</TABLE>
(*) Includes excise taxes collected on behalf of local authorities for
E922 million for Vivendi.
<TABLE>
<CAPTION>
U.S. GAAP
ADJUSTMENTS
PER -----------
DECEMBER 31, 1999 (E MILLIONS) NOTE 25C (X) U.S. GAAP
------------------------------ -------- ----------- ---------
<S> <C> <C> <C>
Net revenues(*)........................................ 39,052 (2,509) 36,543
Cost of revenues(*).................................... 28,898 (2,179) 26,719
Selling, general and administrative.................... 8,467 (174) 8,293
------ ------ ------
Operating margin..................................... 1,687 (156) 1,531
</TABLE>
142
<PAGE> 150
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
U.S. GAAP
ADJUSTMENTS
PER -----------
DECEMBER 31, 1999 (E MILLIONS) NOTE 25C (X) U.S. GAAP
------------------------------ -------- ----------- ---------
<S> <C> <C> <C>
Amortization of goodwill............................... 771 (5) 766
Other operating expenses, net.......................... 1,437 5 1,442
------ ------ ------
Operating income..................................... (521) (156) (677)
Interest expense, net.................................. 401 (30) 371
Other income, net...................................... 535 (2) 533
------ ------ ------
Income before taxes, minority interest and equity
interest............................................. (387) (128) (515)
Income tax expense (benefit)........................... (675) (41) (716)
------ ------ ------
Income before minority interest and equity
interest.......................................... 288 (87) 201
Equity interest (earnings) losses...................... (66) 87 21
Minority interest...................................... (24) 0 (24)
------ ------ ------
Income (loss) from continuing operations............. 246 0 246
====== ====== ======
</TABLE>
---------------
(*) Includes excise taxes collected on behalf of local authorities for
E2,112 million for Vivendi.
(X) Proportionate consolidation: The portion of the entities,
proportionately consolidated total revenues and expenses equal to Vivendi's
ownership percentage in these entities is deducted from the Vivendi consolidated
income statement, and income in the entities' earnings is recorded equal to
Vivendi's interest in the entities' shareholders' equity.
3) PURCHASE PRICE
With respect to the business combination with Seagram, the number of shares
to be issued to effect the acquisition is based on a formula that is tied to the
market price of Vivendi ordinary shares on the Paris Bourse, as described in
"Introduction -- Questions and Answers About the Meetings and the Merger
Transactions." Therefore, the measurement date of the purchase price cannot be
known until the date that the formula is finally applied. However, for purposes
of these unaudited pro forma condensed consolidated financial statements,
Vivendi Universal has determined the purchase price of Seagram as follows.
On July 4, 2000, the average closing price for the 20-day measuring period
defined in the plan of arrangement was U.S.$96.18. This was the first day that
the average closing price, upon which the exchange formula is based, went below
the "floor" of U.S.$96.6875. Since July 4, 2000 and through the date of this
joint proxy statement-prospectus, the average closing price of Vivendi ordinary
shares on the Paris Bourse over any 20-day measuring period has remained below
this floor. Accordingly, application of the formula resulted in a change in the
number of shares issued to effect the Seagram transaction; because the 20-day
average closing price is below the floor of U.S.$96.6875 set forth in the
Seagram transaction documents, the exchange ratio is adjusted to 0.8 Vivendi
Universal ordinary shares for every 1.0 Seagram share. The earliest date that
this is known and does not change (as of the date of the registration statement)
is July 4, 2000. Therefore, July 4, 2000 is the measurement date. The average of
the closing prices of Vivendi's shares for the five days before and the five
days after July 4, 2000 is used to value the shares to be issued in the purchase
business combination.
143
<PAGE> 151
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Based on this application, the purchase price of Seagram is as follows:
<TABLE>
<S> <C>
Seagram common shares outstanding as of
September 30, 2000 443,663,363
Contractual exchange ratio 0.8 Vivendi Universal share to 1.0
Seagram share
Measurement date July 4, 2000
Average closing price 5 days before and 5
days after the measurement date E 91.45
Purchase price of Seagram common shares E 32,458 million
</TABLE>
The final valuation of Vivendi Universal ordinary shares ultimately used to
measure the purchase price of Seagram common shares may differ based on market
fluctuations.
With respect to the acquisition of CANAL+'s transferred businesses, the
number of shares to be issued to effect the acquisition is not based on a
formula and is not subject to change. Therefore the measurement date for this
transaction is June 20, 2000, the date that the terms of the acquisition were
agreed to and announced. The value of the equity securities to be issued by
Vivendi Universal is then determined based on the market price of Vivendi shares
over a reasonable time before and after the announcement of the transaction.
Based on this application, the purchase price of CANAL+'s transferred
businesses is as follows:
<TABLE>
<S> <C>
CANAL+ ordinary shares to be acquired 65,281,604
Contractual exchange ratio 2.0 Vivendi Universal ordinary shares
to 1.0 CANAL+ ordinary share
Measurement date June 20, 2000
Average closing price 5 days before and 5
days after the measurement date E 94.88
Purchase price of CANAL+ ordinary shares E 12,388 million
</TABLE>
4) PRELIMINARY PURCHASE PRICE ALLOCATION
Due to the fact that the Seagram transactions have been negotiated in June
2000 and on limits on access to information prior to consummation of the
transactions, a detailed purchase price allocation is in process but has not
been completed. However, on the basis of the review that Vivendi conducted as
part of the acquisition process, Vivendi's management believes that the
preliminary allocation used for the pro forma financial information is a
reasonable estimate of the allocation.
With the exception of the Spirits and Wine segment, all of the Seagram
operating units with significant identified and unidentified intangible assets
(i.e., the Music and Film Segments) have been acquired through recent purchase
business combinations. In connection with each of the purchase business
combinations, a detailed purchase price allocation was performed by Seagram in
accordance with APB 16. Due to the relatively short time period between these
acquisitions and the Seagram transaction, and based upon Vivendi's initial due
diligence, it is the opinion of Vivendi that the book values of these assets and
liabilities are a reasonable approximation of fair value.
The Music segment was acquired in the acquisition of PolyGram in December
of 1998 and, to a much lesser extent, similar assets were acquired in the 1995
acquisition of MCA Universal. The purchase
144
<PAGE> 152
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
price study relating to the PolyGram purchase was completed the quarter ended
December 31, 1999 and resulted in a final allocation to intangibles assets of
U.S.$2.8 billion and to goodwill of U.S.$9.6 billion.
The Film segment was for the most part acquired in the acquisition of MCA
Universal in 1995 and to a much lesser extent in the acquisition of PolyGram.
The purchase price study relating to the MCA Universal purchase was completed
the year ended June 30, 1996 and resulted in a final allocation to intangible
assets of U.S.$0.8 billion and to goodwill of U.S.$2.6 billion.
The Spirits and Wine segment is reflected as a business to be sold. A
portion of Seagram's purchase price is therefore allocated to the business to be
sold. For the purpose of the unaudited pro forma financial statements, this
allocated amount has been determined as the average value of expected selling
price range. The tax effect of the disposal is not reflected in the pro forma
financial statements.
Based on information currently available, Vivendi has performed a
preliminary allocation of the estimated purchase price of Seagram as follows:
Calculation of estimated purchase price at June 30, 2000
<TABLE>
<CAPTION>
(E MILLIONS)
------------
<S> <C>
Estimated market value of common stock issued to effect
transaction............................................... 32,458
</TABLE>
Allocation of the Seagram purchase price:
<TABLE>
<S> <C>
ASSETS:
Tangible assets............................................. 14,101
Historical goodwill......................................... 11,816
Historical other intangible assets.......................... 3,970
Estimated fair value of Spirits and Wine segment............ 9,942
New goodwill................................................ 13,117
LIABILITIES:
Seagram's historical liabilities and minority interest...... (20,488)
Total purchase price (at June 30, 2000 exchange rates)...... 32,458
=========
</TABLE>
The final allocation of the purchase price will be determined after the
completion of the transaction and will be based on a comprehensive final
evaluation of the fair value of the tangible and identifiable intangible assets
acquired and liabilities assumed from Seagram at the time of the transaction, as
well as a final determination of the purchase price.
Vivendi acquired 15% of the shares of CANAL+ in September 1999, increasing
its ownership interest from 34% to 49%, which allowed the Company to consolidate
CANAL+ under French GAAP. Vivendi accounted for this increase in investment as a
step acquisition. Accordingly, Vivendi evaluated the fair value of the
identifiable assets acquired and liabilities assumed at that time. The excess of
the purchase price for the additional 15% of CANAL+ shares over the fair value
of the corresponding percentage of net assets acquired was recorded as goodwill
and is amortized over 40 years.
Vivendi has not yet completed its review of the fair values of the CANAL+
identifiable assets in connection with its acquisition of the remaining 51%
ownership of the transferred businesses. Based on the review performed in
connection with the September 1999 transaction, it is the opinion of Vivendi
that the book values of these assets and liabilities are a reasonable
approximation of fair value. Therefore, Vivendi's management believes that the
preliminary allocation used for the pro forma financial information is a
reasonable estimate of the allocation. However, Vivendi does intend to perform
another detailed review of the fair values of the CANAL+ identifiable assets and
liabilities, and the final allocation of the purchase price could differ from
that presented in the pro forma financial statements.
145
<PAGE> 153
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Allocation of the purchase price of CANAL+ non-regulated businesses:
<TABLE>
<CAPTION>
(E MILLIONS)
------------
<S> <C>
New goodwill................................................ 11,268
Book value of net assets acquired........................... 1,120
------
Total purchase price........................................ 12,388
======
</TABLE>
5) PRO FORMA INCOME FROM CONTINUING OPERATIONS PER SHARE
The pro forma basic and diluted income from continuing operations per share
is based on the weighted average number of common and dilutive equivalent shares
outstanding of Vivendi, and for pro forma basic and diluted earnings per share,
the average shares include the 354,930,691 Vivendi Universal ADSs expected to be
issued to holders of Seagram common stock in the transaction using the exchange
ratio of 0.8 for the acquisition of Seagram common shares, and the 130,563,208
Vivendi Universal ordinary shares expected to be issued to holders of CANAL+
common stock using the exchange ratio of 2:1 for the acquisition of the
outstanding CANAL+ ordinary shares. The computation of pro forma basic and
diluted income from continuing operations per share for the six months ended
June 30, 2000 and the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
----------- ---------------
<S> <C> <C>
Pro forma consolidated loss from continuing operations (E
millions)............................................... (471) (766)
Weighted average number of shares (millions):
Outstanding basic....................................... 1,051.4 991.1
Outstanding -- diluted.................................. 1,070.4 1,005.0
Pro forma loss from continuing operations per share (E):
Basic................................................... (0.45) (0.77)
Diluted................................................. (0.45) (0.77)
</TABLE>
146
<PAGE> 154
CHAPTER FIVE -- SECURITIES
DESCRIPTION OF VIVENDI UNIVERSAL ORDINARY SHARES
GENERAL
As of October 4, 2000, there were 50,359,500 Vivendi Universal authorized
and outstanding ordinary shares. Prior to completion of the merger transactions,
Vivendi Universal will amend its statuts to increase its authorized shares to
88,144,768. All of the outstanding ordinary shares are issued to Vivendi and are
fully paid. Vivendi Universal's statuts provide that ordinary shares may be held
in registered or bearer form, at the option of the shareholder, as discussed
under "-- Form, Holding and Transfer."
OWNERSHIP OF VIVENDI UNIVERSAL ORDINARY SHARES BY NON-FRENCH PERSONS
The French commercial code currently does not limit the right of
non-residents of France or non-French persons to own and vote ordinary shares of
French companies. However, non-residents of France must file an administrative
notice with French authorities in connection with the acquisition of a
controlling interest in a French company. Under existing administrative rulings,
ownership of 20% or more of a company's share capital or voting rights is
regarded as a controlling interest, but a lower percentage might be held to be a
controlling interest in certain circumstances depending upon factors such as:
- the acquiring party's intentions;
- the acquiring party's ability to elect directors; and
- financial reliance by the French company on the acquiring party.
VOTING, DIVIDEND AND LIQUIDATION RIGHTS
VOTING RIGHTS
In general, each Vivendi Universal ordinary share will carry the right to
cast one vote in shareholder elections. However, Vivendi Universal's statuts
will adjust the voting rights of shareholders who own in excess of 2% of the
total voting power of Vivendi Universal through the application of a formula
designed to limit the voting power of those shareholders to that which they
would possess if 100% of the shareholders were present at the meeting at which
the vote in question takes place. See "The Vivendi Parties and
CANAL+ -- Vivendi -- Legal Proceedings."
DIVIDEND RIGHTS
Vivendi Universal may pay dividends only out of its "distributable
profits," plus any amounts held in its reserve that the shareholders decide to
make available for distribution. These amounts may not include amounts
specifically required to be held in reserve by law or the statuts. Distributable
profits consist of the unconsolidated net profit generated in each fiscal year,
as increased or reduced by any profit or loss carried forward from prior years,
less any contributions to the reserve accounts made pursuant to law or the
statuts.
Legal Reserve. The French commercial code provides that French societes
anonymes such as Vivendi Universal must allocate 5% of their unconsolidated
statutory net profit each year to their legal reserve fund before dividends may
be paid with respect to that year. Funds must be allocated until the amount in
the legal reserve is equal to 10% of the aggregate nominal value of the issued
and outstanding share capital. The legal reserve of any company subject to this
requirement may be distributed to shareholders only upon liquidation of the
company.
Approval of Dividends. Under the French commercial code, a company's board
of directors may propose a dividend for approval by the shareholders at the
annual general meeting of shareholders. If a company has earned distributable
profits since the end of the preceding fiscal year, as reflected in an interim
income statement certified by its auditors, its board of directors may
distribute interim dividends to
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the extent of the distributable profits for the period covered by the interim
income statement. The board of directors exercises this authority subject to
French law and regulations and may do so without obtaining shareholder approval,
unless the distribution is of shares. Vivendi generally does not, and we do not
anticipate that Vivendi Universal will, pay interim dividends.
Distribution of Dividends. Dividends will be distributed to shareholders
pro rata in accordance with the nominal value of ordinary shares held. In the
case of interim dividends, distributions will be payable to shareholders on the
date of the management board meeting at which the distribution of interim
dividends is approved. The actual dividend payment date will be decided by the
shareholders in an ordinary general meeting (or by the board of directors in the
absence of such a decision by the shareholders).
Timing of Payment. Under the French commercial code, Vivendi Universal
must pay any dividends approved by the board of directors or shareholders within
nine months of the end of its fiscal year unless otherwise authorized by court
order. Dividends on shares that are not claimed within five years of the date of
declared payment revert to the French government.
LIQUIDATION RIGHTS
If Vivendi Universal is liquidated, any assets remaining after payment of
its debts, liquidation expenses and all of its remaining obligations will be
distributed first to repay in full the nominal value of its ordinary shares. Any
surplus will be distributed pro rata among shareholders in proportion to the
nominal value of their shareholdings.
PREFERENTIAL SUBSCRIPTION RIGHTS
Under the French commercial code, if Vivendi Universal issues additional
shares, or any equity securities or other specific kinds of additional
securities carrying a right, directly or indirectly, to purchase equity
securities issued by Vivendi Universal for cash, current shareholders will have
preferential subscription rights to these securities on a pro rata basis. These
preferential rights will require Vivendi Universal to give priority treatment to
those shareholders over other persons wishing to subscribe for the securities.
The rights entitle the individual or entity that holds them to subscribe to an
issue of any securities that may increase the share capital of Vivendi Universal
by means of a cash payment or a set-off of cash debts. Preferential subscription
rights are transferable during the subscription period relating to a particular
offering. These rights may also be listed on the Paris Bourse.
A two-thirds majority of the Vivendi Universal ordinary shares entitled to
vote at an extraordinary general meeting may vote to waive preferential
subscription rights with respect to any particular offering. French law requires
a company's board of directors and independent auditors to present reports that
specifically address any proposal to waive preferential subscription rights. In
the event of a waiver, the issue of securities must be completed within the
period prescribed by law. The shareholders may also decide at an extraordinary
general meeting to give the existing shareholders a non-transferable priority
right to subscribe for the new securities during a limited period of time.
Shareholders may also waive their own preferential subscription rights with
respect to any particular offering.
Vivendi has agreed in the merger agreement to take all necessary actions,
including making any necessary securities filings, to ensure that all holders of
Vivendi Universal securities, regardless of jurisdiction of residence, are
entitled to all benefits of the foregoing preferential subscription rights.
LISTING
Application has been made to list the Vivendi Universal ordinary shares for
trading on the Premier Marche of the Paris Bourse.
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FORM, HOLDING AND TRANSFER
FORM OF SHARES
Vivendi Universal's statuts provide that the Vivendi Universal ordinary
shares may be held in registered or bearer form. In accordance with French
securities law, shareholders' ownership rights, whether in registered or bearer
form, are represented by book entries instead of share certificates.
HOLDING OF SHARES
Vivendi Universal will maintain a share account with Sicovam for all
Vivendi Universal ordinary shares in registered form, which will be administered
by BNP Paribas. In addition, Vivendi Universal will maintain separate accounts
in the name of each shareholder either directly, or, at a shareholder's request,
through the shareholder's accredited intermediary (i.e., a French broker, bank
or financial institution registered as such). Each shareholder account shows the
name of the holder and the number of shares held and, in the case of shares held
through an accredited intermediary, shows that they are so held. BNP Paribas, as
a matter of course, will issue confirmations to each registered shareholder as
to shares registered in the shareholder's account, but these confirmations are
not documents of title.
Vivendi Universal ordinary shares held in bearer form will be held on the
shareholder's behalf in an account maintained by an accredited intermediary and
will be recorded in an account that the accredited intermediary will maintain
with Sicovam, as no other company is authorized to act as central depositary.
That account will be separate from Vivendi Universal's share account for pure
registered Vivendi Universal ordinary shares with Sicovam. Each accredited
intermediary will maintain a record of Vivendi Universal ordinary shares held
through it and will issue physical certificates of registration representing
Vivendi Universal ordinary shares held in bearer form for the Vivendi Universal
ordinary shares that it holds. Vivendi Universal ordinary shares held in bearer
form may be transferred only through accredited intermediaries and Sicovam.
Vivendi Universal may ask Sicovam for the identity of the holders of its
ordinary shares or other securities granting immediate or future voting rights,
held in bearer form, with the number of shares or other securities so held.
TRANSFER OF SHARES
Vivendi Universal's statuts do not contain any restrictions on the transfer
of Vivendi Universal ordinary shares. Registered Vivendi Universal ordinary
shares must be converted into bearer form before being transferred on the Paris
Bourse and, accordingly, must be recorded in an account maintained by an
accredited intermediary. A shareholder may initiate a transfer by giving
instructions to the relevant accredited intermediary. For dealings on the Paris
Bourse, a tax assessed on the price at which the securities are traded, or impot
sur les operations de bourse, is payable at the rate of 0.3% on transactions of
up to E152449.01 and at a rate of 0.15% for larger trades. This tax is subject
to a rebate of E22.87 per transaction and a maximum assessment of E609.80 per
transaction. Nonresidents of France are not required to pay this tax. In
addition, a fee or commission is payable to the broker involved in the
transaction, regardless of whether the transaction occurs in France. No
registration duty is normally payable in France, unless a transfer instrument
has been executed in France.
ANTI-TAKEOVER EFFECTS
The French commercial code provides that any individual or entity, acting
alone or in concert with others, that becomes the owner, directly or indirectly,
of more than 5%, 10%, 20%, 33 1/3%, 50% or 66 2/3% of the outstanding shares or
voting rights of a listed company in France, such as Vivendi Universal, or that
increases or decreases its shareholding or voting rights above or below any of
those percentages, must notify Vivendi Universal within 15 calendar days of the
date it crosses such thresholds of the number of shares it holds and their
voting rights. The individual or entity must also notify the Conseil des Marches
Financiers (CMF) within five trading days of the date it crosses these
thresholds.
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French law and COB regulations impose additional reporting requirements on
persons who acquire more than 10% or 20% of the outstanding shares or voting
rights of a listed company. These persons must file a report with the company,
the COB and the CMF within fifteen days of the date they cross the threshold. In
the report, the acquiror must specify its intentions for the following 12-month
period, including whether or not it intends to continue its purchases, to
acquire control of the company in question or to nominate candidates for the
board of directors. The CMF makes the notice public. The acquiror must also
publish a press release stating its intentions in a financial newspaper of
national circulation in France. The acquiror may amend its stated intentions,
provided that it does so on the basis of significant changes in its own
situation or that of its shareholders. Upon any change of intention, it must
file a new report.
Under CMF regulations, and subject to limited exemptions granted by the
CMF, any person or persons acting in concert that own in excess of 33 1/3% of
the share capital or voting rights of a French listed company must initiate a
public tender offer for the balance of the share capital of such company.
To permit holders to give the required notice, Vivendi Universal will be
required to publish in the BALO no later than 15 calendar days after the annual
ordinary general meeting of shareholders information with respect to the total
number of voting rights outstanding as of the date of such meeting. In addition,
if the number of outstanding voting rights changes by 5% or more between two
annual ordinary general meetings, Vivendi Universal will be required to publish
in the BALO, within 15 calendar days of such change, the number of voting rights
outstanding and provide the CMF with written notice of such information. The CMF
publishes the total number of voting rights so notified by all listed companies
in a weekly notice (avis), noting the date each such number was last updated.
If any person fails to comply with the legal notification requirement, the
shares or voting rights in excess of the relevant threshold will be deprived of
voting rights for all shareholders' meetings until the end of a two-year period
following the date on which their owner complies with the notification
requirements. In addition, any shareholder who fails to comply with these
requirements may have all or part of its voting rights suspended for up to five
years by the Commercial Court at the request of the chairman, any shareholder or
the COB, and may be subject to a E18,293.88 fine.
In addition, a number of provisions of French commercial code allow
corporations to adopt statuts that have anti-takeover effects, including
provisions that allow:
- shares with double voting rights;
- a company's board of directors to increase the company's share capital
during a tender offer;
- limitations on the voting power of shareholders; and
- shareholders' agreements that provide for preemptive rights in case of a
sale of shares by a shareholder.
For a description of provisions of Vivendi Universal's statuts that may
have anti-takeover effects, see "Comparison of Shareholders' Rights -- Take-Over
Bids and Compulsory Acquisition of Shares; Anti-Takeover Provisions."
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DESCRIPTION OF VIVENDI UNIVERSAL ADSs
AMERICAN DEPOSITARY SHARES
The depositary will issue the Vivendi Universal ADSs, which will be
evidenced by Vivendi Universal ADRs. Vivendi Universal ordinary shares can be
deposited with BNP Paribas, Societe Generale or Credit Lyonnais, as custodian,
pursuant to a deposit agreement among Vivendi Universal, the depositary and you
as a Vivendi Universal ADR holder. Each Vivendi Universal ADS will represent one
Vivendi Universal ordinary share. Each Vivendi Universal ADS will also represent
any securities, cash or other property deposited with the depositary but not
distributed by it directly to you.
The depositary's corporate trust office is located at 101 Barclay Street,
New York, NY 10286. Its principal executive office is located at One Wall
Street, New York, NY 10286.
You may hold Vivendi Universal ADSs either directly or indirectly through
your broker or other financial institution. If you hold Vivendi Universal ADSs
directly, by having an ADS registered in your name on the books of the
depositary, you will be a Vivendi Universal ADR holder. Except as otherwise
indicated, this description assumes you hold your Vivendi Universal ADSs
directly. If you hold the Vivendi Universal ADSs through your broker or
financial institution, you will be required to rely on the procedures of that
broker or financial institution to assert the rights of a Vivendi Universal ADR
holder described in this section. You should consult with your broker or
financial institution to find out what those procedures are.
Because the depositary will actually hold the Vivendi Universal ordinary
shares, you will be required to rely on it to exercise the rights of a
shareholder on your behalf. The obligations of the depositary and its agents are
set out in the deposit agreement. The deposit agreement and the Vivendi
Universal ADRs are governed by New York law.
The following is a summary of the material terms of the deposit agreement.
For more complete information, you should read the entire deposit agreement and
the form of Vivendi Universal ADR, which contains the terms of your Vivendi
Universal ADSs. Copies of these documents are exhibits to the Form F-6
Registration Statement relating to the ADSs. A copy of the deposit agreement
will also be on file with the depositary and the custodian and will be open for
inspection by Vivendi Universal ADS holders during business hours.
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
Vivendi Universal may make various types of distributions with respect to
its securities. The depositary has agreed to pay to you the cash dividends or
other distributions it or the custodian receives on Vivendi Universal ordinary
shares or other deposited securities, after deducting its fees and expenses. You
will receive these distributions in proportion to the number of underlying
Vivendi Universal ordinary shares your Vivendi Universal ADSs represent.
- Cash. The depositary will promptly convert any cash dividend or other
cash distribution Vivendi Universal pays on the Vivendi Universal
ordinary shares into U.S. dollars, if it can do so. If the depositary
cannot convert the currency, the deposit agreement allows the depositary
to distribute the distribution in the foreign currency, or hold the
foreign currency it cannot convert for the account of the Vivendi
Universal ADR holders who have not been paid. It will not invest the
foreign currency and it will not be liable for interest.
Before making a distribution, any withholding taxes that will be required
to be paid under applicable law will be deducted. The depositary will
distribute only whole U.S. dollars and cents and will round fractional
cents to the nearest whole cent. IF EXCHANGE RATES FLUCTUATE DURING A
TIME WHEN THE DEPOSITARY CANNOT CONVERT THE FOREIGN CURRENCY, YOU MAY
LOSE SOME OR ALL OF THE VALUE OF THE DISTRIBUTION.
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- Shares. The depositary will distribute new Vivendi Universal ADRs
evidencing any Vivendi Universal ordinary shares Vivendi Universal
distributes as a dividend or free distribution. The depositary will
distribute only whole Vivendi Universal ADRs. It will sell shares that
would require it to issue a fractional Vivendi Universal ADR and
distribute the net proceeds in the same way it does with cash. If
additional Vivendi Universal ADRs are not distributed, the existing
Vivendi Universal ADSs will also represent the new Vivendi Universal
ordinary shares.
- Rights to receive additional shares. If Vivendi Universal offers its
shareholders any rights to subscribe for additional shares or any other
rights, the depositary will make these rights available to you if it can
do so. If the depositary makes rights available to you, upon instruction
from you, it will exercise the rights and purchase the shares on your
behalf. The depositary will then deposit the shares and issue Vivendi
Universal ADRs to you. It will exercise rights only if you pay it the
exercise price and any other charges the rights require you to pay.
- Other Distributions. The depositary will send to you anything else
Vivendi Universal distributes on deposited securities, after deduction or
upon payment of any fees and expenses of the depositary or any taxes or
other governmental charges.
Before the depositary distributes any ADRs, rights or other property to
holders of Vivendi Universal ADSs, Vivendi Universal must instruct it to do so
and provide reasonably satisfactory evidence that it is legal to do so. Vivendi
Universal has agreed with the holders of ADRs to take all actions necessary
(including providing the required instructions and evidence to the depositary)
to cause the distribution to you of all shares, rights and anything else
distributed to the holders of the Vivendi Universal ordinary shares to the same
extent and in the same form as any distributions made to the holders of Vivendi
Universal ordinary shares, except that you will receive Vivendi Universal ADRs
upon any distribution of Vivendi Universal ordinary shares and you will receive
distributions of cash to the extent provided above. Vivendi Universal has agreed
with the holders of ADRs to register the Vivendi Universal ADRs, shares, rights
or other securities to be distributed under applicable laws, if required
thereunder, and to take all other actions necessary to permit those
distributions to be made. Vivendi Universal has agreed with the holders of ADRs
that it will not make any distributions to the holders of Vivendi Universal
ordinary shares, or offer to the holders of Vivendi Universal ordinary shares
any rights to subscribe for additional shares or other securities, unless the
distribution or offer will also be made substantially contemporaneously to the
holders of the Vivendi Universal ADSs as required by the provisions described
above.
There can be no assurance that the depositary will be able to convert any
currency at a specified exchange rate, or that such conversion can occur within
a specified time period.
DEPOSIT, WITHDRAWAL AND CANCELLATION
The depositary will issue Vivendi Universal ADSs if you or your broker
deposits Vivendi Universal ordinary shares or evidence of rights to receive
shares with the custodian. In the case of Vivendi Universal ADSs issuable in the
merger transactions, the depositary will issue the ADSs following deposit by
Vivendi Universal with the custodian of the Vivendi Universal ordinary shares
underlying those ADSs.
Vivendi Universal ordinary shares deposited in the future with the
custodian will be required to be accompanied by certain documents, including
instruments showing that those shares have been properly transferred or endorsed
to the person on whose behalf the deposit is being made.
The custodian will hold all deposited Vivendi Universal ordinary shares for
the account of the depositary. The custodian will also hold any additional
securities, property and cash received on or in substitution for the deposited
Vivendi Universal ordinary shares and not distributed as provided in the deposit
agreement. The deposited Vivendi Universal ordinary shares and any such
additional items are referred to as "deposited securities."
Upon each deposit of shares, receipt of related delivery documentation and
compliance with the other provisions of the deposit agreement, including the
payment of the fees and expenses and any charges of the depositary and any taxes
such as stamp taxes or stock transfer taxes or other fees or charges owing, the
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depositary will issue Vivendi Universal ADRs in the name of the person entitled
to them evidencing the number of Vivendi Universal ADSs to which that person is
entitled. Certificated Vivendi Universal ADRs will be delivered at the
depositary's corporate trust office to the persons you request.
When you turn in your Vivendi Universal ADSs at the depositary's corporate
trust office, the depositary will, upon payment of certain applicable fees and
expenses, charges and taxes, and upon receipt of proper instructions, deliver
the underlying Vivendi Universal ordinary shares to an account designated by you
and maintained by Vivendi Universal, in the case of Vivendi Universal ordinary
shares in registered form, or transfer the Vivendi Universal ordinary shares to
an account of an accredited financial institution on your behalf, in the case of
Vivendi Universal ordinary shares in bearer form. The Vivendi Universal ordinary
shares underlying the ADSs issued in connection with the merger transactions
will be in bearer form.
The depositary may close the transfer books, at any time or from time to
time, when deemed advisable by it in connection with the performance of its
duties. However, when it does so, Vivendi Universal ADR holders retain the right
to cancel their ADRs and withdraw the underlying deposited securities at any
time subject only to:
- temporary delays caused by the closing of the transfer books of the
depositary or Vivendi Universal or the deposit of Vivendi Universal
ordinary shares in connection with voting at a shareholders' meeting, or
the payment of dividends (we are not aware of any statutory or regulatory
limit to the length of time during which Vivendi Universal or the
depositary can close its respective transfer books in connection with
these activities; however, as indicated, we expect that any delay in
canceling ADRs and withdrawing the underlying Vivendi Universal ordinary
shares to be temporary);
- the payment of fees, taxes and similar charges; or
- compliance with any laws or governmental regulations relating to ADRs or
to the withdrawal of underlying deposited securities.
The right of Vivendi Universal ADS holders to withdraw underlying deposited
securities may not be limited by any other provision of the deposit agreement.
VOTING RIGHTS
In general, each Vivendi Universal ADS will carry the right to cast one
vote on matters on which holders of Vivendi Universal ordinary shares may vote.
However, Vivendi Universal's statuts will adjust the voting rights of
shareholders who own (within the meaning of the statuts and Article L 233-9 of
the French commercial code to which those statuts refer) in excess of 2% of the
total voting power of Vivendi Universal through the application of a formula
designed to limit the voting power of those shareholders to that which they
would possess if 100% of the shareholders were present at the meeting at which
the vote in question takes place. See "The Vivendi Parties and
CANAL+ -- Vivendi -- Legal Proceedings." If you hold ADSs directly or indirectly
through a broker or financial institution, this formula will not be applicable
to you if you represent when you vote that you do not own in excess of 2% of the
total voting power of Vivendi Universal (within the meaning of the statuts and
Article L 233-9 of the French commercial code to which those statuts refer). If
you own more than 2% (within the meaning of the statuts and Article L 233-9 of
the French commercial code to which those statuts refer), you will need to
contact the depositary in order to vote; the depositary will forward to Vivendi
Universal the information necessary to allow you to vote. The voting
instructions that will be furnished to you will explain these procedures.
If you are a Vivendi Universal ADS holder, the depositary will provide you
with voting instructions upon its receipt of notice of the meeting, and you may
instruct the depositary how to exercise the voting rights for the Vivendi
Universal ordinary shares underlying your Vivendi Universal ADSs. Upon receipt
of notice of any meeting of holders of Vivendi Universal ordinary shares or
other deposited securities sent by Vivendi Universal, the depositary will mail,
at Vivendi Universal's expense, the notice to the Vivendi
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Universal ADR holders as soon as practicable. The notice will contain an English
version of the notice received from Vivendi Universal and an English translation
of any materials provided to Vivendi Universal ordinary shareholders, or in some
cases, English equivalents of those materials, and will describe how you, on or
before a certain date, may instruct the depositary to exercise the voting rights
for the Vivendi Universal ordinary shares underlying your Vivendi Universal
ADSs, including a statement as to how Vivendi Universal ordinary shares for
which the depositary receives incomplete voting instructions will be voted. For
instructions to be valid, the depositary will be required to receive them on or
before the date specified. The depositary will vote or have its agents vote the
shares or other deposited securities as you instruct and only as you instruct.
The depositary will not itself exercise any voting discretion.
Vivendi Universal has agreed to deliver voting materials to the depositary
sufficiently in advance of the meeting to enable the depositary to deliver
voting materials to you, such that you will have sufficient time to give the
depositary voting instructions. If you hold Vivendi Universal ADSs through a
broker, dealer or other intermediary, however, we cannot guarantee that your
intermediary will send you voting materials in time for you to exercise your
voting rights. The depositary will not charge Vivendi Universal ADS holders for
submitting voting instructions as ADS holders to the depositary in connection
with shareholders' meetings.
RECORD DATES
The depositary will fix the dates for determining which of the Vivendi
Universal ADS holders will be entitled:
- to receive a cash dividend or other distribution;
- to give instructions for the exercise of voting rights at a meeting of
holders of Vivendi Universal ordinary shares or other deposited
securities; and
- to give instructions for granting approvals for proposed amendments to
the deposit agreement,
all subject to the provisions of the deposit agreement.
REPORTS AND OTHER COMMUNICATIONS
The depositary will deliver to all holders of Vivendi Universal ADSs
English translations of all notices and any other communications and reports,
including proxy materials, delivered to the holders of the Vivendi Universal
ordinary shares or, in some cases, English equivalents of those documents. In
addition, Vivendi Universal will notify the depositary, and the depositary will
notify the Vivendi Universal ADS holders, of any meeting of Vivendi Universal's
shareholders or Vivendi Universal ADS holders, or of any adjourned meeting,
provided that the depositary receives notice of such meeting from Vivendi
Universal. The depositary will make available for inspection, at its corporate
trust office, English translations of all communications and reports that
Vivendi Universal makes available for inspection by holders of Vivendi Universal
ordinary shares or, in some cases, English equivalents of those documents.
Vivendi Universal has agreed to provide the depositary sufficient copies of all
documents required to be delivered or made available to permit the depositary to
satisfy these obligations.
The depositary will also make available for inspection at its corporate
trust office books, including the list of holders of receipts, for the
registration and transfer of receipts by the Vivendi Universal ADS holders,
provided that the inspection is not for the purpose of communicating with
Vivendi Universal ADS holders in the interest of a business or object other than
Vivendi Universal's business or is for a matter related to the deposit agreement
or the Vivendi Universal ADSs.
FEES AND EXPENSES
Vivendi Universal ADS holders may be charged a fee for each issuance of
Vivendi Universal ADSs, including issuances resulting from distributions of
shares, rights and other property, and for each surrender of Vivendi Universal
ADSs, including if the deposit agreement terminates. The fee in each case shall
not
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be in excess of U.S.$5.00 for each 100 Vivendi Universal ADSs (or any portion
thereof) issued or surrendered. Vivendi Universal ADS holders or persons
depositing shares may also be charged for the following expenses:
- stock transfer and other taxes and governmental charges;
- cable, telex and facsimile transmission and delivery charges;
- transfer or registration fees for the registration or transfer of
deposited securities on any applicable register in connection with the
deposit or withdrawal of deposited securities;
- expenses of the depositary in connection with the conversion of foreign
currency into U.S. dollars; and
- a fee not in excess of U.S.$0.02 per Vivendi Universal ADS (or portion
thereof) for any cash distribution, except for distributions of cash
dividends.
Vivendi Universal will pay all other charges and expenses of the
depositary, including all fees and expenses related to the issuance of ADSs in
the merger transactions, and any agent of the depositary (except the custodian)
pursuant to agreements entered into from time to time by Vivendi Universal and
the depositary. The fees described above may be amended from time to time.
PAYMENT OF TAXES
You will be required to pay any tax or other governmental charge payable by
the custodian or the depositary on any Vivendi Universal ADS or ADR, deposited
security or distribution. If you owe any tax or other governmental charge, the
depositary may deduct the amount of that tax or charge from any cash
distribution or sell deposited securities and deduct the amount owing from the
net proceeds of such sale. In either case, you will remain liable for any
shortfall. Additionally, if any tax or governmental charge is unpaid, the
depositary may refuse to effect any transfer of a Vivendi Universal ADS or
withdrawal of deposited securities (except under limited circumstances mandated
by securities regulations) until such payment is made. If the depositary sells
the deposited securities, it will, if appropriate, reduce the number of Vivendi
Universal ADRs to reflect the sale and pay to you any proceeds, or send to you
any property, remaining after it has paid the taxes. The depositary will use
reasonable efforts to assist eligible U.S. residents, and eligible Canadian
residents who request assistance, in recovering amounts to which they may be
entitled under some provisions of French law relating to the payment of
dividends, including excess withholding and amounts in respect of the avoir
fiscal. See "Tax Information -- Tax Information for Vivendi Shareholders."
RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS
If Vivendi Universal takes certain actions that affect the deposited
securities, including (1) any change in nominal value or par value, split-up,
consolidation or other reclassification of deposited securities or (2) any
recapitalization, reorganization, merger, consolidation, liquidation or sale of
Vivendi Universal's assets, then the shares or other securities received by the
depositary will become deposited securities. Any cash received by the depositary
will be distributed to the extent described above. Each Vivendi Universal ADR
will automatically represent its equal share of cash (until distributed) or the
new deposited securities, unless additional Vivendi Universal ADRs are
distributed pursuant to the following sentence. The depositary may execute and
deliver additional Vivendi Universal ADRs, as in the case of a distribution of
ordinary shares, or ask you to surrender your outstanding Vivendi Universal ADRs
in order to provide you with new Vivendi Universal ADRs specifically describing
the new deposited securities.
AMENDMENT AND TERMINATION
In general, Vivendi Universal may agree with the depositary to amend the
deposit agreement and the Vivendi Universal ADSs without your consent. However,
holders of a majority of the Vivendi Universal ADSs must approve in writing any
amendment that materially and adversely affects their rights or, with
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respect to specified provisions of the deposit agreement, any amendment that is
adverse to them. Notwithstanding the foregoing, ADR holders do not have the
right to approve (1) amendments that are necessary to comply with any applicable
laws or regulations, Vivendi Universal's statuts or the rules and regulations of
the stock exchange on which the ADSs are listed, (2) amendments to increase the
fees or charges that the depositary may charge to you, and (3) amendments to
change the number of Vivendi Universal ordinary shares that are represented by
each ADS. In situations where no approval is required, Vivendi Universal ADR
holders must be given at least 30 days notice of any amendment that imposes or
increases any fees or charges (except for taxes and other charges or
registration fees, cable, telex or facsimile transmission costs, delivery costs
or other such expenses), or affects any substantial existing right of Vivendi
Universal ADS holders. If a Vivendi Universal ADS holder continues to hold
Vivendi Universal ADSs after being so notified, such holder will be deemed to
have agreed to such amendment. Notwithstanding the foregoing, an amendment can
become effective before notice is given if necessary to ensure compliance with a
new law, rule or regulation.
No amendment will impair your right to surrender your Vivendi Universal
ADSs and receive the underlying securities, except in order to comply with an
applicable law.
The depositary will terminate the deposit agreement if Vivendi Universal
asks it to do so. Vivendi Universal can only do so if the deposited securities
are listed on the NYSE or the Nasdaq National Market prior to that termination.
The depositary may also terminate the deposit agreement if the depositary has
told Vivendi Universal that it would like to resign and Vivendi Universal has
not appointed a new depositary bank within 90 days. In that event, Vivendi
Universal will use its reasonable best efforts to either (i) enter into a
successor depositary agreement having terms no less favorable to the holders of
Vivendi Universal ADSs than the previous depositary agreement or (ii) cause the
Vivendi Universal ordinary shares or other deposited securities (which will be
distributed to ADS holders upon surrender of their ADSs) to be listed on the
NYSE or the Nasdaq National Market. The depositary will be required to notify
you at least 90 days before termination.
After termination, the depositary and its agents will be required only to
collect dividends and other distributions on the deposited securities and
deliver ordinary shares and other deposited securities upon cancellation of
Vivendi Universal ADSs. After one year from the date of termination, the
depositary may sell any remaining deposited securities by public or private
sale. After that, the depositary will hold the proceeds of the sale, as well as
any other cash it is holding under the deposit agreement, for the pro rata
benefit of the Vivendi Universal ADS holders that have not surrendered their
Vivendi Universal ADSs. It will not invest the money and will have no liability
for interest. The depositary's only obligations will be to account for the
proceeds of the sale and other cash. After termination Vivendi Universal's only
obligations under the deposit agreement will be with respect to indemnification
and to pay certain amounts to the depositary.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO VIVENDI UNIVERSAL ADR HOLDERS
The deposit agreement expressly limits the obligations and liability of the
depositary and its agents. Neither the depositary nor any of its agents will be
liable if it:
- is prevented from or hindered in performing any obligation by
circumstances beyond its control, including, without limitation,
requirements of law, rule, regulation, the terms of the deposited
securities and acts of God;
- exercises or fails to exercise discretion under the deposit agreement;
- performs its obligations without negligence or bad faith;
- takes any action or fails to take any action based on advice or
information provided by legal counsel, accountants, any person presenting
Vivendi Universal ordinary shares for deposit, any holder or any other
qualified person; or
- relies on any documents it believes in good faith to be genuine and to
have been properly executed.
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The deposit agreement limits Vivendi Universal's liability and obligations,
and those of Vivendi Universal's agents, in the same way.
Neither the depositary nor Vivendi Universal, nor their respective agents,
will be obligated to appear in, prosecute or defend any action, suit or other
proceeding in respect of any deposited securities or the ADSs that in the
opinion of Vivendi Universal or the depositary, respectively, may lead it to
incur expense or liability, unless indemnity satisfactory to it against all
expenses (including fees and disbursements of counsel) and liability is
furnished as often as it requires.
The depositary will not be responsible for a failure to carry out
instructions to vote the deposited securities (provided it performs its
obligations in good faith), the matter on which any vote is cast or the effect
of the vote.
The depositary may own and deal in any class of Vivendi Universal
securities.
DISCLOSURE OF INTEREST IN VIVENDI UNIVERSAL ADSs
Vivendi Universal may from time to time request Vivendi Universal ADS
holders to provide information as to the capacity in which the holders own or
owned Vivendi Universal ADSs and regarding the identity of any other persons
then or previously interested in the Vivendi Universal ADSs as to the nature of
such interest and various other matters. The depositary will use reasonable
efforts to comply with written instructions received from Vivendi Universal
requesting that the depositary forward any such requests to the Vivendi
Universal ADS holders and to forward to Vivendi Universal any responses to such
requests received by the depositary.
Each Vivendi Universal ADS holder will be required to comply with Vivendi
Universal's statuts, as they may be amended from time to time, and French law,
if applicable, with respect to the disclosure requirements regarding ownership
of Vivendi Universal's shares, all as if such ADSs were, for this purpose, the
Vivendi Universal ordinary shares represented thereby. For a description of
provisions of French law and Vivendi Universal's statuts that impose disclosure
obligations, see "-- Description of Vivendi Universal Ordinary
Shares -- Anti-Takeover Effects," and "Comparison of Shareholders'
Rights -- Take-Over Bids and Compulsory Acquisition of Shares; Anti-Takeover
Provisions." In order to facilitate compliance with those requirements, Vivendi
Universal ADS holders will be required to deliver any required information to
the depositary and Vivendi Universal. Vivendi Universal will, as soon as
practicable, forward the information, if applicable, to the CMF or other French
authorities.
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before the depositary will issue or register transfer of an ADR, make a
distribution on an ADR, or make a withdrawal of shares, the depositary may
require:
- payment of stock transfer or other taxes or other governmental charges
and transfer or registration fees charged by third parties for the
transfer of any shares or other deposited securities;
- production of satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
- compliance with regulations it may establish, from time to time,
consistent with the deposit agreement, including presentation of transfer
documents.
The depositary may refuse to deliver, transfer, or register transfers of
Vivendi Universal ADRs generally when the books of the depositary or Vivendi
Universal are closed, or at any time if the depositary deems it advisable to do
so.
You will have the right to cancel your Vivendi Universal ADSs and withdraw
the underlying Vivendi Universal ordinary shares at any time except in
circumstances in which the depositary may restrict the withdrawal of deposited
securities. See "-- Deposit, Withdrawal and Cancellation."
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PRE-RELEASE OF ADRS
In certain circumstances, subject to the provisions of the deposit
agreement, the depositary may issue Vivendi Universal ADRs before deposit of the
underlying Vivendi Universal ordinary shares. This is called a pre-release of
the Vivendi Universal ADRs. The depositary may also deliver Vivendi Universal
ordinary shares upon cancellation of pre-released Vivendi Universal ADRs (even
if the Vivendi Universal ADRs are cancelled before the pre-release transaction
has been closed out). A pre-release is closed out as soon as the underlying
Vivendi Universal ordinary shares are delivered to the depositary. The
depositary may receive Vivendi Universal ADRs instead of Vivendi Universal
ordinary shares to close out a pre-release. The depositary may pre-release
Vivendi Universal ADRs only under the following conditions:
- before or at the time of the pre-release, the party to whom the
pre-release is being made must:
- represent to the depositary in writing that it or its customer owns
the shares or Vivendi Universal ADRs to be deposited;
- assign all beneficial ownership of the shares or Vivendi Universal
ADRs to the depositary; and
- agree to not take any action with respect to the shares or Vivendi
Universal ADRs that is inconsistent with the transfer of beneficial
ownership;
- the pre-release must be fully collateralized with cash or other
collateral that the depositary considers appropriate; and
- the depositary must be able to close out the pre-release on not more than
five business days' notice.
In addition, the depositary will limit the number of Vivendi Universal ADRs
that may be outstanding at any time as a result of pre-release, although the
depositary may disregard the limit from time to time, if it deems it appropriate
to do so.
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DESCRIPTION OF EXCHANGEABLE SHARES
GENERAL
The exchangeable shares will be issued by Vivendi Universal Exchangeco. The
exchangeable shares will be substantially the economic equivalent of the Vivendi
Universal ADSs that a Seagram shareholder would have received if the holder had
elected to receive Vivendi Universal ADSs. Holders of exchangeable shares will
also receive Vivendi Universal voting rights, each of which entitles the holder
to one vote on the same basis and in the same circumstances as one Vivendi
Universal ordinary share. For a description of the Vivendi Universal voting
rights, see "-- Description of Vivendi Universal Voting Rights."
The exchangeable shares will be exchangeable at any time before the
redemption date, as described below, at the option of the holder on a
one-for-one basis, except as described below, for Vivendi Universal ADSs. As
part of the arrangement, Vivendi Universal, Vivendi Universal Exchangeco and a
trustee will enter into the exchange trust agreement under which, among other
things, the trustee will be granted certain rights and will agree to certain
obligations, including those described below, for the benefit of the holders of
exchangeable shares. In addition, as part of the arrangement, Vivendi Universal,
Vivendi Universal Holdings and Vivendi Universal Exchangeco will enter into the
support agreement, under which, among other things, Vivendi Universal will agree
to certain obligations, including those described below, to support the
obligations of Vivendi Universal Exchangeco and Vivendi Universal Holdings with
respect to the exchangeable shares. The tax consequences of receiving or holding
exchangeable shares may differ significantly from the tax consequences of
receiving or holding Vivendi Universal ADSs depending upon your particular
circumstances. If you are a Canadian resident for purposes of the Canadian Tax
Act or a partnership any member of which is such a Canadian resident, you should
consider carefully the tax consequences to you in determining whether to elect
to receive Vivendi Universal ADSs or exchangeable shares in the arrangement. See
"Tax Information -- Tax Considerations for Seagram Shareholders -- Canadian
Federal Income Tax Considerations."
A maximum of 97 million exchangeable shares and Vivendi Universal voting
rights are issuable in the arrangement. If Canadian resident Seagram
shareholders elect to receive more than 97 million exchangeable shares and
Vivendi Universal voting rights in the arrangement, then 97 million exchangeable
shares and Vivendi Universal voting rights will be issued to electing Canadian
resident Seagram shareholders pro rata; and
- the number of Vivendi Universal ADSs receivable by a holder of
exchangeable shares upon:
-- a redemption of exchangeable shares by Vivendi Universal Exchangeco;
-- the exercise by a holder of its right to require Vivendi Universal
Exchangeco to redeem those exchangeable shares;
-- the liquidation, dissolution or winding-up of Vivendi Universal
Exchangeco or Vivendi Universal; or
-- the exercise by Vivendi Universal Holdings of its overriding call
rights; and
- the dividend and distribution rights of holders of exchangeable shares;
will be increased as described under "The Merger Transactions -- Structure and
Background -- Merger Transaction Steps -- Limitation on Number of Exchangeable
Shares and Vivendi Universal Voting Rights." In addition, if Vivendi Universal
issues preferential subscription rights to holders of Vivendi Universal ADSs
after the completion of the arrangement entitling them to subscribe for
additional Vivendi Universal ADSs at less than the market price and an
economically equivalent distribution is not made on the exchangeable shares,
then the number of Vivendi Universal ADSs receivable by a holder of exchangeable
shares upon the events described above will be increased according to a formula
and the dividend and distribution rights of holders of exchangeable shares will
be adjusted, in each case in a manner designed to protect holders of
exchangeable shares from dilution.
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The rest of this description of the terms of the exchangeable shares
assumes that each exchangeable share is exchangeable for one Vivendi Universal
ADS. In the event that the ratio is adjusted to equal more than one, the
entitlements of the holders of exchangeable shares will also be appropriately
increased.
Vivendi Universal Exchangeco may issue an unlimited number of exchangeable
shares. The exchangeable shares that will be authorized may be issued, without
the approval of the holders of exchangeable shares, at the time or times, to the
persons and for the consideration that Vivendi Universal Exchangeco may
determine. The foregoing is subject to applicable laws, regulations and stock
exchange requirements and to all required dividends on the outstanding
exchangeable shares having been declared and paid.
RANKING
The exchangeable shares will be entitled to a preference over the common
shares of Vivendi Universal Exchangeco and any other shares ranking junior to
the exchangeable shares with respect to the payment of dividends and the
distribution of assets in the event of a liquidation, dissolution or winding-up
of Vivendi Universal Exchangeco, whether voluntary or involuntary, or any other
distribution of the assets of Vivendi Universal Exchangeco among its
shareholders for the purpose of winding-up its affairs.
VOTING, DIVIDEND AND LIQUIDATION RIGHTS
VOTING RIGHTS
The holders of exchangeable shares will not be entitled to receive notice
of, attend or vote at any meetings of shareholders of Vivendi Universal
Exchangeco, except as required by applicable law and except with respect to
amendments and modifications of the provisions of the exchangeable shares as
described below under "-- Amendment and Approval." The holders of exchangeable
shares will be entitled to exercise voting rights with respect to Vivendi
Universal through the Vivendi Universal voting rights.
The support agreement will provide that Vivendi Universal will not, and
will cause its affiliates to not, exercise any voting rights with respect to any
exchangeable shares held by it or its affiliates. However, the support agreement
will also provide that Vivendi Universal will, and will cause its affiliates to,
appoint proxyholders with respect to their exchangeable shares for the sole
purpose of attending meetings of the holders of exchangeable shares in order to
be counted as part of the quorum for those meetings.
DIVIDEND RIGHTS
Upon the declaration of any dividend or distribution on Vivendi Universal
ADSs, the board of directors of Vivendi Universal Exchangeco will declare, and
the holders of exchangeable shares will be entitled to receive, subject to
applicable law, a dividend or distribution on each exchangeable share:
- in the case of a cash dividend or distribution declared on Vivendi
Universal ADSs, in an amount in cash equal to, and in the currency of,
the cash dividend or distribution paid on each Vivendi Universal ADS or
in an equivalent amount in Canadian dollars;
- in the case of a stock dividend or distribution declared on Vivendi
Universal ADSs to be paid in Vivendi Universal ADSs, if the one-to-one
ratio of exchangeable shares to Vivendi Universal voting rights can be
maintained by reason of the custodian receiving sufficient additional
Vivendi Universal voting rights, by the issue or transfer of that number
of exchangeable shares that is equal to the number of Vivendi Universal
ADSs to be paid on each outstanding Vivendi Universal ADS, and if the
one-to-one ratio of exchangeable shares to Vivendi Universal voting
rights cannot be maintained, then by the issue or transfer of the cash,
securities or additional consideration necessary to effect an
economically equivalent dividend or distribution; or
- in the case of a dividend or other distribution declared on Vivendi
Universal ADSs to be paid in property other than cash or Vivendi
Universal ADSs, in the type and amount of property as is
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economically equivalent to the type and amount of property to be paid on
each Vivendi Universal ADS.
These dividends and distributions are the only dividends or distributions
to which the holders of exchangeable shares will be entitled. The declaration
date, record date and payment date for these dividends and distributions will be
the same as the relevant date for the corresponding dividends or distributions
on the Vivendi Universal ADSs.
In the case of a stock dividend or distribution declared on Vivendi
Universal ADSs to be paid in Vivendi Universal ADSs, in lieu of declaring a
corresponding stock dividend on the exchangeable shares, the board of directors
of Vivendi Universal Exchangeco may elect to effect a contemporaneous and
economically equivalent subdivision of the outstanding exchangeable shares.
The board of directors of Vivendi Universal Exchangeco will determine, in
good faith and in its sole discretion, "economic equivalence" for these
purposes, and its determination, based upon the factors specified in the terms
of the exchangeable shares, will be binding on the holders of exchangeable
shares and on Vivendi Universal Exchangeco.
LIQUIDATION RIGHTS WITH RESPECT TO VIVENDI UNIVERSAL EXCHANGECO
In the event of the liquidation, dissolution or winding-up of Vivendi
Universal Exchangeco or any other distribution of the assets of Vivendi
Universal Exchangeco among its shareholders for the purpose of winding up its
affairs:
- each exchangeable share will entitle its holder, subject to applicable
law and to Vivendi Universal Holdings' overriding call right, to receive
from the assets of Vivendi Universal Exchangeco on a preferential basis
to the common shares and to shares ranking junior to the exchangeable
shares one Vivendi Universal ADS and an amount in cash equal to the
declared and unpaid dividends on one exchangeable share; and
- Vivendi Universal Holdings will have an overriding right to purchase all
of the outstanding exchangeable shares (other than those held by Vivendi
Universal or its affiliates) for consideration per exchangeable share
consisting of one Vivendi Universal ADS and an amount in cash equal to
the declared and unpaid dividends on one exchangeable share.
In the event Vivendi Universal Exchangeco institutes, consents to or fails
to contest in good faith within 30 days any bankruptcy, insolvency or winding up
proceedings, admits in writing its inability to pay its debts generally as they
become due, takes other specified actions indicating insolvency or fails for
solvency reasons to redeem exchangeable shares upon being required to redeem
such shares by the holder, then each holder of exchangeable shares (other than
Vivendi Universal and its affiliates) will be entitled to instruct the trustee
under the exchange trust agreement to require Vivendi Universal to purchase from
the holder any or all of the exchangeable shares held by the holder for
consideration per exchangeable share consisting of one Vivendi Universal ADS and
an amount in cash equal to the declared and unpaid dividends on one exchangeable
share. As soon as practicable after the occurrence of one of the insolvency
events described in the preceding sentence, Vivendi Universal Exchangeco and
Vivendi Universal will give written notice to the trustee, and as soon as
practicable after receiving that notice, the trustee will notify each holder of
exchangeable shares, advising each holder of its rights described in this
paragraph.
LIQUIDATION RIGHTS WITH RESPECT TO VIVENDI UNIVERSAL
Upon the occurrence of specified events relating to the voluntary or
involuntary liquidation, dissolution, winding-up or other distribution of the
assets of Vivendi Universal among its shareholders for the purpose of winding up
its affairs, Vivendi Universal will be required, without any action by any
party, to exchange on the fifth business day before the effective date of the
event all the outstanding exchangeable shares for consideration per exchangeable
share consisting of one Vivendi Universal ADS and an amount in cash equal to the
declared and unpaid dividends on one exchangeable share.
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OPTIONAL REDEMPTION BY HOLDERS
The holders of exchangeable shares will be entitled at any time to require
Vivendi Universal Exchangeco to redeem, subject to Vivendi Universal Holdings'
overriding call right, any or all of their exchangeable shares for consideration
per exchangeable share consisting of one Vivendi Universal ADS and an amount in
cash equal to the declared and unpaid dividends on one exchangeable share. In
order to exercise this right, a holder of exchangeable shares must deliver to
Vivendi Universal Exchangeco at its registered office or at any office of
Vivendi Universal's registrar and transfer agent specified in a notice to the
holder, among other things, the required written request and the certificates
representing the exchangeable shares. The holder must state in the request the
business day on which the holder desires Vivendi Universal Exchangeco to redeem
the exchangeable shares, provided that this date may not be less than 10
business days nor more than 15 business days after the date on which the written
request is received by Vivendi Universal Exchangeco. If no business day is
specified by the holder in the request, the date of redemption will be the 15th
business day after the date on which the written request is received by Vivendi
Universal Exchangeco. If the date of redemption is not a Tuesday or Friday,
whether or not specified by the holder, it will be the nearest following Tuesday
or Friday, provided such day is a business day.
In the event that a holder of exchangeable shares exercises this right to
require that Vivendi Universal Exchangeco redeem any of its exchangeable shares,
Vivendi Universal Holdings will have an overriding right to purchase all but not
less than all of those exchangeable shares for consideration per exchangeable
share consisting of one Vivendi Universal ADS and an amount in cash equal to the
declared and unpaid dividends on one exchangeable share.
Vivendi Universal Exchangeco will immediately notify Vivendi Universal
Holdings of any redemption request and will provide Vivendi Universal Holdings a
copy of the written request. Vivendi Universal Exchangeco will notify the holder
if Vivendi Universal Holdings will not be exercising its overriding call right.
If Vivendi Universal Holdings notifies Vivendi Universal Exchangeco that it
wishes to exercise its overriding call right, which notice must be given within
five business days of receipt by Vivendi Universal Holdings of a copy of the
redemption request, and the holder does not revoke its request, as described
below, Vivendi Universal Holdings will purchase the exchangeable shares on the
date specified for redemption for the same consideration per exchangeable share
as on a redemption as described above.
A holder of exchangeable shares may revoke its redemption request, by
notice in writing to Vivendi Universal Exchangeco, at any time prior to the
close of business on the business day preceding the contemplated date of
redemption, in which case the applicable exchangeable shares will not be
purchased by Vivendi Universal Holdings or redeemed by Vivendi Universal
Exchangeco.
If Vivendi Universal Exchangeco is not permitted by solvency requirements
or other provisions of applicable law to redeem all the exchangeable shares that
a holder demands be redeemed, Vivendi Universal Exchangeco will redeem only that
number of exchangeable shares of the holder as would not be contrary to those
provisions of applicable law. In that event, the holder of exchangeable shares
will be deemed to have instructed the trustee under the exchange trust agreement
to require Vivendi Universal to purchase the exchangeable shares not redeemed by
Vivendi Universal Exchangeco for the same consideration per exchangeable share
as described above under "-- Liquidation Rights with Respect to Vivendi
Universal Exchangeco."
MANDATORY REDEMPTION BY VIVENDI UNIVERSAL EXCHANGECO
On the redemption date, as described below, subject to Vivendi Universal
Holdings' overriding call right, Vivendi Universal Exchangeco will redeem all
the outstanding exchangeable shares for consideration per exchangeable share
consisting of one Vivendi Universal ADS and an amount in cash equal to the
declared and unpaid dividends on one exchangeable share.
The "redemption date" is the date established by the board of directors of
Vivendi Universal Exchangeco for the redemption by Vivendi Universal Exchangeco
of all the outstanding exchangeable
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shares, which will not be earlier than the thirtieth anniversary of the date
that is fourteen days before the effective date of the arrangement unless:
- the number of outstanding exchangeable shares (other than those held by
Vivendi Universal and its affiliates) is less than a number equal to 5%
of the number of exchangeable shares issued in connection with the
arrangement (as that number may be adjusted by the board of directors of
Vivendi Universal Exchangeco to give effect to any subdivision or
consolidation of or stock dividend on the exchangeable shares or other
specified events) in which case the board of directors of Vivendi
Universal Exchangeco may accelerate the redemption date to an earlier
date upon at least 60 days' prior written notice to the holders of the
exchangeable shares and the trustee under the exchange trust agreement;
- each of the following occurs: (1) a matter arises on which the holders of
exchangeable shares are entitled to vote as shareholders of Vivendi
Universal Exchangeco (other than a matter described in the next bullet
point); (2) the board of directors of Vivendi Universal Exchangeco has
received an opinion from an internationally recognized investment bank
confirming that the economic equivalence of the exchangeable shares and
the Vivendi Universal ADSs is maintained after giving effect to the
matter; (3) the board of directors of Vivendi Universal Exchangeco has
determined, in good faith and in its sole discretion, that it is not
reasonably practicable to accomplish the business purpose intended by the
matter (which business purpose must be bona fide and not for the primary
purpose of causing the occurrence of the redemption date) in any other
commercially reasonable manner that does not result in the holders of
exchangeable shares being entitled to vote as shareholders of Vivendi
Universal Exchangeco; and (4) the holders of exchangeable shares fail to
take the necessary action at a meeting or other vote of the holders of
exchangeable shares to approve or disapprove, as applicable, the matter,
in which case the redemption date will be the business day following the
date on which the holders of exchangeable shares failed to take the
necessary action; or
- each of the following occurs: (1) a matter arises on which the holders of
exchangeable shares are entitled to vote as shareholders of Vivendi
Universal Exchangeco in order to approve any change to, or in the rights
of the holders of, the exchangeable shares; (2) the change is necessary
to maintain the economic equivalence of the exchangeable shares and the
Vivendi Universal ADSs; (3) the board of directors of Vivendi Universal
Exchangeco has received an opinion from an internationally recognized
investment bank confirming that the economic equivalence of the
exchangeable shares and the Vivendi Universal ADSs is maintained after
giving effect to the change; and (4) the holders of exchangeable shares
fail to take the necessary action at a meeting or other vote of the
holders of exchangeable shares to approve or disapprove, as applicable,
the change, in which case the redemption date will be the business day
following the date on which the holders of exchangeable shares failed to
take the necessary action.
Vivendi Universal Holdings will have an overriding right to purchase on the
redemption date all the outstanding exchangeable shares (other than those held
by Vivendi Universal and its affiliates) for consideration per exchangeable
share consisting of one Vivendi Universal ADS and an amount in cash equal to the
declared and unpaid dividends on one exchangeable share.
Vivendi Universal Exchangeco must notify the holders of exchangeable shares
in writing at least 30 days before redeeming the exchangeable shares (or before
purchase by Vivendi Universal Holdings pursuant to its overriding call right) on
the thirtieth anniversary of the date that is fourteen days before the effective
date of arrangement or as described in the first bullet point above. In the case
of a redemption described in the second or third bullet points above, Vivendi
Universal Exchangeco must give written notice as many days before the redemption
date (or the date of purchase by Vivendi Universal Holdings) as its board of
directors determines to be reasonably practicable in the circumstances. However,
the accidental failure to give notice of a redemption described under the first,
second or third bullet points above will not invalidate the redemption.
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The exchangeable shares held by a holder will also be automatically
redeemed if that holder commences a formal proceeding before a court or
regulatory body claiming any economic entitlement as a result of the holder's
interest in the Vivendi Universal voting rights accompanying the holder's
exchangeable shares. In such an event, the redemption date for that holder will
be the date on which the holder commences the proceeding.
FRACTIONAL VIVENDI UNIVERSAL ADSS
In the event of any exchange or transfer of exchangeable shares for Vivendi
Universal ADSs, including upon the redemption date, an optional redemption at
the request of a holder, the insolvency, dissolution or winding-up of Vivendi
Universal Exchangeco or Vivendi Universal or the exercise by Vivendi Universal
Holdings of any of its overriding call rights, a holder of exchangeable shares
who would otherwise be entitled to receive a fractional Vivendi Universal ADS
upon the exchange or transfer will only be entitled to receive a cash payment
equal to such fractional interest multiplied by the market price of Vivendi
Universal ADSs.
PURCHASE FOR CANCELLATION
Subject to applicable law, Vivendi Universal Exchangeco may at any time and
from time to time purchase for cancellation all or any part of the outstanding
exchangeable shares (1) by the issuance of its common shares or any shares
ranking junior to the exchangeable shares or otherwise as Vivendi Universal
Exchangeco may determine or (2) at any price by tender to all the holders of
outstanding exchangeable shares or through any stock exchange on which the
exchangeable shares are listed or quoted.
VIVENDI UNIVERSAL SUPPORT OBLIGATION
The support agreement will provide that, so long as any exchangeable shares
(other than those held by Vivendi Universal or its affiliates) are outstanding:
- Vivendi Universal will not take any action that will result in the
declaration or payment of any dividends or other distributions on the
Vivendi Universal ADSs, unless:
-- Vivendi Universal Exchangeco simultaneously declares or pays, as the
case may be, an economically equivalent dividend or distribution on
the exchangeable shares or, if the dividend or distribution is a
stock dividend or distribution of stock, Vivendi Universal Exchangeco
effects a contemporaneous and economically equivalent subdivision of
the outstanding exchangeable shares; and
-- Vivendi Universal Exchangeco has sufficient cash or other assets or
authorized but unissued securities available to enable the due
declaration and the due and punctual payment of the dividend or
distribution on, or subdivision of, the exchangeable shares;
- Vivendi Universal will advise Vivendi Universal Exchangeco sufficiently
in advance of the declaration by Vivendi Universal of any dividend or
other distribution on Vivendi Universal ADSs and take all other actions
as are reasonably necessary, in cooperation with Vivendi Universal
Exchangeco, to ensure that the respective declaration date, record date
and payment date for a dividend or other distribution on the exchangeable
shares will be the same as the declaration date, record date and payment
date for the corresponding dividend or other distribution on the Vivendi
Universal ADSs;
- Vivendi Universal will ensure that the record date for any dividend or
other distribution declared on Vivendi Universal ADSs is not less than
ten business days after the declaration date of the dividend or other
distribution;
- Vivendi Universal will take all actions and do all things as are
reasonably necessary or desirable to enable and permit Vivendi Universal
Exchangeco, in accordance with applicable law, to perform its obligations
arising upon the liquidation, dissolution or winding-up or any other
distribution of the
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assets of Vivendi Universal Exchangeco among its shareholders for the
purpose of winding up its affairs, in the event of a redemption demand by
a holder of exchangeable shares or on the redemption date, as the case
may be, including all actions and all things as are necessary or
desirable to enable and permit Vivendi Universal Exchangeco to deliver
Vivendi Universal ADSs to the holders of exchangeable shares and cash in
respect of declared and unpaid dividends;
- Vivendi Universal will take all actions and do all things as are
reasonably necessary or desirable to enable and permit Vivendi Universal
Holdings, in accordance with applicable law, to perform its obligations
arising upon the exercise of its overriding rights to purchase
outstanding exchangeable shares upon the liquidation, dissolution or
winding-up or any other distribution of the assets of Vivendi Universal
Exchangeco among its shareholders for the purpose of winding up its
affairs, in the event of a redemption demand by a holder of exchangeable
shares or on the redemption date, as the case may be, including all
actions and all things as are necessary or desirable to enable and permit
Vivendi Universal Holdings to deliver Vivendi Universal ADSs to the
holders of exchangeable shares and cash in an amount equal to declared
and unpaid dividends; and
- Vivendi Universal will not, and will ensure that Vivendi Universal
Holdings and its affiliates do not:
-- exercise any vote as a shareholder to initiate the voluntary
liquidation, dissolution or winding-up of Vivendi Universal
Exchangeco or any other distribution of the assets of Vivendi
Universal Exchangeco among its shareholders for the purpose of
winding up its affairs; or
-- take any action or omit to take any action that is designed to result
in the liquidation, dissolution or winding-up of Vivendi Universal
Exchangeco or any other distribution of the assets of Vivendi
Universal Exchangeco among its shareholders for the purpose of
winding-up its affairs.
The support agreement will provide that Vivendi Universal will take all
necessary or desirable actions to ensure that the Vivendi Universal ADSs
delivered in exchange for exchangeable shares will be freely tradeable,
including, if necessary, registering the Vivendi Universal ADSs under applicable
securities laws and maintaining the listing or quotation of the Vivendi
Universal ADSs for trading on all stock exchanges and quotation systems where
the outstanding Vivendi Universal ADSs are then listed or quoted.
The support agreement will also provide that, so long as any exchangeable
shares (other than those held by Vivendi Universal or its affiliates) are
outstanding, Vivendi Universal will not, without the prior approval of Vivendi
Universal Exchangeco and the holders of the exchangeable shares:
- issue or distribute to all or substantially all the holders of Vivendi
Universal ADSs:
-- Vivendi Universal ADSs (or securities exchangeable for or convertible
into or carrying rights to acquire Vivendi Universal ADSs) by way of
stock dividend or other distribution (other than to holders of
Vivendi Universal ADSs who exercise an option to receive those
securities in lieu of receiving a cash dividend);
-- rights, options or warrants to subscribe for or purchase any
securities;
-- other securities of Vivendi Universal of any class; or
-- evidences of indebtedness or other assets of Vivendi Universal;
- subdivide, redivide, reduce, consolidate, combine or otherwise change the
outstanding Vivendi Universal ADSs into a different number of Vivendi
Universal ADSs; or
- reclassify or otherwise change the Vivendi Universal ADSs or effect an
amalgamation, merger, reorganization or other transaction affecting
Vivendi Universal ADSs,
unless an economically equivalent distribution on or change to, or in the rights
of the holders of, the exchangeable shares is made simultaneously. If Vivendi
Universal issues preferential subscription rights to holders of Vivendi
Universal ADSs entitling them to subscribe for additional Vivendi Universal ADSs
at less than the market price, then the number of Vivendi Universal ADSs
receivable for each exchangeable
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share will be increased unless an economically equivalent distribution on or
change to, or in the rights of the holders of, the exchangeable shares is made
simultaneously. Vivendi Universal will ensure that the record date for any of
the foregoing events (or the effective date if there is no record date) is not
less than five business days after the date that Vivendi Universal announces the
event. The board of directors of Vivendi Universal Exchangeco will determine, in
good faith and in its sole discretion, "economic equivalence" for these
purposes, and its determination, based upon the factors specified in the support
agreement, will be binding on the holders of exchangeable shares and on Vivendi
Universal.
Under the support agreement, so long as any exchangeable shares (other than
those held by Vivendi Universal or its affiliates) are outstanding, Vivendi
Universal and its board of directors will be prohibited from proposing or
recommending or otherwise effecting with the consent or approval of its board of
directors:
- any tender or share exchange offer, take-over bid or similar transaction
with respect to Vivendi Universal ADSs or Vivendi Universal ordinary
shares, unless the holders of exchangeable shares participate in the
transaction to the same extent and on an economically equivalent basis as
the holders of Vivendi Universal ADSs (without being required first to
request redemption of their exchangeable shares); or
- any issuer bid or similar transaction for outstanding Vivendi Universal
ADSs or Vivendi Universal ordinary shares, unless a substantially
contemporaneous bid is made by Vivendi Universal Holdings for an
equivalent percentage of the outstanding exchangeable shares on the same
or economically equivalent terms (without the holders of exchangeable
shares being required first to request redemption of their exchangeable
shares).
In addition, subject to limited exceptions, Vivendi Universal will not
consummate any transaction (whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or otherwise) whereby all or
substantially all of its undertaking, property and assets or the Vivendi
Universal ordinary shares would become the property of any other person or, in
the case of a merger, of the continuing corporation unless the rights of the
holders of exchangeable shares are maintained.
The support agreement will provide that it may not be amended without the
approval of the holders of exchangeable shares given in the manner described
below under "-- Amendment and Approval," except for certain amendments that are
determined by the boards of directors of Vivendi Universal, Vivendi Universal
Holdings and Vivendi Universal Exchangeco in good faith not to be prejudicial to
the rights of the holders of exchangeable shares.
Under the terms of the exchangeable shares, Vivendi Universal Exchangeco
must take all actions to ensure compliance by Vivendi Universal, Vivendi
Universal Holdings and Vivendi Universal Exchangeco with the provisions of the
support agreement.
Vivendi Universal has agreed to use its reasonable best efforts to maintain
a listing for the exchangeable shares on a prescribed Canadian stock exchange
and to ensure that Vivendi Universal Exchangeco is a public corporation, in each
case for purposes of the Canadian Tax Act, and to ensure that Vivendi Universal
Exchangeco maintains a "substantial Canadian presence" within the meaning of the
Canadian Tax Act in effect on the date of the support agreement.
CERTAIN RESTRICTIONS
So long as any exchangeable shares are outstanding, Vivendi Universal
Exchangeco will be prohibited, without the approval of the holders of the
exchangeable shares described below under "-- Amendment and Approval," from:
- paying any dividends on its common shares or any of its other shares that
rank junior to the exchangeable shares, other than stock dividends
payable in common shares or other shares ranking junior to the
exchangeable shares;
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- redeeming, purchasing or making any capital distribution in respect of
its common shares or any of its other shares that rank junior to the
exchangeable shares;
- redeeming or purchasing any of its shares that rank equal to the
exchangeable shares with respect to the payment of dividends or the
distribution of assets in the event of the liquidation, dissolution or
winding-up of Vivendi Universal Exchangeco, whether voluntary or
involuntary, or any other distribution of the assets of Vivendi Universal
Exchangeco among its shareholders for the purpose of winding-up its
affairs; or
- issuing any exchangeable shares or any of its other shares that rank
equal or superior to the exchangeable shares, other than by way of stock
dividends to the holders of exchangeable shares, subject to limited
exceptions.
These restrictions will not apply at any time that all dividends on the
outstanding exchangeable shares corresponding to dividends declared and paid on
Vivendi Universal ADSs have been declared and paid.
AMENDMENT AND APPROVAL
The rights, privileges, restrictions and conditions attaching to the
exchangeable shares may be added to, changed or removed only with the approval
of the holders of the exchangeable shares. Any approval to be given by the
holders of the exchangeable shares must be evidenced by a resolution passed by
not less than two-thirds of the votes cast on the resolution at a meeting of the
holders of exchangeable shares at which holders of at least 20% of the
outstanding exchangeable shares are present or represented, except that this
quorum requirement will not apply if the meeting is adjourned for lack of a
quorum and subsequently reconvened.
The exchange trust agreement will provide that it may not be amended
without the approval of the holders of exchangeable shares given in the manner
described above, except for certain amendments to add covenants to the
agreement, so long as the boards of directors of Vivendi Universal and Vivendi
Universal Exchangeco are of the good faith opinion that the additions will not
be prejudicial to the rights of the holders of exchangeable shares, and certain
other amendments that, in the opinion of the trustee and the boards of directors
of Vivendi Universal and Vivendi Universal Exchangeco, acting on the advice of
counsel, will not be prejudicial to the interests of the holders of exchangeable
shares.
WITHHOLDING
Vivendi Universal, Vivendi Universal Exchangeco, Vivendi Universal
Holdings, the trustee under the exchange trust agreement and the transfer agent
for the exchangeable shares will be entitled to deduct and withhold from any
dividend or consideration payable to any holder of exchangeable shares
(including upon an exchange or transfer of exchangeable shares for Vivendi
Universal ADSs, including upon the redemption date, an optional redemption at
the request of a holder, the insolvency, dissolution or winding-up of Vivendi
Universal Exchangeco or Vivendi Universal or the exercise by Vivendi Universal
Holdings of any of its overriding call rights) any amount it determines, acting
reasonably, is required or permitted pursuant to applicable tax laws. If the
amount required or permitted to be deducted or withheld exceeds the cash portion
of the consideration that is otherwise payable to the holder of exchangeable
shares, Vivendi Universal, Vivendi Universal Exchangeco, Vivendi Universal
Holdings, the trustee under the exchange trust agreement and the transfer agent
are authorized to sell the portion of the consideration necessary to provide the
cash to comply with the deduction or withholding requirement.
DISCLOSURE OF INTEREST IN EXCHANGEABLE SHARES
Vivendi Universal Exchangeco and the trustee under the exchange trust
agreement will be entitled to require any holder of exchangeable shares or any
person whom Vivendi Universal Exchangeco or the trustee knows or has reasonable
cause to believe holds any interest in an exchangeable share to confirm that
fact or to give such details as to whom has an interest in the exchangeable
shares as would be required if the exchangeable shares were a class of "equity
shares" of Seagram under Section 101 of the
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Securities Act (Ontario) or as would be required under Section 13(d) of the
Exchange Act or similar French laws if the exchangeable shares were Vivendi
Universal ADSs or Vivendi Universal ordinary shares.
TRANSFER AGENT
The transfer agent and registrar for the exchangeable shares will be CIBC
Mellon Trust Company.
LISTING
The Toronto Stock Exchange has been notified of the proposed arrangement
and has conditionally approved the listing of the exchangeable shares, subject
to the satisfaction of customary requirements.
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DESCRIPTION OF VIVENDI UNIVERSAL VOTING RIGHTS
GENERAL
If you are a Canadian resident Seagram shareholder who elects to receive
exchangeable shares in the arrangement, you will also receive a Vivendi
Universal voting right for each exchangeable share you receive. Under French
law, each Vivendi Universal voting right you hold will be an action en nue
propriete (or the bare legal title of an ordinary share), which, as described
below, will give you the right to vote on the same basis and in the same
circumstances as would one Vivendi Universal ordinary share. The Vivendi
Universal voting rights will trade with the related exchangeable shares.
CREATION AND SURRENDER OF THE VIVENDI UNIVERSAL VOTING RIGHTS
The Vivendi Universal voting rights will be formed by splitting a number of
Vivendi Universal ordinary shares held in Vivendi Universal's treasury equal to
the number of the exchangeable shares into (1) the Vivendi Universal voting
rights (actions en nue propriete), which will be transferred to CIBC Mellon
Trust Company, as custodian, to be held on behalf of the holders of the
exchangeable shares, and (2) the usufruit, which will be retained by Vivendi
Universal. For convenience, we refer to the usufruit as the "remaining
beneficial interests." The splitting of the Vivendi Universal voting rights and
the remaining beneficial interests and the transfer of the Vivendi Universal
voting rights to the custodian will be effected under a French law contract,
which we refer to as the transfer agreement.
Vivendi Universal, as the holder of the remaining beneficial interests, has
all the rights associated with the Vivendi Universal ordinary shares that were
split under the transfer agreement, other than the rights attached to the
Vivendi Universal voting rights. Under the transfer agreement, the Vivendi
ordinary shares will be rejoined, with the entire legal and beneficial interest
in those shares then being owned by Vivendi Universal, following the expiration
of the agreement's thirty-year term. However, prior to the expiration of the
transfer agreement, the exchangeable shares are expected to be exchanged for
Vivendi Universal ADSs under certain circumstances that do not require the
consent of holders of exchangeable shares. Upon any such exchange, the related
Vivendi Universal voting rights would then be surrendered to Vivendi Universal.
See "-- Description of Exchangeable Shares -- Mandatory Redemption by Vivendi
Universal Exchangeco."
CUSTODY AGREEMENT
The custodian will execute a custody agreement with Vivendi Universal and
Vivendi Universal Exchangeco. The custodian will hold the Vivendi Universal
voting rights directly or through an accredited intermediary eligible to hold
Vivendi Universal ordinary shares in bearer form under French law.
The following is a summary of the material terms of the custody agreement.
For more complete information, you should read the entire custody agreement. A
copy of the custody agreement will be on file with the custodian and will be
open for inspection by holders of Vivendi Universal voting rights during
business hours at its principal office in Montreal, Quebec. The custodian's
principal office in Montreal is located at 2001 University Street, 16th Floor,
Montreal, Quebec H3A 2A6.
HOW TO VOTE A VIVENDI UNIVERSAL VOTING RIGHT
In general, each Vivendi Universal voting right will carry the right to
cast one vote at meetings of holders of Vivendi Universal ordinary shares.
However, Vivendi Universal's statuts will adjust the voting rights of
shareholders who own (within the meaning of the statuts and Article L 233-9 of
the French commercial code to which those statuts refer) in excess of 2% of the
total voting power of Vivendi Universal through the application of a formula
designed to limit the voting power of those shareholders to that which they
would possess if 100% of the shareholders were present at the meeting at which
the vote in question takes place. If you hold Vivendi Universal voting rights
directly or indirectly through a broker or financial institution, this formula
will not be applicable to you if you represent when you vote that you do not own
in excess of 2% of the total voting power of Vivendi Universal (within the
meaning of the
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statuts and Article L 233-9 of the French commercial code to which those statuts
refer). If you own more than 2% of the total voting power of Vivendi Universal
(within the meaning of the statuts and Article L 233-9 of the French commercial
code to which those statuts refer), you will need to contact the custodian in
order to vote. The custodian will forward to Vivendi Universal the information
necessary to allow you to vote. The voting instructions that will be furnished
to you will explain these procedures.
If you are a holder of Vivendi Universal voting rights, the custodian will
provide you with voting instructions upon its receipt of notice of the meeting,
and you may instruct the custodian how to exercise your Vivendi Universal voting
rights. Upon receipt of notice of any meeting of holders of Vivendi Universal
ordinary shares, the custodian will mail, at Vivendi Universal's expense, the
notice to the holders of Vivendi Universal voting rights as soon as practicable.
The notice will contain an English version of the notice received from Vivendi
Universal and an English translation of any materials provided to Vivendi
Universal ordinary shareholders, or, in some cases, English equivalents of these
materials, and will describe how you, on or before a certain date, may instruct
the custodian to exercise the voting rights relating to your Vivendi Universal
voting rights, including a statement as to how Vivendi Universal ordinary shares
for which the custodian receives incomplete voting instructions will be voted.
For instructions to be valid, the custodian will be required to receive them on
or before the date specified. The custodian will vote or have its agents vote
the Vivendi Universal ordinary shares as you instruct and only as you instruct.
The custodian will not itself exercise any voting discretion.
Vivendi Universal has agreed to deliver voting materials to the custodian
sufficiently in advance of the meeting to enable the custodian to deliver voting
materials to you, such that you will have sufficient time to give the custodian
voting instructions. If you hold exchangeable shares through a broker, dealer or
other intermediary, however, we cannot guarantee that your intermediary will
send you voting materials in time for you to exercise your voting rights. The
custodian will not charge holders of Vivendi Universal voting rights for
submitting voting instructions in that capacity to the custodian in connection
with shareholders' meetings.
RECORD DATES
Subject to the provisions of the custody agreement, the custodian will fix
the dates for determining the holders of Vivendi Universal voting rights who
will be entitled to give instructions for the exercise of voting rights at a
meeting of holders of Vivendi Universal ordinary shares.
REPORTS AND OTHER COMMUNICATIONS
The custodian will deliver to all holders of Vivendi Universal voting
rights English translations of all notices and any other communications and
reports, including proxy materials, delivered to the holders of the Vivendi
Universal ordinary shares or, in some cases, English equivalents of those
documents. In addition, Vivendi Universal will notify the custodian, and the
custodian will notify the holders of Vivendi Universal voting rights of any
meeting of Vivendi Universal's shareholders or holders of Vivendi Universal
voting rights, or of any adjourned meeting, provided that the custodian receives
notice of such meeting from Vivendi Universal. The custodian will make available
for inspection, at its principal office in Montreal, Quebec, English
translations of all communications and reports that Vivendi Universal makes
available for inspection by holders of Vivendi Universal ordinary shares or, in
some cases, English equivalents of those documents. Vivendi Universal has agreed
to provide the custodian sufficient copies of all documents required to be
delivered or made available to permit the custodian to satisfy these
obligations.
OTHER RIGHTS UNDER FRENCH LAW
In connection with the division of the Vivendi Universal shares into the
Vivendi Universal voting rights and the remaining beneficial interests, under
French law, certain other rights of holders of Vivendi Universal ordinary shares
attach to the Vivendi Universal voting rights, in addition to the voting rights
described above. These other rights may include the right to receive, at the
expiration of the transfer
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agreement, the proceeds of any return of capital, distribution-in-kind or
liquidation of Vivendi Universal. Under the terms of the exchangeable shares,
your initiation of any formal proceeding before a court or regulatory body
having jurisdiction alleging any rights to economic entitlement in respect of
these other rights will result in the exchange of your exchangeable shares for
Vivendi Universal ADSs and the surrender of the related Vivendi Universal voting
rights.
Without the approval of Vivendi Universal Exchangeco and the approval of
the holders of the exchangeable shares as described above under "-- Description
of the Exchangeable Shares -- Amendment and Approval," Vivendi Universal will
not take any action that would increase or decrease the other rights described
above or change the allocation of rights between the Vivendi Universal voting
rights and the corresponding remaining beneficial interests of Vivendi
Universal. Vivendi Universal's board of directors will not propose or endorse
any amendment to the Vivendi Universal statuts that would have this effect.
AMENDMENTS
In general, Vivendi Universal may agree with the custodian to amend the
custody agreement without your consent. However, holders of a majority of the
Vivendi Universal voting rights must approve in writing any amendment that
materially and adversely affects their rights or, with respect to specified
provisions of the custody agreement, any amendment that is adverse to them.
Notwithstanding the foregoing, Vivendi Universal and the custodian may agree in
writing to amendments to comply with applicable law, rules or regulations or
Vivendi Universal's statuts without the approval of the holders of Vivendi
Universal voting rights.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO HOLDERS OF VIVENDI UNIVERSAL VOTING
RIGHTS
The custody agreement expressly limits the obligations and liability of the
custodian and its agents. Neither the custodian nor any of its agents will be
liable if it:
- is prevented from or hindered in performing any obligation by
circumstances beyond its control, including, without limitation,
requirements of law, rule, regulation, the terms of the securities issued
by Vivendi Universal and acts of God;
- exercises or fails to exercise discretion under the custody agreement;
- performs its obligations without fraud, negligence, wilful misconduct or
bad faith;
- takes any action or fails to take any action based on advice or
information provided by legal counsel, any holder or any other qualified
person; or
- relies in good faith upon any documents.
The custody agreement limits Vivendi Universal's liability and obligations
and those of Vivendi Universal's agents the same way.
Neither the custodian nor Vivendi Universal nor their respective agents
will be obligated to appear in, prosecute or defend any action, suit or other
proceeding in respect of any Vivendi Universal voting rights that in the opinion
of Vivendi Universal or the custodian may lead it to incur expense or liability,
unless indemnity satisfactory to it against all expenses and liability is
furnished as often as it requires.
The custodian will not be responsible for a failure to carry out
instructions to vote the Vivendi Universal voting rights, the matter on which
any vote is cast or the effect of the vote, provided it performs its obligations
without fraud, negligence, wilful misconduct or bad faith.
The custodian may own and deal in any class of Vivendi Universal
securities.
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CHAPTER SIX -- COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Seagram shareholders are governed by the CBCA and the
provisions of Seagram's articles of amalgamation (charter) and by-laws. The
rights of Vivendi, CANAL+ and Vivendi Universal shareholders are governed by the
French commercial code and by the provisions of those companies' statuts. The
following is a summary of the material differences between the rights of
Vivendi, Seagram, CANAL+ and Vivendi Universal shareholders. These differences
arise from differences between the CBCA and the French commercial code and
between Seagram's charter and by-laws and the statuts of Vivendi, CANAL+ and
Vivendi Universal. The descriptions of Vivendi Universal's statuts set forth
below refer to the statuts that will become effective upon the completion of the
merger transactions. With limited exceptions described below, the rights of
Vivendi Universal shareholders will be substantially the same as those of
Vivendi shareholders. For more complete information, you should read Seagram's
charter and by-laws, the Vivendi, CANAL+ and Vivendi Universal statuts and the
CBCA and the French commercial code.
You should refer to "Securities -- Description of Vivendi Universal ADSs"
for a description of the Vivendi Universal ADSs and a discussion of the ways in
which the rights of holders of Vivendi Universal ADSs may differ from those of
holders of Vivendi Universal ordinary shares.
SIZE AND QUALIFICATION OF THE BOARD OF DIRECTORS
SEAGRAM
The Seagram by-laws provide that until changed in accordance with the CBCA,
Seagram's board of directors will consist of not fewer than ten directors and
not more than 25 directors. The Seagram by-laws provide that no person will be
qualified for election as a director if the person is less than 18 years of age
or more than 70 years of age; if the person is of unsound mind and has been so
found by a court in Canada or elsewhere; if the person is not an individual; or
if the person has the status of a bankrupt. Notwithstanding the foregoing age
qualification, a maximum of three persons of more than 70 years of age may be
elected to serve as directors at any time. A director need not be a shareholder.
Although the CBCA allows for staggered directoral terms, the Seagram charter
does not permit staggered terms. Under the Seagram by-laws, the election of
directors will take place at each annual meeting of shareholders, at which time
all the directors then in office will cease to hold office. Seagram's board of
directors currently has 16 members.
Under the CBCA, directors may be elected for a term expiring not later than
the third annual meeting of shareholders following the election. If no term is
specified, a director's term expires at the next annual meeting of shareholders.
A director may be nominated for re-election to the board of directors at the end
of the director's term. Currently, all of the members of Seagram's board of
directors are elected at each annual meeting.
Seagram's charter provides that the directors can appoint one or more
additional directors above the number elected at the prior meeting so long as
the total number of directors so appointed does not exceed one-third of the
number of directors elected at the previous annual meeting.
VIVENDI
Vivendi's statuts provide that its board of directors shall have:
- not less than three nor more than 24 members, each of whom shall be
elected by the shareholders at an ordinary shareholders' meeting; under
the French commercial code, directors may be natural persons or legal
entities; and
- in addition to the board members described above, one director who
represents the employee-shareholders of the company and its affiliates if
the percentage of Vivendi's share capital held by those
employee-shareholders exceeds 5%; this director is elected by the
company's shareholders at
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an ordinary shareholders' meeting from among two or more candidates
previously elected by and from among such employee-shareholders.
Under the French commercial code, each director must be a shareholder of
the corporation. Vivendi's statuts provide that a director must own at
least 750 shares of the company for as long as he or she serves as a director.
As of December 31, 1999, Vivendi's board of directors consisted of 14 members.
The French commercial code provides that each director is eligible for
reappointment upon the expiration of his or her term of office. Vivendi's
statuts fix the term of reappointment at four years, provided that no more than
one-third of the directors may be 70 or older. No individual director may be
over 73.
The chairman of Vivendi's board of directors is elected by the directors
and must be a natural person. The chairman will serve for the term determined by
the board when the chairman is elected. Under the French commercial code, the
chairman's term is automatically terminated upon the expiration of his or her
term as a director.
VIVENDI UNIVERSAL
Vivendi Universal's statuts will provide that the board of directors shall
have:
- not less than three nor more than 20 members, each of whom shall be
elected by the shareholders at an ordinary shareholders' meeting,
provided that the maximum number of board members will be reduced to 19
as of January 1, 2002 and will be reduced to 18 as of January 1, 2003;
and
- like the Vivendi board of directors, subject to certain conditions, one
additional director who represents the employee-shareholders of the
company and its affiliates.
Under the terms of the merger agreement and the governance agreement, all
the existing members of Vivendi's board of directors and certain designees of
Seagram will be appointed to Vivendi Universal's board of directors upon
completion of the merger transactions. See "The Merger Transactions -- The
Merger Agreement" and "The Merger Agreement -- The Governance Agreement."
Like Vivendi's statuts, Vivendi Universal's statuts will provide that a
director must own at least 750 shares of the company for as long as he or she
serves as a director.
Like Vivendi's statuts, Vivendi Universal's statuts will fix the term of
reappointment of directors at four years. However, Vivendi Universal's statuts
will provide that no more than one-fifth of the directors may be 70 or older. No
individual director may be over 75.
The chairman of Vivendi Universal's board of directors will be elected by
the directors and must be a natural person. The chairman will serve for the term
determined by the board when the chairman is elected. Vivendi Universal's
statuts will also provide for a vice chairman.
CANAL+
CANAL+'s statuts provide that CANAL+'s board of directors shall consist of
not fewer than five nor more than 16 members. CANAL+'s board of directors
currently consists of 16 members. Each member of CANAL+'s board of directors
must hold at least one share of CANAL+ for as long as he or she serves as
director. Each director is eligible for reappointment upon the expiration of his
or her term of office, which is fixed at six years by CANAL+'s statuts.
The chairman of CANAL+'s board of directors is elected by the directors.
The chairman remains in office until the end of his or her term as director or
until the general shareholders' meeting convened to approve the accounts for the
year in which he or she reaches the age of 72.
The board of directors may also name a secretary of the board who is not
required to be a shareholder of CANAL+.
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ELECTION AND REMOVAL OF DIRECTORS
SEAGRAM
Shareholders of a corporation governed by the CBCA elect directors by
ordinary resolution at each annual meeting of shareholders at which such an
election is required. Under the CBCA, Seagram's shareholders may remove any
director before the expiration of his or her term of office and may elect any
qualified person in such director's stead for the remainder of such term by a
resolution passed by a majority of the votes cast at a meeting of shareholders
called for that purpose. Under the CBCA, vacancies that exist on the board of
directors may be filled by the board if the remaining directors constitute a
quorum. In the absence of a quorum, the remaining directors shall call a meeting
of shareholders to fill the vacancy.
VIVENDI AND VIVENDI UNIVERSAL
The members of the board of directors of Vivendi and Vivendi Universal may
be removed prior to the expiration of their terms by a majority vote of the
respective company's shareholders. Under the French commercial code, removal of
members of the board of directors will not subject the company to liability
unless the removed director shows that his or her removal was done in an
injurious or vexatious manner.
As required by the French commercial code, in the case of a vacancy
resulting from the resignation or death of a member of the board of directors,
the remaining members may fill the vacancy by appointing a new member of the
board, subject to ratification by the shareholders at the next ordinary general
meeting. The employee-shareholders representative on the board of directors
loses his or her office in the case of a termination of his or her employment
agreement. The vacancy of the employee-shareholder representative is filled at
the next general meeting.
CANAL+
The provisions of the French commercial code are also applicable to CANAL+.
CANAL+'s statuts contain no provisions concerning election to or removal from
the board.
SHAREHOLDER NOMINATIONS
SEAGRAM
Any shareholder of a corporation governed by the CBCA may make nominations
at a shareholder meeting for the election of directors. Such a nomination may be
made as a shareholder proposal that is included in the corporation's proxy
material if the proposal is signed by holders of not less than 5% of the shares
of any class entitled to vote at the meeting to which the proposal is presented.
Shareholders that provide their own proxy materials may also independently
solicit proxies for the election to the board of directors of nominees other
than those presented by management.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
Under the French commercial code, shareholders can nominate individuals for
election to a company's board of directors at an ordinary general shareholders'
meeting if the election of directors is part of the agenda for the shareholders'
meeting. However, under the French commercial code, shareholders cannot elect a
new director at an ordinary general shareholders' meeting if the agenda for the
meeting does not include the election of directors, unless such nomination is
necessary to fill a vacancy due to the previous removal of a director. If the
election of directors is not part of the agenda of the shareholders' meeting,
but is permissible because it is to fill a vacancy, the nomination must contain
the name, age, professional references and professional activity of the nominee
for the past five years, as well as the number of the company's shares owned by
such candidate, if any. This information must be made available to shareholders
by the company's board of directors no less than 15 days before the meeting. If
the agenda for the shareholder's meeting includes the election of members of the
board of directors, any shareholder may nominate a candidate for election to the
board at the shareholders' meeting, even if the shareholder has not followed
established nomination procedures.
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SHAREHOLDERS' MEETINGS AND QUORUM
SEAGRAM
Under the CBCA, directors of a corporation must call an annual meeting not
later than 18 months after the corporation comes into existence and thereafter
not later than 15 months after the last preceding annual meeting.
The CBCA provides that a board of directors may call special shareholder
meetings at any time and must call such a meeting at the request of holders of
not less than 5% of the issued shares of the corporation that carry the right to
vote at the meeting sought. If the board of directors fails to call a properly
requested meeting within 21 days after receiving the request, any shareholder
who signed the request may call the meeting.
All shareholder meetings must be held in Canada. Notice of the time and
place of a meeting must be sent not less than 21 nor more than 50 days before
the meeting to each shareholder entitled to vote at the meeting, each director
of the corporation and the corporation's auditors. On the application of a
director or a shareholder entitled to vote at a meeting, a court may order a
shareholder meeting to be held.
Under Seagram's by-laws, the holders of 40% of the shares entitled to vote
at a meeting, present in person or by proxy, constitute a quorum. The provisions
attached to a specific class or series of shares in Seagram's charter may
prescribe a different quorum for meetings of holders of that class or series of
shares.
Any person entitled to vote at a shareholder meeting is entitled to notice
and may attend that meeting. A shareholder may appoint a proxyholder, who need
not be a shareholder, to attend and act at the meeting in accordance with the
authority conferred by the proxy.
VIVENDI AND VIVENDI UNIVERSAL
Three types of shareholders' meetings exist under the French commercial
code, ordinary, extraordinary and special. As required by the French commercial
code, Vivendi is, and Vivendi Universal will be, required to hold an ordinary
shareholders' meeting within six months of the end of each company's respective
fiscal year to receive the board of directors' annual report and the statutory
auditor's reports on the operations of, and the financial statements for, the
company for the past fiscal year. An annual ordinary general meeting of the
shareholders may also be held in order to, among other things, ratify
transactions between the company and any member of its board of directors or any
managing director, if any.
All shareholders' meetings are held pursuant to an announcement notice
published in the BALO, the French official gazette, at least 30 days before the
meeting takes place. This legal requirement applies to any company listed on the
Paris Bourse. An additional notice of the meeting must be published in the BALO
and in a newspaper authorized to publish legal announcements at least 15 days
prior to the meeting or at least six days prior to the resumption of any meeting
adjourned for lack of quorum. The same notice must be sent to each shareholder
and to the auditors of the company. If you will be a Vivendi Universal ADR
holder, you will receive an English translation of these notices. In the event
the board of directors fails to publish such notice or call a required meeting,
a meeting may be convened by the company's statutory auditor or a
court-appointed agent. A court may be requested to appoint an agent by:
- one or more shareholders holding in the aggregate at least 10% of the
company's capital, in the case of a general meeting, or 10% of a specific
category of shares, in the case of a special meeting;
- any interested party in cases of emergency; or
- so long as the company remains listed on the Paris Bourse, certain duly
qualified associations of shareholders.
A quorum for an ordinary general shareholders' meeting consists of holders
of shares constituting at least one-fourth of the voting power of the company's
outstanding shares entitled to vote at the ordinary
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meeting taking place. If no quorum exists, no quorum is required with respect to
the meeting that takes place with the same agenda following an adjournment. A
quorum for an extraordinary shareholders' meeting consists of the holders of
shares constituting at least one-third of the voting power of the company's
outstanding shares entitled to vote at the extraordinary meeting. If no quorum
exists, the required quorum at the meeting following an adjournment is at least
one-fourth of the voting power of the company's outstanding shares entitled to
vote at the extraordinary meeting.
A quorum for a special shareholders' meeting consists of the holders of
shares constituting one half of the voting power of the company's outstanding
shares entitled to vote at the special meeting. If no quorum exists, the
required quorum is at least one-fourth of the voting power of outstanding shares
entitled to vote at the special meeting following an adjournment. A majority of
the votes cast is required to approve actions taken at an ordinary shareholders'
meeting and a two-thirds majority is required to approve actions taken at an
extraordinary shareholders' meeting or a special shareholders' meeting, except
that unanimity is required to increase liabilities of shareholders.
According to Vivendi's and Vivendi Universal's statuts, the number of
voting rights held by each shareholder at a general meeting shall be equal to
the number of the voting rights attached to the shares owned by that holder,
except that the voting rights of shareholders who own in excess of 2% of the
total voting power of the company are adjusted to that which they would possess
if 100% of the shareholders were present or represented at the meeting at which
the vote in question takes place.
CANAL+
The provisions governing meetings of CANAL+ shareholders are substantially
identical to those governing meetings of Vivendi shareholders, except that each
CANAL+ shareholder present or represented at a shareholders' meeting has one
vote per share held.
APPROVAL OF EXTRAORDINARY ACTIONS
SEAGRAM
Under the CBCA, an amendment to a corporation's charter generally requires
shareholder approval by special resolution. A special resolution is a resolution
passed by a majority of not less than two-thirds of the votes cast by
shareholders entitled to vote on the resolution in person or by proxy at the
annual or special meeting called for that purpose, whether or not the shares
held by them are designated as voting shares in the corporation's charter. In
some cases, a special resolution to approve an extraordinary corporate action,
such as an amendment to the charter that adversely affects the rights of a
particular class or series of shares, may also be required to be approved
separately by the holders of a particular class or series of shares, including a
class or series that does not otherwise carry voting rights.
Under the CBCA, unless the charter or by-laws otherwise provide, the
directors may, by resolution, make, amend or repeal any by-law that regulates
the business or affairs of a corporation. Where the directors make, amend or
repeal a by-law, they are required under the CBCA to submit the by-law,
amendment or repeal to the shareholders at the next shareholders' meeting. The
shareholders may confirm, reject or amend the by-law, amendment or repeal by an
ordinary resolution, which is a resolution passed by a majority of the voting
shareholders.
Under the CBCA, the following transactions also require shareholder
approval by special resolution:
- any amalgamation with a corporation, other than with certain subsidiary
corporations, or a sale, lease or exchange of all or substantially all of
the corporation's property, other than in the ordinary course of
business;
- a change in the jurisdiction in which the corporation is organized;
- a liquidation; and
- a dissolution.
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In certain cases, a special resolution to approve an extraordinary
corporate action must also be approved separately by the holders of a class or
series of shares.
A corporation may also apply to a court for an order approving an
arrangement, which could include an amendment to the corporation's charter, an
amalgamation, a transfer of all or substantially all the corporation's property
to another corporation in exchange for property, money or securities of the
other corporation, certain exchanges of securities by the corporation's
shareholders or a liquidation and dissolution of the corporation. The
corporation must not be insolvent and it must not be practicable for the
corporation to make the fundamental change in accordance with other provisions
of the CBCA. The court may make any interim or final order it thinks fit with
respect to the proposed arrangement. Generally, an arrangement involving a
public company must receive shareholder approval as a condition of obtaining the
court order.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
Under the French commercial code, the fundamental transactions that require
the approval of at least two-thirds of the votes cast include:
- amendments to the statuts;
- transfers of the company's registered office to a non-neighboring
department;
- increases or decreases of the company's registered capital;
- eliminations of shareholders' preemptive rights with respect to any
transactions that either immediately or with the passage of time would
result in an increase in the registered capital;
- authorizations of employee stock option and/or purchase plans; and
- authorizations of mergers, spin-offs, dissolutions and dispositions of
all or substantially all of the company's assets if the disposition would
entail a modification of the company's corporate purpose.
In addition, the transformation of a corporation into another type of legal
entity requires, depending on the type of entity the company seeks to become, a
unanimous vote, a three-fourths majority vote or a two-thirds majority vote of
votes cast.
SHAREHOLDER ACTION BY WRITTEN CONSENT
SEAGRAM
Under the CBCA, shareholder action without a meeting may be taken only by
written resolution signed by all shareholders who would be entitled to vote on
the matter at a shareholders' meeting.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
The French commercial code does not permit shareholders to act by written
consent outside a general shareholders' meeting.
PAYMENT OF DIVIDENDS
SEAGRAM
Under the CBCA, holders of a class of shares of a corporation have, subject
to the rights, privileges and restrictions attaching to that class, the right to
receive dividends if, as and when declared by the corporation's board of
directors. A corporation may pay a dividend by issuing fully paid shares of the
corporation. A corporation may also pay a dividend in money or property unless
there are reasonable grounds for believing that:
- the corporation is, or would after the payment be, unable to pay its
liabilities as they become due; or
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- the realizable value of the corporation's assets would as a result of the
dividend be less than the aggregate of its liabilities and the stated
capital of all classes.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
Net income in each fiscal year, after deductions for depreciation and
provisions, as increased or reduced, as the case may be, for profit or loss
carried forward from prior years, less any contributions to legal reserves,
constitutes the distributable profits (benefice distribuable) available for
distribution to the shareholders of a French company as dividends, subject to
requirements of French law and the company's statuts.
Under the French commercial code, a company is required to allocate five
percent of its net profits in each fiscal year to a legal fund until the amount
in such reserve is equal to 10% of the nominal amount of the outstanding share
capital. The legal reserve is distributable only upon the liquidation of the
company.
Except in the case of a decrease in share capital, no distribution may be
made to shareholders if as a result of such distribution, the shareholders'
equity would fall below the amount of the share capital increased by those
reserves that may not be distributed according to applicable legal provisions or
the company's statuts. The amount of dividends is fixed at the general
shareholders' meeting at which the annual accounts are approved, following the
recommendation of the board of directors. The methods of payment of dividends
are determined by the general shareholders' meeting or by the board of directors
in the absence of a decision by the shareholders.
If the company has earned a profit since the end of the preceding fiscal
year, as shown on an interim balance sheet certified by the company's auditors,
the board of directors has the authority, subject to the French commercial code
and regulations, to distribute interim dividends to the extent of such profit
prior to the approval of the annual financial statements by the shareholders.
SHAREHOLDERS' PROPOSALS
SEAGRAM
Under the CBCA, a shareholder entitled to vote at an annual meeting of
shareholders may submit a proposal consisting of matters that the shareholder
proposes to raise at the next annual meeting. Upon receipt of the proposal, a
corporation that solicits proxies must set out the proposal in a management
proxy circular and, if requested by the shareholder, include in the management
proxy circular a statement by the shareholder of not more than 200 words in
support of the proposal, and the name and address of the shareholder.
A corporation may, within ten days after receiving a shareholder proposal,
notify the shareholder of its intention to omit the proposal from the management
proxy circular if:
- the proposal is not submitted at least 90 days before the anniversary
date of the previous annual meeting;
- it appears that the proposal is submitted by the shareholder for the
purpose of obtaining publicity or enforcing a personal claim or
redressing a personal grievance, or primarily for the purpose of
promoting general economic, political, racial, religious, social or
similar causes;
- the corporation, in the previous two years, included a substantially
similar proposal at the request of the shareholder and the shareholder
failed to present the proposal at the annual meeting; or
- a substantially similar proposal was submitted to shareholders within the
past two years and the proposal was defeated.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
Under the French commercial code, shareholders representing, individually
or collectively, a specified percentage (which in any event will be no more than
5%) of a company's capital may request that a
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resolution they propose for adoption at a shareholder meeting be included in the
agenda. This request must be made within ten days of the publication of the
initial notice of the shareholders' meeting in the BALO and may specify the
reasons for the resolution. Properly submitted requests will be considered at
the meeting. The French commercial code requires a company's board of directors
to respond at the meeting to any questions submitted in writing by any
shareholder.
PREFERENTIAL SUBSCRIPTION RIGHTS
SEAGRAM
Under the CBCA, if a corporation's charter so provides, no shares of a
class may be issued, except in limited circumstances, unless the shares have
first been offered to shareholders holding shares of that class on a pro rata
basis, at such price and on such terms as those shares are to be offered to
others. Seagram's charter does not currently provide for such preemptive rights
for its shareholders.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
Under the French commercial code, if a corporation issues shares or other
securities that carry a right, directly or indirectly, to purchase equity
securities issued by the corporation for cash, current shareholders have
preferential rights to purchase those securities on a pro rata basis. Those
rights entitle the individual or entity that holds them to subscribe for an
issue of any securities that may increase the corporation's share capital for
consideration consisting of a cash payment or a set-off of cash debts.
Preferential subscription rights are transferable during the subscription period
relating to a particular offering. The rights are listed on the Paris Bourse for
the same period.
A two-thirds majority of the votes cast at an extraordinary general meeting
may vote to waive preferential subscription rights with respect to any
particular offering. French law requires a company's board of directors and
independent auditors to present reports that specifically address any proposal
to waive preferential subscription rights. In the event of a waiver, the issue
of securities must be completed within the period prescribed by law. The
shareholders may also decide at an extraordinary general meeting to give the
existing shareholders a non-transferable priority right to subscribe for the new
securities during a limited period of time. Shareholders may also waive their
own preferential subscription rights with respect to any particular offering.
Vivendi has agreed in the merger agreement to take all necessary actions,
including making any necessary securities filings, to ensure that all holders of
Vivendi Universal securities, regardless of jurisdiction of residence, are
entitled to all benefits of the foregoing preferential subscription rights.
DISSENTERS' RIGHTS
SEAGRAM
The CBCA provides that shareholders of Seagram entitled to vote on certain
matters are entitled to exercise dissenters' rights and to be paid the fair
value of their shares. The CBCA does not distinguish for this purpose between
listed and unlisted shares. Matters that trigger dissenters' rights include the
following:
- amalgamation with a corporation other than certain subsidiary
corporations;
- amendment to the corporation's charter that adds, changes or removes any
provisions restricting the issue, transfer or ownership of shares;
- change in the jurisdiction in which the corporation is organized;
- sale, lease or exchange of all or substantially all of the property of
the corporation, other than in the ordinary course of business;
- proposed arrangement transactions when a court order issued in connection
with an application for court approval of the arrangement permits the
exercise of dissent rights; or
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- amendments to the corporation's charter that require a separate class or
series vote, except that a shareholder is not entitled to dissent if an
amendment to the charter is effected by a court order made in connection
with an action for an oppression remedy, as described below.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
The French commercial code does not provide for dissenters' rights.
However, under the French commercial code, the stock exchange authorities may
require a controlling shareholder (as defined under French law) of a listed
company to launch a compulsory tender offer for the company's shares in certain
instances, such as when the controlling shareholder decides to merge the company
with another company, to change fundamentally the activities of the company or
to discontinue dividends.
OPPRESSION REMEDY
SEAGRAM
The CBCA provides an oppression remedy that enables a court having
jurisdiction to make any order, either interim or final, to rectify the matters
complained of if the court is satisfied, upon application by a complainant,
that:
- any act or omission of the corporation or an affiliate effects a result;
- the business or affairs of the corporation or an affiliate are or have
been carried on or conducted in a manner; or
- the powers of the directors of the corporation or an affiliate are or
have been exercised in a manner;
that is oppressive or unfairly prejudicial to, or that unfairly disregards the
interests of, any securityholder, creditor, director or officer.
A wide variety of conduct may be complained of in connection with the
oppression remedy, and the court has broad remedial powers, including the power
to order liquidation and dissolution of the corporation concerned. Under the
CBCA, it is not necessary to prove that the directors of a corporation acted in
bad faith in order to seek an oppression remedy.
Additionally, under the CBCA, a court may order a corporation or its
subsidiary to pay the complainant's costs, including legal fees and
disbursements, during the pendency of the complaint. Although the complainant
may be liable for those interim costs upon final disposition of the complaint,
it is not required to give security for costs in an oppression action. Once
commenced, an oppression action may not be discontinued or settled without the
court's approval.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
The French commercial code does not provide for an oppression remedy.
DUTIES OF THE BOARD OF DIRECTORS
SEAGRAM
Under the CBCA, Seagram's directors have the power to manage Seagram's
business and affairs and owe Seagram fiduciary duties. In exercising these
powers and discharging these duties, each director must act honestly and in good
faith with a view to the best interests of the corporation and must exercise the
care, diligence and skill that a reasonably prudent person would exercise in
comparable circumstances.
VIVENDI AND VIVENDI UNIVERSAL
Vivendi's statuts provide, and Vivendi Universal's statuts will provide,
that the board of directors is vested with the fullest powers to act in any
circumstance on the company's behalf, within the scope of the company's purpose
and subject to those powers expressly attributed by the law to shareholders'
meetings or to the chairman of the board of directors.
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In accordance with the French commercial code, Vivendi's statuts provide,
and Vivendi Universal's statuts will provide, that the chairman of the board of
directors also serves as its president. Vivendi's statuts further provide, as
will Vivendi Universal's statuts, that the chairman/president is vested with the
power to act in any circumstance on the company's behalf and to represent the
company with respect to third parties, within the scope of the company's
corporate purpose and subject to those powers expressly attributed by the French
commercial code to shareholders' meetings or to the board of directors.
Vivendi's and Vivendi Universal's directors owe a duty of loyalty and care
to the company. Members of Vivendi's and Vivendi Universal's board of directors
are held accountable, either individually or jointly, as applicable, to the
company or to third parties for breaches of statutory or regulatory provisions
applicable to public limited companies, for violations of the company's statuts
and for mismanagement.
CANAL+
The provisions of CANAL+'s statuts and the provisions of Vivendi's and
Vivendi Universal's statuts are identical with respect to the duties of the
board of directors.
TAKE-OVER BIDS AND COMPULSORY ACQUISITION OF SHARES; ANTI-TAKEOVER PROVISIONS
SEAGRAM
If a share acquisition constitutes a "take-over bid" and is not otherwise
exempt, it must be made to all holders of the relevant class by way of a formal
offer and offering circular in the form prescribed under Canadian securities
legislation and the CBCA. For these purposes, a "take-over bid" includes any
offer to a Canadian resident to acquire a number of voting securities which,
when added to the existing holdings of the offeror and its joint actors, would
constitute 10% or more of that class of securities. The bid must remain open for
a period of 21 days and, if the consideration offered under the bid includes
shares, the bid documents must contain a prospectus-like disclosure with respect
to the issuer of the shares. There are several exemptions under which an offer
that constitutes a "take-over bid" may be made on an "exempt basis"; that is,
without that offer having to be extended to all security holders. The most
frequently used exemptions are:
- the private purchase exemption, which permits acquisitions of any number
of securities in private agreements with not more than 5 persons or
companies if the value of the consideration does not exceed 115% of the
market price of the class of securities at the date of purchase; and
- normal course purchases in any 12-month period through the facilities of
a stock exchange of up to 5% of the class of securities outstanding at
the commencement of such period at prices not in excess of the market
price at the date of acquisition.
Under the CBCA, if, within 120 days of a take-over bid, the holders of 90%
of the shares of any class, excluding shares held by or on behalf of the
offeror, accept the take-over bid of that offeror, the offeror is entitled to
acquire the remaining shares of that class. The holders of the shares not
tendered to the take-over bid may elect to transfer the shares to the offeror on
the terms of the take-over bid or to demand payment for the fair value of those
shares.
The securities laws and policies of certain Canadian provinces regulate
take-over bids and related transactions involving Canadian public companies,
including bids for securities of a corporation by its insiders, bids by a
corporation to acquire its own securities, going private transactions in which
the interests of shareholders would be terminated in certain circumstances and
transactions between a corporation and persons related to the corporation.
Depending on the circumstances, these laws and policies seek to enhance minority
shareholder protections by providing for such things as independent valuations,
approval by a majority of the minority shareholders concerned and enhanced
disclosure, and by recommending the use of independent directors to review those
matters.
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VIVENDI, VIVENDI UNIVERSAL AND CANAL+
Under applicable French stock exchange regulations, when a natural person
or a legal entity, acting alone or in concert, comes to hold, directly or
indirectly, more than one-third of the securities or more than one-third of the
voting rights of a listed company, that person or legal entity is obliged to
make a tender offer for all the capital stock of the company and all other
securities convertible into, or exchangeable or otherwise exercisable for, the
capital stock or voting rights of the company. The offer must be on terms and
conditions that are acceptable to the CMF and must remain open for 25 trading
days.
The same provisions apply to any natural person or legal entity acting
alone or in concert:
- that holds directly or indirectly between one-third and one-half of the
securities or the voting rights of a company and that, in less than
twelve consecutive months, increases the number of securities or voting
rights it holds by at least 2% of all the securities or voting rights of
the company; or
- where more than one-third of the capital or voting rights of a listed
company is held by another company and constitutes an essential part of
the other company's assets and where:
-- a person acquires "control" (as defined under the French commercial
code) of the other company; or
-- a group of persons acting in concert holds more than 50% of the
capital or of the voting rights of the other company, without any of
those persons having control individually.
French stock exchange regulations provide certain exemptions to the
obligation to make a mandatory offer that may be allowed by the CMF.
Under French stock market regulations, a shareholder who comes to hold,
alone or in concert with others, at least 95% of the voting rights of a listed
company may initiate a withdrawal offer (offre publique de retrait) to acquire
the shares of the remaining shareholders and, subject to the initiator having
decided to do so at the time of the launch of the offer, the withdrawal offer
may be followed by a mandatory "squeeze out" (retrait obligatoire) of the
remaining minority shareholders. The majority shareholder may also reserve its
right to initiate a squeeze out until the withdrawal offer has been completed.
In the case of a majority shareholder that holds 95% of the company's voting
rights, any holder of voting equity securities that does not belong to the
majority group can also apply to the CMF to require the majority shareholder or
group to file a withdrawal offer, and consequently to offer to acquire the
shares of the minority. In that instance, the consideration to be given to the
minority under the squeeze out cannot be lower than the withdrawal offer (and
may be required to be higher if any event that would be of influence to the
value of the company's securities occurs after the withdrawal offer is declared
receivable by the CMF). The consideration offered must, in addition, be
appraised by an independent expert.
Vivendi's statuts contain and Vivendi Universal's statuts will contain
provisions that could diminish the likelihood that a potential acquiror will
gain control of the company. In particular, under Vivendi's and Vivendi
Universal's statuts:
- the voting rights of shareholders who own in excess of 2% of the total
voting power of the company are adjusted to that which they would possess
if 100% of the shareholders were present or represented at the meeting at
which the vote in question takes place; and
- any person or group that fails to notify the company within 15 days of
acquiring or disposing of 0.5% or any multiple of 0.5% of the company's
shares may be deprived of voting rights for those shares in excess of the
unreported fraction.
Holders of Vivendi Universal ADSs and holders of exchangeable shares (who
will also be holders of Vivendi Universal voting rights) must also comply with
these disclosure requirements. These holders are also subject to having their
voting rights reduced in the event of noncompliance to the same extent as
holders of ordinary shares.
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In addition, Vivendi shareholders have specifically authorized Vivendi's
board of directors, for a period ending on the date of Vivendi's next general
ordinary shareholders' meeting, to increase Vivendi's capital stock during the
course of a public tender or exchange offer for Vivendi's shares or marketable
securities.
Furthermore, Vivendi's statuts provide that shareholders holding shares
that have been registered in the name of the same holder for two or more years
obtain double voting rights with respect to such shares. This provision could
discourage a potential acquiror from making an offer for Vivendi's shares.
Vivendi Universal's statuts will not provide for double voting rights.
SHAREHOLDER SUITS
SEAGRAM
Under the CBCA, a complainant may apply to a Canadian court for leave to
bring an action in the name and on behalf of a corporation or its subsidiary, or
to intervene in an existing action to which such corporation is a party, for the
purpose of prosecuting, defending or discontinuing the action on behalf of the
corporation or any subsidiary. Under the CBCA, no action may be brought and no
intervention in an action may be made unless the court is satisfied that:
- the complainant has given reasonable notice to the directors of the
corporation or its subsidiary of the complainant's intention to apply to
the court, and the directors of the corporation or its subsidiary do not
bring, diligently prosecute or defend or discontinue the action;
- the complainant is acting in good faith; and
- it appears to be in the interests of the corporation or its subsidiary
that the action be brought, prosecuted, defended or discontinued.
Under the CBCA, the court in such an action may make any order it thinks
fit including:
- an order authorizing the complainant or any other person to control the
conduct of the action;
- an order giving directions for the conduct of the action;
- an order directing that any amount adjudged payable by a defendant in the
action shall be paid, in whole or in part, directly to former and present
security holders of the corporation or its subsidiary instead of to the
corporation or its subsidiary; and
- an order requiring the corporation or its subsidiary to pay legal fees
and any other costs reasonably incurred by the complainant in connection
with the action.
Additionally, under the CBCA, a court may order a corporation or its
subsidiary to pay the complainant's costs, including legal fees and
disbursements, during the pendency of the action. Although the complainant may
be held accountable for these interim costs on final disposition of the
complaint, it is not required to give security for costs in such an action. Once
commenced, such a proceeding may not be discontinued or settled without the
court's approval.
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VIVENDI AND VIVENDI UNIVERSAL
The French commercial code allows a single shareholder, irrespective of the
percentage of share capital he or she owns, or a group of shareholders owning a
specified percentage of the share capital, to initiate a corporation action
(action sociale) against one or more directors. The purpose of such an action is
to repair the prejudice suffered by the corporation.
CANAL+
CANAL+ shareholders have the ability to initiate an action sociale as
described above under "-- Vivendi and Vivendi Universal."
CANAL+'s statuts provide that any disputes among shareholders, management
and the board of directors of CANAL+, or between different shareholders,
relating to CANAL+'s business or statuts, will be submitted to arbitration. In
case of such a dispute, each party selects an arbitrator and each arbitrator so
selected chooses another to ensure that there is an even number of arbitrators.
In case agreement cannot be reached on the appointment of arbitrators, the
statuts provide that the President of the French Commercial Court for the
district in which CANAL+'s registered office is located will serve as referee.
The arbitrators are not bound to follow court rules and their decisions are
final and may not be appealed to the courts. The statuts confer jurisdiction on
the President of the French Commercial Court of the district in which CANAL+'s
registered office is located to rule on all other difficulties.
INSPECTION OF BOOKS AND RECORDS
SEAGRAM
The shareholders, directors and creditors of a corporation incorporated
under the CBCA, and their agents and legal representatives, may examine:
- the corporation's charter and by-laws and any amendments thereto;
- minutes of meetings and resolutions of the corporation's shareholders;
- a list of directors; and
- a securities register;
during the corporation's usual business hours. A shareholder of the corporation
is entitled, on request and without charge, to take extracts from those
materials, and to receive one copy of the corporation's charter and by-laws and
any amendments to those documents.
As Seagram is a public company, any person, upon payment of a reasonable
fee and providing to Seagram or its agent an affidavit confirming the person's
name and address and stating that the list and any supplemental lists obtained
will not be used other than in connection with:
- an effort to influence shareholder voting;
- to offer to acquire securities of Seagram; or
- any other matter relating to the affairs of Seagram;
may require Seagram or its agent to provide a current list setting out the names
of Seagram's registered holders of shares, options and rights, the number of
shares owned by each shareholder and the address of each holder of shares,
options and rights as shown in Seagram's records.
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VIVENDI, VIVENDI UNIVERSAL AND CANAL+
Under the French commercial code, shareholders or their proxies may examine
a number of corporate records relating to the previous three fiscal years,
including:
- inventory lists;
- consolidated financial statements, if any;
- reports of the board of directors and the statutory auditors;
- proposed resolutions;
- information relating to directoral candidates;
- the total overall compensation paid to the corporation's ten highest-paid
employees;
- the total amount of charitable deductions made by the corporation;
- minutes of shareholders' meetings;
- the list of attendees at shareholders' meetings;
- the corporation's statuts; and
- a list of the corporation's directors and statutory auditors.
Shareholders may consult the documents listed above at any time at the
company's registered office. Shareholders also have the right to make one copy
of the documents that are available for consultation.
Shareholders have additional inspection rights prior to a shareholders'
meeting. Along with their proxy cards, shareholders receive a form that they can
fill out and return to the registered office to request documents. Prior to
shareholders' meeting, shareholders have the right to receive information
including:
- the agenda for the meeting;
- a table showing results of operations for the previous five years;
- the report of the board of directors that will be presented at the
meeting;
- a summary of the company's financial situation over the previous fiscal
year;
- the statutory auditors' reports;
- the proposed resolutions to be presented at the meeting;
- the names of the directors and officers;
- a proxy card and a form for voting by mail; and
- a form for requesting documents for later meetings.
After publication of the notice of the meeting but before the meeting
occurs, shareholders or their proxies may inspect, at the company's registered
office, any of the documents described above. During this period, shareholders
may always consult the list of the corporation's shareholders, which must be
finalized by the company 16 days before the meeting.
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TRANSACTIONS WITH INTERESTED DIRECTORS AND OFFICERS
SEAGRAM
Under the CBCA, contracts or transactions in which a director or officer
has an interest are not invalid because of that interest, provided that the
director or officer who is party to a material contract or transaction discloses
his or her interest in writing to the corporation or requests to have entered in
the minutes of meetings of directors the nature and extent of his or her
interest. If the interest exists, the director generally may not vote on any
resolution to approve the contract or transaction. The contract is not void or
voidable by reason only of the relationship if such interest is properly
disclosed, the contract is approved by the other directors or by the
shareholders and the contract was fair and reasonable to the corporation at the
time it was approved.
Where a contract or transaction is proposed that, in the ordinary course of
the corporation's business, would not require approval by the directors or
shareholders, the interested director or officer shall disclose in writing to
the corporation or request to have entered in the minutes of meetings of
directors, the nature and the extent of the interest promptly after the director
or officer becomes aware of the contract or transaction or proposed contract or
transaction.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
Under the French commercial code, any transaction directly or indirectly
between a company and a member of its board of directors and/or its managing
directors, if any, that cannot be reasonably considered in the ordinary course
of business of the company and is not at arm's-length, is subject to the board
of directors' prior consent. Any such transaction concluded without the prior
consent of the board of directors can be nullified if it causes prejudice to the
company. The interested member of the board of directors or managing director
can be held liable on this basis. The statutory auditor must be informed of the
transaction within one month following its conclusion and must prepare a report
to be submitted to the shareholders for approval at their next meeting. In the
event the transaction is not ratified by the shareholders at a shareholders'
meeting, it will remain enforceable by third parties against the company, but
the company may in turn hold the interested member of the board of directors
and, in some circumstances, the other members of the board of directors, liable
for any damages it may suffer as a result. In addition, the transaction may be
canceled if it is fraudulent. Moreover, certain transactions between a
corporation and a member of its board of directors who is a natural person
and/or its managing directors, if any, are prohibited under the French
commercial code.
DIRECTOR LIABILITY AND INDEMNIFICATION
SEAGRAM
Under the CBCA, except in an action by or on behalf of a corporation to
procure a judgment in its favor, a corporation may indemnify a director or
officer, a former director or officer or a person who acts or acted at the
corporation's request as a director or officer of a body corporate of which the
corporation was or is a shareholder or creditor, and that person's heirs and
legal representatives, against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred in
respect of any civil, criminal or administrative action or proceeding to which
the individual is made a party by reason of being or having been a director or
officer of the corporation or body corporate if:
- he or she acted honestly and in good faith with a view to the best
interests of the corporation; and
- in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, he or she had reasonable grounds to
believe that his or her conduct was lawful.
The officer or director is entitled to indemnity from the corporation if
substantially successful on the merits in defense of the action or proceeding
and the individual fulfilled the conditions set out above. A corporation may,
with the approval of a court, also indemnify an officer or director with respect
to an action by or on behalf of the corporation or body corporate to procure a
judgment in its favor, if the officer
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or director fulfills the conditions set out above. Seagram's by-laws provide for
indemnification of directors and officers to the fullest extent authorized by
the CBCA.
VIVENDI, VIVENDI UNIVERSAL AND CANAL+
The French commercial code provides that any clause of a corporation's
statuts that conditions legal proceedings against the members of its board of
directors on the prior approval or on the authorization of the general
shareholders' meeting or which provides in advance for the waiver of such
proceedings is void. The French commercial code also provides that a resolution
adopted at a general shareholders' meeting cannot cause the extinction of an
action brought against the members of the board of directors for damages due to
breach of duty in their official capacity.
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CHAPTER SEVEN -- TAX INFORMATION
TAX CONSIDERATIONS FOR VIVENDI SHAREHOLDERS
The summary that follows sets out the principal U.S. federal income tax
considerations of the merger of Vivendi into Vivendi Universal (the
Vivendi/Vivendi Universal merger) and of holding Vivendi Universal shares under
the Internal Revenue Code of 1986, which will generally apply to U.S. holders of
Vivendi shares.
For purposes of this discussion, a U.S. holder means:
- an individual citizen or resident of the U.S.;
- a corporation or other entity taxable as a corporation created or
organized under the laws of the U.S. or any of its political
subdivisions;
- a trust, if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust; or
- an estate that is subject to U.S. federal income tax on its income
regardless of its source.
A non-U.S. holder is a holder of Vivendi Universal shares that is not a
U.S. holder. If a partnership holds Vivendi Universal shares, the consequences
to a partner generally will depend upon the activities of the partnership and
the status of the partner. A partner of a partnership that will hold Vivendi
Universal shares should consult its tax advisor.
This discussion is based upon the Internal Revenue Code of 1986, U.S.
Treasury regulations, administration rulings and judicial decisions currently in
effect, all of which are subject to change, possibly with retroactive effect.
This discussion summarizes the U.S. federal income tax consequences to holders
who hold their shares or ADSs as a capital asset within the meaning of Section
1221 of the Internal Revenue Code of 1986, and who are not insurance companies,
tax-exempt organizations, dealers in securities and foreign currency, banks or
trusts, persons that hold their shares or ADSs as part of a straddle, a hedge
against currency risk or a constructive sale or conversion transaction, persons
that have a functional currency other than the U.S. dollar, persons subject to
alternative minimum tax, investors in pass-through entities, shareholders who
acquired their shares through the exercise of options or otherwise as
compensation or through a tax qualified retirement plan, or holders of options
granted under any benefit plan.
TRANSFER OF VIVENDI SHARES FOR VIVENDI UNIVERSAL SHARES
The summary that follows sets out the material U.S. federal income tax
consequences to U.S. holders who exchange their Vivendi shares for Vivendi
Universal shares in the Vivendi/Vivendi Universal merger and constitutes the
opinion of Wachtell, Lipton, Rosen & Katz, special tax counsel to Vivendi
Universal. The discussion and counsel's opinion are based upon (i) certain
factual representations made by Vivendi Universal, Vivendi and others and (ii)
the assumption that the transactions described herein will be consummated in
accordance with the terms of the merger agreement and related agreements.
Vivendi Universal will not seek a ruling from the IRS concerning the tax
consequences of the transactions described herein. An opinion of counsel is not
binding on the IRS and we can give no assurance that the IRS will not take a
position contrary to one or more positions reflected in the opinions below or
that the courts will uphold such opinions if challenged by the IRS.
The Vivendi/Vivendi Universal merger should constitute a reorganization as
defined in section 368(a) of the Internal Revenue Code of 1986. If it so
qualifies:
- no gain or loss should be recognized by U.S. holders of Vivendi shares
who exchange their Vivendi shares for Vivendi Universal shares, except:
-- with respect to any cash received in lieu of a fractional share of a
Vivendi Universal share in the Vivendi/Vivendi Universal merger; and
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-- with respect to any U.S. holder of Vivendi shares who owns 5% or more
of the total voting power or the total value of the stock of Vivendi
Universal following the Vivendi/Vivendi Universal merger, unless the
holder enters into a "gain recognition agreement" in accordance with
applicable Treasury regulations.
- the tax basis to a U.S. holder of the Vivendi Universal shares received
in exchange for Vivendi shares in the Vivendi/Vivendi Universal merger,
including any Vivendi Universal share for which cash is received, should
equal the U.S. holder's tax basis in the Vivendi shares exchanged.
- the holding period of a U.S. holder in the Vivendi Universal shares
received in exchange for its Vivendi shares in the Vivendi/Vivendi
Universal merger should include the holding period of the Vivendi shares
exchanged.
- a U.S. holder who receives cash instead of a fractional Vivendi Universal
share in the Vivendi/Vivendi Universal merger should be treated as having
received the cash in exchange for the fractional share and generally
should recognize capital gain or loss on the deemed exchange in an amount
equal to the difference between the amount of cash received and the tax
basis of the Vivendi Universal shares allocable to that fractional share.
If the Vivendi/Vivendi Universal merger does not qualify as a
reorganization as defined in Section 368(a) of the Internal Revenue Code of
1986, each U.S. holder of Vivendi shares will generally recognize taxable gain
or loss measured by the difference between (1) the fair market value of the
Vivendi Universal shares received and (2) such shareholder's tax basis in the
Vivendi shares exchanged.
TAX CONSEQUENCES OF HOLDING VIVENDI UNIVERSAL SHARES
The following summary discusses the material U.S. federal income tax
consequences of holding Vivendi Universal shares.
U.S. HOLDERS OF VIVENDI UNIVERSAL SHARES
This section is based in part upon the assumption that each obligation in
the amended and restated deposit agreement among Vivendi, The Bank of New York
and all owners of Vivendi ADRs issued under the original deposit agreement, and
any related agreement, will be performed in accordance with its terms. Based on
this assumption, a U.S. holder who holds Vivendi Universal ADRs evidencing
Vivendi Universal ADSs will be treated as the owner of the Vivendi Universal
ordinary shares represented by those Vivendi Universal ADSs. As a consequence,
exchanges of Vivendi Universal ordinary shares for Vivendi Universal ADSs, and
Vivendi Universal ADSs for Vivendi Universal ordinary shares, generally will not
be subject to U.S. federal income tax.
DIVIDENDS ON VIVENDI UNIVERSAL SHARES
A U.S. holder of Vivendi Universal shares must include in gross income the
gross amount of any dividend paid by Vivendi Universal out of its current or
accumulated earnings and profits (as determined for U.S. federal income tax
purposes), including any avoir fiscal, precompte or French tax withheld (in each
case, see discussion under "-- French Tax Considerations of Holding and
Disposing of Vivendi Universal Shares"). In the case of Vivendi Universal ADSs,
the dividend is ordinary income that must be included in income when the
depositary for Vivendi Universal ordinary shares receives the dividend, actually
or constructively. Any distribution in excess of current or accumulated earnings
and profits will be treated as a tax-free return of capital that reduces the tax
basis in the U.S. holder's Vivendi Universal shares and any remaining amount
will be treated as capital gain from the sale or exchange of Vivendi Universal
shares.
The dividend will not be eligible for the dividends-received deduction
generally allowed to U.S. corporations in respect of dividends received from
other U.S. corporations. The amount of the dividend distribution that must be
included in income by a U.S. holder will be the U.S. dollar value of the
payments made, determined at the spot rate of exchange on the date the dividend
distribution is includible
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in income, regardless of whether the payment is in fact converted into U.S.
dollars. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date the dividend payment is includible
in income to the date the payment is converted into U.S. dollars will be treated
as ordinary income or loss. This exchange gain or loss generally will be income
from sources within the U.S. for foreign tax credit limitation purposes.
Subject to certain limitations, any French tax withheld and paid over to
France (including any tax withheld from an avoir fiscal) will be creditable
against a U.S. holder's U.S. federal income tax liability. Dividends will be
income from sources outside the United States, but generally will be classified
as "passive income" or "financial services income," which is treated separately
from other types of income for purposes of computing the foreign tax credit
allowable to a U.S. holder. A U.S. holder may also elect to deduct, rather than
credit, any French tax withheld.
DISPOSITION OF VIVENDI UNIVERSAL SHARES
When a U.S. holder sells or otherwise disposes of Vivendi Universal shares
in a taxable transaction, that holder will recognize capital gain or loss in an
amount equal to the difference between the U.S. dollar value of the amount
realized and the holder's tax basis, determined in U.S. dollars, in those
Vivendi Universal shares. This gain or loss will generally be income from
sources within the U.S. for foreign tax credit limitation purposes.
PASSIVE FOREIGN INVESTMENT COMPANY
Vivendi believes that neither it nor Vivendi Universal will be treated as a
passive foreign investment company (PFIC) for U.S. federal income tax purposes
for the current taxable year or for future taxable years. However, an actual
determination of PFIC status is fundamentally factual in nature and cannot be
made until the close of the applicable taxable year. Vivendi or Vivendi
Universal will be a PFIC for any taxable year in which either:
- 75% or more of its gross income is passive income; or
- its assets that produce passive income or that are held for the
production of passive income amount to at least 50% of the value of total
assets on average.
If Vivendi or Vivendi Universal were to become a PFIC, the tax applicable
to distributions on Vivendi Universal shares or to any gains realized on
disposition of Vivendi shares or Vivendi Universal shares (including in the
Vivendi/Vivendi Universal merger) may be less favorable to you. A U.S. holder or
potential U.S. holder should consult its own tax advisor regarding the PFIC
rules and their effect.
NON-U.S. HOLDERS OF VIVENDI UNIVERSAL SHARES
DIVIDENDS ON VIVENDI UNIVERSAL SHARES
Dividends paid to a non-U.S. holder of Vivendi Universal shares generally
will not be subject to U.S. federal income tax or withholding tax unless such
dividend income is effectively connected with the conduct of a trade or business
within the United States.
DISPOSITIONS OF VIVENDI UNIVERSAL SHARES
Gain recognized on a non-U.S. holder's sale or other taxable disposition of
Vivendi Universal shares generally will not be subject to U.S. federal income
tax or withholding tax unless (1) the gain is effectively connected with the
non-U.S. holder's conduct of a trade or business within the United States, (2)
in the case of an individual, the non-U.S. holder has been present in the United
States for 183 days or more during the taxable year of the sale or other taxable
disposition and certain other conditions are satisfied or (3) the non-U.S.
holder is subject to tax pursuant to the provisions of the Internal Revenue Code
of 1986 applicable to certain U.S. expatriates.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividend payments on the Vivendi Universal shares and proceeds from the
sale, exchange or other disposition of the Vivendi Universal shares may be
subject to information reporting to the U.S. Internal Revenue Service and
possible U.S. backup withholding. U.S. federal backup withholding generally is a
withholding tax imposed at the rate of 31% on specified payments to persons that
fail to furnish required information. Backup withholding will not apply to a
holder who furnishes a correct taxpayer identification number (in the case of a
U.S. holder) or certificate of foreign status (in the case of a non-U.S. holder)
and makes any other required certification, or who is otherwise exempt from
backup withholding. Any U.S. holders required to establish their exempt status
generally must file Internal Revenue Service Form W-9, entitled Request for
Taxpayer Identification Number and Certification. Finalized Treasury
regulations, which will be applicable to payments made after December 31, 2000,
have generally expanded the circumstances under which information reporting and
backup withholding may apply.
Amounts withheld as backup withholding may be credited against the holder's
U.S. federal income tax liability. The holder may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the Internal Revenue Service and furnishing any required
information.
EACH U.S. HOLDER AND NON-U.S. HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR
REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES, AND ITS
PARTICULAR CIRCUMSTANCES, UNDER THE INTERNAL REVENUE CODE OF 1986 AND THE LAWS
OF ANY OTHER TAXING JURISDICTION, OF THE VIVENDI/VIVENDI UNIVERSAL MERGER AND OF
HOLDING VIVENDI UNIVERSAL SHARES.
TAX CONSIDERATIONS FOR CANAL+ SHAREHOLDERS
The summary that follows sets out the material U.S. federal income tax
considerations to a U.S. holder (as defined under "-- Tax Considerations for
Vivendi Shareholders" and subject to the limitations set forth therein) of
CANAL+ shares who receives Vivendi Universal shares pursuant to the
Vivendi/CANAL+ transactions described herein and constitutes the opinion of
Cleary, Gottlieb, Steen & Hamilton, special tax advisor to CANAL+. The
discussion and counsel's opinion are based upon (i) certain factual
representations made by CANAL+, Vivendi Universal and others and (ii) the
assumption that the transactions described herein will be consummated in
accordance with the terms of the merger agreement and related agreements. CANAL+
will not seek a ruling from the IRS concerning the tax consequences of the
transactions described herein. An opinion of counsel is not binding on the IRS
and we can give no assurance that the IRS will not take a position contrary to
one or more positions reflected in the opinions below or that the courts will
uphold such opinions if challenged by the IRS.
This discussion provides no information on tax consequences of the
transactions described herein, if any, under applicable foreign, state, local
and other laws.
The summary does not purport to be a comprehensive description of all of
the tax considerations that may be relevant to any particular CANAL+
shareholder, including tax considerations that apply only to certain classes of
taxpayers or that are generally assumed to be known by taxpayers. Each CANAL+
shareholder should consult such shareholder's own tax advisor as to the specific
tax consequences of the transactions described herein to such shareholder,
including the application of foreign, state, local and other tax laws.
TAX CHARACTERIZATION OF THE VIVENDI/CANAL+ TRANSACTIONS
For U.S. federal income tax purposes, a U.S. holder of CANAL+ shares will
be treated first as receiving a distribution of shares of Canal Holdco from
CANAL+ and then exchanging the Canal Holdco shares for Vivendi Universal shares
pursuant to the merger of Canal Holdco and Vivendi Universal.
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TAX CONSEQUENCES OF THE DISTRIBUTION OF CANAL HOLDCO SHARES
The distribution of the Canal Holdco shares should constitute a tax-free
spin-off to U.S. holders of CANAL+ shares under section 355(a) of the Internal
Revenue Code of 1986. If the distribution so qualifies, it will have the
following U.S. federal income tax consequences to you:
- you will not recognize any income, gain, or loss as a result of your
deemed receipt of shares of Canal Holdco, except as described below in
connection with any cash you receive in lieu of a fractional share of
Canal Holdco shares;
- your holding period for the shares of Canal Holdco you are deemed to
receive in the distribution will include the period during which you held
your CANAL+ shares;
- your tax basis in your CANAL+ shares will be apportioned (based on
relative fair market values at the time of the distribution) between your
CANAL+ shares and the shares of Canal Holdco you are deemed to receive
(including any fractional interest in a share of Canal Holdco you are
deemed to receive) in the distribution; and
- if you receive cash in lieu of a fractional interest in a share of Canal
Holdco, you will be treated as if you received the fractional share as
part of the distribution and Canal Holdco redeemed it from you. You will
recognize capital gain or loss equal to the difference between the cash
you receive and the portion of your tax basis in your shares of Canal
Holdco that is attributable to the fractional share.
Under U.S. Treasury regulations, you will be required to attach to your
U.S. federal income tax return for your tax year in which the distribution
occurs a detailed statement setting forth information concerning the
applicability of section 355 of the Internal Revenue Code of 1986 to the
distribution.
If the distribution of the Canal Holdco shares does not qualify as a
tax-free spin-off under section 355(a) of the Internal Revenue Code of 1986, the
distribution would be treated for U.S. federal income tax purposes as a dividend
to the extent of CANAL+'s current and accumulated earnings and profits. Because
CANAL+ does not expect to be in a position to determine its earnings and profits
for U.S. federal income tax purposes, if the distribution is taxable, you should
assume that the entire fair market value of the Canal Holdco shares on the date
you are deemed to receive them would be treated as a dividend for U.S. tax
purposes. Your tax basis in the Canal Holdco shares received would equal their
fair market value on the date of the deemed receipt.
TAX CONSEQUENCES OF THE MERGER OF VIVENDI UNIVERSAL AND CANAL HOLDCO
The merger of Canal Holdco and Vivendi Universal should constitute a
reorganization within the meaning of section 368(a) of the Internal Revenue Code
of 1986 or a transaction described in section 351 of the Internal Revenue Code
of 1986. If it so qualifies:
- you should not recognize gain or loss on the deemed exchange of your
shares in Canal Holdco solely for Vivendi Universal shares, except:
-- if you receive cash in lieu of a fractional interest in Vivendi
Universal shares, you should be treated as though you received the
fractional share from Vivendi Universal as part of its acquisition
of Canal Holdco, followed by a redemption by Vivendi Universal of
that fractional share. You generally should recognize capital gain
or loss equal to the difference between the cash you receive and
the portion of your tax basis in Vivendi Universal shares
attributable to such fractional shares; and
-- with respect to any U.S. holder of CANAL+ who owns 5% or more of
the total voting power or the total value of the stock of Vivendi
Universal following the acquisition of Canal Holdco, unless such
holder enters into a "gain recognition agreement" in accordance
with applicable Treasury regulations;
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- your tax basis in the Vivendi Universal shares that you receive in
exchange solely for your shares of Canal Holdco pursuant to the merger
should be the same as your tax basis in the Canal Holdco shares
surrendered in exchange therefor; and
- your holding period for the Vivendi Universal shares that you receive in
the merger should include the period during which you held your shares of
Canal Holdco.
If the merger of Vivendi Universal and Canal Holdco does not qualify as a
reorganization as defined in section 368(a)(1) of the Internal Revenue Code of
1986 or a transaction described in section 351 of the Internal Revenue Code of
1986, you generally will recognize capital gain or loss measured by the
difference between (i) the fair market value of the Vivendi Universal shares you
receive over (ii) your tax basis in the Canal Holdco shares exchanged therefor.
Your tax basis in the Vivendi Universal shares received would equal their fair
market value on the date of receipt.
TAX CONSIDERATIONS FOR SEAGRAM SHAREHOLDERS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The summary that follows sets out the material consequences of the
arrangement under the Canadian Tax Act that will generally apply to Seagram
shareholders who, for purposes of the Canadian Tax Act at all relevant times:
- hold their Seagram common shares (and will hold any exchangeable shares
and Vivendi Universal ADSs on or after the arrangement) as "capital
property" and
- deal at arm's length with, and are not "affiliated" with, any of Seagram,
Vivendi Universal, Vivendi Universal Holdings or Vivendi Universal
Exchangeco and in respect of whom Vivendi Universal is not a "foreign
affiliate"
and constitutes the opinion of Osler, Hoskin & Harcourt LLP. For purposes of
this summary, terms which appear in quotation marks (other than headings of
sections of this joint proxy statement-prospectus) have the meanings given to
them by the relevant provisions of the Canadian Tax Act.
"Financial institutions" are generally deemed not to hold shares as
"capital property" under the mark-to-market rules in the Canadian Tax Act.
Shares held by other Seagram shareholders will generally be considered to be
held as "capital property" unless they are held as part of a business of buying
and selling securities or have been acquired in a transaction considered to be
an adventure in the nature of trade. Canadian resident shareholders whose
Seagram common shares (and exchangeable shares if no tax election is made, as
described below) might not otherwise qualify as "capital property" may be
entitled to obtain this qualification by making the irrevocable election under
section 39(4) of the Canadian Tax Act.
This summary is based on the current provisions of the Canadian Tax Act and
the regulations thereunder, the administrative and assessing policies and
practices published by the Canada Customs and Revenue Agency (CCRA) prior to
today, specific proposals to amend the Canadian Tax Act and regulations
thereunder publicly announced by or on behalf of the Canadian Minister of
Finance prior to today (referred to as the tax proposals) and a Vivendi
officer's certificate with respect to certain matters. No assurances can be
given that the tax proposals will be enacted in the form announced or at all.
This summary assumes that the transactions described herein will be consummated
in accordance with the terms of the plan of arrangement and related agreements.
This summary does not take into account or anticipate any changes in law or
administrative practice, other than the tax proposals, nor does it take into
account provincial or territorial taxes or taxes of countries other than Canada.
In particular, Seagram shareholders making the tax election described below
should consult their own advisors as to whether any provincial or territorial
equivalent election should be made. No advance tax ruling from the CCRA has been
sought or obtained in respect of the arrangement and accordingly no assurances
can be given that the CCRA will not assert a position contrary to one or more
positions reflected in the summary below.
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THIS DISCUSSION IS A GENERAL DESCRIPTION OF THE CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS MATERIAL TO THE ARRANGEMENT AND DOES NOT DEAL WITH ALL POSSIBLE
TAX CONSEQUENCES. WE HAVE NOT TAKEN INTO ACCOUNT YOUR PARTICULAR CIRCUMSTANCES
AND DO NOT ADDRESS CONSEQUENCES WHICH MAY BE PARTICULAR TO YOU UNDER PROVISIONS
OF CANADIAN INCOME TAX LAW. THEREFORE, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR
REGARDING THE PARTICULAR CONSEQUENCES TO YOU OF THE ARRANGEMENT.
In particular, this summary does not take into account:
- the mark-to market rules applicable to securities held by "financial
institutions";
- the Income Tax Application Rules, applicable to Seagram shareholders who
have held their Seagram common shares continuously since December 31,
1971 (or are deemed to have done so under those rules); or
- the tax consequences of participating in the holding company alternative
as described under "The Merger Transactions -- The Holding Company
Alternative."
For purposes of the Canadian Tax Act, all amounts relating to Vivendi
Universal ADSs must be expressed in Canadian dollars. Amounts denominated in
euros or U.S. dollars must be converted into Canadian dollars based on the euro
or U.S. dollar exchange rate generally prevailing at the time such amounts
arise.
The term ancillary rights refers collectively to the Vivendi Universal
voting rights described under "Securities -- Description of Vivendi Universal
Voting Rights" and the exchange rights against Vivendi Universal described under
"Securities -- Description of Exchangeable Shares -- Voting, Dividend and
Liquidation Rights -- Liquidation Rights with Respect to Vivendi Universal
Exchangeco" and "Securities -- Description of Exchangeable Shares -- Voting,
Dividend and Liquidation Rights -- Liquidation Rights with Respect to Vivendi
Universal." The term call rights refers to certain of the rights of Vivendi
Universal Holdings to purchase exchangeable shares from the holders thereof in
circumstances described under "Securities -- Description of Exchangeable
Shares."
In preparing this summary, it has been assumed that the obligations set out
in the documents governing the Vivendi Universal ADSs will be carried out as
described in those documents. Based on this assumption, holders of Vivendi
Universal ADSs will be treated as the owner of the Vivendi Universal shares
represented by those Vivendi Universal ADSs. In addition, based on views
expressed by Seagram, it has been assumed that the respective fair market values
of the call rights and the ancillary rights, as described above, is nominal.
This determination of value is not binding on the CCRA and it is possible that
the CCRA could take a contrary view. Counsel expresses no opinion as to the
appropriateness or accuracy of this view with respect to value.
SEAGRAM SHAREHOLDERS RESIDENT IN CANADA
The following portion of this summary applies to a Seagram shareholder who,
at all relevant times, is a Canadian resident. A Canadian resident is any person
who, for the purposes of the Canadian Tax Act and any bilateral tax treaty, is
or is deemed to be a Canadian resident at all relevant times.
Transfer of Seagram Common Shares to Vivendi Universal Holdings for Vivendi
Universal ADSs
Subject to the comments below under the heading "Economic Statement of
October 18, 2000," the exchange of Seagram common shares for Vivendi Universal
ADSs will generally be a taxable event to a Canadian resident. A Canadian
resident who transfers Seagram common shares to Vivendi Universal Holdings for
Vivendi Universal ADSs under the arrangement will be considered, at the
effective time of the arrangement, to:
- dispose of those Seagram common shares for proceeds of disposition equal
to the fair market value at that time of the Vivendi Universal ADSs
received on the exchange, plus any cash received in lieu of a fractional
Vivendi Universal ADS;
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- realize a capital gain (or capital loss) equal to the amount by which
those proceeds of disposition exceed (or are less than) the sum of: (1)
the Canadian resident's "adjusted cost base" of those Seagram common
shares determined immediately before that time, and (2) any reasonable
costs of disposition; and
- acquire those Vivendi Universal ADSs at a cost equal to their fair market
value at that time (which cost is averaged with the "adjusted cost base"
of any other Vivendi Universal ADSs held by the Canadian resident as
"capital property" at that time).
For a description of the tax treatment of capital gains and losses, see
"-- Capital Gains and Capital Losses."
Transfer of Seagram Common Shares to Vivendi Universal Exchangeco for
Exchangeable Shares and Ancillary Rights
The tax consequences to a Canadian resident who receives a combination of
exchangeable shares and ancillary rights under the arrangement will differ
significantly depending on whether a valid tax election is made in respect of
the exchange. THE EXCHANGE OF SEAGRAM COMMON SHARES FOR EXCHANGEABLE SHARES AND
ANCILLARY RIGHTS UNDER THE ARRANGEMENT WILL GENERALLY BE A TAXABLE EVENT TO A
CANADIAN RESIDENT UNLESS A VALID TAX ELECTION IS MADE.
No Tax Election. A Canadian resident who does not make a valid tax
election with Vivendi Universal Exchangeco under section 85 of the Canadian Tax
Act in respect of particular Seagram common shares will be considered, at the
effective time of the arrangement, to:
- dispose of those Seagram common shares for proceeds of disposition equal
to the fair market value at that time of the exchangeable shares and
ancillary rights received on the exchange, plus any cash received in lieu
of a fractional exchangeable share;
- realize a capital gain (or capital loss) equal to the amount by which
those proceeds of disposition exceed (or are less than) the sum of: (1)
the Canadian resident's "adjusted cost base" of those Seagram common
shares determined immediately before that time, and (2) any reasonable
costs of disposition; and
- acquire the exchangeable shares and ancillary rights received in exchange
for the Seagram common shares at a cost equal to their fair market value
at that time.
For a description of the tax treatment of capital gains and losses, see
"-- Capital Gains and Capital Losses."
Tax Election. Alternatively, a Canadian resident who is eligible and who
does make a valid tax election with Vivendi Universal Exchangeco under section
85 of the Canadian Tax Act in respect of particular Seagram common shares will
be considered, at the effective time of the arrangement, to:
- dispose of those Seagram common shares for proceeds of disposition equal
to the amount, which we refer to as the elected amount, that the Canadian
resident has elected in the tax election to be the proceeds of
disposition for those Seagram common shares (or is deemed to have so
elected under the limitations on permissible elected amounts described
below);
- not realize a capital gain (or capital loss) provided that the elected
amount is equal to the sum of: (1) the Canadian resident's "adjusted cost
base" of those Seagram common shares determined immediately before that
time, and (2) any reasonable costs of disposition;
- realize a capital gain (or capital loss) to the extent that the elected
amount exceeds (or is less than) the sum of: (1) and (2) described
immediately above;
- acquire the exchangeable shares received in exchange at a cost equal to
the elected amount minus the sum of: (1) any cash received in lieu of a
fractional exchangeable share, and (2) the fair market value of the
ancillary rights acquired on the exchange; and
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- acquire the ancillary rights at a cost equal to their fair market value
at that time.
For a description of the tax treatment of capital gains and losses, see
"-- Capital Gains and Capital Losses."
The Canadian Tax Act provides that the elected amount cannot be:
- greater than the fair market value of those Seagram common shares to
which the tax election applies;
- less than the sum of: (1) any cash received in lieu of a fractional
exchangeable share, and (2) the fair market value of the ancillary rights
acquired on the exchange; or
- less than the lesser of the Canadian resident's "adjusted cost base" of
those Seagram common shares and their fair market value,
in each case, determined at the effective time of the arrangement.
If an amount is elected in the tax election that is greater than the
permissible maximum or less than the permissible minimum, the elected amount is
deemed to be that permissible maximum or minimum (respectively).
A Canadian resident who is eligible to and who makes a valid tax election
with Vivendi Universal Exchangeco at the minimum permissible elected amount will
not realize a capital gain on the disposition of Seagram common shares unless
the sum of the holder's "adjusted cost base" of those shares immediately before
the effective time of the arrangement and any reasonable costs of disposition is
less than the sum of: (1) any cash received in lieu of a fractional exchangeable
share, and (2) the fair market value of the ancillary rights acquired on the
exchange. ACCORDINGLY, CANADIAN RESIDENTS WHO CHOOSE TO RECEIVE EXCHANGEABLE
SHARES AND WHO ARE ELIGIBLE TO MAKE THE TAX ELECTION WITH VIVENDI UNIVERSAL
EXCHANGECO WILL GENERALLY BE ABLE TO DEFER TAX FOR PURPOSES OF THE CANADIAN TAX
ACT ON ANY ACCRUED CAPITAL GAINS ON THEIR SEAGRAM COMMON SHARES BY VALIDLY
MAKING THE TAX ELECTION AT THE MINIMUM PERMISSIBLE ELECTED AMOUNT.
The federal tax election is a joint election under section 85 of the
Canadian Tax Act that Vivendi Universal Exchangeco will execute with eligible
holders who choose to receive exchangeable shares under the arrangement. For
this purpose, an eligible holder is a beneficial owner of Seagram common shares
who is a Canadian resident, including a partnership any member of which is a
Canadian resident, but does not include: (1) any such owner who is exempt from
tax under the Canadian Tax Act; or (2) any partnership, all of the members of
which who are Canadian residents are also exempt from tax under the Canadian Tax
Act. Vivendi Universal Exchangeco will only make a tax election with such
eligible holders.
Certain provincial or territorial jurisdictions may require that a separate
joint election be filed for provincial or territorial income tax purposes.
Vivendi Universal Exchangeco will also make a joint election with an eligible
holder under the provision of any relevant provincial or territorial income tax
law with similar effect to section 85 of the Canadian Tax Act. ELIGIBLE HOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE WHETHER SEPARATE ELECTION
FORMS MUST BE FILED WITH ANY PROVINCIAL OR TERRITORIAL TAXING AUTHORITY. Each
eligible holder who wishes to make such an election must obtain the necessary
provincial or territorial election forms and provide those forms to Vivendi
Universal Exchangeco.
Vivendi Universal Exchangeco will execute any properly completed tax
election forms and mail them to the eligible holder within 30 days after their
receipt. COMPLIANCE WITH THE REQUIREMENTS FOR VALID TAX ELECTIONS WILL BE THE
SOLE RESPONSIBILITY OF THE ELIGIBLE HOLDER. None of Vivendi Universal, Vivendi
Universal Exchangeco or Seagram will be responsible for taxes, interest,
penalties, damages or expenses resulting from the failure by anyone to properly
complete any tax election or to properly file it within the time and in the form
prescribed under the Canadian Tax Act (or the corresponding provisions of any
applicable provincial or territorial legislation).
In order to make a tax election, an eligible holder must provide to Vivendi
Universal Exchangeco, at the address indicated in the tax election package (to
be obtained from the exchange agent), two signed
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copies of the necessary tax election forms on or before the 90th day after the
effective date of the arrangement, duly completed with the details of the number
of Seagram common shares transferred in respect of which the eligible holder is
making a tax election and the applicable elected amount for the purposes of the
election. Subject to the election forms complying with the provisions of the
applicable tax law, the forms will be returned to the eligible holders, signed
by Vivendi Universal Exchangeco, for filing by the eligible holders with the
relevant tax authority. Vivendi Universal Exchangeco has no obligation to sign
any forms not received on or before the 90th day after the effective date of the
arrangement.
A tax election package, consisting of the relevant tax election forms and a
letter of instructions, may be obtained from the exchange agent. An eligible
holder interested in making a tax election should indicate this on the letter of
transmittal and election form that is enclosed with this joint proxy statement-
prospectus, and a tax election package will be sent to the holder. The relevant
federal tax election form is CCRA form T2057 (or, in the event that the Seagram
common shares are held as partnership property, CCRA form T2058).
In order for the CCRA to accept a tax election without a late filing
penalty, the tax election must be received by the CCRA on or before the earlier
of the days on which either Vivendi Universal Exchangeco or the eligible holder
is required to file an income tax return for the taxation year in which the
exchange occurs. Vivendi Universal Exchangeco's taxation year is scheduled to
end on December 31, 2000. Assuming the exchange occurs prior to December 31,
2000, the tax election will, in the case of an eligible holder who is an
"individual", generally have to be received by the CCRA by April 30, 2001.
Eligible holders other than "individuals" are urged to consult their own
advisors as soon as possible with respect to the deadlines applicable to their
own particular circumstances.
HOWEVER, REGARDLESS OF SUCH DEADLINE, THE TAX ELECTION MUST BE RECEIVED BY
VIVENDI UNIVERSAL EXCHANGECO AT THE ADDRESS TO BE SET OUT IN THE TAX ELECTION
PACKAGE (TO BE OBTAINED FROM THE EXCHANGE AGENT) NO LATER THAN THE 90TH DAY
AFTER THE EFFECTIVE DATE OF THE ARRANGEMENT. ANY ELIGIBLE HOLDER WHO DOES NOT
ENSURE THAT VIVENDI UNIVERSAL EXCHANGECO HAS RECEIVED A DULY COMPLETED TAX
ELECTION ON OR BEFORE THE 90TH DAY AFTER THE EFFECTIVE DATE OF THE ARRANGEMENT
WILL NOT BE ABLE TO BENEFIT FROM THE ROLLOVER PROVISIONS OF THE CANADIAN TAX
ACT. Accordingly, all eligible holders who wish to enter into a tax election
with Vivendi Universal Exchangeco should give their immediate attention to this
matter. Eligible holders are referred to Information Circular 76-19R3 and
Interpretation Bulletin IT-291R2 issued by the CCRA for further information
respecting the tax election. Eligible holders wishing to make the tax election
should consult their own tax advisors.
Whether or not a tax election is made, a Canadian resident that exchanges
Seagram common shares for exchangeable shares and ancillary rights will be
required to determine the fair market value of the ancillary rights received on
a reasonable basis for purposes of the Canadian Tax Act. Seagram is of the view
that the ancillary rights have only nominal fair market value. Counsel expresses
no opinion as to the appropriateness or accuracy of this valuation. This
determination of value is not binding on the CCRA and it is possible that the
CCRA could take a contrary view. Vivendi Universal Exchangeco has advised
counsel that the tax elections will be executed by Vivendi Universal Exchangeco
on the basis that the fair market value of the ancillary rights is a nominal
amount per exchangeable share issued on the exchange.
Call Rights
Seagram is of the view that the call rights have only nominal value.
Counsel expresses no opinion as to the appropriateness or accuracy of this
valuation. This determination of value is not binding on the CCRA and it is
possible that the CCRA could take a contrary view. On the basis that the value
of the call rights is nominal, the creation of the call rights will not result
in any material adverse income tax consequences to Canadian residents.
Dividends on Exchangeable Shares
For purposes of the discussion below, dividends generally include deemed
dividends.
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Dividends on exchangeable shares received by an "individual" (including
most trusts) are included in computing the individual's income when received and
are subject to the gross-up and dividend tax credit rules generally applicable
to taxable dividends received from a corporation resident in Canada.
Subject to the discussion below as to the denial of the dividend received
deduction, in the case of a Canadian resident that is a corporation, other than
a "specified financial institution," dividends received on the exchangeable
shares will be included in computing income and will generally be deductible in
computing taxable income. In the case of a Canadian resident that is a
"specified financial institution", a dividend will be deductible in computing
taxable income only if either: (1) the "specified financial institution" did not
acquire the exchangeable shares in the ordinary course of the business carried
on by it, or (2) at the time of the receipt of the dividend, the exchangeable
shares are listed on a "prescribed stock exchange in Canada" (which includes The
Toronto Stock Exchange) and the "specified financial institution", either alone
or together with persons with whom it does not deal at arm's length, does not
receive dividends in respect of more than 10% of the issued and outstanding
exchangeable shares.
If Vivendi Universal or any other person with whom Vivendi Universal does
not deal at arm's length is a "specified financial institution" when a dividend
is paid on an exchangeable share, then subject to the exemption described below,
dividends received by a Canadian resident that is a corporation will be included
in computing income but will not be deductible in computing taxable income.
Vivendi has advised counsel that it is a "specified financial institution" at
the current time. This denial of the dividend deduction will not however apply
if, at the time a dividend is received, the exchangeable shares are listed on a
"prescribed stock exchange" (which includes The Toronto Stock Exchange), Vivendi
Universal is "related" to Vivendi Universal Exchangeco (as it is now) and
dividends are not paid to the recipient (together with persons with whom the
recipient does not deal at arm's length, or any partnership or trust of which
the recipient or person is a member or beneficiary, respectively) in respect of
more than 10% of the issued and outstanding exchangeable shares.
A "private corporation" or a "subject corporation" may be liable under Part
IV of the Canadian Tax Act to pay a refundable tax of 33 1/3% on dividends
received on exchangeable shares to the extent they are deductible in computing
taxable income. A "Canadian-controlled private corporation" may be liable to pay
an additional refundable tax of 6 2/3% on dividends received on exchangeable
shares to the extent they are not deductible in computing taxable income.
Vivendi Universal Exchangeco will be subject to a 66 2/3% tax under the
Canadian Tax Act on dividends paid on the exchangeable shares in excess of an
annual dividend allowance and will be entitled to deduct 9/4 of the tax payable
in computing its taxable income. Dividends received on the exchangeable shares
will not be subject to the 10% tax under Part IV.1 of the Canadian Tax Act.
Redemption or Exchange of Exchangeable Shares
The tax treatment of amounts received on a disposition of exchangeable
shares depends on whether they are disposed of to Vivendi Universal Exchangeco
or another person. On a disposition of exchangeable shares to Vivendi Universal
Exchangeco (i.e., on a retraction or redemption of those shares), a Canadian
resident will generally be considered to:
- realize a deemed dividend equal to the amount by which the proceeds of
disposition received from Vivendi Universal Exchangeco (i.e., the fair
market value at the time of disposition of the Vivendi Universal ADSs
received and any cash in lieu of a fractional Vivendi Universal ADS, plus
any amount received in respect of unpaid dividends) exceed the "paid-up
capital" of those exchangeable shares at that time;
- realize a capital gain (or capital loss), equal to the amount by which
the proceeds of disposition described above, less the deemed dividend
described above, exceed (or are less than) the sum of: (1) the Canadian
resident's "adjusted cost base" of those exchangeable shares determined
immediately before the disposition, and (2) any reasonable costs of
disposition; and
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- acquire those Vivendi Universal ADSs, at a cost equal to their fair
market value at that time (which cost is averaged with the "adjusted cost
base" of any other Vivendi Universal ADSs, held by the Canadian resident
as "capital property" at that time).
For a description of the tax treatment of dividends, see "-- Dividends on
Exchangeable Shares." In the case of a Canadian resident that is a corporation,
in some cases, the deemed dividend may be considered not to be a dividend, but
rather proceeds of disposition. For a description of the tax treatment of
capital gains and losses, see "-- Capital Gains and Capital Losses."
On a disposition of exchangeable shares to Vivendi Universal Holdings
(i.e., on the exercise by Vivendi Universal Holdings of any of the call rights)
or Vivendi Universal (i.e., on the exercise of the exchange rights), subject to
the comments below under the heading "Economic Statement of October 18, 2000," a
Canadian resident will be considered to:
- dispose of those exchangeable shares for proceeds of disposition equal to
the fair market value determined at the time of disposition of the
Vivendi Universal ADSs received on the exchange and any cash in lieu of a
fractional Vivendi Universal ADS plus any amount received from Vivendi
Universal or Vivendi Universal Holdings equal to the amount of declared
and unpaid dividends on the exchangeable shares, unless this latter
amount is required to be included in computing income as a dividend;
- realize a capital gain (or capital loss) equal to the amount by which
those proceeds of disposition exceed (or are less than) the sum of: (1)
the Canadian resident's "adjusted cost base" of the exchangeable shares
determined immediately before the disposition, and (2) any reasonable
costs of disposition; and
- acquire those Vivendi Universal ADSs, at a cost equal to their fair
market value at that time (which cost is averaged with the "adjusted cost
base" of any other Vivendi Universal ADSs, held by the Canadian resident
as "capital property" at that time).
Because of the call rights and the exchange rights, a holder of
exchangeable shares cannot control whether the shares will be acquired by
Vivendi Universal Exchangeco (by way of retraction or redemption) or by Vivendi
Universal Holdings or Vivendi Universal (by the way of a purchase). As outlined
above, the income tax consequences of a redemption differ significantly from
those of a purchase. For a description of the tax treatment of capital gains and
losses, see "-- Capital Gains and Capital Losses."
Disposition of Exchangeable Shares other than on Redemption or Exchange
On a disposition of exchangeable shares other than to Vivendi Universal
Exchangeco (whether on a redemption or otherwise) or on an exchange, a Canadian
resident will realize a capital gain (or capital loss) equal to the amount by
which the proceeds of disposition received exceed (or are less than) the sum of:
(1) the Canadian resident's "adjusted cost base" of the exchangeable shares, and
(2) any reasonable costs of disposition. For a description of the tax treatment
of capital gains and losses, see "-- Capital Gains and Capital Losses."
Dividends on Vivendi Universal ADSs
Dividends on Vivendi Universal ADSs (and any avoir fiscal (a French tax
credit that is described under "-- French Tax Considerations of Holding and
Disposing of Vivendi Universal Shares")), including the amount of taxes withheld
therefrom, are included in the Canadian resident's income when received and are
not eligible for:
- the gross-up and dividend tax credit, in the case of recipients who are
"individuals"; or
- the deduction in computing taxable income, in the case of recipients that
are corporations;
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in each case, as described under "-- Dividends on Exchangeable Shares." A
"Canadian-controlled private corporation" may be liable to pay a refundable tax
of 6 2/3% on such amounts. French withholding tax on such amounts may be
credited against the Canadian resident's income tax payable or deducted from
income subject to limitations in the Canadian Tax Act. See "-- French Tax
Considerations of Holding and Disposing of Vivendi Universal Shares -- Canadian
Residents."
Disposition of Vivendi Universal ADSs
On a disposition of Vivendi Universal ADSs, a Canadian resident will
realize a capital gain (or capital loss) equal to the amount by which the
proceeds of disposition received exceed (or are less than) the sum of: (1) the
Canadian resident's "adjusted cost base" of those Vivendi Universal ADSs, and
(2) any reasonable costs of disposition. For a description of the tax treatment
of capital gains and losses, see "-- Capital Gains and Capital Losses."
Capital Gains and Capital Losses
Under the current provisions of the Canadian Tax Act, three-quarters of any
capital gain (the "taxable capital gain") is required to be included in the
Canadian resident's income for the taxation year of disposition, and
three-quarters of any capital loss (the "allowable capital loss") may generally
be deducted against the Canadian resident's "taxable capital gains" for the
taxation year of disposition. On February 28, 2000, the Canadian Minister of
Finance announced a proposal to reduce the portion of capital gains included as
"taxable capital gains" and capital losses included as "allowable capital
losses" from three-quarters to two-thirds, effective for dispositions occurring
after February 27, 2000. On October 18, 2000, the Canadian Minister of Finance
announced a proposal to further reduce the portion of capital gains included as
"taxable capital gains" and capital losses included as "allowable capital
losses" from two-thirds to one-half, effective for dispositions occurring after
October 17, 2000. Both proposals include special transitional rules governing
the inclusion rate of capital gains and capital losses realized in 2000.
"Allowable capital losses" in excess of "taxable capital gains" in a particular
taxation year can generally be deducted against the net "taxable capital gains"
of the three immediately prior taxation years or any later taxation year,
subject to certain limitations in the Canadian Tax Act and the tax proposals
described in this paragraph. Seagram shareholders realizing capital gains or
capital losses in 2000 or deducting "allowable capital losses" from one taxation
year against net "taxable capital gains" of another taxation year in which the
relevant inclusion rate differs should consult their own tax advisors as to how
the rules in the tax proposals described in this paragraph apply to their
particular circumstances.
When an "individual" (other than certain trusts) realizes a capital gain,
alternative minimum tax may arise, depending on the "individual's" particular
circumstances. A "Canadian-controlled private corporation" may be liable to pay
an additional refundable tax of 6 2/3% on "taxable capital gains."
The amount of any capital loss realized by a corporation on the disposition
of a share may be reduced by the amount of dividends received or deemed to be
received on that share. Similar rules may apply where a corporation is a member
of a partnership or a beneficiary of a trust that owns shares, directly or
indirectly through a partnership or trust.
Foreign Investment Entity Draft Legislation
On June 22, 2000, the Canadian Minister of Finance released draft
legislation to amend the Canadian Tax Act to implement a proposal concerning the
taxation of holdings in "foreign investment entities." On September 7, 2000 the
Minister of Finance issued a release announcing that the implementation date and
the consultation period for the draft legislation would be extended, that
certain modifications to the draft legislation would be made and that revised
draft legislation would be released early in 2001. In general terms, the draft
legislation would apply to a share in or a right to acquire a share of a
"foreign investment entity." Vivendi Universal would be a "foreign investment
entity" if the "carrying value" of its "investment property" is more than 50% of
the "carrying value" of all of its property, determined in accordance with
detailed rules in the draft legislation.
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If Vivendi Universal were a "foreign investment entity" (and certain
exceptions did not apply), a Canadian resident would be required to take into
account in computing income, on an annual basis, any increase (or decrease) in
the value of the exchangeable shares during each taxation year, subject to a
deferral of gains accrued prior to January 1, 2002. A Canadian resident would be
required to mark-to-market its Vivendi Universal ADSs or, if the Canadian
resident so elects and the relevant information is made available, to take into
account in computing income the relevant share in the underlying income of
Vivendi Universal, calculated in accordance with Canadian tax rules (whether or
not cash distributions were received by the Canadian resident).
The proposed new rules would generally apply for taxation years after 2001
and would require a determination, on an annual basis, as to whether or not
Vivendi Universal is a "foreign investment entity" (and, if so, whether certain
other exceptions to the rules might apply).
Based on the draft legislation as it is proposed to be amended and a
preliminary review of certain currently available financial information, Vivendi
believes, based in part on information provided by Seagram, that if the
arrangement were completed today, it is unlikely that Vivendi Universal would,
as of today's date, be a "foreign investment entity" and, although no assurances
can be given in that regard, Vivendi is not aware of any circumstance that would
cause this conclusion to change in the future. The draft legislation is complex
and if applicable may affect both the timing and in certain cases the character
of amounts included in income in respect of holding exchangeable shares or
Vivendi Universal ADSs. In addition, there is considerable uncertainty as to
whether the draft legislation will be implemented in its current form.
Accordingly, Canadian residents should consult their tax advisors regarding the
possible application of these rules.
Economic Statement of October 18, 2000
In the Economic Statement released on October 18, 2000, the Canadian
Minister of Finance announced a proposal to formulate and introduce a rule to
permit shares of a Canadian corporation held by a Canadian resident to be
exchanged for shares of a foreign corporation on a tax-deferred basis. This
statement included no details of the circumstances in which such tax-deferred
share-for-share exchange could occur but rather indicated that these rules would
be developed in consultation with the private sector. The Minister's statement
indicated that any such rule would not be effective before the public release of
draft legislation including such rule.
Based on the time frame in which the plan of arrangement is expected to be
completed and the typical time frame in which draft legislation involving
private sector consultation is developed and introduced, it is unlikely that
draft legislation containing the proposed rule described above will be released
in time to affect the exchange by Seagram shareholders of their Seagram common
shares for Vivendi Universal ADSs pursuant to the plan of arrangement. In the
case of Seagram shareholders who receive exchangeable shares pursuant to the
plan of arrangement, draft legislation containing the proposed rule described
above could be released in time to affect the subsequent exchange of such
exchangeable shares for Vivendi Universal ADSs, and it is therefore possible
that such exchange may be achieved on a tax-deferred basis. In any case, until
such rule is developed and released, it is not possible to state whether it
would apply to a Seagram shareholder on the exchange of Seagram common shares
for Vivendi Universal ADSs pursuant to the plan of arrangement or the subsequent
exchange of exchangeable shares for Vivendi Universal ADSs. Seagram shareholders
should consult their own tax advisors once the draft legislation is released to
determine how it might apply to their particular circumstances.
Dissenting Seagram Shareholders
A Canadian resident exercising dissent rights who is ultimately entitled to
be paid fair market value for Seagram common shares will generally be considered
to realize:
- a deemed dividend that must be included in the Canadian resident's
income, computed as the amount by which that payment (other than any
interest portion, which must also be included in income) exceeds the
"paid-up capital" of those Seagram common shares at that time; and
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- a capital gain (or capital loss), equal to the amount by which that
payment exceeds (or is less than) the sum of: (1) any interest portion of
the payment, (2) the deemed dividend, (3) the Canadian resident's
"adjusted cost base" of those Seagram common shares, and (4) any
reasonable costs of disposition.
In the case of a Canadian resident that is a corporation, in some
circumstances the deemed dividend may be considered not to be a dividend, but
rather proceeds of disposition. For a description of the tax treatment of
capital gains and losses, see "-- Capital Gains and Capital Losses."
SEAGRAM SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of this summary applies to a Seagram shareholder,
referred to herein as a non-resident, who, at all relevant times:
- is not a Canadian resident;
- does not hold or use Seagram common shares or Vivendi Universal ADSs in
connection with carrying on a business in Canada;
- is not an insurer carrying on business in Canada and elsewhere; and
- to whom the Seagram common shares and Vivendi Universal ADSs are not
otherwise "taxable Canadian property."
Generally, Seagram common shares and Vivendi Universal ADSs will not be
"taxable Canadian property" to a non-resident at a particular time provided that
the shares (or in the case of Vivendi Universal ADSs, the underlying Vivendi
Universal shares) are listed on a "prescribed stock exchange" (which includes
The Toronto Stock Exchange and the Paris Bourse) and the non-resident and
persons not dealing at "arm's length" with the non-resident did not collectively
own 25% or more of the shares of any class or series of Seagram or Vivendi
Universal shares (including interests in and options to acquire such shares),
respectively, at any time during the 60-month period ending at the particular
time.
Transfer of Seagram Common Shares to Vivendi Universal Holdings for Vivendi
Universal ADSs and Disposition of Vivendi Universal ADSs
On a transfer of Seagram common shares to Vivendi Universal Holdings for
Vivendi Universal ADSs on the arrangement or a subsequent disposition of Vivendi
Universal ADSs, a non-resident will not be subject to tax under the Canadian Tax
Act.
Dissenting Seagram Shareholders
A non-resident exercising dissent rights as described under "The
Shareholder Meetings -- The Seagram Meeting -- Dissenting Shareholder Rights"
and who is ultimately entitled to be paid fair market value for Seagram common
shares will generally realize a deemed dividend and a capital gain or loss as
described above in the corresponding portion of this summary dealing with
Canadian residents. Deemed dividends (and any interest) paid to such a
non-resident will be subject to withholding under the Canadian Tax Act at the
rate of 25%, subject to possible reduction under an applicable tax treaty.
ELIGIBILITY FOR INVESTMENT IN CANADA
Provided that the exchangeable shares are listed on a "prescribed stock
exchange" (which includes The Toronto Stock Exchange), the exchangeable shares
will, on the date of issue, be "qualified investments" for trusts governed by
"registered retirement savings plans", "registered retirement income funds",
"deferred profit sharing plans" or "registered education savings plans." Vivendi
Universal ADSs will, on the date of issue, be "qualified investments" for such
trusts provided that the underlying Vivendi Universal shares are listed on a
"prescribed stock exchange" (which includes the Paris Bourse).
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Ancillary rights (as described above) received by holders of exchangeable
shares will not be "qualified investments" for such trusts. As described above,
Seagram is of the view that the ancillary rights have only nominal fair market
value. Counsel expresses no opinion as to the appropriateness or accuracy of
this valuation. This determination of value is not binding on the CCRA and it is
possible that the CCRA could take a contrary view. On the basis that the fair
market value of the ancillary rights is nominal, there should be no material
consequences to trusts governed by "registered retirement savings plans,"
"registered retirement income funds" or "deferred profit sharing plans" from
holding such ancillary rights as non-"qualified investments." However,
"registered education savings plans" holding such ancillary rights as
non-"qualified investments" may realize material adverse consequences and should
consult their own tax advisors on this matter.
Provided that the exchangeable shares are listed on a "prescribed stock
exchange in Canada" (which includes The Toronto Stock Exchange), the
exchangeable shares will not be "foreign property" on the date of issue.
Ancillary rights will be "foreign property", although (as described above)
Seagram is of the view that their fair market value is only nominal. Counsel
expresses no opinion as to the appropriateness or accuracy of this valuation.
This determination is not binding on the CCRA and it is possible that the CCRA
could take a contrary view. Vivendi Universal ADSs will be "foreign property."
Trusts governed by "registered pension plans", "registered retirement
savings plans", "registered retirement income funds" or "deferred profit sharing
plans" and certain other persons described in Part XI of the Canadian Tax Act
are subject to a penalty tax on the "cost amount" of "foreign property" that
they own in excess of certain limits. Under the current provisions of the
Canadian Tax Act, the general limit is 20% of the "cost amount" of all property
owned, and pursuant to the tax proposals, that limit will be 25% for the year
2000 and 30% after the year 2000. The penalty tax is imposed at a rate of 1% per
month of the "cost amount" of the excess "foreign property."
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The summary that follows sets out the material U.S. federal income tax
considerations to a U.S. holder (as defined under "-- Tax Considerations for
Vivendi Shareholders" and subject to the limitations set forth therein) of
Seagram common shares who receives Vivendi Universal shares pursuant to the
arrangement and constitutes the opinion of Simpson Thacher & Bartlett, special
tax counsel to Seagram. The discussion and counsel's opinion are based upon (i)
certain factual representations made by Seagram, Vivendi Universal and others
and (ii) the assumption that the transactions described herein will be
consummated in accordance with the terms of the merger agreement and related
agreements. Seagram will not seek a ruling from the IRS concerning the tax
consequences of the transactions described herein. An opinion of counsel is not
binding on the IRS and we can give no assurance that the IRS will not take a
position contrary to one or more positions reflected in the opinions below or
that the courts will uphold such opinions if challenged by the IRS.
TRANSFER OF SEAGRAM COMMON SHARES TO VIVENDI UNIVERSAL HOLDINGS FOR VIVENDI
UNIVERSAL SHARES.
A transfer of Seagram common shares to Vivendi Universal Holdings for
Vivendi Universal shares under the arrangement will be an exchange described in
section 351 of the Internal Revenue Code of 1986. As a result:
- no gain or loss will be recognized by U.S. holders of Seagram common
shares who exchange their Seagram common shares for Vivendi Universal
shares except:
-- with respect to any cash received in lieu of a fractional Vivendi
Universal share in the arrangement; and
-- with respect to any U.S. holder of Seagram common shares who owns 5%
or more of the total voting power or the total value of the stock of
Vivendi Universal following the arrangement, unless such holder
enters into a "gain recognition agreement" in accordance with
applicable Treasury regulations.
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- the tax basis to a U.S. holder of Vivendi Universal shares received in
exchange for Seagram common shares in the arrangement, including any
fractional share interest in Vivendi Universal for which cash is
received, will equal the U.S. holder's tax basis in the Seagram common
shares exchanged.
- the holding period of a U.S. holder in Vivendi Universal shares received
in the arrangement will include the holding period of the Seagram common
shares exchanged.
- A U.S. holder who receives cash instead of a fractional share of Vivendi
Universal in the arrangement should be treated as having received the
cash in exchange for the fractional share interest and generally should
recognize capital gain or loss on the deemed exchange in an amount equal
to the difference between the amount of cash received and the basis of
the Seagram common shares allocable to that fractional share.
If the arrangement does not qualify as an exchange described in section 351
of the Internal Revenue Code of 1986, each U.S. holder of Seagram common shares
will generally recognize taxable gain or loss measured by the difference between
(1) the fair market value of the Vivendi Universal shares received and (2) such
shareholder's tax basis in the Seagram common shares exchanged.
DISSENTING SEAGRAM SHAREHOLDERS
A Seagram shareholder exercising dissent rights who is ultimately entitled
to be paid fair market value for Seagram common shares will generally be
considered to recognize capital gain or capital loss equal to the difference
between the amount of that payment and the holder's tax basis in the shares.
Such capital gain or loss will be long-term capital gain or loss if the Seagram
shareholder held its shares for more than 12 months prior to the completion of
the arrangement.
The tax consequences of holding Vivendi Universal shares are summarized
under the heading "-- Tax Considerations for Vivendi Shareholders -- Tax
Consequences of Holding Vivendi Universal Shares."
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES, AND ITS PARTICULAR CIRCUMSTANCES,
UNDER THE INTERNAL REVENUE CODE OF 1986 AND THE LAWS OF ANY OTHER TAXING
JURISDICTION, OF THE ARRANGEMENT AND OF HOLDING VIVENDI UNIVERSAL SHARES.
FRENCH TAX CONSIDERATIONS OF HOLDING AND
DISPOSING OF VIVENDI UNIVERSAL SHARES
The summary that follows sets out the material French income tax
considerations applicable to dividends received in connection with Vivendi
Universal shares and to capital gains derived, in each case, from the sale of
Vivendi Universal shares by a shareholder having his or her tax residence
outside France and constitutes the opinion of Bureau Francis Lefebvre. This
summary is based on the current provisions of French tax laws, which do not
contain any express provisions relating to dividends paid to or capital gains
made by shareholders holding only depositary receipts evidencing ownership of
the underlying shares in respect of which dividends are paid or capital gains
are made.
DIVIDENDS
Dividends of a French company, such as Vivendi Universal, paid to a
shareholder having his or her tax residence outside France are generally subject
to a 25% withholding tax and do not give rise to the transfer of the avoir
fiscal. The applicability of the withholding tax may, however, be subject to
reduction in accordance with the particular tax treaty between France and the
jurisdiction of residence of the dividend recipient.
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U.S. Residents
The following is a general summary of the principal French tax consequences
that apply to you as a holder of Vivendi Universal shares, if all of the
following requirements are met:
- you own, directly or indirectly, less than 10% of the share capital of
Vivendi Universal;
- you are:
-- a citizen or resident of the United States for U.S. federal income
tax purposes;
-- a U.S. domestic corporation; or
-- otherwise subject to U.S. federal income taxation on a net income
basis in respect of your shares of Vivendi Universal;
- you are entitled to the benefits of the U.S.-France tax treaty under the
"Limitations of Benefits" article of that treaty;
- you hold your Vivendi Universal shares as capital assets;
- your functional currency is the U.S. dollar; and
- your ownership of the Vivendi Universal shares is not effectively
connected with a permanent establishment or a fixed base in France.
Withholding Tax. Under the U.S.-France tax treaty, you will be subject to
withholding on dividends at the reduced rate of 15%, provided that you:
- complete French Treasury Form RF1 A EU-No. 5052 and return it to French
tax authorities before the date of payment of the dividend. If you are
not an individual, you must also send the French tax authorities an
affidavit attesting that you are the beneficial owner of all the rights
attached to the full ownership of the shares; or
- if you cannot complete French Treasury Form RF1 A EU-No. 5052 before the
date of payment of the dividend, you may complete a simplified
certificate and send it to the French tax authorities. This certificate
must state that:
-- you are a resident of the U.S. for purposes of the U.S.-France tax
treaty;
-- your ownership of Vivendi Universal shares is not effectively
connected with a permanent establishment or a fixed base in France;
-- you own all the rights attached to the full ownership of the shares,
including, among other things, the dividend rights;
-- you are subject to U.S. income tax on the payment of the dividend and
the reduced avoir fiscal and you are the full owner of the shares;
-- you meet all the requirements of the U.S.-France tax treaty for the
reduced rate of withholding tax; and
-- you claim the reduced rate of withholding tax.
If you have not completed French Treasury Form RF1 A EU-No. 5052 or the
simplified certificate before the dividend payment date, you will be subject to
French withholding tax at the rate of 25%. In that case, you may claim a refund
of the excess withholding tax by completing and providing the French tax
authorities with French Treasury Form RF1 A EU-No. 5052 before December 31 of
the calendar year following the year during which the dividend is paid. Please
note that the French tax authorities have recently accepted that such claims can
be provided until December 31 of the second calendar year following the year
during which the withholding tax is levied.
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Avoir Fiscal. Under the U.S.-France tax treaty, you may be entitled, in
certain circumstances, to the avoir fiscal. The avoir fiscal is generally equal
to 50% of the dividend paid for individuals or for companies owning a stake
exceeding 10% or FF 150 million (or 5% as of January 1, 2001 if certain proposed
legislation is adopted) and 40% for other shareholders. Please note that the 40%
rate of avoir fiscal could be reduced to 25% for dividends paid in year 2000 and
to 15% for dividends paid in 2001, should the modification of the legislation
currently examined by the French Parliament in the course of the discussion of
the 2001 Finance Bill be definitively adopted as presently drafted. In addition,
if this legislation is adopted, companies owning less than a 5% stake in a
French company would only be entitled to the avoir fiscal at the reduced rate of
25% or 15%, but companies owning more than a 5% stake in a French company would
be entitled to the avoir fiscal at the increased rate of 50%. Being an
individual or a company that owns, directly or indirectly, less than 10% of the
share capital of Vivendi Universal, you may be entitled to a payment equal to
the avoir fiscal, less a 15% withholding tax, if any one of the following
applies to you:
- you are an individual or other non-corporate holder that is a resident of
the U.S. for purposes of the U.S.-France tax treaty;
- you are a U.S. corporation, other than a regulated investment company;
- you are a U.S. corporation that is a regulated investment company and
that owns, directly or indirectly, less than 10% of the share capital of
our company, provided that less than 20% of your shares or ADSs are
beneficially owned by persons who are neither citizens nor residents of
the U.S.; or
- you are a partnership or a trust that is a resident of the United States
for purposes of the U.S.-France tax treaty, but only to the extent that
your partners, beneficiaries or grantors would qualify as eligible under
the first or second points on this list and are subject to U.S. income
tax with respect to such dividends and the payment of the avoir fiscal.
If you are eligible, you may claim the avoir fiscal by completing French
Treasury Form RF1 A EU-No. 5052 and sending it to the French tax authorities
before December 31 of the year following the year in which the dividend is paid.
Please note that the French tax authorities have recently accepted that such
claims can be provided until December 31 of the second calendar year following
the year during which the withholding tax is levied. As noted below, you will
not receive this payment until after January 15 of the calendar year following
the year in which the dividend was paid. To receive the payment, you must submit
a claim to the French tax authorities and attest that you are subject to U.S.
income taxes on the payment of the avoir fiscal and the related dividend and
that you are the full owner of the shares. For partnerships or trusts, the
partners, beneficiaries or grantors, as applicable, must make this attestation.
Additional specific rules apply to the following:
- tax-exempt U.S. pension funds, which include the exempt pension funds
established and managed in order to pay retirement benefits subject to
the provisions of Section 401(a) of the Internal Revenue Code of 1986
(qualified retirement plans), Section 403 of the Internal Revenue Code of
1986 (tax deferred annuity contracts) or Section 457 of the Internal
Revenue Code of 1986 (deferred compensation plans); and
- various other tax-exempt entities, including certain state-owned
institutions, not-for-profit organizations and individuals (with respect
to dividends they beneficially own and that are derived from an
individual retirement account).
Entities in these two categories are eligible for a reduced withholding tax
rate of 15% on dividends, subject to the same withholding tax filing
requirements as eligible U.S. holders, except that they may have to supply
additional documentation evidencing their entitlement to these benefits. These
entities are not entitled to the full avoir fiscal. They may claim a partial
avoir fiscal equal to 30/85 (approximately 35.3%) of the gross avoir fiscal,
provided that they own, directly or indirectly, less than 10% of the capital of
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Vivendi Universal and that they satisfy the filing formalities specified in U.S.
Internal Revenue Service regulations.
The avoir fiscal or partial avoir fiscal and any French withholding tax
refund are generally expected to be paid within 12 months after the holder of
shares files the applicable French Tax Forms. However, they will not be paid
before January 15 following the end of the calendar year in which the dividend
is paid.
The Precompte. A French company must pay an equalization tax known as the
"precompte" to the French tax authorities if it distributes dividends out of:
- profits that have not been taxed at the ordinary corporate income tax
rate; or
- profits that have been earned and taxed more than five years before the
distribution.
The amount of the precompte is 50% of the net dividends before withholding
tax.
In the situation where Vivendi Universal would pay the precompte, the
shareholders entitled to the avoir fiscal at the 40% rate (reduced to 25% or 15%
if the 2001 Finance Bill, as currently drafted, is adopted), would also be
entitled to a specific tax credit equal 20% (increased to 50% or 70% if the 2001
Finance Bill, as currently drafted, is adopted) of the precompte paid by Vivendi
Universal. According to our information foreign shareholders entitled to the
avoir fiscal at the 40% rate (reduced to 25% or 15% if the 2001 Finance Bill, as
currently drafted, is adopted) should also be entitled to this specific tax
credit.
If you are not entitled to the full avoir fiscal (as described above), you
may generally obtain a refund from the French tax authorities of any precompte
paid by Vivendi Universal with respect to dividends distributed to you. Under
the U.S.-France tax treaty, the amount of the precompte refunded to U.S.
residents is reduced by the 15% withholding tax applied to dividends and by the
partial avoir fiscal, if any. You are entitled to a refund of any precompte that
Vivendi Universal actually pays in cash, but not to any precompte that Vivendi
Universal pays by offsetting French and/or foreign tax credits. To apply for a
refund of the precompte, you should file French Treasury Form RF1 B EU-No. 5053
before the end of the year following the year in which the dividend was paid.
Canadian Residents
The following is a general summary of the main French tax consequences that
apply to you as a holder of Vivendi Universal shares, if all the following
requirements are met:
- you hold, directly or indirectly, less than 10% of the share capital of
Vivendi Universal;
- you are a resident of Canada for the purposes of the Canada-France tax
treaty;
- your ownership of the Vivendi Universal shares is not effectively
connected with a permanent establishment or a fixed base in France.
Withholding Tax. Under the Canadian-France tax treaty, you will be subject
to withholding on dividends at the reduced rate of 15%, provided that you:
- Complete French Treasury Form RF No. 5001 A and return it to the French
tax authorities before the date of payment of the dividend.
- If you cannot complete French Treasury Form RF No. 5001 A before the date
of payment of the dividend, you may complete a simplified certificate and
send it to the French tax authorities. This certificate must state that:
-- you are a resident of Canada for purposes of the Canada-France tax
treaty;
-- your ownership of Vivendi Universal shares is not effectively
connected with a permanent establishment or a fixed base in France;
-- you own all the rights attached to the full ownership of the shares,
including, among other things, the dividend rights;
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-- you are subject to Canadian income tax on the payment of the dividend
and the related avoir fiscal and you are the full owner of the
shares;
-- you meet all the requirements of the Canada-France tax treaty for the
reduced rate of withholding tax; and
-- you claim the reduced rate of withholding tax.
If you have not completed French Treasury Form No. 5001A or the simplified
certificate before the dividend payment date, you will be subject to French
withholding tax at the rate of 25%. In that case, you may claim a refund of the
excess withholding tax by completing and providing the French tax authorities
with French Treasury Form No. 5001 A before December 31 of the calendar year
following the year during which the dividend is paid. Please note that the
French tax authorities have recently accepted that such claims can be provided
until December 31 of the second calendar year following the year during which
withholding tax is levied.
Avoir Fiscal. Under the Canada-France tax treaty, you may be entitled, in
certain circumstances, to a French tax credit called the avoir fiscal. The avoir
fiscal is generally equal to 50% of the dividend paid for individuals or for
companies owning a stake exceeding 10% or FF 150 million (or 5% as of January 1,
2001 if certain proposed legislation is adopted), and 40% of the dividend paid
for other shareholders. Please note that the 40% rate of avoir fiscal could be
reduced to 25% for dividends paid in year 2000 and to 15% for dividends paid in
2001, should the modification of the legislation currently examined by the
French Parliament in the course of the discussion of the 2001 Finance Bill be
definitively adopted as presently drafted. In addition, if this legislation is
adopted, companies owning less than a 5% stake in a French company would only be
entitled to the avoir fiscal at the reduced rate of 25% or 15%, but companies
owning more than a 5% stake in a French company would be entitled to the avoir
fiscal at the increased rate of 50%.
Being an individual or a company that owns, directly or indirectly, less
than 10% of the share capital of Vivendi Universal, you may be entitled to a
payment equal to the avoir fiscal, less a 15% withholding tax, if you are the
beneficial owner of the dividends.
If you are eligible, you may claim the avoir fiscal by completing French
Treasury Form No. 5001 A and sending it to the French tax authorities before
December 31 of the year following the year in which the dividend is paid. Please
note that the French tax authorities have recently accepted that such claims can
be provided until December 31 of the second calendar year following the year
during which the withholding tax is levied. The Canadian tax authorities must
attest that you are subject to Canadian income taxes on the payment of the avoir
fiscal and the related dividend and you are the full owner of the shares.
The avoir fiscal or any French withholding tax refund is generally expected
to be paid within 12 months after the holder of shares files applicable French
Tax Forms. However, you will not receive any payment before January 15 following
the end of the calendar year in which the dividend is paid.
Precompte. A French company must pay an equalization tax known as the
precompte to the French tax authorities if it distributes dividends out of:
- profits that have not been taxed at the ordinary corporate income tax
rate;
- profits that have been earned and taxed more than five years before
the distribution; or
The amount of the precompte is 50% of the net dividends before withholding
tax.
In the situation where Vivendi Universal would pay the equalization tax
("precompte"), the shareholders entitled to the avoir fiscal at the 40% rate
(reduced to 25% or 15% if the 2001 Finance Bill, as currently drafted, is
adopted) would also be entitled to a specific tax credit equal 20% (increased to
50% or 70% if the 2001 Finance Bill, as currently drafted, is adopted), of the
precompte paid by Vivendi Universal. According to our information foreign
shareholders entitled to the avoir fiscal at the 40% rate
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(reduced to 25% or 15% if the 2001 Finance Bill, as currently drafted, is
adopted), should also be entitled to this specific tax credit.
Shareholders that are not entitled to a payment equal to the avoir fiscal
may generally obtain a refund from the French tax authorities of any precompte
paid by Vivendi Universal with respect to dividends distributed.
As an individual or a company that owns less than 10% of the share capital
of Vivendi Universal entitled to the avoir fiscal, you should not have to claim
a refund of the precompte.
If you are a resident of Quebec, the specific rules from the fiscal
agreement concluded between Quebec and France may apply to dividends distributed
by Vivendi Universal.
TAXATION OF CAPITAL GAINS
Subject to the provisions of applicable tax treaties, capital gains
realized at the time of the sale of securities by persons who do not have their
tax residence in France in accordance with article 4B of the French Tax Code, or
whose registered office is located outside of France (and which does not have a
permanent establishment or fixed base in France whose assets include the shares
being sold) are not taxable in France provided that the vendor and his family
group have not directly or indirectly held more than 25% of the rights to
earnings of the company at any time during the five years preceding the sale.
U.S. Residents
If you are a resident of the U.S. for purposes of the U.S.-France tax
treaty, you will not be subject to French tax on any capital gain if you sell or
exchange your Vivendi Universal shares, unless you have a permanent
establishment or fixed base in France and the Vivendi Universal shares you sold
or exchanged were part of the business property of that permanent establishment
or fixed base. Special rules apply to individuals who are residents of more than
one country.
Canadian Residents
If you are a resident of Canada for purposes of the Canada-France tax
treaty, you will not be subject to French tax on any capital gain if you sell or
exchange your Vivendi Universal shares, unless you (i) are a national of France
or have been a resident of France for ten years or more prior to the date of the
sale and, (ii) have been a resident of France at any time within the five-year
period immediately preceding the date of the sale.
If an individual meets these two conditions, capital gains realised on the
sale or exchange of Vivendi Universal shares will also be subject to French tax
(taxation at the proportional rate of 16%). Generally, under French tax law
(art. 244 bis C of the French Tax Code) such gains are nevertheless tax-exempt
when realized by non-residents. Individuals who may qualify for this exemption
should consult their tax advisors to determine the applicability of this rule to
their specific situation.
If you are a resident of Quebec, the specific rules from the fiscal
agreement concluded between Quebec and France may apply to capital gains
realised on the sale or exchange of your Vivendi Universal shares.
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FRENCH ESTATE AND GIFT TAXES
U.S. Residents
Under "The Convention Between the United States of America and the French
Republic for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November 24,
1978," if you transfer your Vivendi Universal ADSs by gift or if they are
transferred by reason of your death, that transfer will be subject to French
gift or inheritance tax only if one of the following applies:
- you are domiciled in France at the time of making the gift, or at the
time of your death; or
- you used the Vivendi Universal shares in conducting a business through a
permanent establishment or fixed base in France, or you held the Vivendi
Universal shares for that use.
Canadian Residents
No tax treaty has been concluded between France and Canada with respect to
inheritance and gift tax (or between France and Quebec). If you transfer your
Vivendi Universal shares by gift or if they are transferred by reason of your
death, that transfer will be subject to French gift or inheritance tax, even if
the beneficiary (your heir or donee) is not a resident of France.
FRENCH WEALTH TAX
U.S. Residents
The French wealth tax does not generally apply to shares if the holder is a
resident of the United States for purposes of the U.S.-France tax treaty.
Canadian Residents
The French wealth tax does not generally apply to shares if the holder is a
resident of Canada for purposes of the Canada-France tax treaty.
THE ABOVE IS A SUMMARY ONLY OF CERTAIN FRENCH TAX CONSIDERATIONS FOR U.S.
AND CANADIAN RESIDENT HOLDERS OF VIVENDI UNIVERSAL SHARES. IT IS OF A GENERAL
NATURE ONLY AND EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX, FINANCIAL
AND LEGAL ADVISORS AS TO THE CONDITIONS UNDER WHICH SUCH PERSON MAY BENEFIT FROM
A REDUCTION OF THE FRENCH WITHHOLDING TAX AND FROM A TRANSFER OF THE AVOIR
FISCAL UNDER THE PROVISIONS OF ANY APPLICABLE TAX TREATY.
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CHAPTER EIGHT -- THE VIVENDI PARTIES AND CANAL+
VIVENDI
Vivendi is one of Europe's largest companies with revenue in 1999 of E41.6
billion. Its businesses are focused primarily on two core areas: communications
(1999 revenue of E8.6 billion) and environmental management services (1999
revenue of E22.4 billion). It operates a number of leading and increasingly
integrated businesses within these core areas:
<TABLE>
<CAPTION>
CORE AREAS/SEGMENTS: KEY SUBSIDIARIES/BRANDS:
--------------------------------- ---------------------------------
<S> <C>
COMMUNICATIONS
Telecommunications Cegetel
Multimedia and Publishing Havas
Audiovisual and Pay Television CANAL+
Internet Vivendi Net
ENVIRONMENT
Water Vivendi Water
Waste Management Onyx
Transportation Connex
Energy Dalkia
</TABLE>
Vivendi is a leading European provider of communications services, and is
integrating its diverse array of telecommunications, Internet and media assets
to take advantage of the growing convergence of communications access and
content. Through its environmental management services businesses, it is a
leader in the development of new environmental management services that allow it
to take advantage of an unsurpassed geographic reach and multi-service expertise
and experience. As part of its strategy of focusing on these core areas, it is
in the process of divesting substantial non-core real estate and construction
businesses held through its subsidiary Vivendi Valorisation and its investment
in Vinci (Vivendi uses the term "subsidiary" to refer to companies over which it
has effective control, and the term "investment" to refer to companies in which
it has an economic interest but does not control). Vivendi views its real estate
and construction businesses as non-core activities that do not play an important
role in Vivendi's corporate strategy. It also intends to divest its interest in
Sithe Energies, Inc., a U.S. independent power generation company.
The following table shows for the last three fiscal years the respective
percentage contribution of Vivendi's businesses by geographical market to its
consolidated revenue, after the elimination of inter-segment transactions. The
percentage in each case is based on the location of the subsidiary generating
the revenue.
REVENUE
<TABLE>
<CAPTION>
COMMUNICATIONS ENVIRONMENT OTHER* CONSOLIDATED
--------------------- ------------------------ ---------------------- ------------------------
1997 1998 1999 1997 1998 1999 1997 1998 1999 1997 1998 1999
----- ----- ----- ------ ------ ------ ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Europe..................... 100.0% 96.9% 90.5% 84.2% 88.0% 74.4% 94.7% 95.4% 94.9% 89.2% 89.2% 83.1%
France................... 98.6% 85.9% 79.7% 62.6% 58.7% 44.4% 70.2% 70.9% 65.8% 67.8% 67.8% 57.1%
Americas................... -- 1.8% 7.1% 12.9% 8.4% 21.7% .2% -- 1.0% 7.3% 7.3% 13.4%
Rest of the world.......... -- 1.3% 1.4% 2.9% 3.6% 3.9% 5.1% 4.6% 4.1% 3.5% 3.5% 3.5%
===== ===== ===== ====== ====== ====== ===== ===== ====== ====== ====== ======
Total (E million).......... 1,666 5,952 8,573 14,326 16,047 22,428 9,485 9,738 10,622 25,477 31,737 41,623
</TABLE>
---------------
* The "Other" category consists of Vivendi's non-core construction and real
estate businesses. See "-- Other Businesses."
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The table below shows for Vivendi's most recent fiscal year the respective
percentage contribution by geographic area to its consolidated earnings before
income, taxes and exceptional items ("operating income"), after the elimination
of inter-segment transactions. The percentage is based on the location of the
subsidiary generating the operating income.
1999 OPERATING INCOME
<TABLE>
<CAPTION>
COMMUNICATIONS ENVIRONMENT OTHER CONSOLIDATED
-------------- ----------- ----- ------------
<S> <C> <C> <C> <C>
Europe....................................... 90.5% 71.6% N/A 76.3%
France..................................... 85.2% 37.9% N/A 46.5%
Americas..................................... 9.5% 26.2% N/A 21.5%
Rest of the world............................ -- 2.2% N/A 2.2%
===== ======= ==== =======
Total (E million).................. 551.6 1,654.2 74.7 2,280.5
</TABLE>
OVERALL STRATEGY
Vivendi's overall goal is to take advantage of the strong internal and
external growth opportunities available in the areas of its core operations --
communications and environmental services. It intends to capitalize on its
strengths in communications by providing high value-added content and services
through a variety of access media: Internet, PC, television, mobile telephony,
and print. In environmental services, it plans to expand each of its business
segments -- waste, water, energy services and transportation -- through internal
growth and acquisitions of existing operations, and to coordinate the operations
of those businesses to meet what it believes to be a growing demand for
customized, comprehensive packages of environmental management services on a
worldwide basis.
HISTORICAL BACKGROUND
Vivendi is a societe anonyme (i.e., a type of limited liability company)
organized under the laws of France. Originally named Compagnie Generale des
Eaux, it was founded in 1853. It initially supplied water to Paris and other
major European cities. From early on, however, it saw the advantages of
expanding its business into other fields, entering the water treatment industry
in 1884 and forming a water-related engineering company in 1918.
Vivendi's diversification into the telecommunications and media industries
began in 1983, when it created its subsidiary CANAL+, the first encrypted
pay-television channel in Europe, with the Havas media group. In 1987, to
capitalize upon its growing expertise in operating communications networks,
Vivendi created Societe Francaise de Radiotelephonie ("SFR"), a subsidiary that
provides mobile telephone services in France. Pursuing the same strategy, it
founded its subsidiary Cegetel, now France's second-largest telecommunications
operator, in 1996 with several partners. It currently has a 44% direct and
indirect interest in Cegetel (and appoints five of its nine directors), and a
35.2% indirect interest in SFR (and appoints seven of its ten directors).
Through a 1998 merger with Havas, Vivendi obtained a substantial position in
general publishing and multimedia and became the leading educational publisher
in Europe. Havas is now a wholly-owned subsidiary of Vivendi that conducts
Vivendi's publishing and multimedia operations. To further expand its content
business, Vivendi acquired an additional 15% interest in CANAL+ from Richemont
in September 1999, an acquisition that gave Vivendi control of CANAL+. Vivendi
now holds a 49% interest in CANAL+ and appoints six of its 13 directors. In
addition, three directors, who are also executive officers, serve at Vivendi's
discretion. In June 1999, Vivendi acquired a 24.4% stake in British Sky
Broadcasting Group ("BSkyB"), the leading pay-television company in the United
Kingdom and Ireland. Vivendi has the right to appoint one of the 14 members of
BSkyB's board of directors.
Vivendi agreed to create Vivendi Net in May 2000 as part of its ongoing
effort to expand and integrate its portfolio of communications and media assets.
Vivendi Net will be a 50/50 joint venture between Vivendi and CANAL+ and will
combine most of the Internet operations of CANAL+ and
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Havas as well as Vivendi's venture capital and start-up company incubation
activities. Vivendi's direct and indirect interest in Vivendi Net will initially
be 74.4%; its interest will increase to 100% when the merger transactions are
completed. Vivendi intends Vivendi Net to be the vehicle through which it holds
its interest in the 50/50 joint venture recently entered into with Vodafone that
operates Vizzavi, a multi-access Internet portal that provides seamless, high
value-added communications and content services to customers through a variety
of communications devices.
Vivendi has consistently broadened its expertise in environmental services
as well. It entered the household waste incineration industry in 1967, and in
1980, acquired Compagnie Generale d'Entreprises Automobiles, a company
experienced in transportation and waste management services (its waste
management business now operates under the "Onyx" brand, and its transportation
business is a separate subsidiary called Connex). In 1981, it further expanded
its environmental portfolio by acquiring Compagnie Generale de Chauffe (later
renamed Dalkia), one of France's leading energy services companies. In 1998, in
order to expand its international reach, Vivendi purchased 49% interest a
holding company that owns 56.5% of Fomento de Construcciones y Contratas
("FCC"), a Spanish company involved primarily in urban sanitation, construction
and cement production. Vivendi also acquired the right to exercise half of the
holding company's power to appoint members to FCC's board of directors and
executive committee members. Vivendi appointed seven of FCC's 15 current
directors and half of its executive committee members. FCC purchased Vivendi's
Spanish waste and waste management operations in the same transaction. In 1999,
in order to increase its presence in North America, apply its environmental
expertise to the market for retail water products and develop its industrial
outsourcing business, Vivendi acquired United States Filter Corporation, the
leading U.S. water equipment firm. Vivendi further expanded its North American
operations through its acquisition of Superior Services, the fourth largest
solid waste treatment company in the United States.
Since 1995, Vivendi has implemented a long-term strategy of focusing on two
areas of operations: communications and environmental services. Pursuant to that
strategy, Vivendi has made numerous disposals of non-core assets, primarily in
the real estate and construction sectors. In 1997, for example, it sold E640
million of real estate assets; it sold an additional E1.2 billion worth of real
estate in 1999. In July 2000, it sold Nexity, its wholly-owned real estate
subsidiary, and plans to sell its remaining real estate assets as opportunities
arise. It sold 34% of its 50.9% interest in Vinci, Europe's leading construction
company, in February 2000. It appointed four of Vinci's 18 directors. Disposals
in other sectors include its sale of 24.6% of Electrafina, a holding company
with investments in Suez Lyonnaise des Eaux, Audiofina and a number of
international oil operations, in June 1998, and a variety of Havas' advertising,
travel and other operations. Vivendi has also announced its intention to sell
its interest in Sithe, and a process designed to lead to a sale is currently
underway.
In May 1998, Vivendi shareholders approved its name change to reflect the
expansion of its core businesses in communications and environmental management
services as well as the increasingly international scope of its business. At
that time Vivendi renamed its major water subsidiary Compagnie Generale des
Eaux. In 1999 Vivendi contributed or sold its direct and indirect interests in
Compagnie Generale des Eaux, Connex, Onyx, FCC, Dalkia and United States Filter
Corporation to Vivendi Environnement. These transactions, along with the
consolidation of all its water businesses into Vivendi Water, were designed to
focus each of Vivendi's environmental operations on the goal of maintaining its
position as the world's leading provider of environmental management services.
In July 2000 Vivendi Environnement issued approximately 37% of the share capital
of Vivendi Environnement in a public offering in Europe and a private placement
in the United States. It now holds a 72% interest in Vivendi Environnement.
Through Vivendi Environnement, each of the above-mentioned companies, with the
exception of FCC, was a wholly-owned, indirect subsidiary of Vivendi's prior to
the public offering and private placement.
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DESCRIPTION OF BUSINESS
COMMUNICATIONS
Through its wholly-owned subsidiaries Havas and Vivendi Telecom
International ("VTI"), its controlling interests in Cegetel, CANAL+ and Vivendi
Net, and its investment in BSkyB, Vivendi is one of Europe's leading
telecommunications and media companies. It provides a wide variety of
communications, entertainment and educational products and services, from mobile
telephone and Internet services to film production and publishing. Its focus is
primarily on developing integrated telecommunications and multimedia services
for the European market and establishing and developing leading Internet
websites and services. It believes that by aggregating its portfolio of
communications and media assets, it can capitalize upon rapidly growing demand
for diverse but integrated communication and "infotainment" content and
services.
COMMUNICATIONS STRATEGY
Vivendi intends to take advantage of the growing interdependence of content
and access occurring in the communications and media industries as a result of
technological advances and deregulation. It intends to attract and retain
consumers who demand content that is easily accessible from a variety of
communications devices. It believes that by aggregating its unique portfolio of
content and access assets it can become one of the world's leading
communications companies. Its strategy has three primary elements:
- EXPAND ACCESS
Through its interests in Cegetel, CANAL+, VTI, and its joint venture with
Vodafone, Vivendi has access to the largest aggregate customer base in the
European communications industry. It intends to expand its reach further,
while minimizing its need to pay high prices for current-generation
telecommunications assets and licenses, primarily through:
-- Internal growth: Vivendi's communications businesses have experienced
rapid growth in recent years, particularly its Internet and
telecommunications segments. It plans to meet ever-growing demand for
advanced communications services by aggressively implementing
technological innovations, such as advanced Web television (to be
introduced by CANAL+ in 2001). Similarly, Cegetel intends to
facilitate the introduction of broadband communications by making
substantial investments in next-generation Digital Subscriber Line
("DSL") technology.
-- Joint ventures, such as a partnership with Vodafone, through which
Vivendi will develop, operate and promote Vizzavi, a multi-access
Internet portal that will, when fully implemented, be the default
Internet home page covering the 80 million subscriptions for
telecommunications and pay-television services provided by Vivendi,
Vodafone and their affiliates.
-- Along with each other Cegetel shareholder, Vivendi has agreed to
conduct telecommunications business in France only through Cegetel.
-- Acquisitions in high-growth areas, including Vivendi's recent
purchases of interests in PTC, a Polish mobile telephony company, and
Magyar Telecom, a Hungarian fixed-line telephony firm.
-- Selective bids for third-generation Universal Mobile
Telecommunications System ("UMTS") licenses, such as Vivendi's
successful bid for a UMTS license to serve the rapidly-growing
Spanish market. UMTS is a high-speed standard for mobile telephony
that will allow Vivendi to provide an extensive range of new
services, including video telephony and high-speed access to the
Internet and to corporate intranets.
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- ENHANCE CONTENT
Vivendi's strategy is to build European and world leadership in key content
areas that can be accessed though the Internet. Through Havas, CANAL+ and
Vivendi Net, Vivendi has a wide range of entertainment, educational,
multimedia and reference content, including Europe's second largest library
of film and television rights, rights to broadcast major sporting events
and a collection of popular websites and computer games. Vivendi intends to
expand its content offerings further by leveraging its large and loyal
telecommunications customer base to obtain broadcasting rights on favorable
terms. It also intends to make selected acquisitions in key areas -- for
example, its recent acquisition of Prize Central, a company that, when
combined with Vivendi Net's WON.com, will be the second-leading on-line
game site in the world. The merger transactions will substantially increase
Vivendi's already considerable array of content assets.
- INTEGRATE
Vivendi is in the process of integrating and aggregating its services in
two ways. First, it is leveraging and enhancing its communications assets
by using them to provide a distribution channel for its multimedia products
and services. By featuring Havas-created Wireless Application Protocol
games, for example, Vivendi believes that Vizzavi is enhancing both its own
value and that of the games. Wireless Application Protocol, or WAP, is an
application environment and communication protocol for wireless devices
designed to enable independent access to the Internet and advanced
telephony services. Vivendi intends to apply the same strategy to the film,
music and other content assets acquired as part of the Seagram transaction.
Vivendi's entertainment products will also promote its communications
networks, as when CANALNUMEDIA takes advantage of the strong CANAL+ brand
in building its entertainment-oriented website.
Second, Vivendi is integrating its communications assets to provide a
personalized and consistent user environment, regardless of the mode of
access. Vizzavi is the cornerstone of this element of Vivendi's strategy:
It provides web-based communications services, e-commerce and entertainment
in a user-friendly, integrated package that is accessible from mobile
telephones, personal data appliances, televisions and PCs. Vivendi
introduced Vizzavi in France in June 2000. Together with Vodafone, it plans
to introduce it in the United Kingdom, Italy and Germany by the end of 2000
and in other European countries in 2001.
VIVENDI'S COMMUNICATIONS BUSINESS SEGMENTS
TELECOMMUNICATIONS
Through Cegetel and VTI, Vivendi provides a broad range of
telecommunications services, including mobile and fixed telephony, Internet
access and data services and transmission.
Telecommunications*
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
Revenue..................................................... 4,102 2,875 1,618
Adjusted EBITDA**........................................... 1,372 674 331
Operating Income............................................ 351 23 188
</TABLE>
---------------
* Cegetel capitalizes and amortizes over a 12-month period subscriber
acquisition costs.
** Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. Vivendi considers operating income to
be the key indicator of the operational strength and performance of its
business and adjusted EBITDA to be a pertinent comparative measure for
investors. Adjusted EBITDA should not be considered an alternative to
operating or net income as an indicator of Vivendi's performance, or as an
alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with generally accepted
accounting principles. In addition, adjusted EBITDA, as defined in this joint
proxy statement-prospectus, may not be strictly comparable to similarly
titled measures widely used in the United States or reported by other
companies.
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Cegetel
Vivendi founded Cegetel in 1996 and currently owns, directly and
indirectly, 44% of its outstanding equity. Vivendi owns 9% of the shares
directly. It also owns 70% of Compagnie Transatlantique de Radiotelephonie
Cellulaire ("Transtel"), which owns 50% plus one of Cegetel's shares, giving
Vivendi a 35% indirect stake. SBC International, Inc. ("SBCI") and SBCI
International-Societe de Radiotelephonie Cellulaire, Inc. ("SBCI-SRC") together
own the remaining 30% of Transtel.
Vivendi appoints five of Cegetel's nine directors. In addition to SBCI and
SBCI-SRC, which together hold a 15% interest in Cegetel through Transtel,
Vivendi's current partners in Cegetel are British Telecom ("BT"), which has a
26% stake in the company, and Mannesmann, which owns 15%. Under an agreement
with Vodafone, Vivendi has an option to purchase from Mannesmann (which has been
acquired by Vodafone) an additional 7.5% indirect interest in Cegetel. Vodafone
has also indicated a desire to sell Vivendi a further 7.5% indirect interest,
although no definitive agreement has been finalized and we can provide no
assurance that such an agreement will be reached. Vivendi describes below the
Shareholders' Agreement that governs its participation in Cegetel. See
"-- Shareholders' Agreement."
Cegetel divides its activities into three parts:
- Consumer and Professional Division. The Consumer and Professional
Division offers three types of service:
-- Mobile Telephony through SFR. Cegetel offers mobile telephone
services through its 80% owned subsidiary SFR (the remaining 20% of
which is owned by Vodafone). SFR, an innovator in the French
telecommunications market, provides the latest mobile offerings, the
most recent being WAP services. SFR customers can use their mobile
handsets outside France via roaming agreements with local operators
in 90 countries. Cegetel intends to participate in the French
government's call for tenders of four nationwide UMTS licenses that
we expect will be granted by early 2001.
-- Fixed Telephony. Since February 1998, Cegetel has offered long
distance and international fixed telephone service through Cegetel 7,
a company 80% owned by Cegetel and 20% by Telecom Developpement
("TD") (a company that is, in turn, owned 49.9% by Cegetel and 50.1%
by Societe Nationale des Chemins de Fer Francais ("SNCF"), the
state-owned French railway company).
-- Internet. Through Cegetel (37%) and CANAL+ (18%), Vivendi holds a
55% position in AOL CompuServe France. America Online, Inc. and
Bertelsmann hold the remaining 45%. Under the AOL CompuServe France
Shareholders' Agreement, no shareholder may provide Internet access
services for personal computers in France other than through AOL
CompuServe France; this provision, however, does not apply to the
operation of Internet websites. Vivendi has announced its decision to
sell its interest in AOL CompuServe France.
- Business Division. Cegetel operates its business marketing division
through Cegetel Entreprises (owned 80% by Cegetel and 20% by TD). Cegetel
Entreprises offers business customers a variety of services, including:
-- Wireless and fixed telephony, along with management tools such as
call limitation services, consumption reports and grouped bills;
-- Data transmission;
-- Internet access, website hosting services, development of e-commerce
sites and intranet management; and
-- Local telephony access through fiber optic loops in 19 heavy-use
areas.
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- Network and Information Systems Division. Cegetel's communication
networks are operated through its Network and Information Systems
Division.
-- Mobile. SFR operates a dense, high-quality mobile telecommunications
network based on the "Global System for Mobile Communications"
("GSM") -- the digital standard currently dominant in Europe. This
network is capable of providing service to 97% of the French
population and carries 20 million minutes of mobile telephone traffic
a day. According to an audit performed by the French government in
October 1999, the SFR network ranks first in France in terms of
overall quality. SFR intends to introduce General Packet Routing
Service ("GPRS") technology that will increase the speed of its
network by a factor of ten by 2001.
-- Local. Cegetel must pay substantial interconnection fees to France
Telecom in order to provide local telephone service. To avoid these
fees, Cegetel has built 19 fiber optic local loops in dense business
districts in cities such as Paris, Lille, Lyon and Marseille.
Additionally, Cegetel intends to offer access services based on
Asymmetric Digital Subscriber Line ("ADSL") technology, which allows
continuous high-speed connections through existing telephone lines,
when and if French law is amended to require France Telecom to
unbundle its local loop.
-- Long distance. The backbone of Cegetel's fixed and mobile
telecommunications infrastructure is TD's long-distance
telecommunications network. TD owns, operates and maintains an
entirely digital telecommunications network throughout France,
consisting of approximately 14,000 kilometers of high-capacity fiber
optic cables.
Shareholders' Agreement. The governance of Cegetel is subject to a
Shareholders' Agreement to which Vivendi is a party, along with BT, Mannesmann,
SBCI, SBCI-SRC and Transtel. Among other things, the Shareholders' Agreement
provides that:
- Neither Vivendi, BT, Mannesmann nor SBCI (the "Cegetel Shareholders") can
conduct telecommunications business in France or its overseas departments
and territories other than through Cegetel. This provision does not apply
to the operation of Internet websites.
- Cegetel's board of directors has nine members, five of whom are nominated
by Vivendi, two by BT, one by Mannesmann and one by SBCI. The board of
directors of Transtel has six members, four of whom are nominated by
Vivendi and two by SBCI.
- Cegetel can take certain actions only if representatives of each of the
Cegetel Shareholders consent. These actions include:
-- making any change in the scope of its business;
-- changing any provision of its statuts (i.e., its charter or by-laws)
or amending any shareholders' agreement between it, on the one hand,
and any of the Cegetel Shareholders or Vodafone, on the other hand;
and
-- except in limited cases, increasing its share capital with a waiver
of preferential subscription rights or merging or dividing Cegetel or
selling Cegetel shares to the public.
- Subject to some exceptions, representatives of BT must also consent to
any transaction that would result in a shareholder other than us or
Transtel obtaining a greater interest in Cegetel than that held by BT.
- If all of BT, Mannesmann and SBCI dissent, Vivendi cannot cause Cegetel
to:
-- create or acquire shares in any entity in which Cegetel or companies
it controls hold less than 100% of the shares and voting rights; or
-- subject to some exceptions, acquire, dispose of, lease or loan a
material amount of assets or significantly reduce or cease any
material business operation.
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<PAGE> 225
- The Cegetel Shareholders' Agreement contains a number of limitations on
the transfer of Cegetel Shares:
-- During a "standstill" period due to expire in 2002, no Cegetel
Shareholder may transfer its interest in Cegetel except in limited
circumstances.
-- Vivendi may not sell its directly or indirectly held Cegetel shares
during the standstill period in an amount that would reduce Vivendi's
stake in Cegetel, together with the stake held by Transtel, to less
than a majority.
-- Except in limited circumstances, any other Cegetel Shareholder
seeking to dispose of Cegetel shares must first offer such shares to
Vivendi. If Vivendi chooses not to exercise its right to purchase
shares pursuant to such an offer, the other Cegetel Shareholders must
be given an opportunity to purchase the shares in question.
-- Vivendi may not dispose of any Cegetel shares without first offering
those shares to the other Cegetel Shareholders.
- If a competitor of Cegetel makes an offer for Vivendi, then, subject to
the limitations set forth in the section entitled "Take-over" of the
Cegetel Shareholders Agreement, the other Cegetel Shareholders have the
right to purchase, at fair market value, Vivendi's direct and indirect
interest in Cegetel. Those rights are not triggered in the case of a
reverse take-over.
Vivendi does not believe that the merger transactions or the implementation
of its plans in connection with Vivendi Universal will implicate any provision
of the Cegetel shareholders' agreement.
Vivendi's Other Telecommunications Interests
In addition to its investment in Cegetel, Vivendi has also invested in a
number of telecommunications companies outside of France through VTI:
- Xfera. In March, 2000, Xfera, a consortium that Vivendi leads along with
Sonera Corp. and ACS Telefonia Movil, won a 20-year license to provide
advanced UMTS services in the rapidly growing Spanish mobile telephony
market for an up-front payment of E132 million. The Spanish mobile market
currently has only three major competitors. Xfera plans to invest E5
billion in Spanish UMTS operations over the next ten years.
- Elektrim Telekomunikacja. In December 1999 Vivendi entered into an
agreement with Elektrim to acquire 49% of Elektrim Telecom, a company
that holds 51% of PTC, a Polish mobile telephony operator with 1.7
million subscribers, and 100% of Polish cable television operator Bresnan
with 288,000 subscribers.
- Magyar Telecom. Vivendi operates several regional companies in Hungary
that have monopolies for voice telephony on fixed networks. In 1999
Vivendi increased its ownership interest in these companies from 40% to
100%.
- Monaco Telecom. In June, 1999 Vivendi acquired a 51% interest in Monaco
Telecom, the dominant telecommunications operator in the Principality of
Monaco. Monaco Telecom has a monopoly in Monaco on voice, data and
intermediation between telephony operators until 2023.
- Kencell. In 1999 Vivendi and its Kenyan partner Sameer won the tender to
operate a GSM mobile telephone network in Kenya through Kencell.
Vivendi's stake in Kencell is 40%.
MULTIMEDIA AND PUBLISHING
Vivendi carries out its publishing and multimedia activities through its
wholly-owned subsidiary Havas. With revenue in 1999 of E3.3 billion and
operating income of E355 million, Vivendi is one of the leading editors and
distributors of multimedia educational, reference and game products in the
world. It is
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<PAGE> 226
also the leading publisher of general interest books and free publications in
France. Finally, it is one of continental Europe's leaders in business,
professional, educational and reference publishing.
Multimedia and Publishing
<TABLE>
<CAPTION>
1999 1998
----- -----
(E MILLION)
<S> <C> <C>
Revenue..................................................... 3,317 2,876
Adjusted EBITDA*............................................ 417 355
Operating Income............................................ 355 252
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this joint proxy statement-prospectus, may not
be strictly comparable to similarly titled measures widely used in the United
States or reported by other companies.
After a series of disposals of non-core businesses (e.g., the Havas Voyages
travel agencies and the Avenir group outdoor advertising business), and a number
of important acquisitions (including California-based educational software and
games producer Cendant Software, the Spanish textbook publisher Anaya and the
U.K.-based MediMedia and Barbour's publishing groups), Havas' business is now
organized around two customer-oriented segments: the Business and Professional
division and the General Public division.
Business and Professional
Havas publishes 80 trade, business and general news press titles, including
books, magazines, newspapers, newsletters and scientific journals. This activity
accounted for E1.3 billion (or 48%) of Havas' total 1999 revenue. Twenty percent
of this revenue was generated outside of France. The business and professionals
division operates in the following areas:
- Medical information. Through Havas MediMedia, Vivendi is the third
largest medical information company in the world. We provide a complete
line of up-to-date information and support services for health
professionals. Vivendi offers products including publications addressed
to general practitioners, scientific journals, and books and reviews for
students and medical professionals. Vivendi also offers medical reference
information that is available in paper, CD-ROM and on-line formats.
- Information technology. Through 01 Informatique, the leading French
information technology weekly, Vivendi reaches over 60% of the IT
executives in France and attracts 57% of the recruiting classifieds for
the French IT market. Vivendi also publishes the leading Italian
professional IT weekly.
- Construction and public works. Vivendi provides technical, commercial,
regulatory and public procurement information to construction and public
works professionals and local authorities in France and in the United
Kingdom.
- Economics/Finance/News. Vivendi publishes L'Express and L'Expansion, two
of the best known and most influential news and business magazines in
France.
- Free press. Vivendi is the leading publisher of free newspapers in
France.
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<PAGE> 227
General Public
Havas' General Public division produces and distributes educational and
reference materials, games and general literature in paper and electronic
formats. This division generated revenue in 1999 of E1.5 billion, accounting for
48% of Havas' total publishing and multimedia revenue.
- Havas Interactive. Vivendi's interactive multimedia activities are
conducted through Havas Interactive, which was considerably strengthened
by the 1999 acquisition of Cendant Software. Havas Interactive produces
on-line games and over 100 educational and reference CD-ROMs in 10
languages. Havas Interactive generates 80% of its revenue in the United
States. Vivendi is the leading PC game software developer in the U.S. and
second in the world, with games developed under the Sierra, Blizzard, and
Davidson brands, including Caesar III, Pharaon, Gabriel, Knight 3 and
Starcraft. Vivendi also operates WON.net, the world's leading website in
terms of "stickiness," or average time spent per visit. WON.net recently
merged with Prize Central to form the world's second-leading on-line game
website. In addition, Vivendi is the leading provider of interactive
educational products in Europe and second in the world, with brands that
include Knowledge Adventures and Coktel, and titles including Jumpstart,
Mathblaster, Readingblaster, Classwork, and Katego. Vivendi is also third
worldwide in instructional products under the Artist, Masterbook and
Generation brands.
- Education and Reference
-- Textbooks. Vivendi is the leading publisher of educational
textbooks in continental Europe. In France, it holds nearly 40% of
the textbook market, and is a leader in textbooks for university
level arts and sciences, bringing together famous French brands
such as Nathan, Bordas and Armand Colin. Its recent acquisitions of
Anaya and Aique, as well as its 50% stake in leading Brazilian
publishers Atica and Scipione, have made it the leader in high
growth Spanish- and Portuguese-speaking countries. In the fourth
quarter of 2000, Havas and Vivendi Net will launch education.com, a
website intended to become a leading provider of educational tools
for students, teachers and parents. Vivendi intends to launch
education.com first in markets where Havas already owns significant
educational content, i.e., France, Spain, the United States and
Germany.
-- Reference Materials. Eight of ten households in France own
Vivendi's "Larousse" dictionary, a brand synonymous with
"dictionary" in French- and Spanish-speaking countries. In
addition, Vivendi publishes a wide array of specialized language
dictionaries, encyclopedias and other reference books.
- Literature. Vivendi is the leading publisher in France of literature
addressed to the general public. It publishes works by authors including
Salman Rushdie, Tennessee Williams, Primo Levi, Vladimir Nabokov,
Danielle Steel, John Grisham and Ken Follett. It also publishes essays,
practical guides, young people's literature and comic books. In addition,
Vivendi has a strong presence in French, Spanish and English language
books geared to children and adolescents, both in fiction and nonfiction.
Vivendi recently secured the exclusive right to publish Star Wars-related
books in France until 2006.
- Book club and on-line sales. France Loisirs, a 50/50 joint venture
between Havas and Bertelsmann, is the leading book club in the French
market, with 28 million volumes sold annually to nearly 4 million
members. BOL France, Vivendi's on-line book selling operation (also a
50/50 joint venture with Bertelsmann), was launched in February 1999 and
currently offers 400,000 French-language titles.
Services
Havas Services provides promotion, distribution, inventory management and
other administrative support services to Vivendi's core publishing and
multimedia businesses. Havas Services generated 4% of Havas' total revenue in
1999.
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Technology
In 1999 Vivendi founded Bookpole, a joint venture with printing company
Maury Imprimeur, to provide digital printing services. Digital printing will
allow Vivendi to publish titles in response to orders from customers rather than
in large pre-sale batches. This will allow Vivendi to reduce the cost of
maintaining large inventories. Vivendi also has state of the art billing and
invoicing systems and automated platforms for stocking, handling and tracking
orders that improve the effectiveness of Vivendi's "old economy" operations and
give Vivendi a solid technological base for its e-commerce activities.
Havas Advertising
Vivendi has a 19.7% investment in Havas Advertising, the largest
communications consultancy in France and fourth worldwide, with more than 8,000
employees and 220 agencies in 65 countries. Vivendi appointed four of Havas
Advertising's directors. Its stake will decline to 15% when Havas Advertising
completes its acquisition of Snyder Communications.
AUDIOVISUAL AND PAY TELEVISION
Vivendi's audiovisual and pay television segment consists primarily of its
controlling interest in CANAL+, Europe's leading pay-television company. It also
has a substantial investment in BSkyB, the leading pay-television company in the
United Kingdom and Ireland.
Audiovisual and Pay Television*
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
(E MILLION)
<S> <C> <C> <C>
Revenue................................................ 1,152 201 47
Adjusted EBITDA**...................................... 86 13 (7)
Operating Income....................................... (103) (5) (11)
</TABLE>
---------------
* Does not include Vivendi's stake in BSkyB.
** Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. Vivendi considers operating income to
be the key indicator of the operational strength and performance of its
business and adjusted EBITDA to be a pertinent comparative measure for
investors. Adjusted EBITDA should not be considered an alternative to
operating or net income as an indicator of Vivendi's performance, or as an
alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with generally accepted
accounting principles. In addition, adjusted EBITDA, as defined in this joint
proxy statement-prospectus, may not be strictly comparable to similarly
titled measures widely used in the United States or reported by other
companies.
CANAL+
CANAL+ is Europe's leading pay-television company, with over 13.9 million
subscriptions. Vivendi co-founded CANAL+ in 1983 and now owns 49% of its equity.
French audiovisual law prohibits Vivendi from increasing its ownership in CANAL+
to more than 49%. According to CANAL+'s most recent annual report, no other
shareholder holds more than 5%. Vivendi holds six seats on the Board of
Directors of CANAL+. Other seats are held by representatives of CANAL+'s
management (three seats) and independent members (four seats). CANAL+'s
operations are described under "-- CANAL+ -- Activities of CANAL+."
BSkyB
Vivendi currently owns 24.4% of BSkyB and has the right to appoint one of
its 14 directors. BSkyB operates the leading pay-television broadcasting service
in the United Kingdom and Ireland. Its principal activities are the operation
and distribution of more than a dozen wholly-owned television channels, the
marketing of programming to direct-to-home satellite subscribers, and the
operation of a digital broadcast business. BSkyB launched its satellite digital
broadcast service in mid-1998, making expanded programming choices and
interactivity (such as home shopping, banking services, on-line education, game-
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playing, and Internet services) available for the first time throughout the
United Kingdom. BSkyB established a free Internet service in the United Kingdom
and Ireland in 1999. In connection with the approval of the merger transactions
by the European Commission, we have agreed that, following the merger
transactions, Vivendi Universal will sell the interest in BSkyB currently held
by Vivendi.
Recent Developments
- Lagardere Alliance. In July 2000, pursuant to an alliance between CANAL+
and Lagardere, a French media company, Lagardere acquired a 34% stake in
CANALSATELLITE and a 27.4% stake in MultiThematiques. CANAL+ reduced its
stake in MultiThematiques to 27.4% (Vivendi reduced its indirect interest
to 9%). CANAL+ and Lagardere also set up three joint ventures. The first,
51% owned by Lagardere and 49% by CANAL+, will own and operate existing
theme channels and is intended to create others. The second, 51% owned by
Lagardere and 49% by CANALSATELLITE, will oversee interactive services
for new channels jointly created by CANALSATELLITE and Lagardere. The
third, a 50/50 venture between Lagardere and MultiThematiques, will
create and distribute new theme-based channels based on Lagardere's
international brands such as Elle.
- Eurosport Acquisition. In May 2000, CANAL+ and TF1 announced that they
had acquired interests in Eurosport International and Eurosport France
from ESPN.
- Exchangeable Notes. In July 2000, Vivendi issued a series of
exchangeable notes with an aggregate principal amount of E1.44 billion.
Each note has a nominal value of E24.22 and is exchangeable for one share
of BSkyB stock. Vivendi may elect to give noteholders who exercise their
exchange rights the cash equivalent of the then-prevailing market price
of the BSkyB stock rather than the stock itself. The notes bear interest
at 1% per annum and are scheduled to mature in July 2003.
INTERNET
Pursuing its strategy of becoming a leading provider of web-based content
and services in Europe, Vivendi has agreed to create Vivendi Net together with
CANAL+. In addition to most of its Internet-related activities and those of
CANAL+, Vivendi Net will hold the 50% stake Vivendi and CANAL+ collectively hold
in the Vizzavi joint venture with Vodafone. Vivendi Net will also hold Vivendi's
venture capital funds, Viventures I and Viventures II, and @Viso, Vivendi's
start-up company "incubator." Directly and through its interest in CANAL+,
Vivendi will initially own 74.4% of Vivendi Net. Following the completion of the
Seagram transactions, Vivendi will own 100% of Vivendi Net.
Vivendi Net
Vivendi Net's operations are to be organized into the following divisions,
all of which will share support functions such as finance, recruiting,
e-commerce platforms, public relations, knowledge management, corporate affairs,
business development, mergers and acquisitions and in-house legal services.
- Expansion of Vizzavi. On May 16, 2000 Vivendi signed an agreement with
Vodafone pursuant to which Vivendi will create a 50/50 joint venture to
operate and promote Vizzavi, a multi-access Internet portal. Vizzavi will
from its inception be the default Internet access portal for up to 80
million subscribers of telecommunications and pay television operations
in which either Vivendi or Vodafone has a stake (the "local operating
companies"). Vizzavi will provide users of televisions, personal
computers, mobile telephones and personal data appliances a single,
seamless environment for web-based personal communication services,
e-commerce and entertainment. It is also a channel for Internet
distribution of Vivendi's content assets. Vivendi expects that Vizzavi
will create new cross-marketing opportunities by collecting customer data
through a personalized interface that each subscriber will create. Under
the agreement with Vodafone, Vivendi will cause all providers of Internet
content that it owns or controls to first offer that content on arm's
length terms to Vizzavi.
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Pursuant to the Vodafone Joint Venture Agreement, the gross margin
generated by Vizzavi through advertising, e-commerce transaction
commissions and subscription services will be split on a 50/50 basis
between Vizzavi and the local operating companies. This arrangement will
be reviewed after two years, when it may be adjusted to ensure that it
remains fair to all parties. The clearance of the Vodafone Joint Venture
Agreement by the European Commission's anti-trust authorities occurred on
July 20, 2000. Pending the outcome of the arbitration proceedings brought
by BT, Vizzavi was launched in France in June 2000 exclusively as a
Vivendi venture. It intends to expand into Germany, Italy and the United
Kingdom by the end of 2000, and to create additional subsidiaries in
those countries. Twenty percent of the equity in these subsidiaries may
be offered, in proportion to the number of subscribers, to some of the
local operating companies (i.e., Vodafone UK, SFR, Mannesmann Mobilfunk,
Omnitel, CANAL+ and Telepiu), subject to those operators entering into
commercial agreements with Vizzavi. Vizzavi intends to extend its
operations during 2001 to cover Portugal, Spain, Sweden, Greece and the
Netherlands. Vodafone has agreed not to acquire any stake in Vivendi
until 2004 unless a third party makes a bid for a controlling interest,
any person or entity crosses the 15% ownership threshold in Vivendi's
shares or, subject to some exceptions, Vivendi acquires or bid for fixed
or mobile telephony operations or licenses in Germany, Italy or the
United Kingdom.
- Planned Integration of i(france). On May 4, 2000 Vivendi acquired
i(france), a multiservice portal that serves six European countries.
i(france) provides a number of Internet-related services, including
e-mail, personal web page and WAP site hosting and intelligent diaries.
Vivendi intends to integrate i(france), particularly its website creation
and hosting technology, into Vizzavi. i(france) has had more than 2.2
million unique visitors; 4.2 million of its pages were viewed in April
2000.
- Development of Existing and Future Thematic Portals. Vivendi intends to
create leading Internet media brands for services based on thematic
categories by leveraging its existing content-related assets, brands and
know-how. Each branded category of web-based content and services is
being developed as a stand-alone business unit with the flexibility to
pursue growth through joint ventures, mergers or public listings. The
pan-European scope of such thematic portals is being enhanced by Vizzavi,
which features those portals on a preferred, but not exclusive, basis.
One group of portals, e-verticals, focuses on healthcare, information
technology, financial information, recruitment and local services.
Another, e-dutainment, concentrates on movies, sports, games and
education.
-- e-verticals consists of the following existing business units, each
of which will be held 50% by Vivendi Net and 50% by Havas:
-- Healthcare. @medica is a leading French healthcare website
launched in November 1999 with 50,000 users per month. It offers
scientific content and services to professionals, supported by
Havas' assets in medical press and book publishing. A version
aimed at the general public is to be launched in September 2000.
-- Information technology. 01 Net is a French information
technology-related portal launched by Havas in April 2000. It
offers a wide range of content and services such as newsletters,
downloadable software, product and website directories,
information technology-related help services and IT-related
recruitment services to professionals and the general public.
Three-and-a-half million of its pages were viewed in April 2000.
-- Financial information. lavf.com. is a free personal finance
portal launched in April 2000. It provides users access to
financial markets with real time stock quotes and offers a wide
range of finance-related content and services such as historical
performance charts, newsletters, finance-related help services
and telephone and e-mail alert services. Through a partnership
with Vega Finance, it offers access to on-line brokerage
services as well.
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-- Directory and transactional services. Vivendi has recently
established a 50/50 joint venture with Scoot to introduce
Scoot's innovative combination of business directory and
e-commerce services to continental Europe under the "Scoot"
brand. Vivendi has not yet determined whether it will transfer
its interest in the venture to Vivendi Net.
-- e-dutainment consists of the following activities currently
conducted by CANAL+ or Havas:
-- Entertainment. CANALNUMEDIA operates Canal.plus.fr, a leisure
portal with one million unique users and 1.4 million pages
viewed in April, 2000. CANALNUMEDIA's long-term goal is to
establish itself as Europe's leading entertainment portal by
building on the strong CANAL+ brand as well as on the
relationship that CANAL+ has developed with its customers.
CANALNUMEDIA will concentrate on fields in which CANAL+ is well
known: sports, movies and music.
-- On-line games. Vivendi holds a 50% stake in the company that
owns 83% of Flipside.com. Flipside.com will combine Vivendi's
WON.net site with the recently acquired Prize Central to become
the second leading on-line game site in the world. Flipside will
offer a range of on-line entertainment channels, including over
50 games targeting a broad spectrum of users to over 1 million
unique visitors per month.
-- Planned education site. Vivendi Net, together with Havas, plans
to launch education.com, an educational website, in the fourth
quarter of 2000. Vivendi intends this site to become one of the
first comprehensive on-line education service providers in
Europe.
- Planned Transfer of Venture capital and incubation activities: Vivendi
Net will hold (within its e-Vestor business unit) Vivendi's 22%
investment in Softbank Capital Partners LP, a venture capital fund with
total commitments of U.S.$240 million that invests in young Internet
companies. Vivendi Net will also hold Vivendi's 29% investment in
Viventures, a E118 million venture capital fund now substantially
invested in early stage communications and Internet companies in Europe
and the United States, as well as Vivendi's soon to be established
Viventures II fund. Vivendi intends to pursue its incubator activities
through Vivendi Net by contributing to it Vivendi's 50% stake in @Viso, a
50/50 joint venture with Softbank. With total initial committed capital
of U.S.$100 million, @Viso is primarily dedicated to facilitating the
rapid introduction of Internet companies with business models successful
in the United States to continental Europe. It does so by providing
equity capital and local market-specific services, including marketing,
administration and technical and customization services to companies such
as E-Loan Europe, Buy.com Europe, MessageMedia Europe, Interliant Europe
and Vstream Europe.
- Other
-- E-Carrieres. E-Carrieres is a leading French job recruiting
website, offering free on-line recruiting ads, information and
services for job seekers and recruiting agencies and companies.
-- Bonjour.fr. Bonjour.fr is a major French advertising website, with
revenue of E420,000 in 1999 and eight million viewed pages in
April, 2000. Bonjour.fr has created a number of local portals
dedicated to areas including Paris, Lyon, Lille, Montpellier and
Rennes.
COMPETITION -- COMMUNICATIONS
TELECOMMUNICATIONS
The consumer telecommunications industry in France is currently very
competitive and may become more so as a result of the French government's recent
decision to award telecommunications licenses to approximately 100 operators
(including approximately 12 that may compete significantly with Vivendi).
Vivendi competes in this industry primarily through SFR, an 80% owned subsidiary
of Cegetel. As of December 31, 1999, SFR had 7.3 million mobile customers,
giving it a 35.8% share of the French mobile market measured by volume. SFR's
major competitors include France Telecom, which had a market share of 49.7% in
1999, and Bouygues Telecom, which had a 15.5% share. Cegetel 7 had 1.4 million
customer
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lines at the end of 1999, which Vivendi estimates to represent approximately
5.1% of the French long-distance and international telephony market. Cegetel's
primary competitor in the long distance and international telephony market is
France Telecom, which enjoys significant advantages as a result of its
historical position as the dominant provider of telecommunications services in
France, including a near monopoly on local traffic. To overcome this situation
and be in a position to offer broadband access and related services, Cegetel has
developed a strategy of installing fiber optic and radio local loops to avoid,
wherever practicable, France Telecom's control over individual consumers'
connections to the fixed telephone network.
The French business telecommunications sector is highly competitive as
well. Vivendi estimates that Cegetel has an overall market share of 14.9%,
second to France Telecom.
AOL Compuserve France had approximately 450,000 customers at the end of
1999, representing 17% of the French market. Its main competitors are Wanadoo, a
subsidiary of France Telecom, Club Internet, a subsidiary of Deutsche Telekom,
and Infonie. Competition has intensified with the introduction of free Internet
access in the fall of 1999 by Freeserve and Libertysurf.
MULTIMEDIA AND PUBLISHING
Vivendi faces a number of strong competitors across the range of its
publishing and interactive multimedia activities in France, in Europe as a whole
and worldwide. Bertelsmann is Vivendi's biggest single competitor, as it is,
like Vivendi, present in a wide variety of publishing and multimedia markets
around the world. Vivendi's business and professional division also faces strong
competition from Reed Elsevier and Wolters Kluwer. With regard to its scientific
and trade activities in particular, Vivendi's primary competitors are The
Thomson Corporation and Harcourt Brace. In the educational, reference, general
literature and multimedia sectors, we compete principally with Hachette, Pearson
and Harcourt Brace.
AUDIOVISUAL AND PAY TELEVISION
The European pay-television sector is relatively new, and penetration rates
continue to rise significantly. The potential for growth has attracted
significant competitors to the French market, including Television Par Satellite
(which is owned by TF1, M6, France 2, France 3, France Telecom and Suez
Lyonnaise des Eaux). In Spain, CANAL+ competes with Telefonica's subsidiary Via
Digital. Competitors in Italy include News Corporation through its investment in
Stream. In addition, the introduction of digital distribution methods, including
cable and satellite, has enabled new entrants to the European pay television
market to compete vigorously. Generally, competition is country-by-country due
to national differences in viewer preferences.
Other than Belgium, operations outside of France are not yet profitable but
we believe represent strong growth potential for CANAL+. CANAL+ has a leading
market position in all the countries in which it operates.
INTERNET
The market for web-based services is rapidly evolving and highly
competitive. Due to the greater maturity of the North American market,
increasing numbers of U.S. market participants such as Yahoo! and AOL have
turned their attention to the European market. Vivendi believes the principal
competitive factors in the European market are customer base, brand recognition,
performance, ease of use, value-added services, functionality and features and
customer service. Additional competitors include France Telecom's Wanadoo and
other Internet software, content, service and technology companies,
telecommunications companies, cable companies and equipment/technology
suppliers.
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RESEARCH AND DEVELOPMENT -- COMMUNICATIONS
Vivendi intends to become one of the principal participants in the European
communications industry, and therefore has a research and development policy
designed to keep it in the forefront of applying the latest technological
innovations in the field, particularly with respect to mobile telephony, the
Internet and multimedia services.
The introduction of mobile telephony and the Internet have dramatically
shortened product life cycles in the telecommunications industry. Vivendi
expects that it will have to make substantial future investments in its
telecommunications activity, especially for wireless networks, due to customer
growth, increased usage and the need to offer new services and greater
functionality. Its operations and ventures depend in part upon the successful
deployment of continuously evolving telecommunications technologies. It uses
technologies from a number of vendors and makes significant capital expenditures
in connection with the deployment of such technologies.
Cegetel invested E32 million in research and development in 1999, E25.4
million in 1998 and E23.8 million in 1997.
The focus of Cegetel's development efforts is currently on:
- integration of broadband voice, data and video in connection with new
multi-media services;
- architecture of current and future telecommunications systems such as
UMTS;
- convergence of communications technologies (Internet, mobile, fixed
telephony, broadband transmission, information systems) that will pave
the way for multimedia content and mediation tools such as e-commerce.
Vivendi's development efforts in multimedia and publishing are primarily
directed towards the development of new CD-ROM products and on-line services and
upgrading existing products. Due to the increasing technological complexity of
computer games, Vivendi's research and development expenditures in this area may
increase in the near future. Vivendi invested E37 million in research and
development through Havas in 1999 and E4 million in 1998, primarily in
connection with the development of Internet services.
In Vivendi's audiovisual and pay television segment, CANAL+ has an in-house
technological research center that develops digital access control devices such
as MediaGuard and interactive systems such as MediaHighway. In February 1999,
CANAL+ developed with MediaOne the first interactive television system in the
United States based on open technology. CANAL+ invested E12 million in its
research and development activities in 1999.
Vivendi's areas of Internet-related research currently include:
- mobile Internet services that allow users to surf the Web, read e-mail
messages, send faxes, make purchases and access service packages from a
mobile phone;
- unified messaging facilities that offer a single point of access to
information stored in various servers and networks (e.g., voice, fax and
e-mail);
- auto-based communications that make multimedia technology accessible from
cars, enhancing driver safety and improving the quality of road travel.
REGULATION -- COMMUNICATIONS
TELECOMMUNICATIONS
The French telecommunications market was largely deregulated in July 1996
under the Loi de Reglementation des Telecommunications (the "LRT") and its
supplemental legislation (known as decrets d'application). The LRT is a
"transposition" of European Community directives regarding deregulation
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into French law. Among other things, the LRT allows telecommunications operators
to set prices freely. It does not, however, currently provide companies like
Vivendi's equal access to local telephone loops.
The Agence de Reglementation des Telecommunications (the "ART") is the
regulatory authority with jurisdiction over the telecommunications industry in
France. It is responsible, among other things, for issuing recommendations to
the government regarding interconnection conditions and applications for
telecommunications licenses, settling conflicts in the interconnection domain
and allocating frequency bandwidth and telephone numbers.
Through SFR, TD and Cegetel Entreprises, Cegetel has licenses to provide
mobile, long-distance and local telephone services. Each license carries certain
obligations. The terms of its long-distance license, for example, require TD to
make investments in network infrastructure. Similarly, SFR's license obligates
it to provide nationwide coverage. Vivendi believes Cegetel has satisfied its
requirements to date. Cegetel intends to apply for an additional UMTS license in
2000.
AUDIOVISUAL AND PAY TELEVISION
The communications industry in Europe is regulated by various national
statutes, regulations and orders, often administered by national agencies such
as the Conseil Superieur de l'Audiovisuel (the "CSA") in France. These agencies
usually grant renewable broadcast licenses for specific terms. In France, CANAL+
holds a pay-television broadcast license for over-the-air, satellite and cable
broadcasts. The CSA recently renewed this license for a five-year period
starting in January 2001. CANAL+ operates its activities in Spain, Italy,
Belgium, Poland, and Scandinavia in accordance with the domestic regulations of
those countries.
Because CANAL+ holds a French broadcast license, it is subject to French
laws which mandate that (i) no more than 49% of its equity may be held by any
one person and (ii) 60% of the films it broadcasts in France must be European in
origin and 40% must have been filmed in French. CANAL+ invests 20% of total
prior-year revenue in the acquisition of film broadcasting rights, including 9%
of prior-year revenue for French language films and 3% for other European films.
Regulations in Belgium, Spain and Poland also require specified levels of
European and national content.
MULTIMEDIA AND PUBLISHING, AUDIOVISUAL AND PAY TELEVISION AND INTERNET
The European Community has adopted a variety of Directives that address
intellectual property, advertisement, e-commerce, mail order and telemarketing.
Vivendi does not believe that the transposition of any of these Directives into
French law has had a negative impact on its business. Except for issues related
to the method by which various governments will award UMTS telecommunication
licenses (see "-- Description of Business -- Business as a Whole") and the
possible amendment of French telecommunications law to require the unbundling of
France Telecom's local loop, Vivendi is not aware of any other material
legislative or regulatory development that is likely to have a material effect
on its businesses.
ENVIRONMENT
Through Vivendi Environnement, Vivendi offers a wide variety of
environmental services, including water treatment and systems operation, waste
management, energy and transportation services, to public authorities and
industrial, commercial and residential customers around the world. Vivendi
Environnement is the leading global provider of these services, defined
collectively as environmental management services. It increasingly provides
these services in innovative, integrated packages customized to meet the needs
of particular customers. It employs approximately 180,000 people in over 100
countries. It generated revenue of E22.4 billion and an operating income of E1.7
billion in 1999.
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ENVIRONMENTAL STRATEGY
Vivendi Environnement's strategy is to use its broad range of services and
extensive experience to capitalize on increased demand for reliable, integrated
and global environmental management services. The major elements of this
strategy are to:
- LEVERAGE ITS EXPERTISE, LEADING MARKET POSITIONS AND STRONG FINANCIAL
POSITION TO DELIVER STRONG INTERNAL GROWTH
Providing environmental services has been the core business of Vivendi
Environnement for nearly 150 years. It has demonstrated technological,
financial and management expertise and routinely enjoys success in bidding
for contracts with industrial companies and public authorities. It has
vast experience in the management of long-term relationships with public
authorities. It also has a track record of using its technological and
management expertise to deliver high quality service while reducing costs.
It intends to use its broad range of expertise and experience to take
advantage of the increasing demand for privatized and out-sourced
environmental management services.
- DEVELOP UNIQUE, INTEGRATED, MULTI-SERVICE OFFERINGS
Vivendi Environnement intends to integrate its environmental operations to
meet increasing demand for comprehensive environmental management
services. Vivendi expects that industrial companies will increasingly seek
a single "one-stop" environmental management services provider that
coordinates the performance of many of their non-core activities.
- ACHIEVE AND MAINTAIN "BEST-IN-CLASS" PERFORMANCE IN EACH ENVIRONMENTAL
MANAGEMENT BUSINESS THROUGH INVESTMENTS IN TECHNOLOGY AND PERSONNEL
The projects Vivendi Environnement undertakes require extensive technical
know-how and excellent management capabilities. Vivendi Environnement
invests heavily in both technology and personnel to ensure that it
delivers the highest quality environmental services possible. Its goal is
to achieve and maintain "best-in-class" service across its business
segments.
- SEIZE OPPORTUNITIES ARISING FROM ITS WORLDWIDE REACH
Because Vivendi Environnement's operations span the globe, it can offer
multinational industrial customers uniform service quality and centralized
environmental services management. It is one of the only environmental
services companies with the ability to offer services on a worldwide
basis.
Vivendi Environnement's world-wide presence also allows it to seize
quickly opportunities to enter fast-growing markets for environmental
management services in countries outside of Western Europe and North
America. The extensive experience it has acquired in dealing with a wide
variety of legal and political environments facilitates its entry into
those countries.
- FOCUS ON HIGH VALUE-ADDED ENVIRONMENTAL SERVICES
Vivendi Environnement intends to focus on providing high value-added
environmental services and to limit its exposure to low-margin commodity
supply businesses, in particular by divesting its power generation assets.
This focus will also enable Vivendi Environnement better to take advantage
of its core strength: its ability to provide creative, customized,
integrated environmental services to clients with large, geographically
diverse and complex operations.
- MAKE OPPORTUNISTIC ACQUISITIONS TO EXPAND VIVENDI'S SERVICE OFFERINGS AND
GEOGRAPHIC REACH
Vivendi Environnement intends to acquire environment-related companies
when the opportunity to do so on favorable terms arises. The purpose of
these acquisitions will be to expand the portfolio of services it can
offer clients and to extend its geographic reach. Vivendi Environnement
believes that successful acquisitions in key areas will significantly
enhance its ability to provide high value-added services in growing
markets.
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At the end of July 2000, Vivendi Environnement sold shares it issued in an
initial public offering in France and in an international private placement.
Vivendi Environnement intends to use the proceeds of the public offering and
private placement to repay a portion of the debt it owes to Vivendi. Following
the public offering and private placement, Vivendi's ownership in Vivendi
Environnement was diluted to approximately 63%. Vivendi's interest in Vivendi
Environnement is now approximately 72%.
ENVIRONMENTAL BUSINESS SEGMENTS
WATER
Vivendi Environnement, through its subsidiary Vivendi Water, is the leading
water and waste water treatment and system operator in the world. Vivendi
Water's two main subsidiaries are Compagnie Generale des Eaux, the leading water
and waste water services company in France, and United States Filter
Corporation, North America's leading water company.
Water
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
(E MILLION)
<S> <C> <C> <C>
Revenue..................................................... 10,684 6,722 6,578
Adjusted EBITDA*............................................ 1,320 830 787
Operating Income............................................ 793 405 383
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this joint proxy statement-prospectus, may not
be strictly comparable to similarly titled measures widely used in the United
States or reported by other companies.
Including its 1999 acquisitions on a full-year basis, Vivendi Environnement
generated 70% of its water revenue in 1999 from contracts with public
authorities, 23% from industrial customers and 6% from the individual consumer
sector. It provides the following services and products:
- Municipal and Industrial Outsourcing
The focus of Vivendi's water business is on the management and operation
of water and waste water treatment and distribution systems for public
authorities and private companies. It provides integrated services that
cover the entire water cycle, from collection and treatment to storage and
distribution. Its activities include the design, construction, operation
and maintenance of large-scale, customized potable water plants, waste
water treatment and re-use plants, desalination facilities, potable water
distribution networks and waste water collection pipelines, as well as the
provision of water purification-related services to end users.
- Water Treatment Systems and Equipment
Through United States Filter Corporation and Omnium de Traitements et de
Valorisation ("OTV"), Vivendi Water is the world's leading designer and
manufacturer of water equipment and water systems for public authorities
and private companies. It treats ground water, surface water and waste
water using a wide range of separation processes and technologies and
engineers customized systems to reduce or eliminate water impurities. Its
recycle/reuse systems provide industrial customers with the ability to
circulate treated water back into plant processes, thereby reducing water
usage, operating costs and environmental damage.
Vivendi Water also designs, engineers, manufactures, installs, operates
and manages standardized and semi-standardized water equipment and systems
designed to treat water for particular industrial uses. For example, many
manufacturing processes -- particularly those used in the food and
beverage, pharmaceutical, microelectronics, paper, chemical processing and
oil/petrochemical
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industries -- require treated water to improve product quality and reduce
equipment degradation. Vivendi Water uses a broad range of physical,
biological and chemical treatment technologies that can be combined and
configured to treat water to a customer's individual specifications.
- Bottled Water and Household Filtration Products
Through United States Filter Corporation, Vivendi Water provides consumers
in North America and Europe bottled water under the "Culligan" brand. It
offers the same consumers a variety of point-of-entry and point-of-use
water treatment products such as water softening, conditioning and
filtration equipment. It generated two-thirds of its 1999 consumer water
revenue in North America, the remainder coming primarily from Europe.
Vivendi Water provides water services and products to three types of
customers: public authorities, private firms and consumers. Local authorities,
primarily in Europe, accounted for 70% of its 1999 water revenue (E7.7 billion).
It operates water and/or waste water facilities for municipalities such as
Paris, London, Berlin, Lyon, Marseille, Sydney, Vancouver, New Orleans and
Tianjin, China. It recently signed a contract to design, build and operate a
waste water treatment installation in Chengdu, China. Its industrial clients
include Hyundai and Aerospatiale. Most are located in North America (where it
generated 88% of its 1999 industrial client water revenue). About two-thirds of
its consumer customers are in North America; the remainder are in Europe. It
sells bottled water through a residential and commercial distribution network.
It purifies drinking water at over 140 company-owned, franchised or licensed
bottling locations and sells that water through over 720 independent and
company-owned dealerships in the United States.
RECENT DEVELOPMENTS
On July 19, 2000, Vivendi Environnement announced that it had agreed to
sell the Kinetics Group, a subsidiary of United States Filter Corporation, to a
group of investors. The Kinetics Group contributed about 2.5% of Vivendi
Environnement's 1999 consolidated revenue. Vivendi Environnement will use the
proceeds of the sale to reduce its indebtedness by approximately U.S.$500
million. Completion of the transaction is subject to the buyer obtaining debt
financing and to customary regulatory requirements.
WASTE MANAGEMENT
Through its wholly-owned subsidiary Compagnie Generale d'Entreprises
Automobiles, which operates under the "Onyx" brand, and its participation in
FCC, Vivendi Environnement is a global waste management leader -- the largest in
Europe and the third largest in the world. Vivendi Environnement provides waste
management services to 50 million people in 35 countries on five continents. It
has waste management contracts with approximately 4,000 municipalities and
250,000 industrial clients worldwide. Its principal markets are Europe and North
America. It also provides waste management services in the Asia/Pacific region
and in Latin America. It intends to conduct its waste operations in Latin
America through Proactiva Medio Ambiente ("Proactiva"), a joint venture with
FCC.
Waste Management
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
Revenue..................................................... 3,521 2,837 2,215
Adjusted EBITDA*............................................ 619 495 355
Operating Income............................................ 278 226 158
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this joint proxy statement-prospectus, may not
be strictly comparable to similarly titled measures widely used in the United
States or reported by other companies.
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<PAGE> 238
Services
Vivendi's core business consists of the collection, processing and disposal
of municipal, commercial and industrial waste. Its waste activities fall into
two broad categories: waste collection and related services and waste disposal
and treatment.
- Waste Collection and Related Services
Collection. Vivendi Environnement collects approximately 13.4 million
metric tons of waste annually from residences and communal depositories
and approximately 9.5 million metric tons annually from industrial
sites. It transports this waste to transfer stations, recycling and
treatment centers or directly to disposal sites.
Transfer Stations. Solid waste consolidated at transfer stations is
usually compacted for transport to disposal sites.
Recycling. Recycling generally involves the collection of paper,
cardboard, glass, plastic, wooden and metal waste that customers either
separate into different containers or commingle with other recyclable
materials. Vivendi Environnement sorts and recycles approximately 3
million metric tons of solid waste each year at its 111 treatment units.
It sells recyclable material to intermediaries or directly to industrial
clients. With 70 sorting and recycling units throughout Europe handling
approximately 1.8 million metric tons of waste paper per year, it is a
European leader in recycling waste paper and cardboard. It also recycles
some 200,000 metric tons of waste paper in the U.S. annually.
Commercial and Industrial Cleaning. Vivendi Environnement conducts its
commercial and industrial cleaning operations primarily under the brand
"Renosol." It cleans, among other things, offices, train stations,
subways, airports, museums and supermarkets. It also cleans industrial
sites, primarily auto manufacturing and food processing plants, offering
specialized services such as high-pressured cleaning, clean-room
cleaning and tank cleaning.
Liquid Waste Management. Vivendi Environnement's liquid waste
management operation focuses principally on pumping and transporting
liquid effluent associated with water treatment sewage networks and oil
residues to treatment centers. Liquid waste is usually treated at
treatment centers owned by third parties; in France, however, it treats
about one-third of the waste it collects on its premises.
Street Cleaning. Vivendi Environnement provides mechanized street
cleaning services for public authorities, including authorities in
London, Paris, Madrid and Buenos Aires.
- Waste Disposal and Treatment
Non-Hazardous Solid Waste. Vivendi Environnement disposes of
approximately 30 million metric tons of non-hazardous solid waste a year by
depositing it in landfills, by incinerating it at incineration plants or
through composting.
Landfill disposal. Vivendi Environnement disposes of approximately
20 million metric tons of non-hazardous solid waste a year in 133
different landfills (100 of which we own). It estimates that it can
continue to fill its landfills at its current pace for approximately
15 years. It has developed expertise in waste treatment methods that
minimize emission of liquid or gaseous pollutants, allowing it to
manage landfills under strict environmental regulations. It primarily
relies on landfill disposal for industrial solid waste. For municipal
waste, it uses landfill disposal, incineration and composting.
Incineration. Vivendi Environnement uses the 75 incineration plants
it operates to incinerate approximately 9 million metric tons of
waste per year, the majority of which is municipal waste. At some
incineration plants, it uses the heat created by incinerating waste
to generate energy. It sells this energy principally to district
thermal networks or electricity providers such as Electricite de
France ("EDF"). It uses incineration as its primary method of waste
disposal in densely populated areas where landfill space is scarce.
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<PAGE> 239
Composting. Vivendi Environnement composts approximately 1.1 million
metric tons of waste a year at its 65 composting production units. It
then sells a portion of the composted waste for use as fertilizer.
Hazardous Waste. Vivendi Environnement treats approximately 1.8 million
metric tons of hazardous waste a year. Eighty percent of its business in
this category comes from the chemical, petro-chemical and metallurgy
industries, primarily in the United States, France and the United
Kingdom. Vivendi Environnement collects hazardous waste from customers
and transports it, usually in specially constructed containers, tankers
or semi-trailers, and treats it at one of 29 treatment facilities.
Vivendi Environnement's principal methods for treating hazardous waste
are:
-- incineration for organic liquid waste, solvents, salted water and
sludge;
-- stabilization of residues followed by disposal in
specially-designed landfills; and
-- physical-chemical treatment for inorganic liquid waste.
In Europe, Vivendi Environnement's municipal waste management operations
generate approximately 41% of its total waste management revenue. In North
America, municipal waste management represents about 35% of its total waste
management revenue. Contracts with industrial customers accounted for
approximately 60% of its 1999 waste revenue, 65% in North America and 59% in
Europe.
Recent Developments
Vivendi Environnement has agreed to merge its wholly-owned subsidiary
Norskgsenvinning, the leading waste management company in Norway, with a company
that owns 100% of Marius Pedersen, the leading Danish waste management firm.
Vivendi Environnement will own 65% of the surviving entity, which will be the
market leader in Central Europe as well as Scandinavia.
Energy
Through its wholly-owned subsidiary Dalkia, Vivendi Environnement is a
leading energy management services provider in the rapidly growing European
market. Dalkia provides energy management services in 26 countries. It also
offers a wide range of industrial utilities and facilities management services.
Demand for outsourced industrial utilities and facilities management, almost
non-existent ten years ago, has grown significantly. Dalkia earned revenue of
more than E600 million in these sectors in 1999. Its primary markets are France,
the United Kingdom and Central and Eastern Europe. In addition, we own a 61.4%
interest in Sithe Energies, a company primarily engaged in the development,
construction, ownership and operation of non-utility electric generating
facilities in the United States. On August 14, 2000, Vivendi announced a
transaction with a subsidiary of PECO Energy Company pursuant to which Vivendi
will reduce its stake in Sithe to approximately 30%.
Energy*
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
Revenue..................................................... 2,845 2,706 3,103
Adjusted EBITDA**........................................... 388 341 265
Operating Income............................................ 170 136 92
</TABLE>
---------------
* Does not include results of Sithe.
** Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. Vivendi considers operating income to
be the key indicator of the operational strength and performance of its
business and adjusted EBITDA to be a pertinent comparative measure for
investors. Adjusted EBITDA should not be considered an alternative to
operating or net income as an indicator of Vivendi's performance, or as an
alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with generally accepted
accounting principles. In addition, adjusted EBITDA, as defined in this joint
proxy statement-prospectus, may not be strictly comparable to similarly
titled measures widely used in the United States or reported by other
companies.
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<PAGE> 240
Dalkia provides the following services:
- Energy management. Energy management consists of operating heating and
cooling systems to provide comfortable living and working environments
and redesigning and operating existing energy systems to maximize their
efficiency.
Dalkia manages some 55,000 heating systems in France and 10,000 elsewhere
in Europe. It provides integrated energy services, including in most
cases system construction and improvement, energy supply, system
management and maintenance, to about 40,000 governmental, industrial,
commercial and residential customers.
Dalkia is also Europe's leading operator of large "district" heating and
cooling systems. In district systems, thermal energy is generally
produced at a central location and distributed through pipes to dispersed
locations. Dalkia does not ordinarily own the systems it operates. In
most cases, public authorities own the systems but delegate to Dalkia the
responsibility of building, managing, maintaining and repairing them. The
systems Dalkia operates heat and cool a wide variety of public and
private facilities, including schools, hospitals, office buildings and
residences.
Dalkia currently manages more than 250 district heating and cooling
systems in Europe, mainly in France, the United Kingdom, Germany, and
Central and Eastern Europe. In France, it operates 186 district heating
and cooling systems, about half of those in existence. It is expanding
rapidly in Central Europe, for example, through its recent acquisition of
Moravskoslezke Teplarny and TEK, two major participants in the Czech
district heating market for a total of E133 million. Throughout Central
and Eastern Europe, it has set up a number of energy services companies,
in many cases in cooperation with the European Bank for Reconstruction
and Development.
Dalkia has become a European leader in cogeneration (the simultaneous
production of electricity and heat) and on-site power production. Under a
typical cogeneration contract, it provides a governmental or industrial
customer with steam power at a favorable price in exchange for the right
to produce electricity through cogeneration on the customer's premises.
French law requires EDF, the French government-owned electricity company,
to purchase cogenerated power at specified rates. Dalkia sells EDF the
power it produces through cogeneration under a 12-year contract. Dalkia's
total electrical power production capacity (including cogeneration
facilities, peaking plants and stand-by generating units) is 2,740 MW in
Europe, including 2,240 MW in France.
- Industrial Utilities. Dalkia began providing industrial utilities
services several years ago when it saw that many of its customers were
beginning to outsource non-core industrial activities such as the
production and distribution of steam heat, compressed air and
demineralized water. It has become a leading provider of industrial
utilities services in France and the United Kingdom, and has developed
expertise in the analysis of industrial processes, productivity
enhancement and preventive maintenance.
- Facilities Management. In a further response to the increasing
popularity of outsourcing, Dalkia has recently added facilities
management to its portfolio of services. The support services it offers
range from electrical and mechanical equipment maintenance to secretarial
services.
Dalkia provides energy services to both public and private customers. Its
public customers include authorities in suburban Paris, Lyons, Nice, Nottingham
in the United Kingdom, Ostrava in the Czech Republic and Bratislava in the
Slovak Republic. Its industrial customers include international groups such as
Eurolysine (Ajinomoto group), Michelin, Renault, Smurfit, Solvay and Unilever.
Its facilities management customers include public institutions like the
European Parliament and private firms like Alstom, Bull and Phillips. The
primary market for its energy services is Europe. Latin America is potentially
an important market for its facilities management business, as is the
Asia/Pacific region for its heating system activities.
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<PAGE> 241
Sithe
Sithe is a leader in the North American independent power generation
market. As of December 31, 1999, it operated 49 operating power plants in North
America with an aggregate average net capacity of 8,074 MW and had six projects
under advanced development representing approximately 4,230 MW. Internationally,
Sithe and its affiliates had interests in eight projects in operation (465 net
MW), four projects under construction (324 MW) and three projects under advanced
development (535 MW) in the Asia/Pacific region, and 500 net MW under
construction or advanced development in other countries. Sithe had 1999 revenue
of U.S.$1.1 billion.
On November 24, 1999, Sithe acquired 21 power generating plants in the
United States for approximately U.S.$1.72 billion (including the assumption of
U.S.$76.7 million of liabilities) from GPU Inc. On February 19, 2000, Sithe
agreed to sell the plants to Reliant Energy Power Generation for U.S.$2.1
billion.
On August 11, 2000, Vivendi entered into a stock purchase agreement and put
and call agreement with a subsidiary of PECO Energy Company and the other
shareholders of Sithe with respect to Vivendi's stake in Sithe. The stock
purchase agreement provides that current Sithe shareholders will sell a total of
49.9% of Sithe to PECO for approximately U.S.$680 million (of which our share
will be approximately U.S.$431 million). Vivendi's stake in Sithe will be
approximately 30% following this sale. Pursuant to the put and call agreement,
Vivendi can put, or the buyer can call, Vivendi's remaining stake in Sithe at
any time between two and five years after the closing of the sale at a price
that will be determined pursuant to the formula set forth in the agreement.
Recent developments
On June 22, 2000, Vivendi entered into a memorandum of understanding with
Vivendi Environnement and EDF pursuant to which Dalkia will consolidate its
energy operations with those of EDF. As European energy markets continue to
deregulate, Vivendi Environnement and EDF believe that their customers
increasingly demand comprehensive energy solutions that combine power generation
and energy services. Together Vivendi Environnement and EDF intend to provide
such integrated services, mainly to large industrial firms, and to develop an
expanded international presence. Dalkia will focus on developing the thermal
services, industrial utilities and independent power production aspects of the
business, and EDF, the leading power production company in Europe, will
concentrate on the production, distribution and sale of power.
Initially, EDF will purchase a 34% stake in CGC Holding, Dalkia's direct
parent. Vivendi expects that this stake will eventually rise to 50%. EDF's
initial investment in CGC Holding will be made on the basis of CGC Holding's
market value prior to the transaction. The transaction is contingent upon the
results of both parties' due diligence and upon the parties entering into
certain ancillary agreements before September 15, 2000. The memorandum of
understanding also provides for Vivendi Environnement's creation with EDF of
three companies. One, to be owned equally by CGC Holding and EDF, will seek to
develop an integrated power generation and energy services business under a
common brand. Another equally owned company will finance new independent power
production and cogeneration projects. The third, in which CGC Holding will have
a 75.76% stake, will hold all of Dalkia's international interests.
TRANSPORTATION
Through Connex, Vivendi Environnement is a leading European private
operator of local and regional passenger transportation services. Connex
provides integrated transportation solutions involving bus, train, maritime,
tram and other networks. Earlier this year, it purchased from Via-GTI urban and
inter-city transportation assets that generated revenue of E260 million in 1999.
Approximately 45% of its transportation revenue is from the road transportation
sector and approximately 55% is from rail transportation.
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Transportation
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
Revenue..................................................... 2,457 1,992 1,689
Adjusted EBITDA*............................................ 182 144 97
Operating Income............................................ 96 75 45
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this joint proxy statement-prospectus, may not
be strictly comparable to similarly titled measures widely used in the United
States or reported by other companies.
Connex operates road and rail passenger transportation networks under
contract with national, regional and local transit authorities. The public
authority with which it contracts generally owns the infrastructure it uses; the
authority also typically establishes schedules, routes and fare structures for
the networks it operates and manages. Some of its networks combine different
modes of transportation to accommodate passenger needs and promote increased
ridership. For example, it provides interconnected bus and train services in the
cities of Rouen, France, and Stockholm, Sweden.
The fares Connex charges to passengers on its transportation networks are
usually insufficient to cover its costs; consequently, the public authority
typically provides it a guaranteed minimum payment or pays it a subsidy. It
seeks to increase profitability by reducing its operating costs and increasing
traffic through improvements in system speed and reliability, service
customization and vehicle comfort and safety. Connex also tries to reduce costs
by rationalizing previously government-run operations and by sub-contracting the
services it offers, such as the provision of drivers and other personnel, to
other firms.
- Rail Transportation. Connex operates 24 passenger rail networks in
Europe. Its largest European market is the United Kingdom, where it has
contracts to operate two rail franchises. One contract expires in 2011;
the other, held through Connex's subsidiary Connex South Central, was
recently open to tender for a 15-year renewal/extension beginning in
2003. Vivendi Environnement was not successful in obtaining the
re-franchise of South Central in the open tender and accordingly Vivendi
Environnement will not hold this franchise beginning in 2003. For 2000,
Vivendi Environnement's revenue attributable to the South Central
franchise was E500 million and operating income attributable to the
franchise was not significant. Connex remains committed to the rail
industry in the United Kingdom and is currently bidding for three other
rail franchises.
Connex often rents and maintains the trains it uses, which are typically
owned by private entities. In Sweden, Connex operates the Stockholm metro
under contract with the local transit authority, which owns the trains.
Connex began its expansion outside of Europe in 1998. It operates one
commuter rail system in Melbourne, Australia under a franchise agreement
with the regional transit authorities. It operates a monorail passenger
transportation line in Sydney as well.
Connex is responsible for driving, inspecting, cleaning and providing
security on the trains it operates, selling tickets, providing customer
services, and maintaining, cleaning and providing security in the
stations on its networks. It also provides rail cargo services, including
freight train operation for SNCF and performs railway siding management
services for customers with plants linked to the public rail network,
primarily those in the automobile, petrochemical and petroleum refining
industries.
- Road Transportation. The focus of Connex's road transportation business
is on the operation of urban and inter-city public bus networks under
contracts with public authorities. Its most important road transportation
markets are in France, Scandinavia, Eastern Europe and Australia. It also
offers
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<PAGE> 243
a number of transportation-on-demand services designed to minimize the
inefficiency inherent in operating regular services on little-used lines,
outside of normal hours or in isolated areas. For example, it uses
minibuses, operated under sub-contracts with individual vehicle-owners,
on pre-determined routes and timetables.
In addition, Connex owns and operates three tram systems (in Saint
Etienne and Rouen in France and Stockholm in Sweden) in partnership with
financial institutions and train manufacturers. These tram systems are
generally integrated into the other urban bus transportation networks
that Connex operates by means of an integrated ticketing system.
In France, governmental authorities typically own the buses used on urban
networks and lease them to Vivendi as part of the operating contract.
However, Vivendi usually owns the motorcoaches used on inter-city
networks. In the other countries in which it operates, Vivendi typically
owns the buses and motorcoaches used in urban and inter-city networks.
Vivendi is responsible for the maintenance of the equipment it uses
whether it is owned or leased.
In both the road and rail transportation sectors, the vast majority of
Connex's customers are the national, regional and local public authorities
responsible for providing public transit services. Connex operates 26 rail
networks, 186 road networks, 20 integrated networks and 3 tram systems that
carry, in the aggregate, one billion passengers a year.
FOMENTO DE CONSTRUCCIONES Y CONTRATAS -- FCC
FCC, a public company listed on the Madrid Stock Exchange, is one of
Spain's largest companies, with a market capitalization of E2.1 billion as of
September 6, 2000. FCC operates in a number of different environmental and
construction-related industries. In October 1998, to exploit the growing demand
for integrated environmental management services, Vivendi acquired from another
shareholder a 49% interest in the holding company that owns 56.5% of FCC. The
transaction had economic effect from July 1, 1998. In December 1999, Vivendi
transferred its interest in this holding company to Vivendi Environnement. The
other shareholder owns the remaining 51% of the holding company.
FCC*
<TABLE>
<CAPTION>
1999 1998
----- ----
(E MILLION)*
<S> <C> <C>
Revenue..................................................... 1,876 983
Adjusted EBITDA**........................................... 272 209
Operating Income............................................ 190 75
</TABLE>
---------------
* Figures reflect a 49% share of FCC. We proportionally consolidate FCC based
on Vivendi's 49% interest in the holding company that controls it.
** Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. Vivendi considers operating income to
be the key indicator of the operational strength and performance of its
business and adjusted EBITDA to be a pertinent comparative measure for
investors. Adjusted EBITDA should not be considered an alternative to
operating or net income as an indicator of Vivendi's performance, or as an
alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with generally accepted
accounting principles. In addition, adjusted EBITDA, as defined in this joint
proxy statement-prospectus, may not be strictly comparable to similarly
titled measures widely used in the United States or reported by other
companies.
FCC's main activities are:
- construction, which represented 48% of its overall 1999 revenue;
- waste and water services, which represented 29% of its 1999 revenue; and
- cement production, which represented 11% of its 1999 revenue.
FCC also manufactures urban fixtures, manages car parks, provides airport
handling and vehicle inspection services, buys and sells real estate and,
through its approximately 80% holding in Grucysca,
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<PAGE> 244
participates in the industrial logistics and other services sectors. As part of
its international expansion, Vivendi Environnement consolidated most of its
water and waste treatment businesses with FCC's operations in Latin America and
the Caribbean in Proactiva. On July 20, 2000, Vivendi Environnement and FCC
entered into an agreement under which Vivendi Environnement purchased 50% of
Proactiva, the remainder being retained by FCC. Under the same agreement,
Vivendi and Vivendi Environnement sold their water and waste management
operations to Proactiva. Most of the transfers covered by the agreements are now
completed.
Services
- Waste and Water Services. FCC is the leading waste management company
and the second largest water and waste water treatment company in Spain,
where it conducts the bulk of its operations. FCC collects, processes and
disposes of household waste, providing the public authorities responsible
for waste collection and disposal a full range of waste management
services.
FCC's water and waste water treatment activities cover the full cycle of
water treatment, including water treatment and distribution. In 1999, FCC
acquired Vivendi Water's Spanish operations, doubling its market share in
this sector.
- Construction. FCC is one of the five leading construction companies in
Spain. FCC's projects include the construction of roads, high-speed
railway lines, airports, offices, commercial centers and residential
homes. FCC intends to sell publicly or privately up to 49% of this
business.
- Cement Production. FCC produces cement through its 49% interest in
Portland Valderrivas. It began to expand internationally with its 1999
acquisition of Giant Cement in the United States for E291 million.
Under the terms of an option agreement dated October 6, 1998 with the other
shareholder in the holding company through which Vivendi holds its stake in FCC,
the other shareholder has an option (the "put option"), exercisable between
April 18, 2000 and October 6, 2008, to sell Vivendi the shareholder's 51%
interest in the holding company at a price based on the average market price of
FCC's common stock over the three months prior to exercise. The exercise price
of the put option is capped at seven times FCC's EBITDA from the previous fiscal
year or 29.5 times FCC's earnings per share, whichever is lower. The agreement
also provides for mutual rights of first refusal on any transfers of shares in
the holding company to a third party. Additionally, the other shareholder has a
call on the shares of the holding company through which Vivendi owns its
interest in FCC that becomes exercisable in the event Vivendi ceases to hold a
majority of the capital of Vivendi Environnement. The exercise price of the call
is the lower of the purchase price Vivendi Environnement paid to acquire its
interest in the holding company and the market price of the FCC shares. Vivendi
Environnement and the other shareholder share equally the holding company's
right to be represented in the main executive bodies of FCC, i.e., the board of
directors and executive committees of FCC and its subsidiaries. The holding
company's articles of association also provide that certain important decisions,
such as increases or decreases of share capital, amendments to articles of
association, merger, spin-offs or dissolutions, require supermajority
shareholder approval. None of these decisions, therefore, could be taken without
the consent of both Vivendi and the other shareholder.
COMPETITION -- ENVIRONMENT
Most markets for environmental services are very competitive and are
characterized by technological and regulatory change and experienced
competitors. Competition in each of the markets Vivendi Environnement serves is
primarily on the basis of the quality of the products and services provided,
reliability, customer service, financial strength, technology, price, reputation
and experience in providing services, adapting to changing legal and regulatory
environments, and managing employees accustomed to working for public sector
entities or non-outsourced divisions of commercial enterprises. In each of the
markets in which Vivendi Environnement operates, its competitive strengths are
its high level of technological and technical expertise, its financial position,
its geographical reach and its experience in providing environmental management
services, managing privatized and outsourced employees and meeting regulatory
requirements.
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<PAGE> 245
With regard to integrated, large-scale environmental management services in
particular, Vivendi Environnement's competitors include Suez Lyonnaise des Eaux
and RWE and its primary competitive strength is its demonstrated ability to
provide innovative, integrated environmental services that are tailored
specifically to the needs of individual clients and offered on a global basis.
Vivendi Environnement anticipates that other enterprises that compete with it in
individual environmental sectors will, in the coming years, seek to expand their
activities to become integrated environmental management services providers.
WATER
Vivendi Water is the world's leading private provider of water services to
municipalities and industrial firms, its principal competitors being Suez
Lyonnaise des Eaux, Thames Water, Anglian Water, Severn Trent and Saur Cise. It
has leading positions in the European and North American markets, and a strong
basis for growth in Latin America and the Asia/Pacific region, especially
Australia and China. It estimates that its share of the rapidly growing
industrial out-sourcing market is approximately 30%. It has a leading position
in the highly fragmented water equipment market as well.
WASTE MANAGEMENT
Vivendi Environnement's waste management operations are carried out mainly
in Europe, where it is the market leader in the collection and disposal of
household, commercial, industrial and hazardous waste. Its main pan-European
competitors are Suez Lyonnaise des Eaux and, to a lesser extent, Cleanaway. As a
result of its 1997 acquisition of Leigh Interest, it ranks among the top three
providers of household, commercial, industrial and hazardous waste management
services in the United Kingdom, along with Shanks and Sita-Wattco. In Germany,
much of the household and commercial waste management business is run by
municipalities, although there is a gradual trend toward privatization. Vivendi
Environnement's biggest competitors in Germany are RWE Umwelt and Rethmann.
Vivendi Environnement has strong market positions in Norway, Ireland,
Switzerland and Israel.
The North American household, industrial and hazardous waste management
markets are undergoing rapid consolidation. Vivendi Environnement has taken
significant steps toward establishing its competitive position through the
acquisition in 1999 of Superior Services, Inc., which provides household and
industrial waste collection and disposal services to customers in 12 states, and
through its majority interests in Onyx Environmental Services and Onyx
Industrial Services, which provide hazardous waste and industrial cleaning
services, respectively, in the United States. Its major competitors in the
United States include Allied BFI, Waste Management and Republic Waste. It
expects further consolidation in this sector and intends to participate actively
in this process.
Vivendi Environnement's Latin American operations are concentrated in
Brazil, Venezuela, Argentina and Chile, where its primary competition is from a
variety of local companies and SITA (a subsidiary of Suez Lyonnaise des Eaux).
It plans to expand its activities in Latin America through ProActiva. It has
strong operations in Singapore and Taiwan, and is among the market leaders in
Australia and New Zealand. Its main competitors in the Asia/Pacific region are
various local companies, Cleanaway and Suez Lyonnaise des Eaux.
ENERGY SERVICES
Vivendi Environnement's traditional competitor in district thermal
management is Suez Lyonnaise des Eaux through its subsidiary Elyo. It
increasingly faces competition from large European gas and electricity companies
such as Gaz de France, RWE, Veba, Texas Utilities and Power Gen, especially for
large district heating contracts in Eastern and Central Europe. Outside France,
it competes with local service providers such as the municipal utilities in
Germany, which operate district heating systems and electricity and/or gas
distribution systems. Its competitors in cogeneration consist primarily of large
utilities companies such as RWE, Veba, Texas Utilities, Endesa, National Power
and Power Gen. It competes primarily with large firms such as Honeywell and
Johnson Control for facilities management business.
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TRANSPORTATION
Vivendi Environnement has a 20% share of the privately run passenger
transportation market in France, 17% of the privately run rail market in the
United Kingdom, 22% of the privately run passenger road transportation market in
Scandinavia and 30% of the privately run road transportation market in Portugal,
all measured by revenue.
Most privately operated passenger transportation companies serve a limited
geographic area. Vivendi Environnement's major competitors are those companies
that, like it, provide passenger transportation services in a number of
different countries. Its competitors include Stagecoach, its principal
pan-European competitor, National Express First Group, Arriva and Go Ahead in
the United Kingdom and Via GTI and Transdev in France. It anticipates that new
competitors may seek to enter the market, including civil engineering companies,
train manufacturers and public operators seeking to expand into contiguous
regions.
FCC
FCC is the leading private provider of waste management services in Spain,
with a share of the market for waste management services of approximately 43%.
Its primary competitor in this market is Cespa. After Aguas de Barcelona, FCC is
the leading private operator in the water and waste water treatment market in
Spain, with a market share of 10%.
The cement production sector in Spain is relatively concentrated. FCC is
the only major Spanish competitor, with approximately 17% of the Spanish market.
Its main competitors are Spanish branches of multinational cement manufacturers
such as Cemex, Holderbank and Lafarge.
The construction market in Spain has recently undergone a process of
consolidation. Five major competitors, one of which is FCC, have emerged. With
numerous small companies and a number of larger international companies vying
for business, however, the market remains competitive.
RESEARCH AND DEVELOPMENT -- ENVIRONMENT
Research and development is a critical component of Vivendi Environnement's
ongoing effort to provide its customers with cost-effective and environmentally
sound products and services. It has 11 research facilities throughout the world,
staffed by a total of 500 scientists and other researchers. In 1997, 1998 and
1999, it invested E38.9 million, E48.1 million and E53 million, respectively, in
research and development.
In order to provide its customers with the highest quality drinking water,
as well as with cost-effective water treatment solutions, Vivendi Environnement
conducts research on water treatment and distribution primarily at laboratories
in Paris, Lyon, Rennes, Metz and Agen in France, Watford in Great Britain,
Adelaide in Australia, Berlin in Germany, Rothschild in Wisconsin, and in situ
at its different water treatment plants throughout the world. In 1999 it set up
new water research centers in Australia and North America. Approximately 350
researchers are involved in its water-related research and development projects.
In 1999 it invested approximately E36 million in water research and development
projects. Its researchers have developed the technology necessary for
large-scale nanofiltration, a purification method that uses membranes with
microscopic holes to remove impurities from water, and submerged membrane
filtration, a method using underwater purification filters. As a result of this
technology, Vivendi Environnement has been able to produce potable water from
low quality sources.
Vivendi Environnement conducts a significant part of its waste management
and treatment research and development through the Centre de Recherches pours
l'Environnement, l'Energie et les Dechets ("CREED") research and testing center
in Limay, France owned by Vivendi and Vivendi Environnement. CREED's budget for
the year 2000 is E10 million. With fifty engineers and researchers, and
affiliated centers in the United Kingdom and Taiwan, CREED conducts
approximately sixty research programs geared towards developing services for
industrial firms and municipalities. The subjects of these programs include
mechanized waste collection processes, computerized waste collection monitoring,
new uses for recycled products, energy recovery during thermal treatment and the
development of more efficient waste treatment and recovery methods. CREED also
studies the treatment of industrial effluents, the recovery
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and recycling of household waste and the remediation of land contaminated by
heavy metal and organic pollutants. In Vivendi's continuing effort to improve
air quality, CREED also conducts research on the detection, measurement and
treatment of dioxins originating from incineration plants. Total research and
development expenditures in connection with waste treatment were approximately
E23 million for 1999. Vivendi Environnement has been awarded more than sixty
patents as a result of its waste-related research.
Vivendi Environnement conducts its research and development efforts in
energy at CREED as well. Its researchers work primarily to find ways of limiting
the emission of greenhouse gases from its thermal energy production systems.
Other research projects in this area include the development of cogeneration
techniques that use natural gas or biogas from landfills to optimize energy
output and the study of microgeneration technologies that could resolve costly
problems associated with power transmission. Total product development
expenditures in connection with Vivendi Environnement's activities in the energy
services sector were approximately E5 million in 1999.
Vivendi Environnement's research and development in passenger
transportation includes the design of improved vehicle configuration to achieve
greater passenger comfort and safety, the development of global positioning
system (GPS) technology and the provision of real time information to customers.
Approximately 30 people are involved in its research efforts in the
transportation services field. Total product development expenditures in
connection with transportation services for 1999 were approximately E5 million.
Vivendi Environnement conducts a number of its research efforts in
cooperation with research centers and institutions of higher learning in France
and elsewhere. In France, it has worked with the Pasteur Institute in Paris, the
Ecole des Ponts et Chaussees, the Compiegne University of Technology, the Ecole
Polytechnique, the Ecole Superieure des Travaux Publics and the National Centre
for Space Studies in areas such as recycling, dioxin analysis and treatment and
waste combustibility. Partners outside France include Georgia Tech, the U.S.
Environmental Protection Agency ("EPA"), the Swiss federal water institute, the
Australian Water Quality Centre, the Helsinki University of Art and Design, the
Hong Kong Science and Technology University, Tsinghua University in China, the
Asian Institute of Technology in Thailand and Berliner Wasser Betriebe in
Berlin.
REGULATION -- ENVIRONMENT
Vivendi Environnement's businesses are subject to extensive, evolving and
increasingly stringent environmental regulations in developing countries as well
as in Western Europe and North America.
WATER
The water and waste water treatment industries are highly sensitive to
governmental regulation. In Europe and the United States, governments have
enacted significant environmental laws at the national and local level in
response to public concern over the environment. The quality of drinking water
and the treatment of waste water are increasingly subject to regulation in
developing countries as well, both in urban and rural areas.
The quality of water for human consumption is strictly regulated at the
European Union level by the Directive on Drinking Water. The collection,
treatment and discharge of urban as well as industrial waste water is governed
by the Directive on Urban Waste Water. Public authorities also impose strict
regulations upon industrial waste water that enters collection systems and the
waste water and sludge from urban waste water treatment plants.
France has numerous laws and regulations concerning water pollution, as
well as numerous governmental authorities involved in the enforcement of those
laws and regulations. Certain discharges, disposals, and other actions with a
potentially negative impact on the quality of surface or underground water
sources require authorization or notification. For instance, public authorities
must be notified of any facility that pumps underground water in amounts that
exceed specified volumes. French law prohibits or
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restricts release of certain substances in water. Individuals and companies are
subject to civil and criminal penalties under these laws and regulations.
In the United States, the primary federal laws affecting the provision of
water and waste water treatment services are the Water Pollution Control Act of
1972, the Safe Drinking Water Act of 1974 and the regulations promulgated
pursuant thereto by the EPA. These laws and regulations establish standards for
drinking water and liquid discharges. Each U.S. state has the right to establish
criteria and standards stricter than those established by the EPA and a number
of states have done so.
WASTE MANAGEMENT
In France, ministerial orders establish standards for disposal sites for
household, industrial and hazardous waste. These orders govern, among other
things, site selection and the design, construction and testing of disposal
sites. Administrative officers can impose strict standards with regard to waste
disposed of at a site. Hazardous waste is subject to strict monitoring at all
stages of the disposal process.
At the European Union level, the framework for waste management regulation
is provided by Directives that establish overall regulatory goals of waste
prevention, collection, recycling and re-use. European Union member states must
prohibit the uncontrolled discarding, discharge and disposal of waste. Entities
that store or dump waste for another party must obtain an authorization from the
competent authority that prescribes the types and quantities of waste to be
treated, the general technical requirements to be satisfied and the precautions
to be taken. Regulatory authorities frequently check compliance with those
requirements. Additionally, specific European Union Directives govern the
operation of landfill sites, the collection and disposal of hazardous waste, and
the operation of municipal waste-incineration plants.
In France, waste treatment and disposal facilities are subject to laws that
require Onyx to obtain permits to operate most of its facilities from municipal
and regional authorities. The permitting process requires Onyx to complete
environmental impact studies and risk assessments with respect to the relevant
facility. Landfill operators must provide specific financial guarantees (which
typically take the form of bank guarantees) that cover the monitoring and
remediation of the site during, and up to 30 years after, its operation.
Operators must comply with standards for residential solid waste landfills and
for industrial and toxic waste landfills. Incineration plants are subject to
rules that limit the emission of pollutants.
Vivendi Environnement's U.K. waste management operations and facilities are
subject to the Environmental Protection Act of 1990, which requires local
authorities to transfer their waste disposal operations either to a specialized
waste disposal entity owned by the local authority or to a private contractor,
and the Environment Act of 1995, which addresses pollution control, land waste
and nuisances.
The major statutes governing Vivendi Environnement's waste management
activities in the United States include the Resource Conservation and Recovery
Act of 1976, the Clean Water Act, the Toxic Substances Control Act, the
Comprehensive Environmental Response, Compensation and Liabilities Act of 1980,
as amended (also known as "Superfund"), and the Clean Air Act, all of which are
administered either by the EPA or state agencies to which the EPA delegates
enforcement powers. Each state in which Vivendi Environnement operates also has
its own laws and regulations governing the generation, collection and disposal
of waste, including, in most cases, the design, operation, maintenance, closure
and post closure maintenance of landfills and other solid and hazardous waste
management facilities. In order to develop and operate a landfill, transfer
station, hazardous waste treatment/storage facility or other solid waste
facility, Vivendi Environnement must typically undergo several difficult
governmental review processes and obtain one or more permits that may not
ultimately be issued.
In view of the fact that the waste management business is subject to risks
of liability for property damage and personal injury caused by pollution and
other hazards, Vivendi Environnement carries insurance policies covering what it
believes to be the most important casualty risks. However, we cannot provide
assurance that the coverage provided by these policies will be sufficient to
cover any liability to which Vivendi Environnement may be subject. See
"-- Description of Business -- Business as a Whole."
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ENERGY SERVICES
Vivendi Environnement's energy-related activities in Europe (primarily the
generation and delivery of thermal energy and independent power generation) are
subject to an EU Directive that establishes emission limits for sulphur dioxide,
nitrogen oxides and dust and regulates the construction of combustion plants.
The European Commission is considering an amendment to this Directive that, if
adopted, would impose emission thresholds twice as strict as those currently in
effect. The new thresholds would apply to all new installations put into
operation after January 1, 2000. Other existing Directives require the
implementation of national emission ceilings for certain atmospheric pollutants
such as sulphur dioxide, nitrogen oxide, volatile organic compounds and ammonia.
The use of gas and other combustible material in France is subject in some
instances to a domestic natural gas tax. Energy produced by a cogeneration
facility is exempt from this tax for a period of five years after the facility
begins operations. The law providing for this exemption was renewed in 1999; any
cogeneration plant Vivendi builds before 2004 will therefore be eligible for the
exemption.
TRANSPORTATION
Vivendi Environnement's transportation service activities are subject to a
number of EU Directives that limit emissions from petrol and diesel engines and
requires Vivendi to obtain certain permits. One Directive sets forth guidelines
for the laws of the member states with respect to the emissions of gas
pollutants from diesel engines used in vehicles. Another sets forth guidelines
for the laws of the member states with respect to emissions of gas and
particulate pollutants from internal combustion engines installed in mobile
equipment other than road vehicles.
CONTRACTS -- ENVIRONMENT
The vast majority of Vivendi Environnement's contracts to provide
individual environmental services are medium and long-term agreements with
municipal and industrial clients. These contracts fall into two broad
categories: those with public authorities and those with private firms. In
France and other countries with civil law systems, administrative law governs
contracts with public authorities, whereas private law applies to contracts with
private enterprises. In common law countries such as the United Kingdom and the
United States, common law ordinarily governs both contracts with public
authorities and with private enterprises.
The majority of Vivendi Environnement's government contracts relate to its
operations in France. The services that it provides to public authorities are
considered "public services" under French administrative law. This means that
the procedures used in awarding contracts, and many provisions of those
contracts, are mandated by law.
A French public authority can choose among a number of different types of
contracts when delegating the management of public services to a private
operator. The choice among these types is usually based on the nature of the
service to be provided, the level of investment required of the private operator
and the form of the operator's fee or rate. There are four basic types of
contract for the delegated management of public services: concession contracts,
affermage contracts, management contracts and public markets contracts.
- Under a concession contract, the private operator invests in the
equipment used to provide the public service and manages it at its own
risk in return for fees or rates paid by the consumers of the service,
typically the public. In some cases, the public authority pays a subsidy
to the operator as well. Ownership of the equipment remains with the
public authority. Concession-type agreements are common in the energy
services, water and waste water treatment and waste management sectors in
France.
- The affermage contract, the most common type, is similar to the
concession agreement in that the private operator performs a public
service at its own risk. However, the private operator in an affermage
contract does not invest in property, plant or equipment, although it
usually must
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maintain the existing facilities and equipment. Consequently, the private
operator receives part of the fees or rates paid by the public to cover
the cost of operating the service, and the public authority receives the
remainder to cover its infrastructure investments. Affermage contracts
are common in the energy services, water and waste water treatment, waste
management and public transportation sectors. They predominate in the
water distribution sector. There are also "mixed" contracts under which
the private operator both manages the existing facilities and introduces
new equipment.
- Under a management contract, the private operator manages a public
service for a fixed fee. The private operator does not invest in
facilities or equipment, but may be responsible for maintenance. The
public usually pays the operator's fee in the form of fees or rates. If
the fees or rates paid are less than the amount of the fixed fee due to
the contractor, the public authority pays the balance to the private
operator.
- Under a public market contract, the public authority, rather than users
of the service, pays the operator's fee or rate.
The duration of Vivendi Environnement's contracts depends primarily on the
size of the investment the contract requires it to make. In France, the Sapin
Law of 1993 provides that a contract for the delegated management of public
services must have a fixed term that does not exceed the period over which the
private operator depreciates the investments it makes under the contract.
Concession-type contracts typically last about 20 years. Affermage contracts are
shorter, usually around 12 years, although they may be as short as eight or as
long as 20 years. Management contracts are typically not longer than five years.
Contracts cannot be automatically renewed. When a contract expires, the public
authority must call for tenders for a new contract, meaning that the operator
whose contract expires must then compete with other candidates to renew the
contract. The public authority can also refuse to delegate the service and
operate it itself.
There are a number of features common to each of the contract types just
described. These common features are mandated by French administrative law and
include provisions that:
- entitle the public authority to impose penalties for breach of the
contract by the private operator and to modify the terms of or terminate
the contract if the public interest so requires (the authority must
compensate the private operator for damages suffered as a result of the
modification or termination of the contract, except in the case of fault
of the operator);
- provide for renegotiation of the agreement to ensure it remains fair to
both sides; and
- grant the public authority the right to supervise how the public service
is provided.
A private operator's fees, and any method of adjusting those fees, are
generally fixed by contract. In some cases, however, fees and adjustment
provisions are fixed unilaterally by the public authority. In no instance may a
private operator charge the public more than the cost of providing the service
(including applicable taxes and fees) plus its contractual remuneration.
French law requires public authorities to award contracts for the provision
of public services through a competitive bidding process. The procedure for this
process is heavily regulated and is controlled by independent administrative
authorities and tribunals. The criteria public authorities use in assessing
competitive bids include price, the investments the candidates offer to make,
the candidates' experience and the candidates' ability to conform to applicable
regulatory standards and to adapt to new standards.
Supervising authorities ensure that public authorities delegating services
strictly observe applicable regulations regarding bidding procedures. A
supervising authority can invalidate a contract years after it is entered into
if those regulations are violated. A private operator must account for its
management to several governmental authorities, each of which may, in some
circumstances, publish statements critical of the private operator.
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Outside of France, other countries with civil law systems, such as Spain
and Italy, have adopted the French system of delegated management of public
services. Public authorities in these countries typically delegate services to
private operators through contracts similar to concession, affermage or
management contracts.
In common law countries such as the United Kingdom and the United States,
the law governing public contracts is less rigid than in civil law countries,
and the types of contract under which public authorities in such countries
delegate the operation of services are more varied. Among the types of contract
common in such countries are build-operate-transfer contracts, under which the
private operator undertakes to construct and operate the requisite facilities
and assumes an obligation to transfer the installation to the public authority
at the end of the contract; franchise contracts, which require the contractor to
invest in equipment and to operate the service in accordance with specifications
established by a regulatory body; and service contracts, under which the
operator makes no investments and operates the service for a fixed fee and/or a
share of the profit generated.
There is a trend in both developed and developing countries to adopt
systems similar to the system of delegated management of public services used in
France. Vivendi believes that Vivendi Environnement's experience with this
system is a competitive advantage in this changing environment.
WATER
Vivendi Environnement has approximately 5,000 contracts with public
authorities to provide water and waste water services, including about 3,800 in
France. Three-quarters of its contracts with local French authorities are
affermage agreements; most of the remainder are long-term concession contracts.
In both cases, Vivendi Environnement bills end-users directly. It shares revenue
with local authorities under formulas based largely on the length of the
contract and the level of investment required.
Vivendi Environnement's contracts with industrial and commercial
enterprises for water and waste water treatment tend to last three to ten years.
These contracts typically require Vivendi to meet specified service
requirements. Contracts are usually on a fixed-price basis, subject to
adjustments for inflation and other cost increases. In the water treatment
equipment and systems market, Vivendi Environnement normally designs and
installs larger systems under turnkey contracts within 24 months of acceptance
of a customer order. Under these contracts, customers typically pay a lump-sum
in several installments based on a predetermined schedule. Vivendi Environnement
distributes bottled water and household filtration products either directly to
customers or through independent dealers.
WASTE MANAGEMENT
Vivendi Environnement performs most municipal solid waste collection and
recycling services under contracts with, or franchises granted by,
municipalities or regional authorities. Contracts with public authorities
typically cover collection, transfer, disposal and/or recycling.
The duration of Vivendi Environnement's contracts usually depend upon the
nature of the services it provides, applicable local regulations and the level
of capital expenditure the contract requires it to make. Collection contracts
usually last from three to five years. The length of disposal contracts ranges
from one year for disposal in landfills that Vivendi owns to up to 30 years for
contracts involving the construction, financing and operation of new
waste-to-energy facilities. Collection contracts with industrial customers
typically last one to three years; treatment contracts last an average of five.
In recent years, Vivendi Environnement has entered into a number of
integrated waste management contracts with French and U.K. industrial clients
that cover a broad range of waste management services, including treatment,
recycling, disposal and/or handling of waste. In the United Kingdom, these
integrated services contracts now account for 15% of Vivendi Environnement's
industrial waste management revenue.
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ENERGY SERVICES
The majority of the contracts in the energy services sector involve heating
systems management. Contracts to operate district heating systems are typically
long-term, lasting up to 20 years. Contracts to operate other heating systems
for public or private clients may last up to 16 years. Industrial utilities
management contracts usually expire after three to five years, but occasionally
run as long as 12 years if we provide cogeneration services as well. Contracts
in the facilities management sector are generally in the three- to five-year
range. Vivendi Environnement's average energy contract lasts approximately seven
years.
TRANSPORTATION
Almost all Vivendi Environnement's contracts in the transportation sector
are with national, regional and local public authorities. In France and,
increasingly, in other countries, contracts are usually based on the concession
model. In the United Kingdom, in contrast, private operators run transportation
networks under franchise agreements. The rail transportation network in the
United Kingdom is regulated by the Strategic Rail Authority, which has broad
power to impose rules regarding schedules, fare structure and safety.
Ordinarily, Vivendi Environnement's rail contracts last from 12 to 20
years, while its road contracts typically last for 4 to 12 years, a disparity
due to the greater investment required in the rail transportation sector.
COMPLIANCE WITH LAWS AND REGULATION
Vivendi is subject to a variety of laws that prohibit companies from
bribing foreign officials for the purpose of obtaining or keeping business. It
has taken precautions and instituted a number of procedures to comply with these
laws, but it cannot assure you that its precautions will protect it against
liability. In particular, Vivendi may be held responsible for actions taken by
its local representatives or agents, regardless of its ability actually to
control them. Vivendi has created a senior executive position of ethical manager
and an ethics program designed to maximize compliance with applicable laws and
regulations.
OTHER BUSINESSES
REAL ESTATE
As part of its strategy of focusing on its core communications and
environmental businesses, Vivendi has decided to withdraw from the real estate
business. In order to facilitate this withdrawal, it has restructured Compagnie
Generale d'Immobilier et de Services ("CGIS"), its wholly-owned real estate
subsidiary, into two principal groups of companies: Nexity and Vivendi
Valorisation. Vivendi sold 100% of Nexity, formed out of its ongoing property
businesses, in July, 2000. Vivendi Valorisation holds Vivendi's remaining
property assets, which consist primarily of investments arising out of past
property development projects. Vivendi holds these assets on its balance sheet
at their current market value. Pending their sale, Nexity will manage Vivendi
Valorisation's residual assets. Vivendi Valorisation's revenue represented 34%
of CGIS's total revenue for 1999.
Real Estate
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
Revenue..................................................... 1,686 1,818 1,445
Adjusted EBITDA*............................................ 92 20 (122)
Operating Income............................................ 37 (3) (55)
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this joint proxy statement-prospectus, may not
be strictly comparable to similarly titled measures widely used in the United
States or reported by other companies.
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VIVENDI VALORISATION
Activities
The principal assets of Vivendi Valorisation include land and land
development rights, commercial property (owned and leased) and loans extended to
finance commercial property sales. The majority of these assets are associated
with Vivendi's past involvement in long-term residential and commercial property
development projects. Given the complexity and the long-term nature of its
contractual obligations in these projects, Vivendi's assets cannot easily be
transferred or sold. Vivendi intends to divest these assets as and when
opportunities arise. A dedicated team of approximately 30 Nexity professionals
will manage the assets of Vivendi Valorisation pending their sale.
Land and Land Development Rights:
- Paris Area. Vivendi Valorisation owns land and development rights, and a
partially-constructed building, at La Defense, near Paris. Vivendi
Valorisation has committed to sell these assets for about E210 million,
subject to certain conditions.
- South of France. Vivendi Valorisation retains land and land development
rights in two large development projects in La Napoule and Antibes in
southern France. Development and urbanization authorizations for both
sites were cancelled by local authorities. Vivendi will seek to obtain
the approval of the local authorities to develop or redevelop some of the
land before selling it.
- Germany. Vivendi Valorisation owns land and related assets in
Babelsberg, 20 miles outside of Berlin. Vivendi has developed one-third
of the marketable portion of this land, and sold or leased 23%.
Commercial Property Interests. Vivendi Valorisation continues to hold
significant interests in a number of large building complexes acquired in
connection with past development projects. While Vivendi Valorisation owns
certain minor buildings outright, the majority of these interests takes the form
of long-term leases from third-party owner-investors, with rents paid by Vivendi
Valorisation and guaranteed by Vivendi, coupled with purchase options in favor
of Vivendi Valorisation and/or Vivendi.
- Philip Morris/Danton. In 1996, CGIS transferred to Philip Morris three
office buildings constructed as part of the Danton development project at
La Defense. CGIS agreed to lease back the buildings for 30 years at
progressively rising rents, payment of which was guaranteed by Vivendi.
Vivendi Valorisation has an option to purchase the buildings in 2011 for
E714 million and in 2020 for E434 million.
- Berlin. In 1996, Vivendi purchased three defeasance structures for
building complexes in Berlin. CGIS sold each structure to, and leased it
back from, a third party.
- Loan Assets. CGIS provided financing to buyers of a number of its
properties, such as Philip Morris (a loan of E117 million) and SITQ (a
loan of E207 million).
CONSTRUCTION
On February 10, 2000, as part of its strategy of focusing on its two core
businesses, Vivendi sold 34.4% of Vinci to a number of institutional investors.
The sale reduces Vivendi's stake in Vinci to 16.9%. Vivendi appointed four of
Vinci's 18 directors. Vivendi has committed not to engage in further sales of
Vinci shares until 2001, except to Vinci itself. On July 17, 2000, Vinci
launched a friendly exchange offer for the construction company Groupe GTM. If
the offer is consummated, Vivendi's stake in the combined entity, which will be
the world's largest construction firm, will be diluted to approximately 9% of
the outstanding share capital.
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Construction
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
Revenue..................................................... 8,903 7,886 8,009
Adjusted EBITDA*............................................ 428 271 244
Operating Income............................................ 176 82 (4)
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this joint proxy statement-prospectus, may not
be strictly comparable to similarly titled measures widely used in the United
States or reported by other companies.
Vinci is Europe's leading construction company and is, based on its current
structure, one of the ten largest construction groups in the world in terms of
total 1999 sales. Vinci's principal activities are organized into five
divisions: building and civil engineering; road construction; electrical
engineering and electrical works; heating, cooling and architectural finishing
operations; and concessions. In 1999, Vinci had consolidated revenue of E8.9
billion. Vivendi fully consolidated Vinci in its accounts in 1997, 1998 and
1999. Vivendi intends to account for Vinci using the equity method in 2000.
BUSINESS AS A WHOLE
EMPLOYEES
As of December 31, 1999, Vivendi employed approximately 290,000 people
worldwide:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
APPROXIMATE
NUMBER OF EMPLOYEES
--------------------
<S> <C>
COMMUNICATIONS
Telecommunications.......................................... 8,400
Audiovisual and Pay Television.............................. 4,000
Publishing and Multimedia................................... 20,000
ENVIRONMENT
Water....................................................... 67,000
Waste....................................................... 56,000
Energy Services............................................. 23,000
Transportation.............................................. 34,000
Sithe....................................................... 2,100
OTHER*
Real Estate................................................. 4,450
Construction................................................ 70,700
</TABLE>
---------------
* Vivendi plans to divest the majority of these operations in 2000.
FCC has 43,000 employees.
Trade union membership in Vivendi's operations varies from country to
country, and Vivendi is party to numerous collective bargaining agreements. As
is generally required by law, Vivendi renegotiates its labor agreements in
Europe annually in each country in which it operates.
There is no material level of trade union membership in Vivendi's U.S.
operations other than in United States Filter Corporation, where 6.4% of its
employees are unionized, and Onyx, where 17% of its employees are unionized.
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A French law enacted in 1998 requires all employers of more than 20
employees in France to implement a 35-hour work week by January 1, 2000. Vivendi
believes that it is one of the first major companies in France to be in
substantial compliance with the new law. Vivendi does not expect the law to have
a material effect on its business or results of operations.
Although it has experienced strikes and work stoppages in the past, Vivendi
believes that relations with its employees are generally good. It is not aware
of any material labor arrangement that has expired or is soon to expire and that
is not expected to be satisfactorily renewed or replaced in a timely manner.
INTELLECTUAL PROPERTY
Vivendi currently owns a significant number of patents in France, the
United States and in various countries worldwide. Although it believes that the
patents associated with its various operations are of value, it does not
consider any of them to be essential to its business.
Trademarks and brand recognition are important to Vivendi's businesses,
particularly the Multimedia and Publishing, Audiovisual and Pay Television and
Internet segments. Vivendi has registered its trademarks and believes that there
is significant value associated with them.
INSURANCE
Some of Vivendi's important activities outside of France are covered by
damage, business loss and civil liability policies that it is required to
maintain either by contract or by the institutions that finance these
activities. In addition, some investments abroad are covered by political risk
policies with the Compagnie d'Assurance Francaise Pour le Commerce Exterieur
("COFACE").
Vivendi's telecommunications, multimedia and publishing, water, energy
services, waste management and transportation segments all maintain damage
insurance policies (and in some cases, business loss policies) that cover its
assets as well as those for which it has contractual responsibility. These
segments also maintain liability policies that cover up to E30 million annually.
Vivendi's U.S. subsidiaries have coverage under separate damage and civil
liability insurance policies. The civil liability policy provides coverage up to
E30 million annually. Moreover, its rail transportation operations are covered
by a specific civil liability program with a dedicated pool of L155 million.
At the company-wide level, Vivendi has entered into a contract covering
civil pollution and environmental policies that provide coverage up to E30
million for its non-U.S. subsidiaries. In addition to the civil liability
programs held by each segment, Vivendi has several civil liability excess
policies that provide coverage up to E270 million (with deductibles of E30
million). These policies cover all subsidiaries of which Vivendi owns more than
50%. In addition, Vivendi has a liability policy that covers the management of
those subsidiaries of which it owns more than 50% or which it manages.
ENVIRONMENTAL POLICIES
While Vivendi's operations and many of its products, services and
technologies are aimed at protecting the environment, its activities impact the
environment in negative ways as well. To minimize this impact, Vivendi has
undertaken to enhance the environmental performance of all its business sectors
by implementing an environmental protection action plan.
The first phase of the plan, for the period between 2000 and 2005, will
focus on pursuing the following goals:
- Improving air quality by reducing direct CO(2) emissions produced by
Vivendi's worldwide operations by over 10%;
- Using water resources properly by increasing control over water losses,
creating improved waste water treatment systems and improving the average
output rates of water distribution networks;
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- Improving waste management techniques through recovery of biogas,
improved treatment of leachates in landfill sites, the development of new
recycling processes and improved treatment of incinerator plan emissions;
- Reducing visual disfigurement of natural landscapes;
- Conserving soil by reducing pollutants contained in sludge and compost;
- Increasing the research and development budget for environmental services
by 30%; and
- Improving environmental management by increasing the number of employees
certified under ISO 14001 by at least 10% per year and increasing
spending on vocational training.
DESCRIPTION OF PROPERTY
Vivendi has operations in over 100 countries; moreover, its activities are
predominantly service-oriented. As a result, although some of its businesses own
or lease plants and other physical properties, none of these plants or physical
properties is individually material to Vivendi as a whole.
In connection with Vivendi's waste business, Vivendi owns or operates
approximately 110 sorting, recycling and transfer facilities, 133 solid waste
landfill sites and 75 incineration and waste-to-energy transformation facilities
worldwide. Collectively, but not individually, these facilities and sites are
material to Vivendi's business. Vivendi owns approximately two-thirds of the
solid waste landfill sites it operates.
The physical properties of Vivendi Valorisation consist principally of land
near Paris, in the South of France, and near Berlin. Vivendi Valorisation also
holds interests in commercial property developments near Paris and in Berlin.
These properties and interests are described under "Description of Business --
Other Business -- Real Estate." Vivendi does not view these properties as
material to its business.
LEGAL PROCEEDINGS
In the ordinary course of its business, Vivendi is, from time to time,
named as a defendant in various legal proceedings. Vivendi maintains
comprehensive liability insurance and believes that its coverage is sufficient
to ensure that it is adequately protected from any material financial loss as a
result of any legal claims made against Vivendi.
BT filed a request for arbitration against Vivendi with the International
Court of Arbitration on March 8, 2000, alleging that Vivendi breached the
Cegetel Shareholders' Agreement by agreeing with Vodafone to establish a joint
venture to develop and market Vizzavi. Specifically, BT claims that by creating
and marketing Vizzavi, Vivendi is violating the provision of the Cegetel
Shareholders' Agreement that requires the Cegetel Shareholders to conduct their
telecommunications operations in France exclusively through Cegetel. Prior to
the final decision being rendered, the marketing and commercialization of the
Vizzavi multi-access portal shall continue by Vivendi in France as well as in
the rest of Europe by Vivendi and Vodafone. The transfer of Vizzavi France to
the joint venture between Vivendi and Vodafone and the sale of the Cegetel
shares held by Mannesmann to Vivendi will not take place until the final
decision of the arbitral tribunal has been rendered. BT had requested the
arbitrator to enjoin Vivendi from marketing and commercializing Vizzavi while
the arbitration is pending, a request that was denied. Vivendi expects that the
final decision will be rendered before the end of the year. Vivendi believes
BT's allegations to be without merit and Vivendi intends to defend vigorously
the arbitration.
Five complaints have been filed in federal court in the Central District of
California on behalf of putative former shareholders of United States Filter
Corporation, which Vivendi acquired in 1999. These putative class actions
seeking to represent all former public shareholders of United States Filter
Corporation name Jean Marie Messier, Vivendi and certain of its affiliates as
defendants and assert violations of U.S. securities laws on the ground that
payments made to three members of United States Filter Corporation's management,
which were stated in the tender offer documents for United States Filter
Corporation to have been made with respect to their employment arrangements,
were allegedly additional consideration to these executives for the purchase of
their United States Filter Corporation shares. The
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complaints allege that the U.S. securities regulations requiring that all
shareholders receive the same consideration for shares sold in a tender offer
were thereby violated, and seek damages in an unspecified amount. The complaints
have been consolidated with a lawsuit filed on March 23, 1999 by putative
shareholders of United States Filter Corporation against its former directors,
alleging that they breached their fiduciary duties by accepting the merger
proposal and failing to maximize shareholder value. Two amended consolidated
complaints dated July 7, 2000 and July 12, 2000 combine allegations of the U.S.
securities laws violations described in the preceding paragraph with claims for
breach of fiduciary duties against former directors of United States Filter
Corporation. If these lawsuits are ultimately determined adversely to Vivendi
they could have a material adverse effect on its financial position. Vivendi
believes the allegations to be without merit and intends to defend the suits
vigorously.
PSG, a unit of Vivendi's U.S. subsidiary Aqua Alliance, is cooperating with
an ongoing investigation by the Department of Justice arising from allegations
that some members of the Houston City Council received illegal payments from
individuals in transactions among PSG, its consultants and municipal officials
with respect to the awarding of certain municipal contracts. Upon learning of
the investigation, Aqua Alliance initiated an independent investigation into
these matters and placed PSG's then President on administrative leave of absence
with pay. The PSG President, who has denied any wrongdoing, resigned from PSG on
December 4, 1996. Formal and informal document requests made by, and
conversations with representatives of, the Department of Justice suggest that
the scope of the investigation includes whether representatives and consultants
of PSG, retained by PSG to assist it in advising local authorities regarding the
privatization of water and wastewater systems, made or were involved in the
making of any illegal payments. To date, no charges of wrongdoing have been
brought against PSG or any PSG executive or employee by any grand jury or
governmental authority. However, at this time, Vivendi is unable to determine
what criminal charges or civil claims, may be brought by governmental
authorities as a result of this investigation.
Lawsuits were filed on September 22, 1999 and February 10, 2000 in the
Commonwealth Court in Arecibo, Puerto Rico against, among others, Compania de
Aquas de Puerto Rico ("CAPR"), an indirect subsidiary of Vivendi Environnement.
The complaints allege that CAPR, which operates numerous water and water
treatment plants in Puerto Rico, has unlawfully allowed its Barceloneta plant to
emit offensive odors and toxic substances in the environment, and has thereby
harmed the health of the plaintiffs, a group of local residents. Vivendi does
not believe the suits will have a material adverse effect on its business and
intends to defend them vigorously.
A lawsuit was filed on April 7, 2000 in the Commercial Court of Paris by
the Association de Defense des Actionnaires Minoritaires seeking invalidation of
a provision of Vivendi's statuts that adjusts the rights of shareholders who own
in excess of 2% of the total voting power of Vivendi through the application of
a formula pursuant to which the voting power of those shareholders will be equal
to that which they would possess if 100% of the shareholders were present or
represented at the meeting at which the vote in question takes place. The
complaint alleges that the provision improperly limits the number of votes that
a proxy may carry and improperly assimilates the voting rights of different
shareholders. Vivendi believes the allegations to be without merit and intends
to defend the suit vigorously.
On October 31, 2000, Vivendi and CANAL+ learned that the Association de
Defense des Actionnaires Minoritaires was considering legal action intended to
prevent the completion of the merger transactions alleging that CANAL+ has
improperly issued ordinary shares in bearer form and that CANAL+ shareholders
have not received "certificates of guaranteed value" in connection with the
merger transactions. To the best of Vivendi's and CANAL+'s knowledge, no such
action has yet been filed. Vivendi and CANAL+ believe the allegations to be
without merit and intend to defend vigorously any action predicated upon such
allegations.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
French commercial code currently does not limit the right of nonresidents
of France or non-French persons to own and vote shares. However, nonresidents of
France must file an administrative notice with
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French authorities in connection with the acquisition of a controlling interest
in Vivendi. Under existing administrative rulings, ownership of 20% or more of
Vivendi's share capital or voting rights is regarded as a controlling interest,
but a lower percentage might be held to be a controlling interest in some
circumstances depending upon factors such as:
- the acquiring party's intentions; and
- the acquiring party's ability to elect directors, and financial reliance
by Vivendi on the acquiring party.
French exchange control regulations currently do not limit the amount of
payments that Vivendi may remit to nonresidents of France. Laws and regulations
concerning foreign exchange controls do require, however, that all payments or
transfers of funds made by a French resident to a nonresident be handled by an
accredited intermediary. In France, all registered banks and most credit
establishments are accredited intermediaries.
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data together
with the section entitled "-- Management's Discussion and Analysis of Financial
Condition and Results of Vivendi's Operations," and Vivendi's consolidated
financial statements.
Vivendi's consolidated financial statements have been prepared in
accordance with French GAAP, which differs in certain significant respects from
U.S. GAAP. Note 25 to Vivendi's consolidated financial statements describes the
principal differences between French GAAP and U.S. GAAP as they relate to
Vivendi. See "-- Management's Discussion and Analysis of Financial Condition and
Results of Vivendi's Operations" for a discussion of accounting changes,
business combinations and dispositions of business operations that affect the
comparability of the information provided below.
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The information below and Vivendi's consolidated financial statements are
reported in euros. For your convenience, Vivendi has also presented U.S. dollar
amounts, calculated at the rate of E.995 to U.S. $1.00, which is the noon buying
rate at December 31, 1999.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
U.S.$ EUROS
-------- --------------------------------------------------------
1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Amounts in accordance with
French GAAP
Revenue................... 41,814.0 41,622.5 31,737.1 25,476.6 25,293.4 24,843.3
Revenue outside France.... 17,911.3 17,829.3 10,313.0 8,204.8 7,793.0 7,212.2
Operating income.......... 2,291.0 2,280.5 1,331.4 595.5 546.4 211.8
Exceptional items, net.... (841.7) (837.8) 249.3 878.6 139.8 (208.4)
Goodwill amortization..... 614.8 612.0 209.5 374.7 146.8 155.6
Minority interest......... 5.3 5.3 212.2 (115.1) (56.4) (194.0)
Net income................ 1,438.0 1,431.4 1,120.8 822.0 297.7 (562.0)
Basic earnings per
share.................. 2.7 2.7 2.5 2.1 0.8
Dividends per share....... 1.0 1.0 0.9 0.8 0.6 0.6
Amounts in accordance with
U.S. GAAP
Shareholders' Equity...... 17,032.5 16,954.5 10,258.4 -- -- --
Net income................ 247.2 246.1 565.2 -- -- --
Basic EPS................. 0.48 0.48 1.29 -- -- --
Diluted EPS............... 0.47 0.47 1.25 -- -- --
BALANCE SHEET DATA (AT
PERIOD END):
Amounts in accordance with
French GAAP
Total Shareholders'
Equity................. 10,942.3 10,892.2 7,840.2 6,846.7 5,134.7 4,600.2
Minority interest......... 4,071.0 4,052.4 2,423.0 1,742.3 825.9 921.5
Total assets.............. 83,157.8 82,777.0 48,982.4 39,365.2 36,624.9 35,339.5
Total long term assets.... 45,549.5 45,340.9 26,072.6 20,810.4 19,098.4 18,377.9
Net cash provided by
operating activities... 1,415.9 1,409.4 2,897.9 1,601.1 2,502.0 3,112.6
Capital expenditure....... 6,822.7 6,791.5 4,478.2 2,713.3 2,134.4 2,843.2
Net financial debt........ 22,937.6 22,832.6 6,502.1 4,177.0 6,874.6 7,875.7
OTHER DATA
Adjusted EBITDA*.......... 5,259.1 5,235.0 3,453.0 2,144.2 2,003.8 1,795.1
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. Vivendi considers operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of Vivendi's performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this joint proxy statement-prospectus, may not
be strictly comparable to similarly titled measures widely used in the United
States or reported by other companies.
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For periods presented prior to January 1, 1999, Vivendi Consolidated
Financial Statements have been prepared in French francs and translated into
euros using the official fixed exchange rate E 1 = FF 6.55957, applicable since
January 1, 1999 (see Note 2 to Vivendi Consolidated Financial Statements).
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
U.S.$ EUROS
------- -----------------------------
1999 1999 1998 1997
------- ------- ------- -------
AMOUNTS IN MILLIONS
<S> <C> <C> <C> <C>
RECONCILIATION OF ADJUSTED EBITDA WITH
OPERATING INCOME:
Telecommunications.................................... 1,379 1,372 674 331
Publishing and Multimedia............................. 419 417 355
Audiovisual and Pay Television........................ 86 86 13 (7)
Internet.............................................. (51) (51) (4)
COMMUNICATION........................................... 1,833 1,824 1,038 324
Water................................................. 1,327 1,320 830 787
Waste Management...................................... 622 619 495 355
Energy Services....................................... 390 388 341 265
Transportation........................................ 183 182 144 97
FCC................................................... 273 272 119
ENVIRONMENT............................................. 2,795 2,781 1,929 1,504
SITHE................................................... 193 192 256 218
CONSTRUCTION AND REAL ESTATE............................ 521 520 291 122
OTHERS.................................................. (83) (82) (61) (24)
ADJUSTED EBITDA*........................................ 5,259 5,235 3,453 2,144
Amortization and depreciation......................... (2,690) (2,678) (1,832) (1,314)
Expenses of replacement and repair of installation.... (278) (276) (290) (235)
OPERATING INCOME........................................ 2,291 2,281 1,331 596
</TABLE>
---------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. We consider operating income to be the key
indicator of the operational strength and performance of our business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA as defined in this Registration Statement may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.
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VIVENDI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF VIVENDI'S OPERATIONS
The following discussion of Vivendi's operations should be read in
conjunction with its financial statements and related notes included elsewhere
in this joint proxy statement-prospectus. The following discussion contains
forward-looking statements that involve risks and uncertainties, including, but
not limited to, those described in "Risk Factors." Vivendi's results may differ
materially from those anticipated in these forward-looking statements.
Since the introduction of the euro on January 1, 1999, Vivendi's functional
and reporting currency has been the euro. Accordingly, Vivendi has prepared its
1999 consolidated financial statements in euros. The consolidated financial
statements for prior years have been prepared in French francs and have been
restated in euros for each period presented using the official fixed exchange
rate E1 = FF 6.55957. Therefore, the consolidated financial statements for prior
years depict the same trends that would have been presented had they been
presented in French francs. However, because they were originally prepared in
French francs, they are not necessarily comparable to financial statements of a
company which originally prepared its financial statements in a European
currency other than the French franc and restated them in euros.
SIX MONTHS ENDED JUNE 30, 2000
OVERVIEW
The first half of 2000 was an important period for Vivendi, as it completed
a number of strategic actions begun in 1999. In accordance with its objective of
focusing on communications and environmental services, it implemented or
initiated major divestitures in its construction, real estate and independent
power generation businesses:
- In February 2000, Vivendi reduced its interest in Vinci from 49.3% to
16.9%, receiving in exchange E572 million. Vinci is now accounted for
using the equity method (because Vivendi holds double voting rights with
respect to its shares of Vinci stock, it controls more than 20% of
Vinci's voting power);
- In July 2000, Vivendi sold Nexity to a group of investors and to Nexity's
senior management for E42 million. The sale did not affect Vivendi's
accounts for the period; Vivendi intends to sell its remaining real
estate assets, now held through Vivendi Valorisations, whenever favorable
opportunities arise;
- In April 2000, Sithe sold 21 independent power production plants to
Reliant for E2.2 billion. In August 2000, Vivendi entered into an
agreement pursuant to which it reduced its stake to approximately 30%.
In the Communications division, Vivendi continued to pursue its strategy of
becoming a world leader in communications services through a number of
transactions:
- CANAL+ agreed to create three joint ventures with Lagardere, a French
media company: two to own and operate theme channels and one to oversee
interactive services for new channels. In connection with this
transaction, Vivendi sold Lagardere 34% and 27.4% of its interests in
CANAL Satellite and Multithematique, respectively;
- Vizzavi, Vivendi's multi-access portal joint venture with Vodafone Air
Touch Plc, began operations in France. Progress towards rolling out
Vizzavi across Europe continued;
- In June 2000, Vivendi announced that it had agreed to the merger
transactions with Seagram and CANAL+. Because the merger transactions
have not yet occurred, they had no effect on Vivendi's accounts for the
period.
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In addition, Vivendi acquired 100% of the Hungarian fixed telephony company
United Telecom Investment and 40% of Kencell Communication Limited, a Kenyan
mobile telephony company. Internet-related acquisitions included 100% of
i-France and 22% of Scoot.com.
Major developments took place in the Environmental Services division as
well:
- In July, 2000 Vivendi conducted an initial public offering of shares of
Vivendi Environnement and listed Vivendi Environnement on the Paris stock
exchange. Approximately 37% of Vivendi Environnement's shares were sold
to the French public and to institutional investors in France and
elsewhere. Because the initial public offering of Vivendi Environnement
occurred in the second half of 2000, the effect of Vivendi
Environnement's capital increase and related transactions on Vivendi's
accounts is not reflected in its June 30, 2000 financial statements but
will be reflected on its December 31, 2000 financial statements.
- Vivendi announced an agreement pursuant to which Dalkia will consolidate
its energy operations with those of Electricite de France. This agreement
is expected to close at the end of 2000.
In addition, Vivendi acquired several waste management businesses in
Norway, Germany and the United States and transportation-related assets from
GTI.
BASIS OF PRESENTATION
Segmentation
As a result of Vivendi's divestiture of construction, real estate and
independent power generation assets in the first half of 2000, information
related to its remaining assets in Vivendi Valorisations (real estate) and Sithe
(independent power generation) are disclosed in the "other" category. As a
result of the formation of Vivendi Environnement, a "holding" category, which
includes information related to Vivendi in its capacity as parent company of
Vivendi Environnement, is included as part of the environmental services
category.
Effect of change in accounting policies
From the beginning of 2000, Vivendi has applied new French accounting
policies with respect to consolidated accounts. Under these policies, Vivendi
books profits and losses by using an average currency exchange rate and records
in the income statement the latent currency exchange conversion on assets and
liabilities expressed in foreign currency. The use of an average currency
exchange rate reduced Vivendi's net income for the period by E8.5 million. The
change in the currency exchange conversion policy increased net income by E5.8
million and shareholders' equity by E44.8 million.
Vivendi also decided to change its policy of accounting for expenses
associated with the acquisition of new customers for mobile telephony
subsidiaries of Cegetel. These costs are now expensed immediately, rather than
being amortized over twelve months. This change increased Vivendi's operating
income by E145.3 million, its net income by E31.7 million and decreased its
shareholders' equity by E160.5 million.
The following comparison reflects these changes in accounting policy both
for the first six months of 2000 and for the first six months of 1999.
CONSOLIDATED OPERATIONS: SIX MONTHS ENDING JUNE 30, 2000 VS. SIX MONTHS
ENDING JUNE 30, 1999
Revenue
Vivendi's consolidated revenue rose to E19.4 billion for the first six
months of 2000, up from E18.1 billion for the same period in 1999. Internal
growth of 15.3%, and the positive impact of changes in exchange rates
(particularly in the U.S. dollar/euro exchange rate), more than offset the
effect (11.1%) of disposals net of acquisitions. The disposals relate to
non-core businesses such as Nexity and Vinci. The acquisitions relate to the
effect of Vivendi's earlier acquisitions of United States Filter Corporation,
Superior Services and Canal+. Both the Communications and Environmental Services
divisions experienced substantial internal growth.
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Divisional analysis
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
REVENUE (E MILLION) JUNE 30, 2000 JUNE 30, 1999
------------------- ------------- -------------
<S> <C> <C>
Telecommunications................................. 2,465.3 1,912.6
Multimedia and Publishing.......................... 1,624.5 1,654.1
Audiovisual and Pay Television..................... 1,951.5 99.0
Internet........................................... 14.9 23.6
SUBTOTAL COMMUNICATIONS............................ 6,056.6 3,689.3
Water.............................................. 6,050.2 4,048.2
Waste.............................................. 2,377.6 1,483.4
Energy............................................. 1,588.0 1,919.4
Transportation..................................... 1,505.2 1,085.4
FCC................................................ 1,005.7 987.8
SUBTOTAL ENVIRONMENT............................... 12,526.7 9,524.2
Construction....................................... 0.0 3,876.2
Real Estate........................................ 0.0 982.3
SUBTOTAL CONSTRUCTION AND REAL ESTATE.............. 0.0 4,858.5
Other.............................................. 830.5 4.1
TOTAL.............................................. 19,413.8 12,076.1
</TABLE>
Communications
The Communications division had revenue of E6.0 billion for the first six
months of 2000, compared to E3.7 billion for the same period in 1999. Of this
64% increase, 19.4% was the result of internal growth in the telecommunications
sector, caused primarily by a significant increase in demand for Vivendi's
mobile telephony services. The remaining 44.8% resulted from acquisitions,
principally of CANAL+ (the additional 15% ownership interest acquired in
September 1999 led Vivendi to consolidate CANAL+ fully from the fourth quarter
of 1999, having previously accounted for its interest using the equity method).
Telecommunications. Cegetel's revenue increased to E2.5 billion, a 29.4%
increase on a comparable basis, from the first half of 1999 to the first half of
2000. SFR's market share remained stable (36.5%) in the period in terms of gross
new customer acquisitions. Its user base increased from 7.34 million at the end
of 1999 to 8.45 million at the end of June 2000. The majority (54%) of the user
base was comprised of subscribers rather than pre-paid customers. Vivendi
believes this to be an encouraging development, as subscriptions have
historically generated greater revenue per customer than pre-paid sales. Average
revenue per subscriber declined by E1 a month for subscription customers and by
E4 a month for prepaid customers. SFR's cancellation rate was reduced by half
over the period and its customer satisfaction rating improved. Cegetel's fixed
telephony business increased its revenue by 35% despite a dramatic drop in
prices. Approximately one-half of residential customers and two-thirds of
professionals leaving France Telecom signed up for new contracts with Cegetel.
Multimedia and Publishing. Excluding the disposal of the Havas' billboard
advertising operations, revenue generated by Vivendi's multimedia and publishing
segment increased by 6% in the period. Multimedia revenue rose by more than 20%
to E260 million and publishing revenue rose 4.2% to E1.2 billion. Revenue
generated outside France (E0.7 billion) was up 14.3%, primarily as a result of
the growth of Havas Interactive.
Audiovisual. Vivendi's audiovisual segment contributed E1.95 billion to
Vivendi's total revenue in the first six months of 2000, a figure that would
have represented a 19.5% increase from the first six months of 1999 had Vivendi
consolidated CANAL+ in the latter period (before September 1999, Vivendi did not
include CANAL+ revenue in Vivendi's total revenue.) The increase is mainly
attributable to increased subscription revenue which rose 14%, mainly in Italy
(33%) and France (23% for CANALSatellite).
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Environmental Services
Vivendi's Environmental Services division recorded revenue of E12.5
billion for the first six months of 2000, compared to E9.5 billion for the
first six months of 1999, an increase of 31.5%. Approximately 13.8% was due to
internal growth, which resulted primarily from new contracts and from the full
effect of contracts won in the preceding years. The remainder is attributable to
external growth, principally the full effect of Vivendi's earlier acquisitions
of United States Filter Corporation and Superior Services, partially offset by
the reclassification of Sithe from the Environmental services to the segment
"Other".
Water. Vivendi's water segment generated revenue of E6.1 billion in
the period, an increase of 49.5% over the same period in 1999. This increase
resulted principally from the full effect of the acquisition of United States
Filter Corporation, which was integrated in May 1999. Internal growth for water
as a whole was 13.4%. In France, revenue was E2.7 billion, with internal
growth of 4.3%. The growth derives from increases in the volume of water
distributed and in construction activities. Outside France, the internal growth
(22.8%) resulted primarily from the full effect of the Berlin contract and to
the commercial development in North America.
Waste Management. The waste businesses generated revenue of E2.4 for
the first six months of 2000, an increase of 60.3% over the same period in 1999,
largely due to the acquisition of Superior Services and Waste Management's
hazardous waste assets (both of which were consolidated in mid-1999). Internal
growth was 13.9%. In France, internal growth resulted primarily from increases
in paper prices and increased volumes in the urban services and industrial
businesses. Outside France, internal growth (14.3%) derived from the expansion
in the United Kingdom, Australia and the United States.
Energy. Vivendi's energy-related revenue decreased 17.3% to E1.6
billion in the period. Excluding the reclassification of Vivendi's interest in
Sithe under "Other," revenue increased 10.2%, of which 9.4% was internal growth.
New cogeneration equipment in France and expansion in Moravia led to most of the
internal growth.
Transportation. Vivendi's transportation business generated E1.5
billion in revenue in the first six months of 2000, up 38.7% over the same
period in 1999. Excluding the effect of the GTI acquisition, internal growth was
21%, primarily as a result of new contracts such as the Stockholm metro contract
and the Hillside rail contract.
FCC. FCC generated revenue of E1 billion in the first six months of
2000. Internal growth was 14.5% excluding the effect of deconsolidating
Vivendi's real estate operations (which have been accounted for under the equity
method since the beginning of 2000).
Construction and Real Estate
Due to Vivendi's disposals of its interests in Nexity and Vinci, revenue
from the construction and real estate businesses is no longer included in
Vivendi's consolidated revenue. Revenue generated by those businesses amounted
to E4.9 billion for the first six months of 1999; the remaining assets
generated E0.1 billion in revenue in the same period in 2000. This revenue
is now included in the "Other" category.
Other
"Other" revenue amounted to E830 million in the first six months of
2000. Revenue from Sithe amounted to E709 million, compared to E480
million in the first six months of 1999.
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GEOGRAPHIC BREAKDOWN OF THE REVENUE
The breakdown of the revenue by geographic area is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
---------------- ----------------
(E BILLION)
<S> <C> <C>
France...................................... 10.0 11.2
Euro zone outside France.................... 2.7 2.4
Europe outside the Euro zone................ 2.2 2.2
Americas.................................... 3.7 1.8
Others...................................... 0.8 0.6
TOTAL....................................... 19.4 18.2
</TABLE>
France
In France, communications-related revenue amounted to E4.6 billion,
compared to E3.1 billion for the first six months of 1999. Of this increase, 32%
was the result of acquisitions, primarily of the additional interest in CANAL+
in September 1999. The internal growth, 20%, was fuelled primarily by the
telecommunications businesses (Cegetel's revenue, for example, grew 29.2%).
Multimedia and publishing revenue increased 1.8%. Internal growth in the
Environmental Services division, which generated E5.3 billion in revenue in the
period, was up 7.7%, principally due to increased activity in the waste
management (up 13.5%) and energy segments (up 11.2%). Revenue generated in
France by the residual assets managed by non-core businesses amounted to E0.1
billion in the period. For the first six months of 1999, revenue generated by
Nexity and Vinci was E3.4 billion. For Vivendi as a whole, internal growth in
France was 12.2% for the period.
Outside France
Revenue generated outside France was up 36.7% to E9.4 billion in the
period. Of this increase, 19.6% was internal growth. Revenue generated outside
France represented 48% of Vivendi's consolidated revenue, reflecting the
company's continued international expansion.
In the "euro zone" outside France, the bulk of the revenue was generated in
Germany (E0.7 billion) where growth was fuelled by the Berlin water contract,
and Spain (E1.0 billion, principally from FCC).
The United Kingdom is Vivendi's largest market in European countries
outside of the Euro zone. In the first six months of 2000, U.K. revenue was E1.4
billion, up 1.6% from the same period in 1999. The bulk of the activity was
generated by the Environmental Services division (E1.3 billion). Excluding
changes is subsidy levels, all the environmental activities generated increased
revenue, including transportation. The apparent decline in transportation
revenue was due to a significant fall in subsidies received, which was partially
offset by growth in traffic. Revenue from the Communications division (E0.1
billion) increased by 4.7%.
Growth in Scandinavia (which is also part of Europe outside the Euro zone)
is attributable to the Stockholm subway contract won in the second half of 1999.
In the Americas, Vivendi's revenue more than doubled in the first six
months of 2000 to E3.7 billion, principally due to the acquisitions of United
States Filter Corporation (E1.8 billion), Superior Services and Waste
Management's hazardous-waste assets (E467 million). A significant portion of
Vivendi's internal growth was the result of a steady increase in medical
publishing and multimedia revenue.
Elsewhere, revenue generated in the Asia/Pacific region almost doubled in
the first six months of 2000 to E0.6 billion, primarily because of the United
States Filter Corporation acquisition (E168 million), strong internal growth for
transportation in Australia and important new projects undertaken by Sithe in
Asia.
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EXPENSES
Vivendi's total operating expenses amounted to E18.3 billion in the first
six months of 2000, a 5.9% increase over the first six months of 1999. The
increase was modest compared to the increase in revenue, largely because of the
divesture of low-margin businesses. Operating expenses in construction and real
estate (27% of Vivendi's activities for the first six months of 1999)
represented 99% of the revenue generated in those businesses, while the
operating expenses in Vivendi's core businesses amounted to 94% of the revenue
generated.
On a comparable basis (excluding the effects of changes in the scope of
consolidation and currency exchange rates), operating expenses increased 15.6%,
in line with revenue growth. On a comparable basis, operating expenses in the
Communications division rose 16.5%, while revenue rose by 19.3%. This
improvement is attributable to increasingly effective cost control policies,
especially in the telecommunications segment. The Environmental Services
division's operating expenses grew by 14% on a comparable basis in the first six
months of 2000, while revenue rose by 13.7%. Productivity gains in Vivendi's
French operations were offset by increased development costs associated with
Vivendi's international expansion.
OPERATING INCOME
The table below summarizes the contributions of Vivendi's business segments
to the operating income generated in the first six months of 1999 and 2000:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(E MILLION)
<S> <C> <C>
OPERATING INCOME
Telecommunications................................. 280.7 102.8
Multimedia and Publishing.......................... 116.3 98.2
Audiovisual and Pay Television..................... 1.5 (1.3)
Internet........................................... (71.5) (38.1)
SUBTOTAL COMMUNICATIONS............................ 327.0 161.6
Water.............................................. 440.1 273.5
Waste.............................................. 187.5 116.4
Energy............................................. 118.1 168.1
Transportation..................................... 57.9 49.8
FCC................................................ 94.6 90.7
Holding............................................ (31.5) 0.0
SUBTOTAL ENVIRONMENT............................... 866.7 698.5
Construction....................................... 0.0 26.8
Real Estate........................................ 0.0 (1.8)
SUBTOTAL CONSTRUCTION AND REAL ESTATE.............. 0.0 25.0
Other.............................................. (33.9) (45.1)
TOTAL.............................................. 1,159.8 840.0
</TABLE>
The 38.1% increase in operating income is a product of Vivendi's growth
strategy for its Communications and Environmental Services divisions. Operating
income in Communications doubled to E327 million. The Environmental Services
division generated an increase of 24% (excluding the effect of the
deconsolidation of Sithe, the increase was 36%). The global improvement in
Vivendi's operating income was reached despite the divestitures of Vinci and
Nexity. Excluding acquisitions and changes in currency exchange rates, operating
income grew 15.6%.
The principal operations acquired since June 30, 1999 generated operating
income of E97 million. These operations consist of the additional interest in
CANAL+, United Telecom Investments, several
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acquisitions in medical publishing and purchase of some environmental assets
(the Waste Management hazardous waste assets and the GTI transportation assets).
Operations disposed of since the end of June 1999 generated operating income of
E51 million in the first six months of 1999.
Communications
Telecommunications. Operating income generated by Vivendi's
telecommunications businesses increased from E102.8 million in the first six
months of 1999 to E280.7 million in the first six months of 2000. The mobile
telephony businesses (principally SFR) benefited from the general growth in the
market. Operating income rose by 46% and operating margins by 2 points in a
difficult competitive environment: Customer acquisition costs in France are the
highest in Europe, although they declined in the second quarter. Operating
losses generated by the fixed telephony businesses (Cegetel Entreprises and
Cegetel 7) declined by half despite a very competitive market. Increased
economies of scale resulting from an increased customer base, the rise of
Internet traffic and a cost control policy largely offset a decline in prices
for voice traffic. Vivendi Telecom International pursued its development in
Hungary, generating operating income of E12.8 million.
Multimedia and Publishing. The multimedia and publishing segment
contributed E116.3 million to Vivendi's operating income in the first six months
of 2000, representing an increase of 28% on a comparable basis. Havas's
performance was in line with Vivendi's goal of improving its operating margin.
In Havas's general public operations, operating income generated by Havas
Interactive improved significantly. The education and reference operations grew
also, due to new multimedia products and increased international activity.
Audiovisual and Pay Television. Operating income generated by the
audiovisual and pay television segment in the period was in line with Vivendi's
expectations.
Internet. The Internet segment generated an operating loss of E71.6
million, mainly as a result of start-up costs and the setting up of new sites
and portals.
Environmental Services
Water. The water segment contributed operating income of E440.1 million to
Vivendi's total for the first six months of 2000, an increase of 61.0% over the
same period in 1999. The increase was largely due to the effect of the United
States Filter Corporation acquisition. Growth on a comparable basis was 9.2%,
compared to internal revenue growth of 13.4%. Internal growth was the result of
increased activity and continued cost cutting efforts in France, improved volume
in distribution and water treatment in North America and the effect of the
Berlin water contract.
Waste Management. Operating income generated by the waste management
sector totaled E187.5 million for the period, an increase of 61%. Excluding the
impact of the integration of Superior Services and the Waste Management assets,
the increase would have been 19.8%. The bulk of the growth came from France (due
to increasing paper prices, an increase in treated volumes and new contracts).
Outside France, the operating income benefited from growth in the United States,
Australia, Germany and Ireland.
Energy. Including the effect of the reclassification of Sithe,
energy-related operating income declined 30% to E118.1 million in the period.
Excluding the reclassification, operating income rose 11.7%. Overall growth on a
comparable basis stood at 8%, an increase primarily linked to increased volumes
in Eastern and Central European countries, particularly in Moravia.
Transportation. Operating income in transportation was E58 million for the
period, an increase of 16.3% (a 4.2% increase on a same facility basis). This
increase was primarily the result of the Stockholm metro contract and the
Hillside contract, partially offset by increasing fuel prices.
FCC. FCC's contribution to Vivendi's operating income was E95 million for
the first six months of 2000. Internal growth was 11% excluding the effect of
the deconsolidation of the real estate businesses.
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Construction and Real Estate
Due to the disposals of Vivendi's interests in Nexity and Vinci, the
construction and real estate segments no longer contribute to Vivendi's
consolidated operating income. The operating income generated by those segments
amounted to E25 million for the first six months of 1999. The remaining
assets generated operating losses of E43 million (included in "other").
Other
Operating losses of Vivendi's other businesses amounted to E33.9
million for the first six months of 2000, including Sithe's operating income
(E108.8 million) and losses generated by Vivendi's remaining real estate
assets (E43 million) and holding company costs.
FINANCIAL EXPENSES/INCOME
Vivendi's net financial expense was E209.2 million for the first six
months of 2000, as compared with a profit of E0.3 million for the first six
months of 1999. This decline was due largely to an increase of E347.1
million in Vivendi's financing costs, which grew as a result of Vivendi's 1999
acquisitions. Vivendi's average cost of debt fell from 5.31% to 5.14% in the
period. Vivendi recognized E434.8 million in capital gains in 2000 (up from
E288.6 million in 1999), primarily in connection with the sale of portfolio
securities, including the sale of treasury shares and shares of Alcatel.
Allowances for financial provisions include allowances for financial risks
(E27 million) and depreciation of non-consolidated securities invested by
the Internet segment through investment funds (E22.7 million). Vivendi's
financial expense/income is restated by the effect of the use of the average
currency exchange rate (resulting in income of E83 million).
INCOME FROM OPERATIONS BEFORE EXCEPTIONAL ITEMS AND TAXES
Vivendi's income from operations before exceptional items and taxes reached
E950.6 billion for the first six months of 2000, up 13.1% from 1999. This
growth results from the improvement in operating income described above.
EXCEPTIONAL ITEMS, DEPRECIATION, AMORTIZATION AND PROVISION FOR EXCEPTIONAL
ITEMS
In the first six months of 2000, Vivendi recorded net exceptional income of
E1.8 billion, compared to E94.1 million in income in the same period
in 1999. The following items explain the 2000 net exceptional income:
E1,865.8 million in capital gains, of which E374.7 million
was realized in connection with the sale of a 32.4% ownership interest in
Vinci, E340.7 million in connection with the sale by Sithe of 21
independent power production plants to Reliant; E433.8 million in
connection with the sale of CANAL Satellite and Multithematiques shares to
Lagardere; E86 million in connection with the sale of a CANAL+
subsidiary; and E71.4 million in connection with the flotation of a
different CANAL+ subsidiary;
E473.3 million in income recognized in connection with the
dilution of Vivendi's stake in BSkyB in connection with a transaction
between BSkyB and Kirch, a German company;
E18.3 million in restructuring expenses, net of allowances and
releases, principally related to Sithe Energies and Dalkia;
E69.0 million in exceptional charges. The largest items in this
category were a E23.5 million increase in provisions related to assets
of Vivendi's U.K. water operations and an E18.9 million increase in
provisions related to CANAL+'s film library.
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EQUITY IN NET INCOME OF AFFILIATES
Vivendi's share of the net expense generated by the companies it accounts
for using the equity method was E102.0 million for the period, compared with
E55.7 million for the same period in 1999. This category consisted primarily of
the net expense generated by BSkyB (E80.9 million), Elektrim (E38.9 million) and
profits generated by Vinci (E13.3 million) and Nexity (E17.5 million).
CANAL+, which has been consolidated since the fourth quarter of 1999, was
accounted for using the equity method in the first six months in 1999. Its
subsidiaries contributed a net expense of E32.6 million to Vivendi's total,
compared with an expense of E12.1 million in the first six months of 1999 for
CANAL+ and its subsidiaries.
In the first six months of 1999, Audiofina contributed E37.1 million, and
Cofiroute E10.4 million, to Vivendi's total net income. Audiofina was sold at
the end of 1999; Cofiroute is now accounted for as part of Vinci.
INCOME TAXES AND DEFERRED TAX
Vivendi's income tax and deferred tax expense was E695 million for the
first six months of 2000, compared to a gain of E70.6 million for the same
period in 1999. The deferred tax expense was E291.2 million, as compared to a
gain of E265.8 million for the first half of 1999. The 2000 figure principally
reflects the use of deferred tax assets booked prior to 2000 in connection with
disposals (such as Vinci, CANAL Satellite and Multithematiques) made in the
first six months of 2000. In the first six months of 1999, the E265.8 million
gain was associated primarily with deferred tax assets reduced due to the use of
loss carryforwards of E296.9 million. Vivendi currently expects to use
additional loss carryforwards in 2000.
GOODWILL AMORTIZATION
Goodwill amortization increased from E147.8 million to E252.4 million in
the period. This increase was due to the rise of recurrent amortization (E194.3
million versus E115.5 million), primarily attributable to newly consolidated
companies (especially USFilter, CANAL+ and Vivendi Telecom International).
Non-recurrent goodwill amortization amounted to E58.1 million and included a
provision of E36.9 million in connection with tax assets of Vivendi's real
estate operations.
NET INCOME
Vivendi's consolidated net income rose 67.2% to E1,416.5 million in the
first six months of 2000. This corresponds to net earnings per share of E2.36,
compared with E1.71 per share for the first six months of 1999, a 38.3%
increase. In the first six months of 2000, due to a capital increase that
occurred in 1999, the average number of shares grew from 495.3 million to 600.2
million.
EXPECTED RESULTS FOR 2000
For 2000 as a whole, Vivendi expects continued improvement in the
performance of its Communications and Environmental Services divisions for the
remainder of 2000.
1997-99
OVERVIEW
Vivendi grew substantially in the 1997-99 period, both in terms of revenue
(E25.5 billion in 1997 compared to E41.6 billion in 1999, representing a 27.8%
compound annual growth rate) and operating income (E596 million in 1997 compared
to E2.3 billion in 1999, or a 95.7% compound annual growth rate). Revenue
generated by its Communications division grew at an annual rate of 126.9%, from
E1.7 billion to E8.6 billion, and its operating result went from a E199 million
loss to a E552 million profit. In the Environment business, revenue increased by
25% a year to E22.4 billion, and operating income by 40% per year to E1.6
billion.
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Vivendi's growth was driven by both significant internal revenue growth
(9.5% a year over the period) in its Communications and Environmental divisions,
and through its policy of selective acquisitions in its core strategic
businesses.
INTERNAL GROWTH
Communications
Vivendi's goal is to become a leading European communications company. It
intends to achieve that goal by aggressively expanding its ability to provide
high-value added content and services over the full range of media: internet,
television, print and mobile and fixed telephony. In the 1997-99 period,
following this strategy has resulted in internal growth of 50% a year.
Access. Vivendi's provision of access to communications services expanded
rapidly in the 1997-99 period, chiefly due to a dramatic increase in demand for
its mobile telecommunications services, which grew an average of 54% per year
during the period. Cegetel's mobile phone subscriber base grew by more than 5
million during the period (from 2.23 million at the end of 1997 to 7.34 million
at the end of 1999). Meanwhile, operating income reached E581 million in 1999,
compared to a E40 million loss in 1997. SFR benefited from the dramatic
expansion of the French market, where the mobile telephony penetration rate has
tripled from 10% at the end of 1997 to 33.8% at the end of 1999. SFR was able to
maintain its market share at 36% while generating more revenue per subscriber
than its main competitors.
Internal growth in telecommunications was also the result of Cegetel's
expansion in the fixed-line consumer and professional markets, which were opened
to competition in January 1998. Cegetel also benefited from growth in the
Internet and data communications markets, which together represented the bulk of
its fixed-line market growth over the 1997-99 period. Cegetel's revenue in the
fixed-line market rose from E28.5 million in 1997 to E143.5 million in 1999. In
the long distance fixed-line segment, Cegetel had 1.1 million clients as of
December 31, 1999, having had none at the end of 1997.
Content. Vivendi's publishing and multimedia segment generated internal
growth of 6.2% over the period, helped by an improving advertising market in
France and by the launch of several new periodicals. Vivendi expects the merger
transactions to spur substantial internal growth in both its content and access
activities.
Environment
In the 1997-99 period, Vivendi's Environment division capitalized on its
historic competitive advantages to generate internal revenue growth of 8%.
Primarily as a result of a E266 million cost cutting program, it was able to
achieve internal growth in operating income of 11%.
Internal revenue growth was principally due to a number of new contracts,
including contracts to:
- provide water and wastewater services to the city of Berlin through a
partnership with RWE and Allianz (generating annual revenue of
approximately E600 million) (the "Berlin water contract").
- operate the Stockholm metro (annual revenue of approximately E180
million) (the "Stockholm metro contract").
- operate a rail franchise from Hillside to Melbourne, Australia (annual
revenue of E120 million, beginning September, 1999) (the "Melbourne
contract").
As a result of these and other new contracts, Vivendi had at the end of
1999 more than 80 million clients in the water sector, waste management capacity
of 25 million tons a year, 40,000 energy services customers and transportation
volume of one billion passengers a year.
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Growth Trends and Material Uncertainties
Vivendi believes that it can continue to achieve substantial growth in 2000
and beyond. The key industry factors that will enable Vivendi to sustain
significant internal growth in its two core businesses are:
- In the Communications division, continuing growth in the mobile telephony
sector, particularly in mobile data and wireless internet services, and
increasing demand for multimedia services, which Vivendi intends to
exploit by leveraging its key content assets, including those it will
acquire in the Seagram transactions.
- In the Environmental division, the acceleration of the trend towards
privatization in the municipal market. Ten percent of the worldwide
operating and management ("O&M") water market is currently privatized.
Vivendi estimates that this percentage will grow to 35% by 2015.
Similarly, although the O&M industrial water market is only 1% privatized
today, it is growing at over 20% a year. Vivendi anticipates similar
growth trends in its other environmental businesses.
The factors that may cause Vivendi's expectations not to be realized
include, but are not limited to, those described in "Introduction -- Risk
Factors."
EXTERNAL GROWTH
The following is a summary of some of the material transactions and
developments during the 1997-99 period in each of Vivendi's core businesses.
Communications
Over the 1997-99 period, Vivendi supplemented the strong internal growth in
its Communications businesses discussed above by entering into joint ventures
and acquisitions that significantly expanded its telecommunications, audiovisual
and publishing assets.
Telecommunications:
- Cegetel acquired a 49.9% ownership interest in TD through investments
made in July 1997 and December 1998 for a total price of E518.2 million
(the "TD acquisition"). Through this acquisition, SNCF and Cegetel agreed
jointly to make use of TD's fixed long distance network. Vivendi accounts
for TD using the equity method. TD reduced Vivendi's net income by E17.1
million in 1998 and by E1.1 million in 1999.
- In accordance with Vivendi's strategy of developing an international
telecommunications customer base through acquisitions in high-potential
countries, it purchased a 49% interest in a joint venture with Elektrim,
a company that controls the leading Polish mobile telephony operator and
the Polish cable operator Bresnam. The acquisition took place in December
1999. The total purchase price was E1,198.8 million.
Audiovisual and Pay Television:
- Vivendi purchased an additional 15% interest in CANAL+ in September 1999
for E1,374 million, increasing our total interest in CANAL+ to 49% and
giving us control of the company. CANAL+ would have reduced Vivendi's
operating income by E23 million in 1999 had it been included for the full
year.
- Also in September 1999, Vivendi acquired a 24.4% equity interest in
BSkyB, the leading pay-television company in the United Kingdom and
Ireland, through a merger with Pathe and a purchase of BSkyB shares from
Granada and Pearson. The total purchase price was E1,258.8 million.
Vivendi accounts for BSkyB using the equity method. BSkyB reduced
Vivendi's net income by E13.7 million in 1999, and would have reduced net
income by E141 million had it been included for the full year.
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- In July 2000, Vivendi issued a series of exchangeable notes with an
aggregate principal amount of E1.44 billion. Each note has a nominal
value of E24.22 and is exchangeable for one share of BSkyB stock. Vivendi
may elect to give noteholders who exercise their exchange rights the cash
equivalent of the then-prevailing market price of the BSkyB stock rather
than the stock itself. The notes bear interest at 1% per annum and are
scheduled to mature on July 20, 2003.
Publishing and Multimedia. Acting on Vivendi's belief that controlling
content and value-added services is a key competitive advantage for a
telecommunications operator, it made a number of substantial content-related
acquisitions in the 1997-99 period. It acquired 29.3% of Havas, then a
multi-services communications company, in February 1997 and merged with it
effective January 1, 1998. In 1998 and 1999, it significantly expanded Havas'
international presence through a number of acquisitions:
- At the end of 1998, Vivendi acquired Cendant Software (now Havas
Interactive), the world's second leading developer of educational and
games computer software, for E678 million (the "Havas Interactive
acquisition"). Havas Interactive contributed E47.4 million to Vivendi's
operating income in 1999 (E66.7 million before amortization).
- In September 1998, Vivendi acquired Anaya, a Spanish publishing firm, for
E199.7 million (the "Anaya acquisition"). Anaya contributed E30 million
to Vivendi's operating income in 1998 and E10.2 million in 1999 (in 1998,
the contribution reflected Anaya's results only for the second half of
the year, when its performance is generally superior to that achieved in
the first half).
- In August 1999, Vivendi acquired MediMedia, a company specializing in the
publication of medical information, for E237 million (the "MediMedia
acquisition"). MediMedia contributed E10.7 million to Vivendi's operating
income in 1999.
Havas contributed E252 million to Vivendi's operating income in 1998 and
E355 million in 1999. Vivendi believes that its contribution to the value of its
company is even greater than these numbers suggest, however. Through Havas,
Vivendi has dramatically increased the library of content it can offer users of
its communications systems; as a result, Vivendi believes that it has
substantially enhanced the value of those systems.
Environment
Over the 1997-99 period, Vivendi complemented internal growth in its
environmental businesses with growth delivered by joint ventures and
acquisitions that significantly expanded its asset base:
- Water. Vivendi Water revenue grew 27% a year over the period. Internal
growth averaged 4.7% a year, helping lead to Vivendi's E10.7 billion in
1999 environmental revenue. Meanwhile, operating income grew by 44% a
year to E793 million in 1999, including internal growth of 7% a year,
partially as a result of a cost reduction program initiated in 1997.
Pursuant to Vivendi's strategy of making opportunistic acquisitions of
environmental companies, Vivendi complemented its internal growth
primarily through the acquisition of United States Filter Corporation,
the world's leading manufacturer of water equipment and water treatment
systems (the "United States Filter Corporation acquisition"). Vivendi
acquired United States Filter Corporation in April, 1999 for E5,801
million. United States Filter Corporation contributed E339 million to
Vivendi's operating income in 1999. It would have contributed E475
million had it been included for the full year.
- Waste. Revenue in the waste sector grew 26% a year over the 1997-99
period, reaching E3.5 billion in 1999, with a balance of internal growth
and acquisitions. Growth in operating income was similar. Vivendi's
primary waste-related acquisitions were in furtherance of its strategy of
expanding in both Europe and the United States. They included:
-- a controlling stake in Superior Services, a U.S. waste management
company, acquired in June 1999 for E932.2 million (the "Superior
Services acquisition"). Superior Services
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contributed E25 million to Vivendi's operating income in 1999 and
would have contributed E29 million had it been included for the full
year;
-- E103.5 million of hazardous waste-related assets from Waste
Management, Inc. in March 1999 (the "Waste Management acquisition").
These assets contributed E13.3 million to Vivendi's operating income
in 1999, and would have contributed E26 million had they been
included for the full year; and
-- a controlling stake in Leigh Interest, a British waste management
company, acquired in August, 1997 for E185.5 million (the "Leigh
Interest acquisition"). Leigh Interest contributed E21.1 million to
Vivendi's operating income in 1998 and, combined with Vivendi's other
U.K. units, E36.8 million in 1999.
Transportation. Revenue in transportation grew 21% a year over the
1997-99 period, reaching E2.4 billion in 1999, with a mix of internal
growth, primarily as a result of new contracts, and acquisitions.
Operating income growth was 45% per year, caused in part by productivity
gains. Vivendi's primary transportation-related acquisition was its
purchase in December 1997 of a controlling stake in Linjebuss, the
leading transportation company in Scandinavia, for E156 million (the
"Linjebuss acquisition"). Linjebuss contributed E16.3 million to
Vivendi's operating income in 1998 and E7 million in 1999.
FCC. In October 1998, in order to reinforce Vivendi's presence in the
fast growing Spanish market, it acquired a 49% interest in the holding
company that owns 56.5% of FCC (the "FCC acquisition"). Vivendi acquired
this interest for E794.2 million. It proportionally consolidated FCC in
its financial statements based on its interest in the holding company.
FCC contributed E75 million to Vivendi's operating income in 1998 and
E191 million in 1999.
DIVESTITURES
In 1995, Vivendi was involved in dozens of unrelated businesses. That year,
it began to implement a long-term strategy of focusing on just two:
communications and environmental services. It pursued that goal aggressively in
the 1997-99 period, making substantial disposals of non-core assets.
Communications
In communications, the bulk of Vivendi's streamlining effort in 1997-99 was
directed towards focusing Havas, which was highly diversified when Vivendi
acquired it, on its multimedia and publishing operations. To that end, Vivendi
sold:
- Havas' yellow pages businesses to France Telecom for E411 million;
- IP, an advertising management agency, to CLT for E207 million; and
- Havas Voyages, a travel agency, to American Express Voyages, for E167
million.
The proceeds of these sales have been distributed to Havas' shareholders as
part of Havas' merger with Vivendi. Further sales included:
- Havas' billboard advertising operations to the Decaux group for E877
million (the "billboard advertising sale"), generating a capital gain of
E575 million;
- 9% of Havas Advertising to a group of investors for E198.4 million (the
"Havas Advertising sale"), generating a capital gain of E148.7 million;
and
- Vivendi's interest in Audiofina to Groupe Bruxelles Lambert for E704.1
million at the end of 1999, leading to a capital gain of E275.2 million
(the "Audiofina sale").
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Construction and Real Estate
Vivendi disposed of a substantial number of non-core real estate assets in
1997-99, including E1.2 billion of real estate assets to Unibail, Accor,
Blackstone and Colony in 1999 (the "1999 real estate sales"), and E640 million
of real estate assets to SITQ in 1997 (the "SITQ sale").
Other
Other disposals of non-core assets included Vivendi's sale of 24.6% of
Electrafina, a holding company with investments in Suez Lyonnaise des Eaux,
Audiofina and a number of international oil operations, to Groupe Bruxelles
Lambert for E1.1 billion in June 1998 (the "Electrafina sale").
BASIS OF PRESENTATION
Inclusion of Acquisitions
Information regarding businesses and interests Vivendi acquired between
January 1, 1997 and December 31, 1999 is included only from the date of
acquisition. For example, Vivendi includes only eight months of results for
United States Filter Corporation because Vivendi acquired it at the end of April
1999. Subject to that qualification, the information below consolidates all of
the businesses and interests Vivendi held at the end of 1999.
Formation of Vivendi Environnement
Vivendi Environnement was formed at the end of 1999. It brings together the
majority of Vivendi's water, waste management, energy services and
transportation businesses, as well as its interest in FCC. Vivendi transferred
Generale des Eaux, Dalkia, United States Filter Corporation, Companie Generale
d'Entreprises Automobiles and its interest in FCC to Vivendi Environnement in
December 1999. Vivendi has not transferred all its environment-related
subsidiaries or contracts to provide environmental services. The following
information related to Vivendi's environmental segments includes (i) certain
environment-related operations, contracts and subsidiaries not currently part of
Vivendi Environnement and (ii) Vivendi's interest in Sithe, although it has not
transferred that interest to Vivendi Environnement and does not intend to do so.
Vivendi has agreed to transfer to Vivendi Environnement the operating income
Vivendi receives under some environmental contracts that it has not yet
transferred to Vivendi Environnement.
DISPOSITION OF REAL ESTATE ASSETS
In 1995, Vivendi regrouped its real estate business in its wholly-owned
subsidiary CGIS. In response to the real estate crisis of the early 1990s in
France, CGIS substantially restructured the business and entered into a
divestiture program pursuant to which it has sold over E3 billion of real estate
assets since 1995.
In 1999, as part of this divestiture program, CGIS sold 40 hotels, mainly
in Paris, and a group of office, retail and multi-purpose facilities (with
299,250 square meters of leaseable space and ancillary areas and 2,956 parking
spaces).
These sales resulted in the recognition of a net capital loss of E384
million.
As part of Vivendi's strategy of focusing on its two core businesses,
Communications and Environment, it has decided to withdraw from the real estate
business in 1999. As a result:
- Vivendi sold Nexity to a group of investors in July 2000. Nexity
(formerly New CGIS) regroups Vivendi's ongoing real estate businesses. No
significant capital gain arose from this disposal; and
- Vivendi intends to sell Vivendi Valorisations (formerly CGIS
Cantonnement) assets whenever favorable opportunities arise. Vivendi
Valorisations regroups various real estate assets that cannot easily be
transferred or sold. As part of this strategy, Vivendi has reviewed the
value of its real
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estate assets through a future cash-flow analysis and, as a result, has
recognised an additional reserve of E890 million in its 1999 accounts.
In total, Vivendi incurred real estate-related losses of about E240 million
in 1999, net of reversal of provisions and deferred tax assets.
Taxes
Vivendi files a consolidated tax return for all its French subsidiaries in
which it has an ownership interest of 95% or more, as does Vinci. Vivendi booked
deferred tax assets on net operating loss carryforwards and on timing
differences when, in its opinion, it was more likely than not that some or all
of the deferred tax assets would be realized. At each closing date, in light of
the forecasted taxable incomes of each tax entity, Vivendi reviewed such
judgments.
At the end of 1998, Vivendi concluded that only a portion of its tax
group's total tax loss carryforwards and timing differences could be offset
against future taxable income. Vivendi estimated that only the losses expiring
in 2002 and 2003 would be used. In 1999, Vivendi initiated and/or announced a
number of transactions from which it anticipates realizing substantial capital
gains. Because of the expected increase in its future taxable incomes, Vivendi
has revalued the expected tax savings of its tax loss carryforwards at E1
billion.
CONSOLIDATED OPERATIONS: 1999 VS. 1998
Revenue
Vivendi's consolidated revenue rose to E41.6 billion in 1999 from E31.7
billion in 1998. Of this 31.2% increase, 19.6% resulted from acquisitions,
primarily of United States Filter Corporation and Superior Services, Havas
Interactive and full effect of Vivendi's earlier acquisition of FCC. A further
9.7% was due to internal growth, principally in the telecommunications sector.
The impact of changes in exchange rates, particularly in the U.S. dollar/euro
exchange rate, accounted for the remaining 2%.
Divisional analysis
Communications had revenue of E8.6 billion in 1999, compared to E6 billion
in 1998. Of this 43% increase, 23% was the result of internal growth in the
telecommunications sector, caused primarily by a significant increase in demand
for Vivendi's mobile telephony services. The remaining 21% resulted from
acquisitions, principally of Havas Interactive, MediMedia and CANAL+ (the
additional 15% ownership interest acquired in September 1999 caused Vivendi to
consolidate CANAL+ fully from the fourth quarter of 1999, having previously
accounted for Vivendi's interest using the equity method). The Communications
division represented 21% of Vivendi's revenue in 1999, compared to 19% in 1998
and 6% in 1997.
Vivendi's environmental businesses recorded revenue of E22.4 billion in
1999, compared to E16 billion in 1998. Of this 40% increase, 29% is attributable
to external growth, principally its acquisitions of United States Filter
Corporation and Superior Services. Approximately 8% was due to internal growth,
which resulted primarily from the new contracts won during this period and from
the full year impact of contracts won in the preceding years. The environmental
businesses represented 54% of Vivendi's revenue, compared to 50.5% in 1998 and
56% in 1997.
Construction and real estate accounted for E10.6 billion of Vivendi's total
revenue in 1999, compared with E9.7 billion in 1998. This 9.3% increase is
primarily attributable to acquisitions in the construction sector (3.1%) and
internal growth (5.2%), particularly in its housing and commercial real estate
businesses. Construction and real estate represented 25% of Vivendi's revenue in
1999, compared to 30.5% in 1998 and 37% in 1997.
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Geographic breakdown
The table below summarizes the relative contribution of Vivendi's business
divisions to its 1999 revenue and a breakdown between revenue generated in
France and elsewhere.
<TABLE>
<CAPTION>
FRANCE OUTSIDE FRANCE TOTAL
------------ -------------- ------------
VALUE % VALUE % VALUE %
----- --- ------ ---- ----- ---
(IN E BILLION)
<S> <C> <C> <C> <C> <C> <C>
Communications................................... 6.8 29% 1.7 10% 8.5 21%
Environment...................................... 10.0 42% 12.5 70% 22.5 54%
Subtotal Environment and Communications.......... 16.8 71% 14.2 80% 31.0 75%
Construction & Real Estate....................... 7.0 29% 3.6 20% 10.6 25%
---- --- ---- --- ---- ---
Total............................................ 23.8 100% 17.8 100% 41.6 100%
</TABLE>
Vivendi's revenue in France totaled E23.8 billion, compared to E21.4
billion in 1998 (an 11% increase, most of which came from internal growth
(10%)). The majority of this growth was in Communications, which increased its
revenue by 34% to E6.8 billion. It had internal growth of 26%, due largely to
the continued strong growth of its French telecommunications operations (up 42%
in 1999 to E4.1 billion). The publishing and multimedia business grew 23% to
E2.7 billion, mostly due to acquisitions. The environmental division's revenue
generated in France increased 6% to E10 billion, with 4% internal growth.
Vivendi's construction and real estate revenue increased 1.5% to E7 billion. In
total, revenue generated in France in 1999 represented 57% of Vivendi's total
revenue, compared to 67% in 1998.
Revenue generated outside France increased 73% to E17.8 billion in 1999,
primarily as a result of Vivendi's acquisitions of United States Filter
Corporation and Superior Services and the inclusion of a full year of FCC and
Havas Interactive. Internal growth, principally due to the impact of new
environmental contracts, accounted for the remainder, or 10%. The Communications
division's revenue outside France grew by 107% (5% internally) to E1.7 billion,
or 20% of the division's total revenue. Environmental revenue outside France
grew by 88% (13% internally) to E12.5 billion, or 55% of the total revenue of
the division. Construction and real estate revenue outside France increased 28%
(3% internally) to E3.6 billion. In total, business outside France represented
42.8% of Vivendi's total revenue, compared to 33% in 1998 and 32% in 1997.
The breakdown of Vivendi's 1999 revenue outside France by geographic area
is as follows:
<TABLE>
<CAPTION>
EURO
ZONE EUROPE
OUTSIDE OUTSIDE THE
FRANCE EURO ZONE AMERICAS OTHER TOTAL 1998
------- ----------- -------- ----- ----- ----
(E BILLION)
<S> <C> <C> <C> <C> <C> <C>
Communications.......................... 0.7 0.3 0.6 0.1 1.7 0.9
Environment............................. 3.1 3.6 4.9 0.9 12.5 6.6
Subtotal Environment and
Communications........................ 3.8 3.9 5.5 1.0 14.2 7.5
Construction & Real Estate.............. 2.1 1.0 0.1 0.4 3.6 2.8
--- --- --- --- ---- ----
Total................................... 5.9 4.9 5.6 1.4 17.8 10.3
33% 28% 31% 8% 100% 100%
--- --- --- --- ---- ----
1998.................................... 4.0 3.8 1.5 1.0 10.3
</TABLE>
In Europe, Vivendi's revenue increased 42.8% to E10.8 billion in 1999, an
increase principally attributable to the integration of the European units of
United States Filter Corporation, the inclusion of a full year of FCC and the
acquisition of Teerbau, the leading road construction firm in Germany, in May
1999. Internal growth, largely due to the Berlin water contract and the
Stockholm metro contract, accounted for the remainder.
Revenue in the "euro zone" outside France (which includes 10 countries in
Western Europe), increased 46.7% to E5.9 billion, due primarily to the
integration of FCC over a 12-month period, the
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Teerbau and CANAL+ acquisitions, the integration of the European businesses of
United States Filter Corporation and the Berlin water contract. Three quarters
of the revenue in this category was generated in Germany (E2.3 billion) and
Spain (E2.1 billion).
In European countries outside of the euro zone, revenue increased 29% to
E4.9 billion in 1999, largely due to the inclusion of United States Filter
Corporation's European businesses and the impact of the Stockholm metro
contract. The United Kingdom is Vivendi's largest market in this region.
Vivendi's 1999 U.K. revenue was E3.5 billion, up 17.6% from 1998. The bulk of
the increase in the United Kingdom was caused by the inclusion of United States
Filter Corporation's European businesses.
In the Americas, Vivendi increased its revenue nearly fourfold in 1999 to
E5.6 billion, principally because of its acquisitions of United States Filter
Corporation, Superior Services and Havas Interactive. Internal growth was 23.8%,
primarily in the water and waste management sectors.
In the Asia/Pacific region, revenue reached E0.8 billion in 1999, including
E0.3 billion in Australia, up 71% from 1998. This growth is attributable
primarily to Vivendi's acquisition of United States Filter Corporation and Havas
Interactive and new transportation contracts, especially the Melbourne contract.
Vivendi's exposure to risks related to emerging markets remained very limited in
1999, as revenue in these areas was approximately E1 billion, or 2.4% of the
yearly total.
Operating Expenses
Vivendi's total operating expenses amounted to E39.3 billion in 1999, a
29.4% increase over 1998. On a comparable basis (excluding the effects of
changes in the scope of consolidation, and changes in currency exchange rates),
the increase was 8.6%, compared to an increase of revenue of 9.7%. This
performance is mainly attributable to the Communications division, where, on a
comparable basis, net operating expenses grew by 17% and revenue by 22.9%. This
development results primarily from the fact that costs associated with the
rapidly-growing telecommunications business in France are largely fixed.
The Environment division's operating expenses grew by 7.5% on a comparable
basis in 1999, close to the 7.7% growth in revenue. Productivity gains in
Vivendi's French operations were partially offset by increased development costs
associated with Vivendi's international expansion.
Operating Income
Operating income amounted to E2.28 billion in 1999, a 71.3% increase over
1998 (33.5% on a comparable basis). Revenue grew 9.7% on a comparable basis,
causing a 1.3% improvement (to 5.5%) in Vivendi's operating margin of 1.3% to
5.5% in 1999. The remainder of the operating income increase is attributable
primarily to the acquisitions described above.
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The table below summarizes the contributions of Vivendi's business segments
to its 1999 and 1998 operating income:
<TABLE>
<CAPTION>
1999 OPERATING INCOME 1999 1998
--------------------- ------- -------
(E MILLION)
<S> <C> <C>
Telecommunications.......................................... 350.6 22.5
MultiMedia and Publishing................................... 354.5 252.2
Audiovisual and Pay Television.............................. (102.7) (4.8)
Internet.................................................... (50.8) (6.4)
Subtotal Communications..................................... 551.6 263.5
Water....................................................... 792.7 405.0
Waste....................................................... 277.7 225.8
Energy Services............................................. 297.3 290.5
Transportation.............................................. 96.1 75.2
FCC......................................................... 190.5 74.5
Subtotal Environment........................................ 1,654.3 1,071.0
Construction................................................ 175.7 82.4
Real Estate................................................. 36.8 (3.0)
Subtotal Construction and Real estate....................... 212.5 79.4
Other....................................................... (137.9) (82.6)
Total....................................................... 2,280.5 1,331.3
</TABLE>
Operating income generated by Vivendi's Communications division doubled to
E551.6 million (and grew by a factor of 2.4 on a comparable basis), representing
24% of its total operating income, compared to less than 20% in 1998. This
growth came primarily from its telecommunications business, where operating
income rose from E22.5 million to E350.6 million. This increase was primarily a
consequence of the increased profitability of Vivendi's French mobile business,
which had operating income of E581 million, up from E291 million in 1998, and
improved its operating margin to 16% from 11% in 1998. In addition, Cegetel's
fixed telephony business start-up losses were materially reduced, from E264
million in 1998 to E215 in 1999. Finally, the multimedia and publishing sector
generated a 40% increase in operating income, a gain that resulted equally from
the integration of Vivendi's acquisitions and from an improvement in Havas'
profitability. These increases were partially offset by CANAL+'s operating loss
of E92.8 million, and by start-up losses of E50.8 million generated by Vivendi's
Internet businesses.
Operating income generated by Vivendi's environmental businesses reached
E1.7 billion in 1999, up from E1.1 billion in 1998. This 54.4% increase is
attributable primarily to the consolidation of United States Filter Corporation,
which contributed approximately E339.1 million to Vivendi's 1999 operating
income. Internal growth, primarily resulting from new environmental contracts
such as those described above, was 9.8%.
Vivendi's environmental businesses contributed 73% of its operating income
in 1999, compared to slightly over 80% in 1998.
Construction and real estate's contribution to Vivendi's operating income
nearly tripled to E212.5 million, compared to E79.4 million in 1998. On a
comparable basis, operating income grew 61%, primarily resulting from a general
improvement in European construction markets, the refocusing of Vivendi's
businesses on higher margin segments (particularly road building and engineering
as opposed to pure construction works), and the general recovery of the French
real estate market.
Financial Expenses/Income
Vivendi's net financial expense was E220.1 million in 1999, as compared
with a profit of E9.3 million in 1998. This decline was due largely to an
increase of E463.9 million in Vivendi's financing costs, which grew as a result
of its 1999 acquisitions. As a result of the hedging policy Vivendi put in place
at the end
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of 1998, its average cost of debt fell from 5.45% to 5.13% between 1998 and 1999
despite rising interest rates. Allowances for financial provisions were E162.9
million in 1999, down from E298 million in 1998. This decrease was caused
principally by lower allowances for financial risks due to the cancellation of
certain real estate risks. Vivendi recognized E450.6 million in capital gains in
1999 (down from E553.2 million in 1998), primarily in connection with the sale
of portfolio securities, including the sale of treasury shares and shares of
Alcatel and Saint-Gobain. Vivendi recorded a E102.6 million exchange profit
primarily as a result of the increase in the value of the U.S. dollar against
the euro, compared to a loss of E10.4 million in 1998.
Income From Operations Before Exceptional Items and Taxes
Vivendi's income from operations before exceptional items and taxes reached
E2.1 billion in 1999, up 53.7% from 1998. This growth resulted from the
improvement of the operating income described above.
Exceptional Items, Depreciation, Amortization and Provision for Exceptional
Items
In 1999, Vivendi recorded a net exceptional loss of E837.8 million,
compared to a E249.3 million profit in 1998. The following items explain the
1999 net exceptional loss:
- E650.8 million in capital gains, of which E575.4 million was realized in
connection with Havas' billboard advertising business sale; E275.2
million in connection with the sale of Vivendi's 18.7% interest in
Audiofina; and E148.7 million in connection with the sale of 9% of Havas
Advertising. These gains were partially offset by a pre-tax capital loss
of E386.7 million incurred in connection with the sale of CGIS's real
estate assets;
- E1.42 billion in exceptional charges, of which nearly E800 million
consisted of provisions related to real estate assets, particularly the
multi-year construction programs, which Vivendi revalued to facilitate
the process of selling them; E318.5 million in provisions related to the
accelerated write-off of CANAL+ digital set-top boxes that must be
replaced sooner than expected by a new generation of equipment made
necessary by the development of multi-access portals; and
- E95.1 million in restructuring expenses, net of allowances and releases,
which break down by business as follows:
-- E 34.5 million related to the water business. Cost cutting measures
consist of a rationalized and unified policy of purchases, a unified
human resources policy, and the reorganization of the international
activities of certain entities (as a result of the purchase accounting
principles, the United States Filter Corporation restructuring
provisions have no effect on the income statement);
-- E 28.1 million attributable to the energy services businesses, mainly
in connection with the reorganization of our U.K. operations;
-- E 25.1 million incurred in the construction businesses in connection
with rationalization programs, especially in France and Germany, and
with the implementation of new technology by our civil engineering
business. The European construction markets were affected by the
global recession and required rationalization programs at the end of
the 1990's. At the beginning of 2000, Vivendi sold its majority stake
in Vinci; consequently, there will be no additional restructuring
costs and provisions accounted for in Vivendi's financial statements;
and
-- E 7.4 million attributed to Vivendi's multimedia and publishing
businesses (as a result of Vivendi's use of the purchase accounting
treatment, the Anaya and Medimedia restructuring provisions have no
effect on the income statement).
Vivendi implemented these plans in order to improve its operating margin
ratio (operating income divided by revenue), restore the profitability of
loss-making entities and integrate newly acquired companies. They consist of
cost cutting programs, rationalization of administrative and commercial
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structures and development of new synergies. Vivendi expects these plans to have
a significant positive effect on its operating income for year 2000 and the
years thereafter.
Income Taxes
Vivendi's income taxes and deferred tax result for 1999 is a profit of
E0.8 billion, compared to an expense of E90 million in 1998. As noted
above, the E0.8 billion profit is due to the fact that Vivendi recognized
in 1999 a deferred tax asset of E1 billion.
Goodwill
Goodwill amortization increased significantly in 1999. This increase is due
primarily to strategic acquisitions, particularly of United States Filter
Corporation (goodwill amortization of E30 million) and Havas Interactive
(goodwill amortization of E28 million) as well as from Vivendi
Environnement (goodwill amortization of E45 million). As a result of the
United States Filter Corporation acquisition, and as part as of the
restructuring of Vivendi's activities in the United States, Vivendi wrote down
the goodwill related to Aqua Alliance (E92 million) and its subsidiaries
(E90 million).
Equity in Earnings of Affiliates
Vivendi's share in the net income of affiliated companies accounted for by
the equity method amounted to E32.9 million in 1999, compared with
E42.5 million in 1998. As in 1998, this category consisted primarily of the
net income generated by Cofiroute (E26 million compared with E21.4
million in 1998), Havas Advertising (E11.3 million compared with E13.6
million in 1998) and General Utilities' U.K. subsidiaries (E21.3 million
compared with E17.4 million in 1998).
CANAL+, which was fully consolidated during the last quarter of 1999, was
accounted for using the equity method for the first nine months of 1999. CANAL+
and its subsidiaries contributed a negative E20 million to Vivendi's net
income, compared with a negative E9.6 million in 1998. BSkyB contributed a
negative income of E13.7 million.
Net Income
Vivendi's consolidated net income rose 27.7% to E1,431.4 million in
1999. This corresponds to net earnings per share of E2.7, as compared with
E2.46 in 1998, a 10% increase. In 1999, due to a capital increase, the
average number of shares grew from 455.6 million to 529.6 million.
As noted above, the impact of Vivendi's real estate business on its total
1999 net income was negative E240 million.
SEGMENT OPERATIONS: 1999 VS. 1998
The following discussion explains in more detail developments within each
of Vivendi's divisions in terms of revenue, expenses and operating income.
Communications
Telecommunications. Cegetel's revenue increased by 42% to E4.0
billion. This growth was due in part to the performance of SFR, whose revenue
increased by 37% to E3.7 billion in 1999, largely as a result of a 73%
increase in its user base, from 4.25 million customers at the end of 1998 to
7.34 million at the end of 1999. The volume increase was in line with the French
mobile market growth, where penetration grew from 19% at the end of 1998 to 34%
at the end of 1999. Monthly usage per customer increased from 210 minutes in
1998 to 240 minutes in 1999.
Cegetel's growth was partially offset by a 16% decrease in its average
revenue per customer, from E63 to E53, which resulted primarily from
lowered prices. Price declines were caused by intense competition in the French
market and of the increased popularity of prepaid, rather than contract,
arrangements. Prepaid customers represented 32.8% of SFR's total customer base
at the end of 1999, up from 14.5% at the end of 1998. Prepaid customers
generated average monthly revenue of E23, compared to E59 for the
average
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contract customer. Moreover, SFR suffered from an increase in non-revenue
generating mobile-to-mobile calls, and from a 20% decline in fixed-to-mobile
rates implemented in September 1999 at the request of the ART.
Vivendi's fixed telephony business revenue more than doubled to E317
million in 1999, compared to E147 million in 1998. Cegetel 7's revenue almost
tripled to E143 million. This growth is due largely to a 700,000 increase in
Cegetel 7's subscriber base, from 400,000 in 1998 to 1.1 million in 1999
(traffic tripled to 1.6 billion minutes as well), partially offset by an average
25% price decrease, principally the result of the intense competition in this
segment of the French telecommunications market. Cegetel 7 was able to win a
market share of approximately 7% in 1999, half of the market share relinquished
by France Telecom to its competitors. Cegetel Entreprises' revenue doubled to
E175 million, coming from a sharp increase in traffic (which almost quadrupled
to 1.1 billion minutes), mitigated by significant price pressure on voice
products.
Finally, in 1999, Vivendi increased its ownership interest from 40% to 100%
in the Hungarian fixed telephony operator Magyar Telecom, and therefore
consolidated it for the first time. Revenue generated by Magyar Telecom totaled
E24 million.
In 2000, Vivendi expects significant growth in Cegetel's revenue as a
result of increasing mobile phone usage in France, but expects this growth to be
partially offset by continued price pressure. Price pressure could relent,
however, with the introduction of new mobile data services. On the fixed
telephony side, Vivendi also expects strong growth in 2000.
Expenses rose 31.5% to E3.7 billion, compared to an increase in revenue of
42.7% on an approximately comparable basis. The change is mainly attributable to
the fact that SFR's average customer acquisition cost increased by 7% to E276
due to intense competition, particularly in the last quarter of the year. Other
cost items per gross customer materially decreased, especially technical and
information technology costs. Overall, the total cash cost per new customer
declined by 13% to E47. Cegetel expects a sharp increase in its revenue in 2000,
and consequently a significant increase in its acquisition costs, which should
be offset by decreases in other cost items per customer.
Operating income for Vivendi's telecommunications businesses increased to
E350.6 million from E22.5 million in 1998. Cegetel accounted for E366 million of
the 1999 total, having contributed E27 million in 1998. Cegetel's contribution
was partially offset by a E15 million operating loss generated by the
international operations of VTI, particularly the newly consolidated Magyar
Telecom, and development and overhead expenses.
Within Cegetel, SFR's operating income doubled to E550 million, while its
revenue increased by 37% to E3.7 billion. This performance was due to the
decline in the average cost per marginal mobile phone user, explained above,
which resulted in an improvement in operating margin from 11% to 16%.
Cegetel 7's operating loss significantly decreased to E58 million, compared
to a E102 million loss in 1998, due to a leaner cost structure and a 30% drop in
customer acquisition and customer care costs.
Cegetel Entreprises' operating loss decreased from E193 million to E148
million in 1999, due to a cost control program put in place in early 1999 and
network restructuring. These efforts were partially offset by continued high
interconnection costs to France Telecom's network.
Multimedia and Publishing. Vivendi's multimedia and publishing businesses
generated revenue of E3.3 billion in 1999, up from E2.9 billion in 1998. This
15.3% increase is principally attributable to Vivendi's acquisition of Havas
Interactive, which accounted for E536 million in revenue. The increase on a
comparable basis was 3%. Forty percent of the revenue was generated outside
France, compared to 27% in 1998, reflecting the integration of Havas Interactive
(which generated 80% of its revenue in the United States), Medimedia, the world
leader in drug information (75% of revenue outside France) and Anaya, the
leading Spanish publisher of educational publications (revenue of E188 million
in 1999). Seventeen percent of the revenue in this segment came from electronic
media (mostly educational and game CD-ROMs) compared to 5% in 1998.
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Havas accounts for the bulk of the revenue in this category, with two main
divisions:
- the Business and Professional division recorded revenue of E1.3 billion,
up 9% from 1998, mostly due to an outstanding advertising market for
professional publications in France and in the United Kingdom, and to the
integration of MediMedia for six months.
- the General Public division's revenue amounted to E1.5 billion, up 60% on
1998, mostly due to the integration of Havas Interactive. The performance
of the general literature and the education and reference segments were
offset by the adverse performance of the France Loisirs book club.
In 2000, Vivendi expects total revenue of the multimedia and publishing
segment to be fairly stable, with the continued growth of Havas Interactive
being offset by the deconsolidation of the advertising billboard business (which
generated E274 million in revenue over six months in 1999). Moreover, despite
the refocusing of Havas on publishing and multimedia, its revenue remains
approximately 30% dependent (down from 50% in 1997) on the advertising market,
which may not be as strong as it was in 1999. Finally, Havas Interactive's
multimedia revenue could be adversely affected by continued price pressure in
educational and games computer software, particularly in the United States, or
by possible delays in the launch of new products.
Expenses rose 12.9% to E3.0 billion. On a comparable basis, expenses rose
1.7% and revenue rose 3%. This improvement is due primarily to the restructuring
plan implemented in 1998 following Vivendi's acquisition of Havas. It has
resulted in strong growth in operating margin, from 3% in 1997 (based on the
accounts of the former Havas group) to 9% in 1998 and 11% in 1999. Going
forward, Vivendi will continue to pursue restructuring efforts in newly acquired
companies, particularly Havas Interactive and Anaya.
The multimedia and publishing businesses contributed E354.5 million to
Vivendi's operating income in 1999, an increase of E102.3 million from 1998,
largely because of the acquisitions described above. On a comparable basis,
operating income increased by 25%, mainly because of a E22 million reversal of
operating provisions linked to cancellation of expected risks. Internal growth
was 3%, and resulted largely from productivity enhancements in Vivendi's French
operations.
Audiovisual. Vivendi's audiovisual segment contributed E1.15 billion to
Vivendi's total revenue in 1999, including CANAL+'s October through December
contribution of E951 million. Until September 30, Vivendi accounted for CANAL+
using the equity method; before that date, it did not include CANAL+ revenue in
its total revenue. One-third of CANAL+'s 1999 revenue was generated outside of
France, mainly in other European countries.
Expenses amounted to E1.0 billion, due in part to the fact that CANAL+ was
consolidated only for the fourth quarter when customer acquisition costs are
typically high.
Vivendi's audiovisual operating loss of E102.7 million, up from a E4.7
million loss in 1998, was largely the product of CANAL+'s loss of E92.8 million.
The CANAL+ loss was due in part to its consolidation in Vivendi's 1999 accounts
only for the last quarter of the year, and in part to the integration of its
subsidiary Telepiu, which contributed a E65 million operating loss in the fourth
quarter 1999. This loss came from the need to invest heavily in customer
acquisition in order to maintain Telepiu's leadership in the very competitive
Italian pay-television market.
Internet. Vivendi's Internet businesses expanded rapidly in 1999. However,
revenue is still not significant, as many operations are still in the early
stages of their development. Due primarily to marketing costs and the
undeveloped nature of the Internet industry in general, these businesses
generated an operating expense of E50.8 million in 1999, up from a E6.4 million
loss in 1998. The increase results from the costs of developing a larger number
of new operations.
Vivendi expects to incur losses of greater magnitude for the next several
years in accordance with its strategy of building leading European Internet
brands.
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Environmental Services
Total revenue in Vivendi's environmental services sector amounted to E22.4
billion in 1999, representing an increase of 39.8% over 1998, of which 29% was
due to acquisitions, 7.7% to internal growth and the remainder due to the effect
of changes in currency exchange rates, particularly the U.S. dollar/euro rate
(3.0%). Outside of France, sales increased by 88%, of which 13% was related to
internal growth. International sales amounted to E12.5 billion in 1999.
Expenses increased by 38.7% to E20.8 billion in 1999. On a comparable
basis, the increase was 7.5%, which is in line with the increase in revenue.
Operating income from Vivendi's environmental services sector increased by
54% to E1.7 billion in 1999. This increase is primarily attributable to the
acquisitions of United States Filter Corporation, Superior Services, hazardous
waste-related assets from Waste Management and Vivendi's interest in FCC. On a
comparable basis and excluding changes in accounting policies, growth was 9.8%,
an increase attributable primarily to new contracts in the water, waste
management and transportation segments.
Water
In 1999, Vivendi's water business generated revenue of E10.7 billion, an
increase of 58.9% over 1998. This increase results principally from the
acquisition of United States Filter Corporation, which contributed E3.6 billion
between May 1 and December 31, 1999. Internal growth for water as a whole was
4.7%.
In France, revenue increased by 5.3% to E5.5 billion. French water
distribution accounted for revenue of E5.3 billion, an increase of 2.6% over
1998. Approximately one-third of this increase resulted from an increase in the
volume of water distribution and two-thirds from price increases. Works
contractors (mainly in OTV) generated consistent revenue despite increasing
competition. In fiscal 2000, Vivendi expects a similar competitive environment,
but expects that the integration of the French operations of United States
Filter Corporation will help increase Vivendi's market share.
Internationally, net revenue was E5.1 billion in 1999 compared to E1.5
billion in 1998, an increase mostly due to the consolidation of United States
Filter Corporation. Internal growth reached 14.8%, due largely to the ramp-up of
existing contracts and to newly acquired contracts, particularly the Berlin
water contract, which contributed revenue of E103 million for a two month
period.
Operating expenses rose to E9.9 billion, an increase of 4.5% on a
comparable basis. This increase was slightly less than the internal revenue
growth due to cost-cutting efforts in France, partially offset by increased
international development costs.
Vivendi's water business contributed operating income of E793 million to
Vivendi's total for 1999, an increase of 95.7%, largely due to United States
Filter Corporation, which contributed operating income of E339.1 million. Growth
on a comparable basis stood at 9.2%, compared to an internal revenue growth of
4.7%. This performance was due to continued cost-cutting efforts in the French
water business. Vivendi's overall operating margin rose from 6.2% to 7.4% in
1999.
In 2000, Vivendi expects net revenue to grow significantly as a result of
the integration for the full year of United States Filter Corporation and of the
Berlin contract. However, this growth could be affected by possible divestitures
of certain business units of United States Filter Corporation. Vivendi also
intends to pursue cost-cutting efforts in France and in the United States as
part of the integration of United States Filter Corporation. However, labor
regulations, particularly in France, could prevent or delay the implementation
of cost-cutting measures.
Waste Management. Vivendi's waste businesses generated revenue of E3.5
billion in 1999, representing an increase of 24.1% from 1998. Internal growth
was 9.3%, resulting primarily from a number of new contracts. Outside France,
revenue growth was 51%, approximately 30% from acquisitions, particularly of the
Waste Management assets (which were consolidated over six months and contributed
E181 million), and Superior Services (which was consolidated over five months
and contributed E176
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million). An additional 13.5% came from internal growth, and 9.1% from the
effect of changes in exchange rates.
Operating expenses reached E3.2 billion, up 10% on a comparable basis,
slightly more than revenue internal growth, due to higher than expected
international development costs.
Operating income generated by the waste management sector totaled E277.7
million, an increase of 23%. On a comparable basis, the increase was 11%. The
bulk of the growth came from the acquisitions of Superior Services and Waste
Management, which contributed E25 million and E13 million, respectively, to our
operating income.
In 2000, while Vivendi does not expect internal revenue growth to increase
materially, revenue should benefit from the full year integration of the
acquisitions mentioned above, in addition to smaller acquisitions it expects to
make in the United States as part of its strategy to consolidate the position of
Superior Services in the solid waste market.
Energy. Vivendi's energy-related revenue increased 10.7% in 1999 to E3.9
billion (E2.8 billion from operations conducted within Vivendi Environnement and
E1.1 billion from Sithe). Internal growth was 6%.
Within Vivendi Environnement, Dalkia's revenue increased 5.2%, primarily
(3.5%) due to internal growth caused by the ramp-up of cogeneration contracts in
France and Eastern Europe.
Sithe's contribution to Vivendi's revenue increased by 14.7%, reflecting
the inclusion of the Boston Edison power plants for the full year and the GPU
power plants for more than one month.
Operating expenses for the energy segment reached E3.6 billion, an increase
of 7% on a comparable basis over 1998, compared to a 6% internal growth. While
Dalkia's operating expenses grew by a modest 2.4% (versus 3.5% internal growth)
due to cost containment measures, Sithe's operating expenses increased by 21.3%
as a result of higher than expected development costs, particularly those
associated with the acquisition of GPU power plants.
Energy-related operating income was up 2.3% to E297.3 million in 1999
(E170.6 million from Dalkia and E126.7 million from Sithe). Overall growth on a
comparable basis stood at 23%.
Dalkia's operating income growth rose 25.7% as a result of favorable
weather conditions in France, cost control measures, particularly in connection
with purchasing and overhead expenses, and the impact of new contracts won in
Moravia.
Operating income contributed by Sithe declined by 29.5% at constant
exchange rates. This decline is due to Sithe's assignment to Niagara Mohawk
("Nimo") of certain long-term contracts in 1998. The termination of these
contracts was the result of a restructuring required by Nimo, which paid Sithe a
E329 million indemnity in 1998. Excluding the effect of the assigned contracts,
Sithe's contribution to Vivendi's operating income grew 23.3% in 1999, mainly
because of the full contribution of the Boston Edison power plants, which
benefited from the opening of the New England Power Pool and the non-recurrence
of adverse 1998 events at one of its plants.
In 2000, Vivendi expects Sithe's contribution to Vivendi's revenue to
decline as a result of the completed sale of the GPU power plants. Vivendi
expects substantial growth in Dalkia's revenue, however, as a result of its
recent acquisitions in Eastern Europe and increasing demand for cogeneration and
its facilities management services.
Transportation. Vivendi's transportation business generated E2.5 billion
in revenue in 1999, up 23.3% from 1998. Growth as a result of acquisitions was
approximately 2% and internal growth was 15.2%, the latter resulting primarily
from new contracts such as the Stockholm metro contract and the Melbourne
contract. The remainder resulted from changes in exchange rates, chiefly the
appreciation of the British pound against the euro.
Operating expenses reached E2.4 billion, up 16% on a comparable basis, in
line with internal revenue growth.
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Operating income was E96.1 million, an increase of 27.7% on 1998 (a 20%
increase on a comparable basis). This increase was primarily the result of
increased passenger traffic in the United Kingdom, which led to higher
productivity in Vivendi's operations there.
In 2000, Vivendi expects Connex to achieve substantial growth, primarily as
a result of its purchase of urban transit assets from Via-GTI. The integration
of the new contracts won should improve Vivendi's operating performance.
Vivendi's performance could, however, be affected by factors including higher
staff costs and/or the results of bidding for renewals of Connex's South Central
contract in the United Kingdom.
FCC. FCC generated revenue of almost E4 billion in 1999, of which
Vivendi's 49% share was E1.9 billion, compared with E0.8 billion for 6 months of
1998. Approximately E1.3 billion of Vivendi's share came from FCC's construction
and other businesses and E0.6 billion from its water and waste operations.
Revenue for the second half of 1999 was E1.0 billion, against E848 million for
the same period of 1998.
FCC's contribution to Vivendi's operating income was E190.5 million in
1999, compared to E74.5 million for the second half of 1998. Operating income
for the same period in 1999 was E104 million.
Construction and Real Estate
Vivendi's construction and real estate businesses generated E10.6 billion
in revenue in 1999, up from E9.7 billion in 1998, a 9.1% increase of which 5.1%
came from internal growth. The main acquisitions were Teerbau (which contributed
E457 million in revenue over 6 months), Sogeparc (E89 million of revenue over 6
months) and Terre Armee International (E112 million of revenue for the full
year). These increases were offset by a E350 million reduction in revenue that
resulted from disposals of real estate assets.
Internal growth was 3.4% in the construction business and 14.5% in the real
estate business, primarily as a result of a general improvement in the French
real estate market.
Vivendi's construction and real estate businesses accounted for 9.3% of its
total 1999 operating income (E212.4 million, compared to E79.4 million in 1998).
On a comparable basis, growth was 60.9%.
Construction. The construction segment consists primarily of Vivendi's
49.2% interest in Vinci. Construction's contribution to Vivendi's total revenue
was E8.9 billion in 1999, up 12.9% from 1998, 3.4% on a comparable basis. In
France, revenue was E5.4 billion, up 5%, largely as a result of a cyclical
recovery in European construction markets and a greater emphasis on higher
margin contracts with commercial and industrial customers. Revenue outside
France was E3.5 billion in 1999, up 27.4% over 1998, principally due to the
Teerbau and Terre Armee acquisitions.
Operating expenses increased by 2.9% to E8 billion (on a comparable basis),
slower than revenue growth, reflecting continued cost cutting efforts.
Construction added E175.7 million to Vivendi's 1999 operating income,
double its 1998 contribution, and up 45.5% on a comparable basis. This increase
is due to a sharp recovery in the building and civil engineering businesses in
France, a significant increase in road construction contracts and the Sogeparc
acquisition.
In February 2000, Vivendi sold a 32% stake in Vinci, reducing its interest
to 16.9%.
Real Estate. Real estate contributed E1.7 billion to Vivendi's 1999
revenue, down from E1.8 billion in 1998. This 7.3% decrease resulted from the
fact that Vivendi disposed of assets representing revenue of more than E350
million during the year. On a comparable basis, property revenue increased 14.5%
due to cyclical growth in demand for new housing and commercial real-estate
services after several years of weakness in volume and prices.
Operating expenses increased by 13.3% to E1.5 billion on a comparable
basis, slower than revenue growth, reflecting the significant cost containment
program initiated in 1996.
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CONSOLIDATED OPERATIONS: COMPANY RESULT 1998 VS. 1997
Revenue
Vivendi's consolidated revenue reached E31.7 billion in 1998, compared with
E25.5 billion in 1997. Of this 24.6% increase, 16.8% resulted from acquisitions,
primarily of Havas. A further 9% was caused by internal growth, principally due
to increased demand for Vivendi's telecommunications services. These factors
more than offset the effect of changes in exchange rates (-1%).
Communications had revenue of E5.9 billion in 1998, compared to E1.7
billion in 1997. Of this 257% increase, 76.9% was the result of internal growth
in the telecommunication sectors, caused primarily by a significant increase in
demand for Vivendi's mobile telephony services. The remaining 180.1% resulted
from acquisitions, principally of Havas, which added E2.9 billion of revenue.
Vivendi's environmental businesses recorded revenue of E16 billion in 1998,
nearly 50.5% of Vivendi's total revenue for the year. In 1997, revenue generated
by those businesses was E14.3 billion, 56.2% of Vivendi's total. Of the more
than 12% increase in 1998, 8% was due to external growth, principally caused by
the FCC acquisition. Approximately 5.6% was due to internal growth, largely in
Vivendi's waste management operations and Sithe.
Construction and real estate accounted for E9.7 billion of Vivendi's total
revenue in 1998, compared to E9.4 billion in 1997. Increases in Vivendi's
housing and hotel revenue caused by improvements in general economic conditions
were partly offset by its adoption of a more conservative development strategy
in its construction business.
The table below summarizes the relative contribution of Vivendi's business
divisions to its 1998 revenue and a breakdown between revenue generated in
France and elsewhere.
<TABLE>
<CAPTION>
OUTSIDE
FRANCE FRANCE TOTAL
----------- ----------- -----------
VALUE % VALUE % VALUE %
----- --- ----- --- ----- ---
(IN E BILLION)
<S> <C> <C> <C> <C> <C> <C>
Communications............................................. 5.1 24% 0.8 8% 5.9 19%
Environment................................................ 9.4 44% 6.7 64% 16.1 51%
Subtotal Environment and Communications.................... 14.5 68% 7.5 72% 22.0 70%
Construction & Real Estate................................. 6.9 32% 2.8 28% 9.7 30%
Total...................................................... 21.4 100% 10.3 100% 31.7 100%
</TABLE>
Vivendi's revenue in France totaled E21.4 billion, compared to E17.3
billion in 1997, or a 24% increase (10% of which was internal). This growth came
primarily from the Communications division, in which revenue increased threefold
to E5.1 billion. Communications had internal growth of 77% due to continued
strong growth in the French telecommunication business (which generated revenue
of E2.9 billion, up 78% from 1997). The publishing and multimedia business
benefited from the integration of Havas, generating revenue of E2.2 billion in
France. Meanwhile, revenue generated by Vivendi's French environmental
businesses increased 4.5%, of which 3.2% was due to internal growth.
Construction and real estate revenue increased by 3.9% to E6.9 billion. In
total, revenue generated in France accounted for 67% of Vivendi's 1998 revenue.
Revenue outside France rose to E10.3 billion from E8.2 billion in 1997,
primarily as a result of the FCC and Havas acquisitions. Internal growth,
largely the product of new contracts in the environment sector, was
approximately 7.2% (10.3% for Vivendi's environmental businesses). Revenue
generated outside France constituted 32% of Vivendi's 1998 total revenue (41%
for Vivendi's environmental businesses).
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The breakdown of Vivendi's 1998 revenue outside France by geographic area
is as follows:
<TABLE>
<CAPTION>
EURO
ZONE EUROPE
OUTSIDE OUTSIDE THE
FRANCE EURO ZONE AMERICAS OTHER TOTAL 1997
------- ----------- -------- ----- ----- ----
(IN E BILLION)
<S> <C> <C> <C> <C> <C> <C>
Communications.................................... .4 .2 .1 .1 .8
Environment....................................... 1.3 3.4 1.4 .6 6.7 5.4
Subtotal Environment and Communications........... 1.7 3.6 1.5 .7 7.5 5.4
Construction & Real Estate........................ 2.2 .2 -- .4 2.8 2.8
Total............................................. 3.9 3.8 1.5 1.1 10.3 8.2
38% 37% 15% 10% 100% 100%
1997.............................................. 5.4 1.9 .9 8.2
</TABLE>
In Europe, revenue increased 37.4% to E7.7 billion, an increase principally
attributable to the Havas acquisition (Havas contributed E334.6 million to
Vivendi's revenue in this category) and the FCC acquisition (which contributed
E847.2 million over a six-month period). Internal revenue growth in Europe was
5.2%.
Revenue generated in the euro zone outside France increased 55% in 1998 to
E4 billion, due primarily to the Havas and FCC acquisitions. Almost
three-quarters of the revenue in this category was generated in Germany (E1.5
billion) and Spain (E1.4 billion).
In European countries outside of the euro zone, revenue increased 21% to
E3.7 billion in 1998, largely due to the Leigh Interest, Linjebuss and Havas
acquisitions (which together contributed E412 million). Vivendi's 1998 U.K.
revenue was E2.9 billion, up 8.5% from 1997. The bulk of the increase was caused
by the Leigh Interest and Havas acquisitions. Internal growth in this category
was 1.5%.
In the Americas, Vivendi's revenue dropped slightly in 1998 to E1.5
billion, down from E1.7 billion in 1997. This decline was principally due to
Vivendi's sales of Research Cotrell and Williard and Limbach. On a comparable
basis, revenue increased by 15% in this area.
Operating Expenses
Vivendi's total operating expenses amounted to E30.4 billion in 1998, a
22.2% increase over 1997. On a comparable basis, the increase was 8%, compared
to a 9% increase in revenue. This performance is mainly attributable to
Vivendi's Communications division, where, on a comparable basis, net operating
expenses grew by 57% versus 77% for revenue. As in 1999, this improvement
resulted from strong internal growth and the fixed nature of costs in the French
telecommunications business.
In the Environment division, operating expenses grew by 5.2% on a
comparable basis, close to the 5.6% growth in revenue. Productivity gains in
France were partially offset by increased development costs outside France
incurred as a result of Vivendi's international expansion.
Operating Income
Vivendi's operating income in 1998 was E1.3 billion, a 123% increase over
1997. This increase is principally attributable to the Havas and FCC
acquisitions, the adoption of new accounting principles for capital leases,
pensions and long-term construction contracts (changes that added E70 million to
Vivendi's 1998 operating income), and improvements in the profitability of
Vivendi's telecommunications, construction and property businesses. On a
comparable basis, the increase was 52.3%.
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The table below summarizes the contributions of Vivendi's business segments
to its 1998 and 1997 operating income:
1998 Operating Income
<TABLE>
<CAPTION>
1998 1997
------- ------
(E MILLIONS)
<S> <C> <C>
Telecommunications.......................................... 22.5 (187.8)
Multimedia and Publishing................................... 252.2 --
Audiovisual................................................. (4.8) (10.9)
Internet.................................................... (6.4) --
SUBTOTAL COMMUNICATIONS..................................... 263.5 (198.7)
Water....................................................... 405.0 383.2
Waste....................................................... 225.8 158.3
Energy Services............................................. 290.5 261.1
Transportation.............................................. 75.2 45.4
FCC......................................................... 74.5 --
SUBTOTAL ENVIRONMENT........................................ 1,071.0 848.0
Construction................................................ 82.4 (3.5)
Real Estate................................................. (3.0) (55.3)
SUBTOTAL CONSTRUCTION & REAL ESTATE......................... 79.4 (58.8)
Other....................................................... (82.6) 5.0
TOTAL....................................................... 1,331.3 595.5
</TABLE>
Operating income was E1.33 billion in 1998, up from E590 million in 1997.
This 123.4% increase is attributable primarily to the Havas acquisition (which
contributed E252.2 million to Vivendi's 1998 operating income) and an increased
contribution from Vivendi's telecommunications businesses (E22.5 million in 1998
compared to an operating loss of E187.8 million in 1997).
Communications contributed E263.5 million to Vivendi's operating income in
1998, 20% of its total, up from an operating loss of E198.7 million in 1997. The
growth in Communications income resulted mainly from the Havas acquisition and
growth in Vivendi's mobile telephony operations.
Vivendi's environmental businesses had operating income of E1,071 million
in 1998, up 26% from 1997. This increase mainly results from the acquisitions of
FCC, Leigh Interest, Linjebuss and Moravskoslezke Teplarny, a Czech energy
services company. Excluding changes in the scope of consolidation and at
constant exchange rates, growth was 12.7%, primarily due to growth in Vivendi's
waste, energy services and transportation businesses. Vivendi's environmental
businesses contributed 80% of Vivendi's operating income in 1998, compared with
142% in 1997.
Vivendi's construction and real estate segments significantly increased
their operating income in 1998. Operating income in construction increased to
E82.4 million in 1998 from negative E3.5 million in 1997 due to a general
improvement in the electrical works and road construction markets in France.
Real estate had an operating loss of E3 million in 1998, compared to a E55.3
million loss in 1997. This change resulted from a general improvement in housing
markets in France.
Financial Expense/Income
Vivendi's net financial income was E9.3 million in 1998, up from negative
E301.1 million in 1997. The change was due largely to a E439.7 million increase
in capital gains, associated primarily with sales of shares of Saint Gobain and
treasury stock. Financing costs increased to E408 million from E334 million,
largely because of changes in Vivendi's accounting policies regarding capital
leases. Despite an increased level of debt (E6.5 billion as the end of 1997
compared to E4.2 billion at the end of 1997), financing costs remained stable
because of a decrease in the average cost of Vivendi's debt, which fell from
5.88% to 5.43% in 1998. Allowances for financial provisions were E298 million,
up from E81 million in 1997. This
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increase was caused principally by higher allowances for provisions for
financial risks related to real estate properties. Other financial income
increased from E6.4 million to E162.1 million in 1998 as a result of income from
call options and swaps, partially offset by the hedging costs associated with
the debt hedging policy described above.
Income from Operations Before Exceptional Items and Taxes
Vivendi's income from operations before exceptional items and taxes
amounted to E1.3 billion in 1998, up 356% from 1997. This growth resulted from
the increase in operating income and from the reduction of the net financial
expense described above.
Exceptional Items/Depreciation, Amortization and Provisions for Exceptional
Items
In 1998, Vivendi recorded net exceptional income of E249.3 million, down
from E878.6 million in 1997. Its net exceptional income for 1998 consisted
primarily of capital gains of E398.7 million recognized in connection with the
General Cable and Electrafina sales. A further E329 million came as an indemnity
from Nimo in connection with the assignment of contracts from Sithe. These
exceptional profits were partly offset by exceptional expenses of E346.2
million, including the accelerated write-off of obsolete installations in
Vivendi's telecommunications and waste-to-energy businesses. Vivendi also
recorded E68 million in restructuring costs, principally related to cost control
measures adopted by its construction business; and provisions of E64.3 million
principally related to changes in tax regulations applicable to its real estate
business.
Goodwill
Goodwill amortization decreased significantly in 1998, primarily due to the
restructuring that Vivendi implemented in 1997 in certain foreign subsidiaries
of its water business. This restructuring led Vivendi to record allowances
mainly for Aqua Alliance (E105 million) and Mariani (E31 million) as well as for
some of Vivendi's activities in France (E67 million).
Equity in Earnings of Affiliates
Vivendi's share in net income of affiliated companies accounted for by the
equity method amounted to E42.5 million in 1998, compared with E103.6 million in
1997. This category consisted primarily of the net income generated by Cofiroute
(E21.4 million compared to E19.1 million in 1997), TD (a net loss of E17.1
million compared to a net loss of E14 million in 1997) and General Utilities'
U.K. subsidiaries (E7.4 million in both 1997 and 1998). As a result of the
merger with Havas, Vivendi consolidated E13.6 million in net income earned by
Havas Advertising, E10.4 million earned by Audiofina and a E9.6 million net loss
generated by CANAL+. The net income of affiliated companies was reduced by the
Electrafina and General Cable sales, as well as the sale of J.C. Decaux, an
urban services company that earned E13.7 million in net income in 1997.
Net Income
Vivendi's consolidated net income increased 36.3% to E1,120.8 million in
1998. This corresponds to a net basic earnings per share of E2.46, up from E2.10
in 1997, a 17% increase. In 1998, due to a capital increase, the average number
of shares grew to 455.6 million from 392.2 million.
SEGMENT OPERATIONS: 1998 VS. 1997
The following paragraphs explain in more detail developments within each of
Vivendi's divisions in terms of revenue, expenses and operating income.
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Communications
Communications revenue was E5,952.1 in 1998, up 257% from 1997. This growth
resulted both from acquisitions (180.1%) and from strong internal growth
(76.9%).
Telecommunications revenue was E2,875.2 million in 1998, up 74.1% from
1997. Cegetel contributed E2,872.4 million to the total, 83.8% more than it had
the previous year on a comparable basis. Cegetel's growth is principally
attributable to continued growth in the French mobile phone business.
Multimedia and publishing revenue was E2,876.3, resulting from the
integration of Havas. Estimated internal growth was 28.5%.
Expenses rose 205% to E5.7 billion. On a comparable basis, the increase was
57%, compared with an increase in revenue of 76.9%. The increase in the profit
margin is mainly attributable to continued growth in the French
telecommunications business.
Operating income for Communications amounted to E263.5 million in 1998,
compared to a loss of E198.7 million in 1997. The improvement is due largely to
the Havas acquisition (which added E252.2 million to operating income in 1998)
and to increased demand for mobile telephony services (responsible for E268
million in operating income in 1998, compared to a E40 million operating loss in
1997).
Telecommunications. Cegetel revenue increased by 78% to E2.9 billion.
SFR's revenue increased by 74% to E2.7 billion, primarily as a result of a 90.5%
increase in its customer base, from 2,230,000 customers at the end of 1997 to
4,250,000 customers at the end of 1998, partially offset by a 19% decrease in
the monthly average revenue per customer, from E77 to E63. The volume increase
was in line with growth in the French mobile telephony market, in which
penetration rates increased from 9.8% at the end of 1997 to 18% at the end of
1998. SFR maintained its market share at 38% in this rapidly-growing market.
SFR's monthly usage per customer increased from 186 minutes to 210 minutes in
1998. Due to intense competition, the trend towards prepaid charges and an
increase in mobile-to-mobile calls, however, revenue per customer fell.
Vivendi's fixed telephony businesses, Cegetel Entreprises and Cegetel 7,
had revenue of E143.5 million in 1998, compared to E28.5 million in 1997.
Cegetel 7's national and international long distance fixed telephony services
began operations on February 1, 1998 and generated revenue of E51 million over
the remainder of the year, primarily as a result of recruiting 401,000
subscribers.
Cegetel Entreprises had revenue of E92.5 million in 1998, compared to E26.8
million in 1997. This growth resulted primarily from strong growth in traffic,
partially offset by price pressure on voice products.
Expenses rose 58% to E2.8 billion, compared to a 78% increase in revenue on
an approximately comparable basis. The improvement in profit margin is mainly
attributable to the fact that SFR's average customer acquisition cost decreased
by 20% to E299, and the fact that other cost items per gross customer decreased
33% to E17.5.
Operating income for Vivendi's telecommunications businesses rose to E22.5
million following a E187.8 million loss in 1998. Within Cegetel, SFR's operating
income reached E268 million, compared to a E40 million loss in 1997. This
performance is due to the decline in the average cost per customer, which led to
a significant improvement in the operating margin, which reached 13% in 1998.
Cegetel had an operating loss that increased to E102 million from E35
million in 1997. The increased loss was due to expenses incurred in launching
the service in February 1998 and price pressure in the last months of the year.
Cegetel Entreprises' operating loss also increased, from E83 million in
1997 to E193 million in 1998, as a result of the increased expenses associated
with developing and marketing the business and increased competition in the
voice and data transmission markets.
Multimedia and Publishing. Vivendi's multimedia and publishing businesses
generated revenue of E2.9 billion and contributed E252.2 million to Vivendi's
operating income in 1998. It is not possible to
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make a useful comparison between the 1997 and 1998 results of Vivendi's
multimedia and publishing sector due to major changes in the scope of the
business: In 1998, Vivendi sold operations of Havas that accounted for
two-thirds of its 1997 revenues.
Audiovisual. Vivendi's audiovisual generated revenue of E200.6 million and
a net loss of E4.8 million in 1998. The financial results of its audiovisual
operations prior to 1998 were not material.
Internet. The financial results of Vivendi's Internet operations prior to
1999 were not material.
Environment
Vivendi's environmental businesses experienced revenue growth of 12% in
1998, due to acquisitions (8%) and internal growth (5.6%), partially offset by
the adverse effect of currency exchange rate changes (-1.7%).
Operating expenses were E15 billion, up 11%. Excluding changes in the
scope of consolidation, the increase was 5.2%, slightly below revenue internal
growth of 5.6%.
Operating income of Vivendi's environmental businesses increased by 26% to
E1,071 million in 1998. This increase is primarily attributable to the FCC
acquisition (11.9%) and the integration of Leigh Interest, Linjebuss and
Moravskoslezke Teplarny. Excluding changes in the scope of consolidation,
currency exchange and accounting policies, growth was 12.7%. This increase was
due to the waste, energy services and transportation sectors. Overall, the
operating margin of Vivendi's environmental businesses rose from 6.0% to 6.7%.
Water. Water revenue increased 4.3% to E6.8 billion in 1998. Revenue in
France increased by 2.5% to E5.3 billion. International revenue, mainly
generated in North America and the United Kingdom, increased 12.6% on a
comparable basis to E1.6 billion, largely due to a new contract in Gabon, which
generated revenue of E144 million (over 18 months), offsetting reductions
attributable to Vivendi's sale of Research Cotrell. The contribution of this
sector to Vivendi's overall operating income was E405 million, an increase of
5.7%, or 5.1% on a comparable basis and at constant exchange rates.
Waste Management. Waste revenue increased 28.7% to E2.8 billion in 1998.
Internal growth was 9.2%, principally because of new contracts in the United
Kingdom and Australia. Vivendi's French operations grew 7.7% to E1.8 billion,
principally as a result of its commercial development efforts. Internationally,
revenue growth exceeded 63%, largely as a result of the acquisition of Leigh
Interest, which contributed E237 million.
The contribution of the waste sector to Vivendi's operating income was
E225.8 million, an increase of 42.6% over 1997. Internal growth was more than
20%, the remainder being due to the Leigh Interest acquisition. The strong
improvement of the profitability of the waste sector in 1998 resulted from a
cost cutting program in France, including the restructuring of the toxic waste
treatment segment, as well as to the restructuring measures taken in some
previously loss-making international operations.
Energy. Energy-related revenue in 1998 declined 8.6% to E3.5 billion. This
decrease is mainly due to Vivendi's sale of Williard & Limbach and Sithe's
assignment of the Nimo contracts (which together reduced revenue by 12.7%).
These dispositions more than offset growth caused by the integration of the
Boston Edison power plants (6.9%) and the positive effect of currency exchange
rate changes (2%).
Energy-related operating income was up 11.3% to E290.5 million in 1998.
Internal growth in operating income, resulting largely from significant
productivity gains in French operations and reductions in fixed costs in Vivendi
Environnement's energy services operations, was 10.2%. The effect of changes in
currency exchange rates was negative 3.8%. Changes in the scope of consolidation
caused a 4.9% increase in operating income.
Transportation. Vivendi's 1998 transportation revenue was E2 billion, an
increase of 17.9% over 1997. The principal cause of this increase was the
acquisition of Linjebuss, which generated 1998 revenue of E305 million. Internal
growth was 1.8%.
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Operating income for Vivendi's transportation business was E75.2 million in
1998, an increase of 65.6% over 1997. Again, the increase was caused primarily
by the inclusion of results of Linjebuss, which contributed E16.3 million to
Vivendi's operating earnings.
FCC. FCC generated revenue of E1.7 billion in the second half of 1998 (of
which Vivendi's 49% share was E848 million). FCC's operating income was E74.5
million for the second half of 1998. FCC is not included in Vivendi's financial
statements prior to 1998.
Construction and Real Estate
Vivendi's construction and real estate businesses generated E9.7 billion in
revenue in 1998, up from E9.5 billion in 1997. This 2.8% increase consisted
primarily of internal growth (2.0%), which more than offset the effect of a more
conservative business policy adopted by its construction business, which reduced
growth by approximately 1%.
Vivendi's real estate business experienced internal growth of 18.9%,
primarily due to a general recovery in the French housing sector. The delivery
of two significant office buildings in La Defense business district near Paris
had a positive impact on revenue of E69 million. Vivendi's hotel management
business also performed well, in line with the general recovery of the sector in
France.
Vivendi's construction and real estate businesses accounted for 6% (or
E79.4 million) of its total 1998 operating income, having generated a loss of
E58.8 million in 1997. The improvement is due to the 1995-97 restructuring of
its construction operations in France, Germany and the United Kingdom, and its
real estate segment (which had also recorded significant provisions to cover the
loss of value of its properties).
Construction. Construction's contribution to Vivendi's total revenue was
E7.9 billion in 1998, down 1.5% from 1997. In France, revenue was E5.1 billion,
down 2.9% as a result of Vivendi's more selective business policy pursuant to
which it focused more on higher margin electrical engineering and road building
contracts at the expense of pure construction works. Revenue outside France was
E2.8 billion in 1998, up 3% over 1997. This increase reflected a general
improvement in construction markets in Germany, the United Kingdom and parts of
Africa.
Construction added E82.4 million to Vivendi's 1998 operating income after
generating a loss of E3.5 million in 1997. A change in accounting policy -- from
the use of the completed contracts method to the percentage completion
method -- caused E25 million of this increase. The remainder (E60.9 million) was
due to the recovery of its German operations following a drastic restructuring
in 1996.
Real Estate. Real estate contributed E1.8 billion to Vivendi's 1998
revenue, up from E1.4 billion in 1997. This 25.8% increase resulted largely from
increased volumes experienced by its housing and hotel businesses and from the
acquisition of Maeva, a real estate company focusing on vacation homes.
Real estate generated a E3 million operating loss in 1998, down from a loss
of E55 million in 1997. All its operations improved, particularly housing, which
benefited from the recovery of the French market and the positive effect of past
restructuring measures.
LIQUIDITY
Vivendi satisfied its needs for working capital, expenditures and
acquisitions since January 1, 1997 primarily through a combination of cash
generated from operations, cash received from the issue of debts in the capital
market and committed bank facilities, and the disposition of non-core assets and
businesses.
SIX MONTHS ENDED JUNE 30, 2000
Net cash flow from operating activities reflects funds generated from
operations and changes in operating assets and liabilities. Net cash from
operating activities was E337.3 million in the first six months of 2000,
compared to E137.9 million in the first six months of 1999. The increase was
mainly due to an increase in cash generated by Vivendi's telecommunications
segment and Environmental Services division.
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Net cash flow from financing activities was negative E1.7 billion for the
first six months of 2000 compared to a positive E12.4 billion for the first six
months of 1999. The result for the first six months of 1999 was primarily the
result of non-recurring aspects of the United States Filter Corporation
acquisition.
Net cash flow from investing activities consists of acquisitions and
divestitures of intangible and tangible assets, acquisitions of businesses,
investments in companies accounted for using the equity method and net
differences of other investments and marketable securities. Net cash generated
by investing activities was a E1.2 billion in the first six months of 2000,
compared to a negative E12.5 billion in the first six months of 1999. The change
is primarily a consequence of a decline in the use of cash to make acquisitions
(E1.5 billion in the first six months of 2000, net of cash and cash equivalents
of the acquired companies). In the first six months of 1999, Vivendi's largest
acquisition was United States Filter Corporation. In the first six months of
2000, its principal acquisitions were in the Internet, telecommunications and
Environmental Services areas. Vivendi also invested E2.5 billion in property and
equipment, an increase of 69% over the first half of 1999. These investments
related primarily to the Environmental Services division, the improvement of
Cegetel's mobile telephony network and to the acquisition of audiovisual rights
and set-top boxes in the audiovisual and pay television segment. Cash generated
by disposals made during the first six months of 2000 amounted to E4 billion.
1997-99
Net cash flow from operating activities reflects funds generated from
operations and changes in operating assets and liabilities. Net cash from
operating activities was E1.4 billion in 1999, E2.9 billion in 1998 and E1.6
billion in 1997. The decrease from 1998 to 1999 was mainly due to rising debt
costs (which increased by E0.5 billion in 1999) and sales of real estate assets.
These factors more than offset increases in cash generated by Vivendi's
telecommunications and multimedia and publishing segments. In 1998, the
improvement in Vivendi's net cash flow from operating activities was mainly
attributable to its telecommunications, construction and real estate businesses.
In the near future, Vivendi expects net cash provided by operating activities to
increase as a result of the continuing development of its Communications
division and from reduction of interest costs resulting from planned disposals.
Net cash flow from financing activities was E13.7 billion in 1999, E0.2
billion in 1998 and E1.7 billion in 1997. The increase from 1998 to 1999 was
mainly due to increased proceeds from the issuance of common stock (E3.3
billion), principally in connection with the United States Filter Corporation
acquisition. The net increase in debt (E10.6 billion) resulted primarily from
the issue of two series of convertible bonds that together generated proceeds of
E4.55 billion. The remainder, E6.0 billion, consisted of additional credit
facilities. In the next few years, Vivendi expects its net cash provided by
financing activities to increase as a result of reduced indebtedness.
Net cash flow from investing activities consists of acquisitions and
divestitures of intangible and tangible assets, acquisitions of businesses,
investments in companies accounted for using the equity method and net
differences of other investments and marketable securities. Net cash used in
investing activities was E13.6 billion in 1999, E2.9 billion in 1998 and E3.1
billion in 1997. The change between 1998 and 1999 was primarily the consequence
of the increase in strategic acquisitions paid for in cash to E9.7 billion (net
of cash and cash equivalents of the acquired companies). Vivendi's main
acquisitions were of United States Filter Corporation, Superior Services, Havas
Interactive, Elektrim, Medimedia and Sogeparc (representing, in the aggregate, a
total cash investment of E12 billion). Vivendi also invested E5.6 billion in
property and equipment, an increase of 44% over 1998, principally to finance
Sithe's acquisition of GPU power generation plants and to strengthen Cegetel's
mobile telephony network. In order to stabilize the market price of Vivendi's
shares and to cover stock option commitments, Vivendi acquired treasury shares
for E1.4 billion. These investments more than offset the E2.9 billion generated
through the 1999 real estate sales, the billboard advertising sale, the
Audiofina sale, the Havas Advertising sale and sales of shares and marketable
securities.
Vivendi expects net cash flow from operating activities to increase as a
result of the merger transactions: First, Vivendi expects the addition of
Seagram's array of content assets to increase demand
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for its access services, and therefore to increase the net cash generated by its
access operations; second, Vivendi believes that Seagram's
businesses -- particularly its recorded music business -- will generate strong
cash flow, consistent with their historical performance. Vivendi intends to
acquire Seagram common shares through a capital increase; the acquisition,
therefore, will not affect Vivendi's indebtedness. Vivendi's plan to dispose of
Seagram's spirits and wine business, and Vivendi believes that the proceeds from
this disposal will be sufficient to eliminate Seagram's current indebtedness,
and therefore its need for cash to meet debt repayment obligations. The merger
transactions may trigger change of control provisions in certain agreements to
which Seagram is a party. However, there are no amounts outstanding under these
agreements.
Vivendi expects that it will be able to satisfy its cash requirements for
the next 12 months without raising additional funds. Vivendi Environnement, the
subsidiary to which Vivendi has contributed its direct and indirect interests in
its environmental management companies, intends to use the proceeds of its
recent public offering and private placement to repay a portion of the debt it
owes to Vivendi. Vivendi expects Vivendi Environnement to meet its need for
liquidity, and to repay the debt it owes to Vivendi, from net cash provided by
operations. As to Vivendi's communications division, and its company as a whole,
Vivendi expects cash flow from operations, combined with proceeds from disposals
of non-core assets, to meet its need for liquidity. Cash flow from these
sources, however, may not be sufficient to finance capital expenditures in
Vivendi's telecommunications and Internet segments, in which case it would incur
some additional debt, likely in the form of bank loans.
CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 2000
Vivendi meets its long-term financing needs through the issuance of bonds
and convertible debt and adapts to changes in those needs through the issuance
of commercial paper and through short-term credit facilities.
Vivendi's material capital resources as of June 30, 2000 were as follows:
- E12.5 billion in total shareholders' equity (up from E10.8 billion at the
end of 1999);
- E18.8 billion in long-term debt (down from E19.1 billion at the end of
1999); and
- E14.9 billion in short-term debt (down from E15 billion at the end of
1999).
Vivendi's ratio of net financial debt (short-term and long-term debt, net
of short-term loans, cash and cash equivalents and marketable securities) to
total equity (shareholders' equity and minority interests) was 130.3% at the end
of June 30, 2000 (down from 152.8% at the end of year 1999).
At the end of June 2000, Vivendi financial debt is allocated as follows:
- about 90% relates to Vivendi Environnement. The increase in the capital
of Vivendi Environnement, the agreement with EDF and the sale of non-core
businesses are expected to result in debt reduction of approximately E5.3
billion. Vivendi expects to fund Vivendi Environnement's capital
expenditures requirements from its net cash inflows and existing external
financing.
- the remainder relates to Vivendi's other operations, principally its
Communications division. Vivendi expects to reduce this indebtedness
through the disposals of its remaining interest in Sithe and BSkyB.
Vivendi expects to fund future capital expenditures requirements of its
publishing and multimedia activities from future net cash inflows
generated by those activities and telecommunications and Internet through
additional issuances of debt or the IPO of its Vizzavi subsidiary.
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1997-99
Vivendi's material capital resources as of December 31, 1999 were as
follows:
- E10.9 billion in total shareholders' equity (up from E7.8 billion in
1998);
- E19 billion in long-term debt (up from E9.8 billion in 1998 and E6.7
billion in 1997); and
- E15 billion in short-term debt (up from E5.1 billion in 1998 and E3.4
billion in 1997).
Vivendi's ratio of net financial debt (short-term and long-term debt, net
of short-term loans, cash and cash equivalents and marketable securities) to
total equity (shareholders' equity and minority interests) was 152.8% in 1999
(up from 63.3% in 1998 and 48.6% in 1997).
At the end of 1999, Vivendi financial debt is as follows:
- about three-quarters related to Vivendi Environment. Vivendi expects to
fund Vivendi Environnement's capital expenditures requirements from its
net cash inflows and existing external financing.
- the remainder relates to Vivendi's Communications operations and other
activities. Vivendi expects to reduce its indebtedness through planned
disposals of Vinci shares, GPU assets and Nexity. Vivendi expects to fund
future capital expenditure requirements of its publishing and multimedia
activities from future net cash inflows generated by these activities.
Regarding Vivendi's telecommunication and Internet activities, Vivendi
expects to fund its future substantial capital expenditure requirements
through additional incurrence of debt or through an IPO of its Internet
activities.
CAPITAL EXPENDITURES
SIX MONTHS ENDED JUNE 30, 2000
Vivendi's total capital expenditures were E2.5 billion in the first six
months of 2000, up 75% from the first six months of 1999. The increase was
mainly due to the integration of CANAL+, which was not consolidated in the six
months of 1999, and to increased expenditures in the Environmental Services
division. Vivendi's primary 1999 capital expenditures consisted of the
following:
- Telecommunications -- E395.2 million, principally related to the
expansion of the mobile telephone network;
- Other Communication businesses -- E372 million, including publishing and
multimedia capital expenditures of E52.9 million, audiovisual and pay
television expenditures of E303.6 million (primarily for audiovisual
rights and set-top boxes) and Internet expenditures of E4.9 million.
- Environmental Services -- E1.4 billion in capital expenditures related to
building, upgrading or maintaining environmental facilities, including:
-- E555 million in the water segment, including E67.1 million for major
overhauls and repairs, and E147 million in connection with a new
contract with Hyundai;
-- E514.8 million in the waste management segment, including the
purchase of Allied assets for E213 million;
-- E151.2 million in the energy services segment, including E47 million
for power production installations and E52.3 million for maintaining
investments;
-- E81.5 million in the transportation segment;
-- E66 million for FCC; and
-- E402.5 million for other activities, including E379.2 million for
Sithe.
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Acquisitions
Vivendi invested E1.8 billion in the acquisition of other companies in the
first six months of 2000. This amount corresponds to the cash and non-cash
investments made by Vivendi and does not take into account cash held by the
acquired companies. Vivendi's main acquisitions in the period can be categorized
as follows:
- Internet developments -- E485.9 million, principally used to acquire
i.France (E149 million) and Scoot (E104 million);
- International development in the telecommunications segment -- E277.2
million relating to acquisition of United Telecom Investment in Hungary
(E128 million), Kencell in Kenya (E36 million) and Xfera in Spain (E45
million);
- Audiovisual and pay television -- E365.9 million in connection with
financing of development of subsidiaries (including CANAL+ Belgium,
Eurosport and Sogecable);
- MultiMedia and Publishing -- E176.4 million, including E92 million in
Staywell, a medical publishing company;
- Environemental services -- E336.6 million (including E250 million
dedicated to international expansion); and
- Other -- including E109.4 million mainly attributable to Sithe.
1997-99
Vivendi's total capital expenditures were E5.6 billion in 1999, up more
than 40% compared to 1998. The increase is mainly due to Sithe's purchase of GPU
assets. Vivendi's primary 1999 capital expenditures consisted of the following:
Growth of the telecommunication units
- Capital expenditures of E889 million dedicated to expanding the capacity
of Vivendi's mobile telephone network;
- Capital expenditures of E75 million dedicated to continued development of
Vivendi's fixed-line network;
Other Communication businesses
- Publishing and multimedia capital expenditures of E95.5 million;
- Audiovisual capital expenditure of E182.2 million;
Building, upgrading or maintaining investments in environment-related
businesses
- Expenditures of E736 million dedicated to water activities, including
E160.5 million for major overhauls and repairs;
- Expenditures of E413 million dedicated to waste activities;
- Expenditures of E407 million dedicated to energy services activities,
including E187 million for power production installations and E85.6
million for maintaining investments;
- Expenditures of E241 million dedicated to transportation activities, in
connection with Connex rail expenditure commitments and new contracts;
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- Expenditures of E108 dedicated to FCC activities; and
- Expenditures of E2 billion dedicated to independent power production, in
particular to acquire GPU assets (which were sold at the beginning of
2000).
Acquisitions
Vivendi invested E15.9 billion in the acquisition of other companies in
1999. This amount corresponds to the cash and non-cash investments made by
Vivendi and does not take into account the cash of the acquired companies.
Vivendi's main acquisitions can be categorized as follows:
- International expansion -- E10.7 billion, principally used to acquire
United States Filter Corporation, Superior Services, Havas Interactive,
Elektrim and assets from Waste Management;
- Audiovisual -- E3.8 billion, relating to its additional stake in CANAL+
and in BSkyB; and
- Others -- E1.4 billion, including E598 million used to finance Vinci's
acquisition of Sogeparc.
EFFECT OF INFLATION
Inflation did not have a material effect on Vivendi's revenue or income
from continuing operations in the 1997-99 period.
RECENT DEVELOPMENTS
Among the developments that have occurred since June 30, 2000 that could
affect Vivendi's future results of operations, liquidity and capital resources
are the following:
- Merger transactions -- as described elsewhere in this joint proxy
statement-prospectus, Vivendi expects the merger transactions with
Seagram and CANAL+ significantly enhance its competitive position on an
ongoing basis. In addition, Vivendi expects the listing of its ADSs on
the NYSE to broaden its equity base, as well as that of Vivendi
Universal;
- IPO and listing of Vivendi Environnement -- Vivendi sold approximately
37% of Vivendi Environnement in an IPO and caused Vivendi Environnement
to be listed on the Paris Stock Exchange in July 2000. Following the IPO,
Vivendi acquired an additional 9% interest in Vivendi Environnement,
increasing its interest to 72%.
- EDF/Vivendi Environnement -- under the agreement signed in June 2000
between Vivendi Environnement and EDF, Dalkia will consolidate its energy
operations with those of EDF. EDF will initially purchase a 34% stake in
CGC Holding, Dalkia's direct parent and Vivendi's stake will be reduced
to 66%.
- Vinci/GTM transaction -- In July 2000, Vinci launched a friendly exchange
offer for GTM. If the transaction is consummated, Vivendi's stake in the
combined company will be less than 10%.
- Disposal of Sithe -- In August 2000, Vivendi entered into an agreement
pursuant to which it reduced its stake to approximately 30%. Further to
this agreement Sithe will be deconsolidated and the consolidated debt
would be reduced by E3.5 billion in the short term.
GENERAL ACCOUNTING PRINCIPLES: FRENCH GAAP COMPARED TO U.S. GAAP
The consolidated financial statements included elsewhere herein have been
prepared in accordance with French GAAP, which differ in certain significant
respects from U.S. GAAP.
For the years ended December 31, 1999 and 1998, Vivendi had a net income
under U.S. GAAP of E330.6 million and E565.2 million, respectively, compared to
E1,431 million and E1,120.8 million under
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French GAAP. Under U.S. GAAP, shareholder's equity was E17,039 million and
E10,265.4 for 1999 and 1998, respectively, compared to E10,892.2 million and
E7,840.2 million under French GAAP.
The most significant reconciling item relates to business combination
accounting as described in note 25A of Vivendi's financial statements. Under
French GAAP goodwill may be recorded as a reduction of shareholder's equity when
the acquisition has been paid for with equity securities, whereas goodwill is
recognised as an asset under U.S. GAAP. Significant mergers that do not meet the
U.S. GAAP criteria for pooling have been accounted for in Vivendi's consolidated
financial statements using a method pursuant to which goodwill is computed as
the difference between the consideration paid and the net historical book value
acquired. For U.S. GAAP purposes, these transactions are considered purchases.
Business combination reconciling items have the following impact on equity
and net income presented in Vivendi's consolidated financial statements prepared
under French GAAP:
- an increase of its equity by E7,876.3 million and E3,160 million for the
years ended December 31, 1999 and 1998, respectively, and
- a decrease in its net income by E1,052.7 million and E191 million for the
years ended December 31, 1999 and 1998, respectively.
Other significant reconciling items relate to intangible assets,
impairment, financial instruments and pension plans and stock based
compensation. These items are further described in note 25A to Vivendi's
consolidated financial statements.
VIVENDI'S EXPOSURE TO MARKET RISKS
As a result of Vivendi's global operating and financing activities, it is
subject to various market risks relating to fluctuations in interest rates,
foreign currency exchange rates and equity market risks relating to investment
securities. Vivendi follows a centrally managed risk management policy approved
by its Board of Directors. As part of this policy, Vivendi uses derivative
financial instruments to manage interest rate risk, primarily related to
long-term debt, and foreign currency risk associated with foreign denominated
assets. Vivendi generally does not use derivative or other financial instruments
for trading purposes. Vivendi's accounting policy for hedge instruments is
described in Note 2 to its consolidated financial statements.
EXPOSURE TO INTEREST RATE RISK
As a result of Vivendi's regular borrowing activities, its operating
results are exposed to fluctuations in interest rates. Vivendi has short-term
and long-term debt with both fixed and variable interest rates. Short-term debt
is primarily comprised of secured and unsecured notes payable to banks and bank
lines of credit used to finance working capital requirements. Short-term
investments are primarily comprised of cash and equivalents and marketable
securities. Long-term debt represents publicly held unsecured notes and
debentures and certain notes payable to banks used to finance long-term
investments such as business acquisitions. Derivative financial instruments used
to manage interest rate risk relating to long-term debt include interest rate
swaps and caps.
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The following table provides information about Vivendi's financial
instruments with significant sensitivity to changes in interest rates. The table
presents the outstanding balance, or notional amount for swaps and caps and the
related weighted-average interest rates as of December 31, 1999. Weighted-
average interest rates on variable-rate debt and swaps are based on current
rates as of December 31, 1999. Rates on interest rate caps represent the
weighted average strike rates at December 31, 1999 (in millions of euros).
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
(E MILLIONS) RATE
------------ --------
<S> <C> <C>
FINANCIAL ASSETS
Loans and financial assets.................................. 4,309.2 3.57%
FINANCIAL LIABILITIES
Short-term debt............................................. 15,017.4 3.54%
Long-term debt -- variable rate............................. 9,919.4 4.19%
Long-term debt -- fixed rate................................ 9,313.6 4.03%
DERIVATIVE FINANCIAL INSTRUMENTS (A)
Interest rate swaps -- fixed rate pay....................... 6,725.9 4.69%
Interest rate swaps -- variable rate pay.................... 1,313.3 6.00%
Interest rate caps and collars (b).......................... 2,759.5 4.40%
</TABLE>
---------------
(a) These amounts are the weighted averages of interest rate swaps and caps with
pay features in 2000. In addition, as of December 31, 1999, Vivendi had
E396.4 million notional interest fixed rate pay swaps with delayed effective
dates that commence after 12 months.
(b) Interest rate caps consist of contractual agreements under which Vivendi
receives payments if and when market rates exceed certain levels. Strike
terms are based on EURIBOR three months. Vivendi has E1.829 million notional
amount of double strike interest caps which start in 2004, ending in 2008
with an average first strike of 4.5% and an average second strike of 5.5%.
Based upon the above information, a hypothetical increase in average market
rates of 1% over the year 2000 would result in a decrease (before taxes) in
Vivendi's annual net income of approximately E153 million.
EXPOSURE TO FOREIGN CURRENCY RISK
Vivendi has worldwide operations that include significant operations in
countries outside of the euro zone. In 1999, 28.6% of Vivendi's sales were in
non-euro currencies, particularly U.S. dollars and British pounds. Because
product and operating costs are based largely on the currency in which related
revenue is generated, Vivendi faces limited related foreign exchange exposure in
this area. Vivendi considers this risk to be immaterial and has historically not
attempted to hedge its exposure to foreign currency fluctuations.
Vivendi does face foreign currency exchange risk to the extent that it
plans disposals of assets denominated in currencies other than the euro and to
the extent that it has non-euro cash needs. Vivendi enters into forward
contracts to hedge specific firm commitments and anticipated foreign currency
denominated transactions. As of December 31, 1999, Vivendi's primary risk
related to a planned disposition of Sithe and the repayment of a U.S. dollar
denominated loan related to the acquisition of GPU. As of December 31, 1999,
Vivendi maintained a net forward position of the sale of U.S.$1.6 billion linked
to the planned disposition and the repayment of the loan.
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EXPOSURE TO EQUITY MARKETS RISK
Vivendi's exposure to equity markets risk relates primarily to its
investments in the marketable securities of unconsolidated entities and
derivative equity instruments. As of December 31, 1999, Vivendi held equity
market securities of E3,599 million, including E2,562 in its own shares. Other
significant equity securities held as of December 31, 1999 were as follows (in
millions of euros):
<TABLE>
<CAPTION>
COMPANY AMOUNT PERCENT
------- ------ -------
<S> <C> <C>
Saint-Gobain................................................ 250 6.9%
Washington Baltimore through Facic.......................... 185 5.1%
Alcatel..................................................... 444 12.3%
Eiffage..................................................... 43 1.2%
Vivendi..................................................... 2,562 71.2%
Other....................................................... 115 3.3%
----- -----
Total equity investments.................................... 3,599 100.0%
</TABLE>
In addition, Vivendi has written put options for approximately 2.6 million
shares of its own stock at an average strike price of E64.1 (the highest strike
price is E71.55, the lowest is E50.5) and an average maturity of February 2002.
These options were issued in connection with the merger with Pathe. The price of
Vivendi's stock was E89.65 as of December 31, 1999. Vivendi generally does not
use derivative financial instruments to limit its exposure to equity market
risk.
A hypothetical decrease of 10% of overall portfolio share prices in 2000
would result in a decrease in Vivendi's equity market portfolio of E360 million.
EXPOSURE TO OTHER MARKET RISKS
Vivendi does not consider its exposure to other market risks material.
NATURE OF TRADING MARKET
THE PARIS BOURSE
Vivendi's ordinary shares have been listed on the Paris Bourse since 1853
and are included in the CAC40 Index. Upon issuance, Vivendi Universal's ordinary
shares will be listed on the Paris Bourse and are expected to be included in the
CAC40 Index. Authorized financial institutions that are members of the Paris
Bourse trade securities listed on the Premier Marche or the Second Marche of the
Paris Bourse. Securities listed on the Premier Marche trade continuously on each
business day from 9:00 A.M. to 5:30 P.M. (Paris time), with a pre-opening
session from 7:45 A.M. to 9:00 A.M. Any trade of a security that occurs after a
stock exchange session closes is recorded on the next business day at the
previous session's closing price for that security. The Paris Bourse has
introduced continuous electronic trading during trading hours for most listed
securities. ParisBourseSBF S.A. manages and operates the Paris Bourse.
ParisBourseSBF S.A. publishes a daily official price list that includes price
information on listed securities.
ParisBourseSBF S.A. places securities listed on the Premier Marche, the
Second Marche or the Nouveau Marche, depending on their trading volume.
ParisBourseSBF S.A. has placed Vivendi's shares in the category known as Continu
A, which includes the most actively traded securities. The minimum daily trading
volume required for a security to be in Continu A is twenty trades or FF
250,000, equal to E38,112.
ParisBourseSBF S.A. may suspend trading in a security listed on the Premier
Marche if the quoted price of the security exceeds specific price limits defined
by its regulations. In particular, if the quoted price of a Continu A security
varies by more than 10% from the previous day's closing price, ParisBourseSBF
S.A. may suspend trading in that security for up to 15 minutes. It may suspend
trading for a further 15 minutes if the price again varies by more than 5%.
ParisBourseSBF S.A. may also suspend trading of a security listed on the Premier
Marche in other limited circumstances, including, for example, when there is
unusual trading activity in the security. In addition, the Conseil des Marches
Financiers, the organization with general
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authority over French stock exchanges, may also require ParisBourseSBF S.A. to
suspend trading in exceptional cases.
Trades of securities listed on the Premier Marche are settled on a cash
basis on the third day following the trade. Market intermediaries are also
permitted to offer investors a deferred settlement service (service de reglement
differe) for a fee. The deferred settlement service is only available for trades
in securities with a total market capitalization of at least 1 billion and that
have a daily average volume of trades of at least 1 million. Investors can elect
on the determination date (date de liquidation), which is the fifth trading day
before the end of the month, either to settle by the last trading day of the
month or to pay an additional fee and postpone the settlement decision to the
determination date of the following month. Vivendi Universal's shares will be
eligible for the deferred settlement service after the completion of the merger
transactions.
Equity securities traded on a deferred settlement basis are considered to
have been transferred only after they have been registered in the purchaser's
account. Under French securities regulations, any sale of a security traded on a
deferred settlement basis during the month of a dividend payment is deemed to
occur after the dividend has been paid. If the sale takes place before, but
during the month of, a dividend payment date, the purchaser's account will be
credited with an amount equal to the dividend paid and the seller's account will
be debited by the same amount.
On September 22, 2000, ParisBourseSBF S.A. announced that it would merge
with the Brussels and Amsterdam exchanges in order to create the Euronext stock
exchange.
VIVENDI'S PURCHASE OF ITS OWN SHARES
Under French law, Vivendi may not issue shares to itself. However, it may,
either directly or through a financial intermediary acting on its behalf,
purchase its shares for one of three purposes:
- to reduce its share capital by canceling the shares it purchases with its
shareholders' approval at an extraordinary general meeting;
- to provide shares to its employees under a profit-sharing plan or stock
option plan; or
- to acquire up to 10% of its share capital, provided its shares are listed
on a regulated market (e.g., the Premier Marche, the Second Marche or the
Nouveau Marche). To acquire its shares for this purpose, Vivendi must
first file a note d'information that has received the approval, or visa
of the Commission des Operations de Bourse ("COB") and then obtain its
shareholders' approval at an ordinary general meeting.
Vivendi may not cancel more than 10% of its outstanding share capital over
any 24-month period. In addition, Vivendi may not repurchase shares to reduce
its share capital or to provide shares to its employees in an amount that would
result in it holding, directly or through a person acting on its behalf, more
than 10% of its outstanding share capital or, if Vivendi has different classes
of shares, 10% of the shares in each class.
Vivendi must hold any shares it repurchases in registered form. These
shares must also be fully paid up. Shares that Vivendi repurchases are deemed to
be outstanding under French law but are not entitled to dividends or voting
rights, and Vivendi may not exercise the preferential subscription rights
attached to them.
At an extraordinary general meeting, the shareholders may decide not to
take these shares into account in determining the preferential subscription
rights attached to the other shares. However, if the shareholders decide to take
them into account, Vivendi must either sell the rights attached to the shares it
holds on the market before the end of the subscription period or distribute them
to the other shareholders on a pro rata basis.
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VIVENDI'S TRADING IN ITS OWN SHARES
Under Reglement n(LOGO) 90-04 of the COB, as amended, Vivendi may not trade
in its own shares for the purpose of manipulating the market. Trades by a
company in its own shares will be permitted if:
- they are executed on behalf of the company by only one intermediary in
each trading session (except that, during the issue period of any
securities, more than one intermediary can be involved if the trades are
made to ensure the success of the issuance);
- no block trades are made at a price above the current market price; and
- each trade is made at a price that falls between the lowest and the
highest trading price of the trading session during which it is executed.
If a company's shares, like Vivendi's shares, are continuously quoted
(cotation en continu), then a trade will be permitted only if it meets three
additional requirements:
- the trade must not influence the determination of the quoted price before
the opening of trading, at the first trade of the shares, at the
reopening of trading following a suspension, or, as applicable, in the
last half hour of any trading session or at the fixing of the closing
price;
- the trade must not be carried out in order to influence the price of a
derivative instrument relating to the company's shares; and
- the trade must not account for more than 25% of the average total daily
trading volume on the Paris Bourse in the shares during the five trading
days immediately preceding the trade. This last requirement applies only
to trades in shares that, like Vivendi's shares, are traded on the
monthly settlement market.
Vivendi is not permitted to trade in its own securities during the 15-day
period before the date on which it makes its consolidated or annual accounts
public. It is also prohibited from trading in its own shares when it is in
possession of non-public information that, if disclosed, would have a
significant impact on the market price of its securities.
After making an initial repurchase of its own shares, Vivendi must file
monthly reports with the COB and the CMF that contain specified information
about subsequent transactions. The CMF makes this information publicly
available.
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CANAL+
GENERAL
CANAL+ is Europe's leading pay television company, with approximately 14
million subscriptions in 11 countries at the end of 1999, 40% of which were for
digital television. CANAL+ also produces more than 25 theme channels for cable
and satellite distribution in 14 countries, and is a European leader in film and
television production, distribution and rights management, with Europe's second
largest film rights library based on number of titles. In addition, CANAL+ is
Europe's leading supplier of software technologies that enable network operators
to deliver secure interactive services over digital television networks. CANAL+
had consolidated revenues of E3.3 billion in 1999, 79% of which came from
subscription fees.
CANAL+, a French societe anonyme, was founded in 1983 and began
broadcasting in 1984. Its shares have been listed on the monthly settlement
market of the premier marche of the ParisBourse since November 1987, and are
included in the French CAC 40 index and the Euro Stoxx 50 index. Its shares are
also traded on the SEAQ international system in London, as well as over the
counter in the United States in the form of American Depositary Shares, each
representing one-fifth of a share. On August 4, 2000, the closing price of
CANAL+'s shares on the Paris Bourse was E167 per share. Vivendi currently holds
48.7% of CANAL+'s share capital.
CANAL+ GROUP STRATEGY
CANAL+'s overall strategy is to become Europe's leading multiservice
television provider by taking advantage of its leadership in the pay television
business, promoting the expansion of digital television and developing its
lineup of interactive and internet-based services. The principal steps that
CANAL+ is taking to achieve its objective include the following:
- Leverage CANAL+'s position as Europe's leading pay television company and
its extensive content assets to take advantage of the convergence of pay
television, e-commerce, interactive services and the internet.
- Provide a full range of quality content across the media value chain,
including premium pay television broadcasts of movies and sports
programming, theme channels designed to appeal intensely to their target
audiences, and quality film and television productions.
- Expand the use of digital transmission technologies, including in the
emerging European market for digital terrestrial television.
- Roll out new generation JavaScript-based digital decoders, called
"net-top boxes," to all digital subscribers, giving the subscribers
easy-to-use, secure access to interactive and internet-based services
through their television sets.
- Focus on the customer, taking advantage of CANAL+'s direct relations with
all of its subscribers and its long-standing experience in subscriber
management to tailor services designed to meet customer demand.
GROUP HISTORY
In 1984, CANAL+ launched the first French pay television channel, with
programming focused on recent film releases and sports events. It quickly
diversified into new countries and into areas related to pay television.
Together with local partners, CANAL+ created pay television channels in Belgium
(1989), Spain (1990), Germany (1991), Africa (1991) and Poland (1995). In 1990,
CANAL+ began the production of theme channels in France, broadcast initially via
cable. In 1992, CANAL+ launched its CANALSATELLITE package in France, a
direct-to-home satellite broadcasting service that offers a broad array of
channels, initially using analog technology. In 1996, CANAL+ launched its first
digital offering, CANALSATELLITE Numerique, in France, a concept that was
expanded into Spain in 1997.
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In 1997, CANAL+ acquired the Dutch pay television company Nethold,
substantially expanding its presence in Europe by adding pay television channels
in Italy, the Netherlands and the Nordic countries. Following the acquisition,
CANAL+ changed the offerings of services of its new subsidiaries, using the same
formula that it employed in France, Spain and elsewhere. This included an
expanded product offering, promotion of digital direct-to-home satellite
packages and improvement of customer care. The result has been a significant
increase in CANAL+'s international subscriptions, which in 1999 exceeded French
subscriptions for the first time.
CANAL+ first expanded upstream into television and film production and
distribution in 1987 with the creation of Ellipse Programme, a television
production house that in 2000 was contributed to Expand to form France's largest
television production company. Then CANAL+ created its French film production
subsidiary, Le Studio CANAL+ (now called Studio Canal France), which is
currently the largest producer and distributor of films in France. In 1996,
CANAL+ acquired two major film libraries and integrated its film, television and
rights management businesses operationally, a process that was strengthened with
the December 1998 contribution of CANAL+'s principal subsidiaries involved in
these businesses to Studio Canal. From 1998 to 2000, the merged company, now
called StudioCanal, entered into international production and film rights
acquisition partnerships with major international studios, and began to build a
pan-European film distribution network. In May 2000, StudioCanal's shares were
listed on the monthly settlement market of the Premier Marche of the Paris
Bourse.
Since 1984, CANAL+ has invested in the technology necessary to serve its
expanding business. It pioneered conditional access technology, which scrambles
programming so that only viewers that pay their subscription fees can decode and
access the programming. It first deployed its current, proprietary conditional
access system, known as Mediaguard, in 1996, together with a sophisticated,
interactive services system known as Mediahighway. In May 2000, CANAL+
contributed the Mediaguard system (previously held in a joint venture with
Bertelsmann AG) and the Mediahighway system to a new subsidiary, CANAL+
Technologies. CANAL+ expects that CANAL+ Technologies will conduct a public
share offering in the second half of 2000.
THE EUROPEAN PAY TELEVISION INDUSTRY
CANAL+'s largest business is the production and distribution of channels
that are broadcast on continental European pay-television systems.
Pay-television involves the transmission of programming to households in
encrypted form, with viewers using a special decoding device to allow them to
watch the programming. Pay-television companies charge viewers a fee for the use
of decoders that provide access to a package of television channels or events.
This is in contrast to clear broadcasting, which is freely available in the area
of reception and derives revenues principally from selling advertising or public
subsidies.
Pay-television programming is distributed to viewers through three
principal technologies: over-the-air television, cable television and
"direct-to-home" satellite transmission. Over-the-air television is broadcast
directly to homes from terrestrial stations and can be received by standard
television sets with ordinary antennas. Currently, most over-the-air
broadcasting uses analog technology. Many European countries are in the process
of offering digital terrestrial licenses, which will permit over-the-air
broadcasting using digital technology, in which programming is broadcast in the
form of a digital signal that can be compressed to facilitate multiple channel
transmission through a single channel's bandwidth. In cable television, an
operator links a broadcasting facility to households using a network of
interconnected cables, generally under a franchise from a local, regional or
national administrative authority. The operator receives programming at its
facility by satellite or other means and retransmits it to households over its
network in scrambled form. In "direct-to-home" satellite transmission,
households purchase a parabolic antenna that permits them to receive encrypted
signals directly from one or more satellites. Satellite system operators
typically lease transmission capacity from satellite owners for use in
broadcasting their packages to subscribers. Most European cable and
direct-to-home satellite systems use digital broadcasting technology.
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There are generally four types of pay-television programming that are
currently available in Europe:
- Premium. Premium channels generally show recently released Hollywood and
European films and live sporting events, often including soccer matches
in the first division of the relevant country's league. Viewers pay a
separate fee to receive premium channels. The French CANAL+ channel,
which is the flagship channel of CANAL+, is an example of a premium
channel. Premium channels are the only type of pay television currently
broadcast over the air, although they are also broadcast on cable and
satellite systems.
- Basic. A "basic" package includes several channels that are available to
all subscribers to a cable or satellite system. Typically, basic packages
include international channels such as CNN, BBC World Service and MTV,
thematic channels such as those produced by CANAL+ and in some cases high
quality broadcasts of local over-the-air channels.
- Option. Option channels are offered to viewers in cable and satellite
systems as supplements to the basic package, either on a single channel
basis or in a package that includes several option channels. Typically,
option channels are thematic channels that give viewers more access to
their chosen themes than the basic package.
- Pay-per-view. Pay-per-view channels offer subscribers single events or
groups of events for a fee specific to those events. Pay-per-view events
typically offer subscribers access to major sporting events and movies
before they become available on premium channels.
Pay-per-view is an interactive service, meaning that the viewer interacts
with the network operator to order specific services, typically movies and
sporting events in the case of pay-per-view. Using technology such as CANAL+'s
Mediahighway system, cable and satellite systems are being equipped for a
variety of additional interactive services, including internet-related services.
ACTIVITIES OF CANAL+
PAY TELEVISION IN FRANCE
CANAL+ Premium Channel
CANAL+'s French premium channel is the flagship of the CANAL+ group. For
more than 15 years, it has provided subscribers with quality programming
presented in a unique format. The premium channel focuses on recent movies and
headline sports events, accompanied by scrambled entertainment programs and
unscrambled shows. As of December 31, 1999, CANAL+'s French premium channel had
4.6 million subscriptions. More than a quarter of its subscriptions were
digital. It added 524,000 new subscribers in 1999, and had a churn rate of 8.8%.
The "churn rate" is the percentage of subscribers at the beginning of any year
that are no longer subscribers at the end of that year.
Programming. CANAL+ broadcasts premium quality programming, focusing
principally on first-run movies and sporting events. Movies accounted for
approximately 42% of CANAL+'s 1999 airtime, sports for approximately 14%,
made-for-television films for approximately 12% and family entertainment and
documentaries for most of the remainder.
CANAL+ broadcasts between 450 and 500 first-run movies each year, including
the majority of recent French productions, popular American films, and movies
from around the world. Most films are broadcast one year after theatrical
release in France, which is between one and two years before they are broadcast
on other channels. Movies are repeated from time to time over a two-month period
to provide maximum flexibility for subscribers.
CANAL+ provides financing for nearly 80% of French movies, principally by
acquiring first-run pay television broadcast rights to those films before the
films are produced. CANAL+ is required to finance French film production under
its broadcast license, although its financing also provides it with a steady
flow of quality French films. In April 1999, CANAL+ entered into an agreement
with an association representing the French film industry. Under this agreement,
CANAL+ has an exclusive 18-month license to broadcast French films for which it
provides at least 30% of the financing or at least 16 million francs.
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See "-- License Requirements and Regulation." To secure access to movies made
outside France, CANAL+ signed exclusive, long-term broadcasting rights
agreements in 1996 and 1997 with seven US studios -- Columbia, Disney, Fox, MCA,
Warner Brothers, Miramax and DreamWorks.
The CANAL+ premium channel also broadcasts major sports events. One of the
principal attractions of the channel to a large portion of subscribers is
CANAL+'s broadcasts of soccer matches. Its soccer rights include the French
first and second division soccer championships, the Champion's league, the UEFA
Cup, the European junior championships and the Italian, English, German,
Spanish, Dutch and Swiss national championships. In June 1999, CANAL+ signed a
five-year contract giving its joint rights with the free channel TFI to the
French soccer championship. CANAL+ also provides extensive coverage of rugby
(including the French championships and the 1999 Rugby World Cup), golf
(including all four Grand Slam golf tournaments), boxing, basketball, American
football, hockey and track and field.
The premium channel also broadcasts other quality programming such as
documentaries, in-house produced series, events and shorts. Approximately 18% of
CANAL+'s airtime is devoted to unscrambled programming, a requirement of
CANAL+'s broadcast license that CANAL+ has turned to its advantage as an
effective promotional tool.
Broadcast Technology
The CANAL+ premium channel is broadcast in analog format over-the-air
throughout France. Over-the-air subscribers receive an encrypted analog signal
that is decoded by a set-top box. The channel is also broadcast in digital
format over the CANALSATELLITE and TPS direct-to-home satellite systems, and
over the principal cable television systems in France. More than one quarter of
CANAL+'s subscribers received the channel in digital format at the end of 1999.
Digital subscribers receive four premium channels, including the channel
that is broadcast over-the-air, and three additional channels known as CANAL+
Jaune and CANAL+ Bleu and CANAL+ Vert. Films and sporting events are broadcast
at different times on the different channels, giving viewers more flexibility as
to viewing times. Viewers can also choose to view foreign films in their
original languages or dubbed into French. They also have access to advanced
interactive services such as the "bloc-notes interactif" function that enables
viewers to use their remote control to access real-time information about
selected live programs.
License Requirements and Regulation
CANAL+ broadcasts the premium channel under a license granted by the French
audiovisual authority, the Conseil Superieur de l'Audiovisuel. The license,
which was first granted in 1984 and was most recently renewed in May 2000, for a
period of five years.
CANAL+ is required under its license to invest at least 20% of its net
subscriber revenues in the acquisition of film broadcast rights. At least 60% of
this amount must be spent on European films, with French language films
accounting for 75% of the total (i.e., 9% of net subscriber revenues must be
invested in the acquisition of broadcasting rights to French language films). In
addition, French audiovisual law and European broadcasting regulations require
CANAL+ to satisfy certain quotas for broadcasting films and television programs.
Under these requirements, at least 60% of the programming broadcast by CANAL+
must be of European origin, and at least 40% must be originally in the French
language. French law also requires CANAL+ to devote at least 4.5% of its annual
revenues to acquiring rights in new French or European television programming,
with independent production accounting for 50% of the total.
CANAL+'s broadcast license places restrictions on the times at which CANAL+
can broadcast movies. CANAL+ is prohibited from broadcasting movies on
Wednesdays from 1:00 pm to 9:00 pm, on Fridays from 6:00 pm to 11:00 pm,
Saturdays from 1:00 pm to 11:00 pm, and Sundays and holidays from 1:00 pm to
6:00 pm. CANAL+'s license also contains provisions governing, among other
things, the amount and timing of CANAL+'s unscrambled programming and the use of
advertising.
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CANALSATELLITE
With the launch of CANALSATELLITE in 1992, CANAL+ moved from marketing a
single premium television channel to providing a package of programs and
services. At December 31, 1999, CANALSATELLITE was the leading direct-to-home
satellite broadcaster with 1.4 million subscriptions. CANAL+ owns 66% of
CANALSATELLITE, and the Lagardere group has owned the remainder since June 2000.
CANALSATELLITE currently offers more than 200 channels to its subscribers
in France. The channel offering includes the latest in entertainment and
interactive services, including:
- A basic package with 39 channels based on nine themes: sports, discovery,
entertainment, music, youth, news, general interest, services and games.
The package also includes international channels such as CNN, Eurosport,
BBC World Service, RTL, RAI and MTV.
- Thirteen optional packages, typically including multiple channels focused
on a specific theme such as sports, music or cinema.
- The "Kiosque" pay-per-view service, which offers movies, soccer matches
and Formula One racing on eleven channels.
- A host of interactive services, including a sophisticated program guide
that lets viewers see the programs being broadcast on different channels
in a miniature mosaic format and permits them to move from one channel or
service to another, an interactive weather channel, a virtual mall with
18 boutiques, and a variety of interactive games and information
services.
- Digital format CANAL+ premium channel, including CANAL+ Jaune, CANAL+
Bleu and CANAL+ Vert. At the end of 1999, more than half of
CANALSATELLITE'S subscribers also received the CANAL+ premium channel.
In 1999, over 90% of CANALSATELLITE'S subscribers used one or more of the
interactive services. CANALSATELLITE is developing a broader range of
interactive services for its subscribers that it expects to make available
shortly, including full home banking and securities trading, home betting,
classified advertisements and an e-mail function that is compatible with
personal computers and cellular telephones.
NC Numericable
NC Numericable is the second largest cable television operator, with
approximately 2.2 million homes passed and approximately 700,000 subscribers at
the end of 1999. Approximately one-sixth of NC Numericable's subscribers had
digital set top boxes at the end of 1999, a percentage that NC Numericable
expects to increase significantly in the near future. The company operates 33
cable systems serving 221 French communities, including Lyon, Grenoble, Nice,
Toulouse and Nantes, and 21 western suburbs of Paris. CANAL+ owns 70% of NC
Numericable, and Exante, an affiliate of Callahan Associates, holds the
remainder.
Under a French law that governed the grant of early cable television
concessions, the infrastructure for many of NC Numericable's systems is owned by
France Telecom. NC Numericable has the right to exploit that infrastructure for
purposes of distributing cable television programming. The law requiring this
arrangement is no longer in effect. CANAL+ and Exante have agreed to have NC
Numericable acquire the infrastructure owned by France Telecom, in exchange for
a 42.5% interest in NC Numericable. Following this transaction, Exante will hold
a 28.8% interest in NC Numericable and CANAL+ will hold a 26.2% interest. The
remainder will be held by Cegetel, which will contribute its interest in NC
Numericable's internet business in the Nice region to NC Numericable, in
exchange for an interest in NC Numericable. The transaction is subject to
various regulatory approvals and is not expected to close before the autumn of
2000.
NC Numericable's cable systems offer between 70 and 100 channels, including
basic packages that include high quality transmission of over-the-air channels,
a wide range of thematic channels, various
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option packages and the CANAL+ premium channel. Since October 1999, NC
Numericable has also offered high speed internet access services, featuring
content provided by AOL France, to subscribers in Nice, northern France, the
Paris suburbs and greater Lyon. NC Numericable also intends to launch local
telephone service in the next twelve to twenty-four months.
Subscriber Management Services
A key aspect of CANAL+'s business is its direct relationship with its
subscribers. Its tradition of focusing on subscriber management service has
allowed it to offer high quality service that corresponds to the demands of its
customers, while providing it with valuable information that has permitted it to
design new programs and services targeted to its audience. CANAL+ and
CANALSATELLITE maintain direct subscriber relationships through their web site,
e-mail services using set-top boxes, a videotext service, a call center and
interactive voice response servers. They also design their marketing strategy so
as to make subscribing easy and user friendly, offering equipment packs that
include digital set-top boxes and "smart cards" that identify the services
chosen by a subscriber, sold through large audiovisual equipment dealers such as
FNAC and Darty, supermarkets, local retailers and other distribution outlets
throughout France.
INTERNATIONAL PAY TELEVISION
Throughout continental Europe, CANAL+ uses the same formula that has been
successful in France to provide leading pay television operations. In each
country where it operates, CANAL+ has a premium channel featuring first-run
movies and major sporting events. In most countries, including all of the
largest by number of subscriptions, CANAL+ operates digital direct-to-home
satellite services that provide multi-channel offerings and the latest in
interactive television technology. At the end of 1999, CANAL+ had 7.0 million
subscriptions to its international offerings.
Italy
In Italy, CANAL+ operates through its 99% owned subsidiary, Telepiu. The
Telepiu offering includes a premium channel that is offered in both analog and
digital format, as well as the D+ digital direct-to-home satellite service.
Telepiu also offers the +Calcio season-ticket subscription to Italian soccer
league matches, giving subscribers access to all home matches and most of the
away matches of their favorite Italian league teams, as well as pay-per-view
Formula One racing and movies. At the end of 1999, Telepiu had 2.1 million
subscriptions, including 962,000 digital subscriptions.
Spain
In Spain, CANAL+ owns a 20% interest in Sogecable, a company listed on the
Madrid Stock Exchange that broadcasts the CANAL+ Espana premium channel and the
CANALSATELLITE digital direct-to-home satellite service. At the end of 1999,
Sogecable had approximately 2.6 million subscriptions, including 813,490
subscriptions to the CANALSATELLITE digital service.
Nordic Countries
In Norway, Sweden, Finland and Denmark, CANAL+ operates the CANAL+ Nordic
premium channels, as well as the Canal Digital direct-to-home satellite service.
Altogether, CANAL+ had 783,000 subscriptions in these countries at the end of
1999, including 311,000 subscriptions to the Canal Digital service.
Other Countries
CANAL+ broadcasts its premium channel and provides digital satellite
service in a number of additional countries, including the following
(subscription figures are at the end of 1999):
- Poland -- 627,000 subscriptions, including 269,000 to the Cyfra+ digital
satellite service.
- The Netherlands -- 294,000 subscriptions to the CANAL+ premium channel.
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- Belgium -- 202,000 subscriptions in French speaking Belgium, including
28,000 to the Le Bouquet digital satellite service, and 192,000 in
Flemish speaking Belgium, including 25,000 to the Canal Digital digital
satellite service.
- French-speaking Africa (Senegal, Tunisia, Ivory Coast and
Morocco) -- 150,000 subscriptions to the CANAL+ premium channel.
THEME CHANNEL PRODUCTION
CANAL+ produces theme channels for broadcast over cable and satellite
systems, both as part of basic packages or as option channels. CANAL+'s
principal theme channel production affiliate is Multithematiques, a joint
venture company that began producing theme channels in 1988. CANAL+ also
produces two thematic channels directly, and has interests in joint ventures
that produce and are developing additional thematic channels.
Multithematiques
Multithematiques produces 25 thematic channels in 14 countries, under six
core channel themes. Altogether, its channels had 13.4 million subscribers
throughout Europe at the end of 1999 (a figure that is calculated differently
from the number of subscriptions to CANAL+'s premium channel and digital
satellite services, and so is not comparable to those figures). The six core
channels of Multithematiques are:
- Planete, a documentary channel that covers a wide range of subjects
including news, social issues, history, art, nature and sports. Founded
in 1988, Planete is Multithematiques' oldest channel and is the
inspiration for Forum Planete, a sister channel launched in 1997 that
presents after each documentary a discussion of the documentary's topic
by leading experts.
- Canal Jimmy, a channel targeted at baby boomers and young adult viewers,
which broadcasts popular American television series such as Friends,
N.Y.P.D. Blue, Star Trek: Next Generation, and Dream On, as well as
magazines, rock concerts, cult films and car and motorcycle shows.
- Cine Cinemas, a movie channel that shows adventure films, dramas,
comedies, detective movies and westerns, generally in their second run on
pay-television. Cine Cinemas also broadcasts behind-the-scenes
documentaries and interviews with actors and film makers.
- Cine Classics, a classic movie channel that each year broadcasts more
than 450 black and white films produced between the 1930s and the 1960s.
Cine Classics also broadcasts a weekly talk show, featuring experts from
the movie industry discussing classic films and stars.
- Seasons, a channel dedicated to hunters, fishermen, and people who enjoy
the outdoors, featuring documentary-style programs and regular shows with
news on hunting and fishing.
- Wish Line, a channel that provides quality classified advertising of
luxury goods, homes and yachts and vintage cars that are for sale
worldwide. Wish Line is the newest thematic channel of Multithematiques,
launched in December 1999.
The largest market for Multithematiques' channels is France, where it had
7.7 million subscribers at the end of 1999. Multithematiques also broadcasts in
Italy, Germany, Spain, Poland, Belgium, Switzerland and French-speaking Africa.
Although its channels use the same names and logos in the different countries
where it broadcasts, it tailors its programming in each country by dubbing or
subtitling programs in local languages, varying the mix of programs offered to
suit local market characteristics and complementing the purchased programming
content with locally-produced talk shows and other programs for each region. As
a result, its channels are marketed as local channels, although they benefit
from the efficiencies of centralized program purchasing and brand promotion.
CANAL+ owns 27.42% of Multithematiques (it owned 30.5% until July 2000),
and accounts for Multithematiques under the equity method. The other
shareholders are Havas Images (a Vivendi affiliate),
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with 9.09%, the Lagardere group, with 27.42%, Liberty Media (an AT&T affiliate)
with 27.42%, and an affiliate of the French financial institution the Caisse des
Depots et Consignations, with 8.64%.
Other Thematic Channels
CANAL+ produces directly two thematic channels, both of which are designed
specifically for the French market. Demain!, which had 1.3 million subscribers
at the end of 1999, advertises job opportunities and other contacts. CANAL+'s
newest channel, launched in November 1999, is i-television, CANAL+'s first news
channel, which uses the most advanced technology to provide local news,
responding to the needs of French people living in small and medium-sized towns.
In addition, CANAL+ has interests in other thematic channels, including
Eurosport, a channel that broadcasts sporting events 24 hours a day, Canal J, a
children's channel, MCM and Muzzik, two music channels, and Comedie, a comedy
channel. In July 2000, CANAL+ entered into a series of joint ventures with the
Lagardere group, which will develop new theme channels inspired by magazines
belonging to the Lagardere portfolio of specialized magazines.
FILM AND TELEVISION PRODUCTION, DISTRIBUTION AND RIGHTS MANAGEMENT
CANAL+ began producing and distributing movies and television programs in
1987. Initially conceived to produce a steady stream of new content for CANAL+'s
television channels, these activities have grown into one of Europe's leading
audiovisual content production and distribution groups, involving all aspects of
cinema and television production, rights acquisition and library management.
CANAL+'s audiovisual production and distribution operations are conducted
through StudioCanal, a majority owned subsidiary of CANAL+ that is listed on the
ParisBourse. StudioCanal's business includes principally the following:
- Film Production and Rights Acquisition. StudioCanal produces,
co-produces and acquires rights to premium quality feature films,
including international blockbusters and major European productions. It
is one of the largest feature film producers in France, producing between
30 and 40 films per year, and it has distribution rights acquisition
partnerships with major studios such as Universal, Warner Bros. and
Pathe. It is in the process of building a pan-European distribution
network, and has distribution subsidiaries in France, Germany and Spain.
Recent releases produced or distributed by StudioCanal include French
hits such as Taxi, La Buche and Le Bonheur est dans le pre, European
films such as La Vita e Bella, Il Postino and Abre los ojos and
international films such as Sixth Sense, Message in a Bottle, Mission to
Mars and Chicken Run.
- Film Rights Management. StudioCanal sells television broadcast rights to
feature films in its extensive library of 5,573 titles (as of January 1,
2000), the third largest catalogue in the world behind those of Kirch
(15,000 titles, consisting principally of German language rights) and
Time Warner (5,700 titles). The film library includes blockbusters such
as Terminator 2, Basic Instinct and Highlander, French films such as La
Grande vadrouille, La Grande illusion, Belle de Jour and La Haine and
classic American titles such as The Graduate and The Deer Hunter.
- Television Production. StudioCanal is one of two principal shareholders
of the largest television production business in France and one of the
largest in Europe, formed in April 2000 through the merger of
StudioCanal's subsidiary, Ellipse Programme, with Expand, another leading
French television production company. It is the only European television
producer with programs in all of the major programming categories
(fiction, animation, entertainment and documentaries). Its programs
include the TV dramas Docteur Sylvestre and Un Homme en colere, the
animation classics Babar and Tintin, the game shows Pyramide (based on
The U.S.$25,000 Pyramid), Qui est Qui, Le Juste prix (based on The Price
is Right) and Les Z'amours (based on The Newlywed Game) and the adventure
games Fort Boyard and Desert Forges.
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DIGITAL TECHNOLOGY
CANAL+ has been actively involved in the development of technology for
digital television, beginning with investments in 1992 designed to ensure the
smooth transition from analogue to digital broadcasting. Because most consumers
have analog televisions, network operators purchase and deploy set-top boxes
that convert the incoming digital signal to an analog signal the television can
process and display. In addition to decoding the digital signal, set-top boxes
are used to control access to pay television services and to enable advanced
features and interactivity.
In 2000, CANAL+ created a new subsidiary, CANAL+ Technologies, to operate
and manage its principal technology operations. CANAL+ Technologies is the
leading European provider and one of the leading providers worldwide of advanced
software technologies that enable and secure digital interactive television. Its
flexible, field-tested software has been selected by over 20 digital satellite,
cable and terrestrial network operators and have been deployed on over six
million digital set-top boxes in over 13 countries. Its technology is used in
all of the CANAL+ group's digital cable and direct-to-home satellite systems,
and is also sold to third parties such as ONdigital in the United Kingdom, Zee
Network in India, Measat in Malaysia and MediaOne in the United States.
CANAL+ Technologies provides a comprehensive software system that enables
network operators to deliver secure interactive services over digital television
networks. Its MediaHighway hardware-independent interactivity software enables
network operators to enhance the television viewing experience with an extensive
range of interactive services. Its MediaGuard conditional access software
enables network operators to manage and control delivery of pay television
content and provides a secure platform for t-commerce transactions, meaning
electronic commerce transactions conducted through televisions. The MediaHighway
and MediaGuard software systems are highly flexible and can be implemented
either together, to provide complete and secure interactivity, or separately, in
combination with software from other providers. CANAL+ Technologies has
developed over 30 interactive television applications for MediaHighway, and
actively encourages third-party developers to create new applications using its
Java-based authoring tools. Using CANAL+ Technologies' interactive software and
applications, network operators can enhance the television experience with
easy-to-use value-added features, including:
- Enhanced program navigation. CANAL+ Technologies' electronic program
guides allow viewers to easily access information for a week's worth of
programs for every channel available to them. Its interactive video
browsers display all channels currently on-air and enable viewers to
select from available languages for audio output.
- T-commerce and interactive advertising. CANAL+ Technologies' applications
enabling electronic commerce over the television, or t-commerce, allow
viewers to shop for goods and services in a secure environment using
their remote control. These applications also enable viewers to interact
with commercials to receive additional information regarding products
offered.
- Pay-per-view and video-on-demand. CANAL+ Technologies' enhanced
pay-per-view applications allow viewers to select and interact with
on-demand programs of their choice. For example, viewers can choose
camera angles for a live sports pay-per-view event using the remote
control.
- Instant information display. CANAL+ Technologies has developed
applications that enable viewers to access real-time information about
on-the-air programs or about specific topics such as news, sports,
weather or stocks.
- Interactive games. CANAL+ Technologies' game applications allow viewers
to play along real-time with a favorite game show or play games against
other viewers.
- Placing bets, banking or trading stock on TV. CANAL+ Technologies'
tele-betting applications permit viewers to place bets electronically.
For example, viewers can bet on the outcome of a horserace before
watching its live broadcast. CANAL+ Technologies also provides other
on-line applications, including applications that enable viewers to
manage bank accounts and trade stocks.
- Internet-enabled services. CANAL+ Technologies' internet applications
enable viewers to send and receive e-mails or access internet content
from their televisions.
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In order to take full advantage of the potential of its new technologies,
CANAL+ has decided to replace all of its digital set-top boxes with new
equipment that CANAL+ calls "net-top boxes," which are capable of accessing the
full range of interactive services that the new technologies can support. The
"net-top boxes" will include two readers into which viewers can place smart
cards, which are credit card-size plastic cards that contain microprocessor
chips. One of the smart card readers will be used for a card that contains
information about the services the subscriber is authorized to receive, which
can be updated remotely when a subscriber decides to change service offerings.
The other reader will be used for bank payment cards equipped with smart card
technology, which is standard in many European countries including France.
CANAL+ expects to complete the roll-out of its net-top boxes by the end of 2001.
INTERNET
CANAL+ became involved in developing online and multimedia services very
early, launching its own internet site in August 1995 (www.canalplus.fr). Prior
to the completion of the merger transactions, Vivendi and CANAL+ will create
VivendiNet to combine their Internet assets. As part of the Vivendi/ CANAL+
transactions, CANAL+'s interest in VivendiNet will be transferred to Vivendi
Universal.
CANAL+ will be a leading supplier of content for the canalplus.fr web site,
Canal Numedia and other potential Internet-related companies of the Vivendi
group, such as Vizzavi, as well as cinema and sports content. In addition,
CANAL+ will be actively involved in internet services through its net-top box
operations and technology, its cable television internet access business and the
web sites of its thematic channels.
SPORTS
In addition to its broadcast of major international sporting events, CANAL+
has a variety of other activities connected to the world of sports. Its
principal other activities include:
- Sports rights management, including management of international
broadcasting rights to matches of the European continents' soccer
leagues.
- Management of sports teams, including the Paris Saint-Germain soccer
team, the only French first division team in Paris and one of the most
popular teams in France, as well as Geneva's Servette soccer team.
- Stadium management, including the management of the Parc de Princes
stadium that is the home stadium of Paris Saint-Germain.
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CANAL+ MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF CANAL+'S OPERATIONS
You should read the following management's discussion and analysis with the
audited consolidated financial statements of CANAL+ and the notes thereto
included elsewhere in this prospectus. The forward-looking statements contained
in this discussion are subject to risks and uncertainties which may affect the
outcome of the predictions contained in these statements. See "Risk Factors" and
"Cautionary Statement Concerning Forward-Looking Statements."
The consolidated financial statements of CANAL+ have been prepared in
accordance with French generally accepted accounting principles which differ in
certain respects from United States generally accepted accounting principles.
For a description of certain differences between CANAL+'s accounting principles
and United States generally accepted accounting principles, see "Financial
Statements -- CANAL+ Financial Statements -- Summary of Certain Differences
Between French GAAP and US GAAP."
OVERVIEW
CANAL+'s results of operations since the beginning of 1997 have reflected
the differences in the maturity levels of its French and international
operations. In France, where CANAL+ has operated since 1984, CANAL+'s business
is relatively mature and has reached the point where it regularly produces
operating profits. In contrast, CANAL+'s international operations are not yet
mature, and many of the international operations incur the operating losses that
would normally be associated with early phase operations. Many of the
international operations, including in particular CANAL+'s operations in Italy,
were acquired as part of the 1997 acquisition of Nethold. After the acquisition,
CANAL+ decided to make substantial investments in premium quality programming
and digital technology internationally. The result has been rapid expansion of
the subscriber base, but not yet to a level that permits CANAL+ to earn
operating profits internationally.
The results of operations of CANAL+ depend largely on revenues, as a
substantial portion of the expenses of CANAL+'s pay television operations
represent costs incurred under long term contracts or depreciation of
investments. Subscription revenues represent the largest share of CANAL+'s
revenues, and are influenced principally by three primary factors:
- growth in subscriptions,
- growth in average revenues per subscriber, and
- churn rate, meaning the percentage of subscriptions at the beginning of
any year that are canceled or not renewed during that year.
In the last three years, subscriptions have grown substantially, from just
over 8 million at January 1, 1997 to more than 13 million at December 31, 1999.
Revenues per subscriber have increased as CANAL+'s digital satellite services
have permitted it to exploit new sources of revenue such as option channel
packages, pay per view and other interactive services. At the end of 1999,
CANAL+ had more than 4 million digital subscriptions, representing almost a
quarter of its total, compared to only 200,000 at the beginning of 1997 and just
over 1 million at the beginning of 1998. CANAL+'s churn rate was 9.3% in 1997,
but was under 9% in 1998 and 1999, a level that management considers
satisfactory.
As an evaluation tool, CANAL+ uses "subscriptions" to measure growth. Many
subscribers have more than one subscription. For example, a subscriber could
subscribe to a digital satellite package and to the CANAL+ premium channel. The
increase in digital subscriptions reflects an increased potential for
subscribers to have multiple subscriptions.
CANAL+'s largest operating cost is the cost of obtaining rights to premium
quality programming. Although programming costs are recorded as part of cost of
sales, a large share of CANAL+'s programming costs do not vary with subscription
levels, and thus are fixed. Other components of cost of
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sales include subscriber acquisition costs (sales commissions and certain
marketing expenses), and various other variable costs such as copyright
royalties and decoder costs.
In addition, most of CANAL+'s depreciation and amortization is recorded
under cost of sales. The largest share is represented by the amortization of
film and television production and acquisition costs, which are amortized in
each year based on the percentage of estimated total revenues from the film or
television production that are earned in that year. The other principal
component of depreciation and amortization is depreciation of decoders, which
are depreciated on a straight-line basis over five years.
CANAL+ has significant investments in affiliates accounted for by the
equity method. Its equity affiliates include primarily its pay television
affiliates in Spain, Poland and the Nordic countries, and its thematic channel
production affiliate, Multithematiques.
RESULTS OF OPERATIONS
The following discussion analyzes the consolidated results of operations of
CANAL+ since January 1, 1997.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Subscriptions to Pay Television Services
The following discussion presents the subscriptions to each of the group's
pay television services, without regard to whether those subscriptions were
realized in fully consolidated subsidiaries or equity affiliates, as well as
subscriptions in the group's largest pay television country, France.
Overall Subscriptions. Subscriptions to CANAL+ group premium channels and
basic cable and satellite packages increased 13.9% from 12,301,320 at June 30,
1999 to 14,016,117 at June 30, 2000. 7,317,516 subscriptions, or 52.2%, were
outside France, as compared with 48.6% at June 30, 1999. Digital subscriptions
increased 44% to 4.5 million. Nearly half of all subscribers had opted for
digital service as of June 30, 2000.
The following table breaks down CANAL+'s subscriptions among the various
pay television offerings of the CANAL+ group as of June 30, 1999 and 2000.
<TABLE>
<CAPTION>
AT JUNE 30
----------------
1999 2000
------ ------
(IN THOUSANDS)
<S> <C> <C>
FRANCE
CANAL+ individual (premium)............................ 4,436 4,539
CANAL+ institutional (premium)......................... 319 339
CANALSatellite (package)............................... 1,196 1,442
NC Numericable (package)............................... 367 378
------ ------
TOTAL FRANCE........................................... 6,318 6,698
------ ------
INTERNATIONAL
Italy.................................................. 1,721 2,277
TELE+ (premium)...................................... 992 1,143
D+ (package)......................................... 475 789
+Calcio (soccer)..................................... 253 345
Spain(1)............................................... 2,397 2,693
CANAL+ (premium)..................................... 1,683 1,789
CANALSATELLITE (package)............................. 714 904
Belgium (French)....................................... 188 201
</TABLE>
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<TABLE>
<CAPTION>
AT JUNE 30
----------------
1999 2000
------ ------
(IN THOUSANDS)
<S> <C> <C>
Belgium (Flemish)...................................... 180 194
CANAL+ (premium)..................................... 159 165
CANAL DIGITAL (package).............................. 20 29
Netherlands............................................ 272 313
Nordic countries(1).................................... 635 815
CANAL+ (premium)..................................... 385 487
CANAL DIGITAL (package).............................. 250 329
Poland(1).............................................. 452 682
CANAL+ (premium)..................................... 300 388
Cyfra+ (package)..................................... 152 293
Africa................................................. 139 142
------ ------
TOTAL INTERNATIONAL.................................... 5,983 7,317
------ ------
TOTAL GROUP.................................. 12,301 14,015
====== ======
</TABLE>
---------------
(1) Operated by an affiliate accounted for by the equity method.
France. The French premium channel had 4,539,306 subscriptions as of June
30, 2000, an increase of 2.3% as compared with June 30, 1999. However, the
overall increase includes a decrease of 0.8% during the first six months of
2000. The increase in subscriptions compared to the number of subscriptions as
of June 30, 1999 occurred in the second half of 1999, which is in line with the
seasonal nature of the acquisition of new subscribers in most markets.
Management believes that the year-on-year increase was also due to new marketing
policies designed to facilitate access of potential subscribers to subscription
forms and packages, as well as a continued low churn rate as a result of
improved sports programming (such as the broadcasting of the Champions' League
and World Rugby Cup), although the churn rate increased slightly compared with
the first half of 1999.
The CANALSATELLITE package had 1,442,325 subscriptions as of June 30, 2000,
an increase of 20.6% from June 30, 1999. Management believes that this increase
was due to the quality of advertising, including a campaign featuring the French
soccer star Zinedine Zidane, as well as the inclusion of new channels and
services in the CANALSATELLITE package (such as horse-race betting and the
interactive game Pikto Rezo).
CONSOLIDATED RESULTS OF OPERATIONS
Revenues
Total revenues increased from E1,547 million in the first half of 1999 to
E1,858 million in the first half of 2000, an increase of 20.1%. This increase
was primarily due to the pay television business, where subscription revenues
rose by 13.6%, from E1,277 million for the first half of 1999 to E1,451 million
for the first half of 2000. Of the total subscription revenues, E710 million
came from the CANAL+ French premium channel, an increase of 4.0% over the first
half of 1999. CANALSATELLITE recorded revenues of E258 million, an increase of
21.7% compared with the first half of 1999. NC NumeriCable's subscription
revenues rose to E66 million, an increase of 7.9% over the first half of 1999.
The subscription revenues of the Italian affiliate Telepiu were E289 million, a
33.2% increase over the first half of 1999. CANAL+'s remaining pay television
activities accounted for E128 million of revenues in the first half of 2000, an
increase of 23.1% over the comparable period in 1999.
Revenue from advertising and sponsorship increased by 45.5% from the first
half of 1999 to the first half of 2000, to E80 million, primarily due to the
general growth of the advertising market. These revenues are generated
principally by the French premium channel and by Telepiu in Italy.
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Revenues from production and rights management increased 63.1% to E199
million, largely due to the increase in revenues from the SPORT+ sports
broadcasting rights business, where revenues amounted to E79 million in the
first half of 2000, compared with E9 million in the first half of 1999. The
remainder of revenues from production and rights management came from
StudioCanal, where revenues increased 6.19% to E120 million. StudioCanal's
revenues were affected by the removal of the television production subsidiary
Ellipse from the scope of consolidation as of April 1, 2000. StudioCanal
contributed Ellipse to the French television production company Expand, in
exchange for 35% of the share capital of Expand, which is now recorded as an
equity affiliate. On a comparable basis (excluding television production)
StudioCanal's revenues increased by 63%, primarily as a result of increased
library sales and film production and distribution.
Operating Income
In the first half of 2000, CANAL+ recorded operating income of E2 million,
down from E42 million in the first half of 1999. The group's gross margin was
E453 million, or 24.4% of revenues, compared with E450 million, or 29.1% of
revenues, in the first half of 1999.
The following table breaks down the operating income and loss of the CANAL+
group by activity:
<TABLE>
<CAPTION>
AT JUNE 30,
----------------
1999 2000
------ ------
(IN MILLIONS OF
EUROS)
<S> <C> <C>
Pay television
- France.................................................. 146 132
- International........................................... (103) (130)
Theme Channels.............................................. (1) (6)
Production and rights management............................ 3 8
Other businesses............................................ (3) (2)
---- ----
Total....................................................... 42 2
==== ====
</TABLE>
PAY TELEVISION
In France, the CANAL+ premium channel recorded operating income of E132
million in the first half of 2000 as compared with E146 million in the first
half of 1999, while CANALSATELLITE recorded operating income of E14 million, up
from E9 million for the comparable period in 1999. The premium channel's
operating income decreased compared with the first half of 1999 due to increased
operating expenses, resulting primarily from growing programming costs, which
was only partially offset by increased subscriber revenue. The increase in
operating expenses in France resulted primarily from additions to sports events
covered. In particular, operating expenses for the first half of 2000 reflected
the impact of first-time Champions' League coverage, the cost of which was
partially offset by improved control of subscription management costs.
Internationally, Telepiu recorded an operating loss of E119 million in the
first half of 2000, an increase of E34 million over the first half 1999 level of
E85 million, despite a 33% revenue increase at Telepiu. The increase was due
principally to high operating expenses, reflecting for the first time the impact
of the soccer broadcasting rights agreement signed in July 1999, as well as the
introduction of RAI's theme channels in the same month. First half 2000
operating losses from the other international pay television channels decreased
by E5 million overall compared with the first half of 1999.
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PRODUCTION AND RIGHTS MANAGEMENT
This division consists primarily of StudioCanal and SPORT+. StudioCanal's
operating income in the first half of 2000 amounted to E5 million, and can be
analyzed as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, %
1999 2000 CHANGE
-------- -------- ------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
REVENUES
Film Production and Distribution......................... 72 120 66
Television Production.................................... 52 17 (67)
Other.................................................... 6 7 17
--- --- ----
TOTAL REVENUES........................................... 130 144 11
--- --- ----
EXPENSES
Operating Costs.......................................... 48 48 --
Depreciation and Provisions.............................. 58 73 26
Structural Costs......................................... 20 18 (10)
--- --- ----
TOTAL EXPENSES........................................... 126 139 10
--- --- ----
Operating income......................................... 4.2 4.9 16.6
</TABLE>
Due to differences in accounting methods, of the E5 million in operating
income generated by StudioCanal, only E4 million was recorded in CANAL+'s
consolidated income statement. SPORT+ contributed operating income of E4 million
to the Production and Rights Management division.
EBITDA
EBITDA decreased by 1.3% to E222 million in the first half of 2000,
primarily as a result of the decrease in operating income. See "-- Year ended
December 31, 1999 compared With Year Ended December 31, 1998 -- EBITDA" for an
explanation of the term "EBITDA." EBITDA from French pay television activities
decreased from E244 million in the first half of 1999 to E232 million in the
first half of 2000. International operations generated negative EBITDA of E79
million in the first half of 2000, compared to E69 million in the first half of
1999. EBITDA from production and rights management increased from E54 million in
the first half of 1999 to E71 million in the first half of 2000.
Net Financial Income
Net financial income amounted to E4 million, as compared with a net
financial charge of E6 million in the first half of 1999. Financial income in
the first half of 2000 included E23 million from the conversion of bonds
exchangeable for Mediaset shares, in addition to a capital gain of E19 million
from the sale of shares of Vivendi that CANAL+ acquired in 1999.
Interest and related expenses totaled E55 million in the first half of
2000, compared to E40 million in the first half of 1999, reflecting the increase
in net debt to E2.4 billion at June 30, 2000, from E1.9 billion at June 30,
1999.
Income Taxes
Income taxes amounted to E54 million in the first half of 2000, an increase
of 68.8% over the first half of 1999. The increase resulted principally from the
fact that the recognition of deferred taxes was limited to certain international
tax losses due to uncertainties as to whether the remaining international losses
could be used.
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Losses from Equity Affiliates
Losses from equity affiliates increased to E46 million in the first half of
2000, from E36 million for the first half of 1999. Most of these losses relate
to pay television businesses outside France, notably in Spain and Poland. Other
losses were related to investments to develop Internet services, with the
first-time consolidation of CANALNumedia in the first half of 2000.
Net Exceptional Income
Net exceptional income in the first half of 2000 was E205 million, as
compared with a net exceptional charge of E10 million for the comparable period
in 1999. Net exceptional income included capital gains of E43 million on the
sale of CANAL+'s 24.9% interest in the German channel Vox and E80 million on the
sale of 4% of CANALSATELLITE to an affiliate of Lagardere, which altogether
acquired a 34% interest through a series of related transactions. Another
Lagardere affiliate also subscribed to a capital increase of Multithematiques,
resulting in a dilution gain of E21 million. A public offering of shares in
StudioCanal also resulted in a dilution gain of E71 million.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
SIGNIFICANT ONE-TIME EVENTS
Consolidation of Telepiu
In late 1997, CANAL+ acquired majority control of Telepiu, which operates
the group's Italian pay television activities, after having acquired a 45%
interest as part of the Nethold acquisition. When CANAL+'s Board of Directors
approved the 1998 consolidated financial statements for presentation to the
CANAL+ shareholders meeting, CANAL+ intended to reduce its interest in Telepiu
so that it would no longer have majority control, and as a result accounted for
Telepiu as an equity affiliate. In 1999, CANAL+ changed its intention, and
increased its interest in Telepiu from 90% to 99%. For this reason, Telepiu
became a consolidated subsidiary of CANAL+ in 1999. For purposes of
comparability, CANAL+ has restated its 1998 financial statements so as to fully
consolidate the results of operations of Telepiu. The restatement had no effect
on the group's results or shareholders' equity.
Provision for Replacement of Decoders
CANAL+'s net income in 1999 reflects in part an exceptional provision
relating to management's decision to replace all digital decoders with new
generation "net-top boxes" that provide a complete range of interactive
services, including internet access. The provision, which is recorded primarily
as an exceptional charge and is in the amount of E220 million, reflects the
impact on income after tax and minority interests of the write-off of the
unamortized portion of the cost of CANAL+'s existing generation of digital
decoders.
SUBSCRIPTIONS TO PAY TELEVISION SERVICES
The following discussion presents the subscriptions to each of the group's
pay television services, without regard to whether those subscriptions were
realized in fully consolidated subsidiaries or in equity affiliates, as well as
subscriptions in the group's three largest pay television countries, France,
Italy and Spain. The Spanish operations are conducted through an affiliate
accounted for by the equity method.
Subscriptions to CANAL+ group premium channels and basic cable and
satellite packages totaled 13,628,050 at December 31, 1999 versus 11,617,923 as
of December 31, 1998, an increase of 17.3%. 6,972,450 subscriptions were outside
France at the end of 1999, representing the first time in CANAL+'s history that
international subscriptions exceeded French subscriptions.
311
<PAGE> 319
The following table breaks down CANAL+'s subscriptions among the various
pay television offerings of the CANAL+ group as of the end of 1998 and 1999.
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
FRANCE
CANAL+ individual (premium)................................. 4,442 4,577
CANAL+ institutional (premium).............................. 302 332
CANALSATELLITE (package).................................... 1,108 1,374
NC NUMERICABLE (package).................................... 355 373
------ ------
TOTAL FRANCE................................................ 6,207 6,656
------ ------
INTERNATIONAL
Italy....................................................... 1,510 2,144
TELE+ (premium)........................................... 966 1,133
D+ (package).............................................. 348 697
+Calcio (soccer).......................................... 196 315
Spain(1).................................................... 2,193 2,580
CANAL+ (premium).......................................... 1,594 1,766
CANALSATELLITE (package).................................. 599 813
Belgium (French)............................................ 177 203
Belgium (Flemish)........................................... 171 192
CANAL+ (premium).......................................... 159 166
CANAL DIGITAL (package)................................... 12 25
Netherlands................................................. 270 293
Nordic countries(1)......................................... 606 783
CANAL+ (premium).......................................... 376 472
CANAL DIGITAL (package)................................... 230 310
Poland(1)................................................... 335 627
CANAL+ (premium).......................................... 275 358
Cyfra + (package)......................................... 60 269
Africa...................................................... 148 150
------ ------
TOTAL INTERNATIONAL......................................... 5,410 6,972
------ ------
TOTAL GROUP....................................... 11,617 13,628
====== ======
</TABLE>
---------------
(1) Operated by an affiliate accounted for by the equity method.
The increase in digital subscriptions was greater than the increase in
overall subscriptions in 1999. At the end of 1999, digital subscriptions of
4.013 million represented an increase of 58% compared with the year end 1998
figure of 2.543 million.
France
The French premium pay television channel CANAL+ finished 1999 with nearly
4.6 million subscriptions, more than a quarter of them digital. A total of
523,957 new subscriptions were recorded over the year, which is the highest
annual level for ten years. Management believes that the increase in
subscriptions was due principally to the coverage of new sports events, like the
soccer Champions' League since September, in addition to the two matches of the
French National Soccer Championship that CANAL+ normally covers, and the
retransmission of the Rugby World Cup. The growth was also influenced by
CANAL+'s new self-service subscription package in large French supermarkets,
which made decoders available on supermarket shelves. Net growth in
subscriptions (new subscriptions less canceled and non-renewed subscriptions) of
135,034 in 1999 was at a higher level than the 1998 figure of 133,510.
312
<PAGE> 320
At December 31, 1999, the CANALSATELLITE package had 1,373,934
subscriptions, representing net growth since December 31, 1998 of 265,498.
Management believes that the increase was due in part to a new marketing
campaign involving the French soccer star Zinedine Zidane, as well as the launch
of a new network action game and Mini Mail, the first e-mail service among
subscribers.
Italy
Subscriptions grew strongly in Italy in 1999, with a net increase of
634,000 subscriptions, representing an increase that was 62% higher than the net
growth in 1998. The bulk of the growth came from digital subscriptions. At
December 31, 1999, Telepiu had 962,000 digital subscribers, double the number of
the previous year, making Italy the second largest digital television market in
continental Europe. Management believes that the success of the digital package
was due to the improved quality and diversity of the channel offering. In 1999,
new exclusive theme channels were added to the digital package, including six
channels produced by RaiSat, an affiliate of the Italian state owned broadcaster
RAI, Wish Line, a luxury channel, and Milan Channel, devoted entirely to the
Milan AC soccer club.
Spain
CANAL+ owns a 19.75% interest in its Spanish pay television affiliate,
Sogecable, and as a result accounts for Sogecable under the equity method.
Sogecable operates the premium channel CANAL+ Espana, and the CANALSATELLITE
Digital satellite service.
In 1999, subscriptions to the Spanish premium channel grew on a net basis
by 173,000, compared to a net growth of 129,000 in 1998. As a result, total
subscriptions to the premium channel reached 1.766 million at the end of 1999.
CANALSATELLITE digital subscriptions grew by 214,000, to reach 813,000 at the
end of 1999. The digital package added the film channel TCM, the Wish Line
channel devoted to luxury products and a multiplexed version of the music
channel MTV. CANALSATELLITE Digital also introduced interactive banking services
in 1999, starting with the home banking service Canal BBV in June, which allows
subscribers to consult their bank accounts using their set top boxes.
CONSOLIDATED RESULTS OF OPERATIONS
Revenues
Total revenues increased from E2,838 million in 1998 (on a restated basis)
to E3,291 million in 1999, an increase of 16%. The largest increase came from
growth in subscription revenues. The following table breaks down CANAL+'s 1998
and 1999 revenues by principal category.
<TABLE>
<CAPTION>
1998 %
RESTATED 1999 CHANGE
-------- ----- ------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Subscriptions...................................... 2,253 2,613 16
Advertising and sponsorship........................ 94 106 13
Production and management of rights................ 327 365 12
Other businesses................................... 164 207 26
-------- ----- --
Total.............................................. 2,838 3,291 16
======== ===== ==
</TABLE>
More than one third of CANAL+'s subscription revenues came from the CANAL+
French premium channel, which recorded subscription revenues of E1,372 million,
an increase of 5% compared with 1998. The CANALSATELLITE digital service
recorded the most significant growth in France, with revenues of E446 million
representing a 43% increase compared with 1998. NC NumeriCable's subscription
revenues were E125 million, an increase of 7% over the 1998 level. In Italy,
Telepiu's subscription revenues of E453 million were 36% higher than its 1998
subscription revenues. The pay television activities in the Benelux countries
and in Scandinavia recorded subscription revenues of E208 million in 1999, or
19% more than 1998.
313
<PAGE> 321
Advertising and sponsorship revenues included primarily sales for the
French premium channel, which totaled E80 million in 1999. The increase in
overall advertising and sponsorship revenues was due principally to an increase
in rates at the French premium channel.
Revenues from production and management of rights consisted primarily of
revenues from the businesses that now form the bulk of StudioCanal. These
businesses generated revenues of E292 million in 1999, consisting of E94 million
of revenues from film library sales, E90 million from film production and E89
million from television production. In 1998, library sales were E116 million,
film production revenues were E66 million and television production revenues
were E119 million.
Revenues from sports rights management were E73 million in 1999, which
included primarily the sales of international television rights to the Italian
soccer championship (A Series) and to the English Premier League. In 1998,
CANAL+ did not record revenues from sports rights management separately.
Operating Loss and Expenses
In 1999, CANAL+ recorded an operating loss of E23 million, compared to a
restated operating loss of E96 million in 1998. The operating loss was generated
principally in the international pay television operations, while the French pay
television operations recorded operating income. The group's gross margin in
1999 was E813 million, or 24.7% of revenues, compared with the 1998 restated
gross margin of E649 million, or 28% of revenues.
The following table breaks down the operating income and loss of the CANAL+
group by activity.
<TABLE>
<CAPTION>
1998
RESTATED 1999
-------- ----
(IN MILLIONS OF
EUROS)
<S> <C> <C>
Pay television
- France.................................................. 148 209
- International........................................... (237) (237)
Theme channels(1)........................................... (5) (6)
Production and management of rights......................... 3 16
Other businesses............................................ (5) (5)
---- ----
Total....................................................... (96) (23)
==== ====
</TABLE>
---------------
(1) Excludes theme channels of Multithematiques, as Multithematiques is
accounted for under the equity method.
PAY TELEVISION
In France, the premium pay television channel CANAL+ recorded operating
income of E231 million in 1999, while CANALSATELLITE recorded an operating loss
of E17 million in 1999. These figures represent a slight improvement for the pay
television channel compared with 1998, and a significant improvement for
CANALSATELLITE, which recorded an operating loss of E72 million in 1998.
314
<PAGE> 322
French Premium Pay Television Channel. The following table shows the
principal components of the changes in the operating income of the French
premium pay television channel:
<TABLE>
<CAPTION>
%
1998 1999 CHANGE
----- ----- ------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
REVENUES
Subscription revenues............................... 1,308 1,372 5
Advertising & sponsorships.......................... 76 81 7
Other............................................... 11 13 18
----- ----- ---
TOTAL REVENUES...................................... 1,396 1,466 5
----- ----- ---
Revenues from intragroup sales...................... 7 3 (57)
----- ----- ---
OPERATING EXPENSES
Variable costs...................................... 285 282 (1)
Subscriber recruitment costs........................ 21 24 14
Programs............................................ 614 659 7
Broadcasting........................................ 61 57 (7)
Structural costs.................................... 201 216 7
----- ----- ---
TOTAL OPERATING EXPENSES............................ 1,173 1,236 5
===== ===== ===
Operating income.................................... 231 234 1
===== ===== ===
EBITDA(1)........................................... 323 312 (3)
===== ===== ===
</TABLE>
---------------
(1) See "-- EBITDA" for a definition of this term and a discussion of its use.
For 1999, subscription revenues at the French premium channel grew by 5%,
resulting from an increase of 3.1% in the number of subscriptions and an
increase in the subscription fee from FRF 175 to 179 on February 1, 1998. The
impact of the subscription fee increase was not complete until February 1, 1999,
as the increase did not take effect until the expiration of then existing
subscriptions. Other revenues consisted mainly of program sales and re-billing
of charges to affiliates. For example, CANAL+ provides various services to
CANALSATELLITE, principally in the area of subscription management such as the
telephone customer service center, distribution network, sales force and data
processing.
Operating expenses remained essentially constant as a percentage of
revenues in 1998 and 1999, standing at 84.3% of revenues in both years. This
reflected a reduction in depreciation of analog decoders (included in variable
costs), which offset an increase in the cost of programs of E45 million, which
was due principally to an 8% increase in film acquisition costs arising from the
channel's license requirements, and the acquisition of the rights to the
Champion's league soccer match.
315
<PAGE> 323
CANALSATELLITE. The following table shows the principal components of the
changes in the operating income of CANALSATELLITE in 1999:
<TABLE>
<CAPTION>
%
1998 1999 CHANGE
---- ---- ------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
REVENUES
Subscriptions.......................................... 312 447 43
Other.................................................. 27 41 52
--- --- ---
TOTAL REVENUES......................................... 339 488 44
--- --- ---
Revenues from intragroup sales......................... 13 16 23
--- --- ---
OPERATING EXPENSES
Variable costs......................................... 113 139 23
Subscriber recruitment costs........................... 34 28 (18)
Programs............................................... 181 236 30
Distribution........................................... 28 36 29
Structural costs....................................... 55 65 18
--- --- ---
TOTAL OPERATING EXPENSES............................... 411 504 22
=== === ===
OPERATING LOSS......................................... (72) (17) 76
=== === ===
EBITDA(1).............................................. (7) 79 --
=== === ===
</TABLE>
---------------
(1) See "-- EBITDA" for a definition of this term and a discussion of its use.
Subscription revenues for CANALSATELLITE, up 43%, were due to a 32%
increase in subscriptions, an increase in the proportion of higher priced
subscriptions chosen by customers, and growth in pay-per-view sales. In
addition, subscription revenues increased as a result of the full-year impact of
a 1998 rate increase.
The reduction in the operating loss of CANALSATELLITE is due principally to
the increase in revenues, which more than offset the increase in most categories
of operating expenses.
International. Internationally, Telepiu, CANAL+ Nordic and CANAL+ Benelux
recorded operating losses of, respectively, E187 million, E26 million and E20
million. The operating losses of Telepiu were E41 million higher than those of
1998, while losses from Scandinavia and the Benelux countries were reduced by
E38 million.
316
<PAGE> 324
The CANAL+ group's largest international operations are conducted in Italy
through Telepiu. The following table sets forth the principal components of the
operating loss of Telepiu for 1998 and 1999.
<TABLE>
<CAPTION>
1998 1999 %
----- ----- ----
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
REVENUES............................................... 364 509 40
Subscriptions.......................................... 332 453 36
Other.................................................. 32 56 75
---- ---- ---
TOTAL REVENUES......................................... 364 509 40
---- ---- ---
Revenues from intra-group sales........................ 1
---- ---- ---
OPERATING EXPENSES
Variable costs......................................... 54 93 72
Subscriber recruitment costs........................... 25 31 24
Programs............................................... 279 370 33
Distribution........................................... 56 63 13
Structural costs....................................... 97 139 43
---- ---- ---
TOTAL OPERATING EXPENSES............................... 510 696 36
==== ==== ===
OPERATING INCOME....................................... (146) (187) (28)
==== ==== ===
EBITDA................................................. (114) (120) (5)
==== ==== ===
</TABLE>
---------------
(1) See "-- EBITDA" for a definition of this term and a discussion of its use.
The increase in revenues resulted from increased subscriptions, a favorable
change in the product mix from analog terminals to digital, and the launch of
pay-per-view service in 1999. The increase in costs resulted principally from
new decoders for digital services, which increased depreciation and
transportation costs, both of which are included in variable costs. The
introduction of new theme channels and the renewal of rights to the Italian
soccer championship and the Champions' League resulted in the increase in
programming costs.
PRODUCTION AND RIGHTS MANAGEMENT
Production and rights management operations were conducted in 1999
primarily through StudioCanal, which was created in December 1998 through the
contribution by CANAL+ of its film and television production businesses to
StudioCanal, the subsidiary that managed the group's film library. The following
table sets forth the principal components of the operating income of StudioCanal
for 1999 and of the entities that currently form StudioCanal, on a pro forma
basis, as if their combination had been effective as of January 1, 1998, for
1998.
317
<PAGE> 325
<TABLE>
<CAPTION>
1998 %
PRO FORMA 1999 CHANGE
--------- ---- -------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
REVENUES
Film Production and Distribution.................. 220 232 5
Television Production............................. 125 92 (26)
Other............................................. 19 15 (21)
--- --- ---
TOTAL REVENUES.................................... 363 339 (7)
--- --- ---
Of which revenues from intragroup sales......... 37 48 30
--- --- ---
EXPENSES
Operating costs................................... 118 104 (12)
Depreciation and provisions....................... 192 178 (7)
Structural costs.................................. 36 36 --
--- --- ---
TOTAL EXPENSES.................................... 346 318 (8)
=== === ===
OPERATING INCOME.................................. 17 21 24
=== === ===
EBITDA............................................ 214 201 (6)
=== === ===
</TABLE>
---------------
(1) See "-- EBITDA" for a definition of this term and a discussion of its use.
The production and distribution of films includes the activities of
production, co-production and distribution of new films, as well as the
management of StudioCanal's film library. Revenues from new film production
increased by E24 million in 1999 compared with 1998, while revenues from library
management declined. The reduction in revenues from television production was
due principally to the transfer to Multithematiques of theme channel production
activities previously undertaken for Multithematiques.
Operating and production costs include primarily royalty payments and
production costs, which were reduced when the theme channel production
activities were transferred to Multithematiques. The decrease in amortization is
related to the drop in revenues from the production of animated features, which
typically are amortized quickly.
EBITDA
EBITDA is earnings before interest, taxes, depreciation and amortization,
where earnings are operating income. CANAL+ uses EBITDA as an analytical tool
because it is commonly used by investors and analysts to provide a consistent
measure to analyze and compare companies on the basis of operating performance.
EBITDA should not be considered as an alternative to net income (determined in
accordance with French generally accepted accounting principles) as an
indication of financial performance or to cash flow from operating activities
(determined in accordance with French generally accepted accounting principles)
as a measure of liquidity.
318
<PAGE> 326
EBITDA increased by E100 million, from E323 million (on a restated basis)
in 1998 to E423 million in 1999. The following table breaks down CANAL+'s EBITDA
by business line:
<TABLE>
<CAPTION>
1998
RESTATED 1999
-------- ----
(IN MILLIONS OF
EUROS)
<S> <C> <C>
Pay television
- France.................................................... 325 403
- International............................................. (188) (157)
Theme channels.............................................. (5) (3)
Production and rights management............................ 193 178
Other businesses............................................ (2) 2
---- ----
Total....................................................... 323 423
==== ====
</TABLE>
Net Financial Charges
CANAL+'s net financial charges amounted to E40 million, compared with E38
million on a restated basis in 1998. The 1999 figure includes gains of E32
million resulting from the exchange of CANAL+ bonds exchangeable for shares of
the Italian television company Mediaset SpA. In 1998, net financial charges
included E23 million of dividends received from Havas, which CANAL+ subsequently
transferred to Vivendi.
Interest and related expenses totaled E82 million in 1999, an increase from
E74 million in 1998. The increase resulted from an increase in consolidated
indebtedness, which was E2,346 million at the end of December 1999 and E1,665
million at the end of December 1998. A portion of the increase also resulted
from an increase in average interest rates from 3.98% in 1998 to 4.15% in 1999.
Income Taxes
In 1999, CANAL+ recorded an income tax charge of E27.4 million, compared
with a credit of E9 million on a restated basis in 1998. The reason was
principally that French operating income, which increased, is taxable at a 40%
rate, while credits for losses from international operations are recorded at an
effective rate of 21%.
Losses from Equity Affiliates
Losses from equity affiliates increased from E64 million on a restated
basis in 1998, to E70 million in 1999. The following table breaks down the sales
of equity affiliates and CANAL+'s portion of the net income of such equity
affiliates by business line.
<TABLE>
<CAPTION>
CANAL+ SHARE
REVENUES OF NET LOSS(%)
----------------- ----------------
1998 1998
RESTATED 1999 RESTATED 1999
-------- ----- -------- ----
(IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C>
Pay television
- France.................................. -- -- (1) (1)
- International........................... 866 1,123 (49) (53)
Theme Channels............................ 299 358 (12) (7)
Production and Rights Management.......... 15 3 (3) (1)
Other businesses.......................... 113 161 1 (8)
----- ----- --- ---
Total..................................... 1,293 1,645 (64) (70)
===== ===== === ===
</TABLE>
319
<PAGE> 327
The increase in the loss from equity affiliates resulted principally from
international activities, particularly in Poland. The following table breaks
down CANAL+'s share of the net losses of equity affiliates by country.
<TABLE>
<CAPTION>
1998
RESTATED 1999
-------- ----
(IN MILLIONS OF
EUROS)
<S> <C> <C>
Poland...................................................... (12) (25)
Spain....................................................... (16) (12)
Nordic countries............................................ (15) (12)
Other....................................................... (6) (4)
--- ---
Total....................................................... (49) (53)
=== ===
</TABLE>
The increase in the net loss in Poland reflects the first full year of
operations of the Cyfra+ digital satellite service. This was partially offset by
a reduction in the net loss in Spain, which resulted from an increase in
subscriptions to the Spanish premium channel and in average revenue per
subscriber.
Net losses of the theme channel equity affiliate Multithematiques declined
from E12 million in 1998 to E7 million in 1999, reflecting a 17% increase in
revenues and essentially stable operating costs. The number of subscribers of
Multithematiques theme channels increased from 10 million at the end of 1998 to
13.5 million.
Other losses from equity affiliates reflected primarily CANAL+'s 18.3%
interest in the internet company AOL France, which was initially recorded as an
equity affiliate at the end of 1998.
Net Exceptional Charges
Net exceptional charges in 1999 were E183 million. The principal reason for
this charge was the exceptional provision of E220 million (net of taxes)
resulting from the change from current generation digital set top boxes to new
"net-top boxes." This charge was partially offset by income of E88 million
resulting from the initial public share offering of Sogecable. In 1998, CANAL+
recorded net exceptional income of E144 million, reflecting E45 million from the
disposal of CANAL+'s interest in Havas, and E81 million from the sale of a
portion of CANAL+'s stakes in CANALSATELLITE and NC NumeriCable.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
CHANGES IN SCOPE OF CONSOLIDATION
NC Numericable, which was accounted for by the equity method in 1997, was
fully consolidated in 1998. In addition, the results of operations of CANAL+
Benelux, CANAL+ Nordic and Telepiu, which were taken into account, either on the
basis of full consolidation or the equity method, were consolidated for nine
months in 1997, and for the full year in 1998.
In 1997 (for nine months) and in 1998, Telepiu was an affiliate accounted
for under the equity method. Its results of operations were not fully
consolidated with those of CANAL+ until 1999. In the discussion below, the
historical results of operations for 1997 and 1998 are compared. In the
discussion of the results of operations for 1998 and 1999, the restated results
of operations were generally used for 1998. As a result, some of the 1998
figures presented below differ from the comparable provisions of the discussion
of the results of operations for 1998 and 1999.
320
<PAGE> 328
CONSOLIDATED RESULTS OF OPERATIONS
Revenues
Consolidated revenues rose by 19 percent in 1998 to E2,474.9 million. On a
constant consolidation basis, the growth in revenues was 12 percent. Revenues
broken down by business segment are as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
(E MILLIONS)
<S> <C> <C>
Pay television
- France............................................... 1,536.7 1,865.9
- International........................................ 138.7 206.4
Theme channels.............................................. 1.1 5.0
Film and television production and distribution............. 305.1 327.3
Other....................................................... 90.2 70.3
TOTAL............................................. 2,071.8 2,474.9
</TABLE>
French pay television revenues included the revenues of the CANAL+ premium
channel (up four percent to E1,418.8 million), the CANALSATELLITE digital
service (up 91 percent to E326.6 million) and the NC Numericable French cable
operator (E120.3 million, without any comparable 1997 figure, as NC Numericable
was recorded as an equity affiliate in 1997). Excluding NC Numericable, French
subscription revenues grew by 13 percent, an increase that was greater than the
9 percent growth in the subscriber base. This was due primarily to an increase
in average revenue per subscriber at CANALSATELLITE.
Foreign pay television revenues include the revenues of pay television
channels in the Benelux countries, the Nordic countries and Africa. Based on
comparable scope of consolidation, the increase from 1997 to 1998 was 16
percent. The largest international pay television operations, including those in
Italy and Spain, were conducted through equity affiliates.
Revenues from film and television production and distribution, which
increased by 7 percent, were generated primarily by companies that are now part
of StudioCanal.
Operating Income
Operating income totaled E50.6 million in 1998, compared to E21.8 million
in 1997. Based on comparable scope of consolidation, operating income in 1998
amounted to E87.7 million. The breakdown by business segment was as follows:
<TABLE>
<CAPTION>
1997 1998
----- -----
(E MILLIONS)
<S> <C> <C>
Pay television
- France............................................... 141.5 148.0
- International........................................ (87.0) (90.7)
Theme channels.............................................. (9.2) (5.0)
Film and television production and distribution............. (14.8) 3.3
Other....................................................... (8.7) (5.0)
TOTAL............................................. 21.8 50.6
</TABLE>
Within French pay television operations, the significant reduction in the
operating loss of CANALSATELLITE, to E72.1 million in 1998 from E103.2 million
in 1997, more than offset flat operating income at the French premium channel
and the E10.4 million operating loss of NC Numericable, which CANAL+ acquired in
1997. NC Numericable's operations and marketing structure continued to be
extensively reorganized in 1998, with the goal of significantly cutting costs
and allowing the company to meet its objective of reaching break-even by 2000.
321
<PAGE> 329
The operating losses of the international pay television operations were
reduced compared with 1997. However, their negative contribution to consolidated
operating income increased slightly, because they were consolidated over the
full year versus only nine months in 1997.
Film and television production and distribution earned positive operating
income in 1998 after recording an operating loss in 1997, for two principal
reasons. First, this segment recorded significant one time write downs of
broadcasting rights in 1997, which did not recur in 1998. Second, there were
several successful film and television productions in 1998 that produced better
results in 1998 than in 1997.
The changes in operating income were reflected in EBITDA, which rose 19
percent to E437.1 million from E368.3 million in 1997.
EBITDA
<TABLE>
<CAPTION>
1997 1998
----- -----
(E MILLIONS)
<S> <C> <C>
Pay television
- France............................................... 279.8 325.5
- International........................................ (68.3) (74.4)
Theme channels.............................................. (6.4) (5.0)
Film and television production and distribution............. 169.8 193.1
Other....................................................... (6.6) (2.1)
----- -----
TOTAL............................................. 368.3 437.1
</TABLE>
EBITDA of the film and television production and distribution segment is
calculated after deduction of amortization and write downs of film and
broadcasting rights, which CANAL+ records as part of cost of sales in its
consolidated income statement. If these charges had been treated as operating
expenses rather than depreciation charges, consolidated EBITDA would have
amounted to E236.9 million in 1998, compared with E188.6 million in 1997,
representing an increase of 25.6 percent, and film and television production and
distribution division EBITDA would have been E16.3 million in 1998, compared
with E13.6 million in 1997.
Net Financial Charges
In 1998, CANAL+ had net interest expense of E2.7 million, down from E8.5
million in 1997. Interest charges increased significantly, to E32.2 million from
E5 million, due to the increase in average borrowings. This was partially offset
by higher dividend income received on Havas shares (E22.7 million versus E4.9
million) prior to their sale.
Income Taxes
Income tax charges were E31.3 million in 1998, compared with E27.4 million
in 1997. The exceptionally high effective tax rates -- 65.2 percent in 1998 and
90.5 percent in 1997 -- reflect the difference between the 41.67 percent tax
rate paid on French income and the 21 percent tax relief obtained on the losses
of foreign subsidiaries.
Losses from Equity Affiliates
Losses from equity affiliates were E123.5 million in 1998, compared with
118.2 million in 1997. Losses from equity affiliates come primarily from
international pay television operations, as well as the international theme
channel activities of Mutithematiques. In Spain, a new marketing policy to
promote digital subscriptions, implemented in 1997, and the 1998 renewal of
soccer match rebroadcast rights weakened 1998 results. In addition, in 1998
digital broadcasting was launched in Poland, Belgium and the
322
<PAGE> 330
Nordic countries. The following table breaks down by principal business line the
revenues of CANAL+'s equity affiliates as well as CANAL+'s share of the losses
or income of such affiliates.
<TABLE>
<CAPTION>
GROUP SHARE OF
REVENUES LOSSES
------------------ ----------------
1997 1998 1997 1998
------- ------- ------ ------
(E MILLIONS)
<S> <C> <C> <C> <C>
Pay television
- France.......................................... 121.6 0.3 (9.0) (0.6)
- International................................... 975.7 1,236.2 (91.2) (108.5)
Theme channels......................................... 244.2 298.8 (9.5) (11.6)
Film and television production and distribution........ 11.1 15.1 (2.1) (3.3)
Other.................................................. 135.4 112.7 (6.4) 0.5
------- ------- ------ ------
TOTAL........................................ 1,488.0 1,663.1 (118.2) (123.5)
</TABLE>
Net Exceptional Income
Net exceptional income totaled E76.4 million in 1998, compared to E339.7
million in 1997. In 1998, the sale of part of CANAL+'s interests in NC
Numericable and CANALSATELLITE generated gains of E41.2 million and E41.0
million, respectively. In addition, the sale of Havas shares netted a gain of
E44.7 million. CANAL+ also increased its equity stake in Telepiu from 45% to
90%, and recorded its additional equity share in the losses of Telepiu as an
exceptional expense in the amount of E59.9 million.
LIQUIDITY AND CAPITAL RESOURCES
CANAL+'s principal sources of liquidity are subscriber and other revenues,
as well as debt financing and, to a lesser extent, the sale of minority
interests in affiliates (although those sales typically have occurred for
strategic rather than financial reasons). Since CANAL+'s acquisition of Nethold
in 1997, its consolidated financial indebtedness has increased significantly,
with net financial indebtedness (financial indebtedness less cash and cash
equivalents) standing at E1.2 billion at December 31, 1997, E2.3 billion at
December 31, 1999 and E2.5 billion at June 30, 2000. Prior to the Nethold
acquisition, CANAL+ typically maintained a net cash position. The increase in
indebtedness represents debt inherited from Nethold, as well as new debt
incurred to finance the expansion of CANAL+'s European digital network.
CANAL+'s operations typically generate significant cash flow, even in
periods where it incurs net losses, as those losses are in large part
attributable to significant depreciation charges. In 1999, CANAL+ generated E397
million of cash flow, although its working capital needs increased significantly
due primarily to the increase in value of CANAL+'s programs and broadcasting
rights, which are treated as inventory. As a result, CANAL+ had a net use of
cash in operating activities of E14 million in 1999. In 1998, on a restated
basis, CANAL+ had net cash from operating activities of E142 million. In the
first half of 2000, CANAL+ had a net use of cash in operating activities of E184
million, repeating the pattern of 1999, with a E338 million increase in working
capital requirements offsetting net cash flow from operations of E154 million.
In 1999, CANAL+ used E905 million of cash in investing activities, compared
to E191 million in 1998. The large increase was primarily due to the rapid
expansion of CANAL+'s digital services and its investment in interactive
technology, as well as its investment in new programming rights. In its pay
television business, CANAL+ also invested E223 million to acquire a 14% minority
interest in CANALSATELLITE, and E126 million to acquire a 10% minority interest
in Telepiu. In 1999, CANAL+ had capital investments of E279 million in French
pay television, E233 million in international pay television, E351 million in
programming rights and E139 million in decoders. Except for the decoders, each
of these figures represents a significant increase compared with 1998.
In the first half of 2000, CANAL+ used E204 million in investing
activities. CANAL+ invested E164 million in intangible assets, consisting
principally of audiovisual and sports programming rights, E134
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<PAGE> 331
million in tangible assets, about two-thirds of which consisted of decoders, and
E53 million in financial assets. These were offset by cash inflows of E96
million from the sale of fixed assets, principally financial investments such as
CANAL+'s interests in Vox and Vivendi, as well as E51 million from the sale of
interests in affiliates, principally a 4% interest in Multithematiques.
Net cash from financing activities was E543 million in 1999, compared to
E40 million in 1998. The increase reflected new financial indebtedness, which
increased on a net basis by E480 million in 1999. New borrowings in 1999
included a E305 million receivables securitization by CANAL+, a E103 million
receivables securitization by CANALSATELLITE, a E53 million zero coupon bond
indexed to the share price of CANAL+ and swapped into an interest rate of
EURIBOR less 0.27% and a E245 million share loan transaction that matured on
April 1, 2000, and that has been fully repaid. Telepiu also issued E350 million
of 5.625% bonds to refinance existing indebtedness.
CANAL+ had E717 million of net cash inflows from financing in the first
half of 2000. The inflows consisted primarily of a E513 million net increase in
financial debt, as well as a E198 million capital increase by StudioCanal. The
increase in financial debt resulted principally from a drawdown of short-term
credit facilities, including a E500 million credit line from Vivendi.
CANAL+ anticipates making substantial investments in the next several
years, particularly in connection with the replacement of its current generation
of digital decoders with "net-top" boxes. Before the merger transactions had
been proposed, CANAL+ expected to finance such investments with new debt
financing and the sale of minority interests in subsidiaries. CANAL+ believes
that a significant potential benefit of the merger transactions is that CANAL+
is likely to have greater access to financing as part of the Vivendi Universal
group than is currently the case.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CANAL+ is exposed to the impact of interest rate changes, both because its
indexed bonds are swapped into a rate based on the European Interbank Offered
Rate, and because it seeks short term and long term debt financing in the market
from time to time. Currently, the large majority of CANAL+'s debt financing is
at variable rates.
The large majority of CANAL+'s revenues and expenses are in countries that
have adopted the euro as their currency. From time to time, CANAL+ purchases
programming and film rights in U.S. dollars, and its film and television
production subsidiary, StudioCanal, sells rights to films and television
programming in U.S. dollars.
It is CANAL+'s policy to enter into derivative transactions only to the
extent considered necessary to hedge exposure to changes in interest rates or
other market factors. CANAL+ does not enter into derivative transactions for
speculative purposes.
As of the date of this joint proxy statement-prospectus, an unfavorable
change in interest rates or currency exchange rates of 10% would not have an
impact on the results of operations or financial condition of CANAL+ in an
amount that is material in the context of the merger transactions.
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<PAGE> 332
VIVENDI UNIVERSAL
AND VIVENDI UNIVERSAL EXCHANGECO
VIVENDI UNIVERSAL
Vivendi Universal is a wholly owned subsidiary of Vivendi organized under
the laws of France. Until the merger transactions are completed, Vivendi
Universal will be a non-operating holding company, whose sole function has been
to hold certain investments in other entities that are consolidated by Vivendi.
Its investments primarily consist of 33.82% of CANAL+, which accounts for 89.8%
of its total assets. In the course of the merger transactions, Vivendi will
merge into Vivendi Universal, with Vivendi Universal continuing as the surviving
entity.
Vivendi Universal's board of directors currently consists of 7 directors.
Vivendi Universal does not have any executive officers. The members of Vivendi
Universal's board of directors do not receive any compensation for their
position as directors of Vivendi Universal and do not hold any option to
purchase or to subscribe for shares of Vivendi Universal.
The table below shows the names of Vivendi Universal's current directors
and the dates of their initial appointment to the board and the date of
expiration of their respective terms.
<TABLE>
<CAPTION>
YEAR
INITIALLY YEAR
PRINCIPAL APPOINTED TERM
NAME OCCUPATION OR EMPLOYMENT TO BOARD EXPIRES
---- ------------------------ --------- -------
<S> <C> <C> <C>
Jean-Marie Messier........................ Chairman and Chief Executive 1998 2003
Officer of Vivendi
Agnes Audier.............................. Vice President, Strategy and 1998 2003
Business Development of Vivendi
Philippe Germond.......................... Senior Executive Vice President, 1998 2003
Vivendi Communications
Dominique Gibert.......................... Director of Finance and 1998 2003
Treasury of Vivendi
Etienne Mallet............................ Chief Executive Officer of 1998 2003
Havas Images
Jean-Laurent Nabet........................ Director of Development of Havas 1998 2003
Vivendi represented by Eric Licoys........ 1998 2003
</TABLE>
VIVENDI UNIVERSAL EXCHANGECO
Vivendi Universal Exchangeco is an indirect, wholly-owned subsidiary of
Vivendi and will be an indirect, subsidiary of Vivendi Universal after the
merger transactions. Vivendi Universal Exchangeco has not to date engaged in any
activities other than those incident to its formation and those associated with
the merger transactions. In lieu of receiving Vivendi Universal ADSs in the
merger transactions, Canadian resident Seagram shareholders may elect to receive
exchangeable shares of Vivendi Universal Exchangeco that will be exchangeable
for, and substantially the economic equivalent of, the Vivendi Universal ADSs.
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<PAGE> 333
CHAPTER NINE -- SEAGRAM ANNUAL MEETING INFORMATION
ELECTION OF DIRECTORS OF SEAGRAM
NOMINEES FOR DIRECTOR
The following table contains the principal occupation and certain other
information about the nominees for Seagram's board of directors, based on
information obtained from each nominee. All nominees have been engaged in the
occupation or employment described immediately next to their names for more than
five years, except where indicated.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION SINCE
---- --- ------------------------------------------ --------
<S> <C> <C> <C>
Edgar M. Bronfman.................... 71 Chairman of the Board of Seagram................. 1955
The Honourable Charles R. Bronfman,
P.C., C.C. ........................ 69 Co-Chairman of the Board and Chairman of the
Executive Committee of Seagram. Mr. Bronfman is
also Chairman of Koor Industries Ltd. ........... 1958
Edgar Bronfman, Jr. ................. 45 President and Chief Executive Officer of Seagram.
Mr. Bronfman is also a director of USA Networks,
Inc. ............................................ 1988
Samuel Bronfman II................... 47 President of Chateau & Estate Wines Company (a
division of JES) and, since July 1998, Chairman
of The Seagram Beverage Company (a division of
JES)............................................. 1991
Stephen R. Bronfman.................. 36 Chairman of Claridge SRB Investments Inc. (a
private holding company) since 1998. From July
1995 to March 1999, he was the Deputy Chairman of
Netstar Communications Inc. Previously, he was an
executive with Claridge Properties Ltd........... 1999
Matthew W. Barrett, O.C.............. 56 Group Chief Executive of Barclays PLC (a
financial institution) since October 1, 1999.
From February to July 1999, he was Chairman of
the Board of Bank of Montreal prior to which he
was also Chief Executive Officer. Mr. Barrett is
also a director of Barclays PLC, Barclays Bank
PLC and Molson Inc............................... 1995
Laurent Beaudoin, C.C................ 62 Chairman of the Board and Chairman of the
Executive Committee of Bombardier Inc. (a
transportation, aerospace and motorized products
company) since February 1, 1999. Previously, he
was also Chief Executive Officer of Bombardier
Inc. ............................................ 1997
Cornelis Boonstra.................... 62 Chairman of the Board of Management and President
of Koninklijke Philips Electronics N.V.
("Philips") (an electronics company) since
October 1996. From June 1, 1994, he was Executive
Vice President of Philips and, from July 1, 1994
until April 1, 1995, he was also President and
Chief Executive Officer of Philips Lighting
Holding B.V. Mr. Boonstra is also a director of
Hunter Douglas International, N.V., Koninklijke
Ahdd N.V., Sara Lee/DE N.V. and NBM-Amstelland
N.V. ............................................ 1998
</TABLE>
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<PAGE> 334
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION SINCE
---- --- ------------------------------------------ --------
<S> <C> <C> <C>
Richard H. Brown..................... 53 Chairman of the Board and Chief Executive Officer
of Electronic Data Systems Corporation (an
information technology company) since January 1,
1999. From July 1996 to December 1998 he was
Chief Executive of Cable and Wireless plc. From
May 1995 to July 1996 he served as President and
Chief Executive Officer of H & R Block, Inc. and
from January 1993 to April 1994 he was Vice
Chairman of Ameritech Corporation. Mr. Brown is
also a director of Home Depot Inc. .............. 1997
Andre Desmarais...................... 43 President and Co-Chief Executive Officer of Power
Corporation of Canada (a holding and management
company) and Deputy Chairman of Power Financial
Corporation since May 1996. From May 1994 to May
1996 he was Chairman of Power Pacific Corporation
Limited. Previously, he was President and Chief
Operating Officer of Power Corporation of Canada.
Mr. Desmarais is also a director of Audiofina
S.A., Bombardier Inc., CLT-UFA, Citic Pacific
Limited, Groupe Bruxelles-Lambert S.A.,
Great-West Lifeco Inc., The Great-West Life
Assurance Company, Investors Group Inc., London
Insurance Group Inc. and Pargesa Holding S.A. ... 1997
Barry Diller......................... 58 Chairman and Chief Executive Officer of USA
Networks, Inc. (a diversified media and
electronic commerce company) or its predecessors
since August 1995. Mr. Diller is also a director
of Ticketmaster Online-CitySearch, Inc. and The
Washington Post Company.......................... 1998
Michele J. Hooper.................... 49 Corporate Director since July 2000. Previously
she was President and Chief Executive Officer of
Voyager Expanded Learning (an educational
development company) from August 1999 to July
2000. From July 1998 to November 1998 she was
President and Chief Executive Officer of
Stadtlander Drug Co., Inc. From November 1992 to
June 1998 she served as Corporate Vice President
of Caremark International Inc. She also served as
President of the International Business Group of
Caremark International Inc. from November 1992 to
June 1998. Ms. Hooper is also a director of PPG
Industries and Target Corporation................ 1996
David L. Johnston, C.C. ............. 59 President of University of Waterloo (an
educational institution) since July 1999. From
July 1994 to June 1999 he was Professor of Law at
McGill University. Previously, he was also
Principal and Vice-Chancellor. Mr. Johnston is
also a director of CT Financial Services Inc.,
Emco Limited, The CGI Group Inc and Lifestyle
Furnishings International Ltd. .................. 1987
</TABLE>
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<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION SINCE
---- --- ------------------------------------------ --------
<S> <C> <C> <C>
Marie-Josee Kravis, O.C. ............ 51 Senior Fellow of Hudson Institute Inc. (a
non-profit economics research institute) since
March 1994. Previously, she was Executive
Director of The Hudson Institute of Canada Inc.
Mrs. Kravis is also a director of Canadian
Imperial Bank of Commerce, Compagnie UniMedia
Inc., Hasbro, Inc., Hollinger International Inc.,
Ford Motor Company and StarMedia Network,
Inc. ............................................ 1985
Samuel Minzberg...................... 51 President and Chief Executive Officer of Claridge
Inc. (a management company) since January 1,
1998. Previously, he was a partner and Chairman
of the Montreal office of Goodman Phillips &
Vineberg (attorneys). Mr. Minzberg is also a
director of Koor Industries Ltd., Reitmans
(Canada) Limited and USA Networks, Inc. and is of
counsel to the Montreal office of Goodman
Phillips & Vineberg.............................. 1998
John S. Weinberg..................... 43 Managing Director of Goldman, Sachs & Co.
(investment bankers) since December 1996.
Previously, he was a general partner of Goldman,
Sachs & Co. ..................................... 1995
</TABLE>
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CORPORATE GOVERNANCE
GENERAL
The following is a description of Seagram's governance practices with
reference to the Guidelines set out by The Toronto Stock Exchange.
RESPONSIBILITIES OF THE BOARD OF DIRECTORS
In accordance with Guidelines 1 and 11, Seagram's board of directors is
responsible for the overall stewardship of Seagram and oversees management to
assure protection of shareholder interests. The board expects management to be
responsible for the day-to-day operations of Seagram within the confines of
approved budgets, strategic and annual business plans as well as company
policies and procedures. The board also relies upon management for the
development of the overall corporate and individual business unit strategies.
The board reviews annual business and longer range strategic plans prepared by
management as part of the board's overall evaluation of Seagram's strategic
direction. The duties and objectives of Seagram's board of directors are carried
out directly and through its committees. The mandate of the board includes
responsibility for:
- reviewing the interim and annual financial results and approving the
management proxy circular;
- approving major capital commitments, acquisitions, divestitures and
expenditures;
- approving dividends and certain changes to Seagram's capital structure;
- selecting and evaluating the performance of Seagram's Chief Executive
Officer and other principal officers of Seagram and development, training
and succession planning for senior management;
- identifying the principal risks of Seagram's businesses and ensuring that
management implements appropriate strategies and systems to manage those
risks; and
- assessing the integrity of Seagram's internal controls, including
computer-based systems.
SIZE AND RELATEDNESS
Seagram's board of directors is currently composed of 16 directors since
Robert W. Matschullat retired as Vice Chairman and a director of Seagram on May
31, 2000. If all nominees are elected to the board, the number of directors will
remain at 16. Within the meaning of Guidelines 2 and 3, Seagram's board believes
that 9 of its current directors are "unrelated" to Seagram. An "unrelated"
director is defined as someone who:
- is independent of management; and
- is free from any business or other relationship, which could, or could
reasonably be perceived to, materially interfere with the director's
ability to act with a view to the best interests of Seagram, other than
interests and relationships arising from shareholdings.
Four directors are "related" to Seagram because they are members of
management. These four directors are:
Edgar M. Bronfman
Chairman of the Board
The Honourable Charles R. Bronfman
Co-Chairman of the Board
Edgar Bronfman, Jr.
President and Chief Executive Officer
Samuel Bronfman II
President of Seagram Chateau & Estate Wines Company and
Chairman of The Seagram Beverage Company
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<PAGE> 337
In addition, two directors may be regarded as "related" because they hold
senior positions with companies that have substantial ongoing business
relationships with Seagram. These two directors are:
Barry Diller
Chairman and Chief Executive Officer of USA Networks, Inc.
John S. Weinberg
Managing Director of Goldman, Sachs & Co.
Stephen R. Bronfman also may be regarded as "related" because he is a
relative of certain members of Seagram's management.
Although seven members of Seagram's board of directors may be considered
"related" directors, a majority (12 of 16) of Seagram's directors are not
current officers or employees of Seagram or any of its affiliates and are
therefore "outside" directors as defined in the Guidelines. Seagram's board of
directors believes that all members, regardless of the existence of
relationships to Seagram, exercise independent judgment with a view to the best
interests of Seagram, and Seagram believes that it benefits from the knowledge,
experience and mix of skills which its directors bring to the board. Seagram has
no shareholder who qualifies as a "significant shareholder", which is defined in
the Guidelines as a shareholder with the ability to exercise a majority of the
votes for the election of the board of directors. Information regarding the
shareholdings of the descendants of Samuel Bronfman, Seagram's founder, and
trusts established for their benefit, can be found under "-- Share Ownership of
Management."
Seagram's Chairman of the Board, Edgar M. Bronfman, while separate from
Seagram's Chief Executive Officer, is a "related" director. Mr. Bronfman served
as Seagram's Chief Executive Officer for 19 years and has been a member of
Seagram's board for 45 years. Seagram's board believes that since the founding
family retains substantial shareholdings in Seagram and members of that family
have been, and continue to be, primarily responsible for the management and
development of the business, their depth of experience and commitment, as well
as long-range vision and strategic focus, constitute an invaluable resource that
provides continuity for Seagram. For these reasons, with respect to Guidelines 7
and 12, Seagram's board believes that the composition of the board is both
appropriate and beneficial to Seagram and its shareholders and that Mr. Bronfman
is the most qualified director to act as Chairman.
FUNCTIONING
In accordance with Guideline 4, the executive committee of Seagram's board
of directors performs the functions of a nominating committee for Seagram and
nominates new members capable of contributing to the effectiveness of the board.
Seagram has a formal position description for directors as provided in Guideline
11. When considering candidates for election to the board, experience running a
major business enterprise involved in the global distribution of products or
services, significant managerial leadership, good judgment, business acumen and
board experience with public companies are taken into account. Seagram does not
have a formal process for assessing the effectiveness of the board of directors
as a whole, the committees of the board or the contribution of individual
directors as indicated under Guideline 5. While there are no formal processes
and practices to ensure the independence of Seagram's board from management, as
indicated under Guideline 12, the board has access to information independently
from management through the external auditors.
While Seagram's board of directors has not developed a formal position
description for the Chief Executive Officer, the board, through its Human
Resources Committee, has established corporate objectives for the Chief
Executive Officer and certain portions of the Chief Executive Officer's
compensation are determined with reference to those objectives in accordance
with Guideline 11. For more information concerning compensation see
"-- Executive Compensation." In addition, there is regular discussion at board
and Human Resources Committee meetings regarding achievement by senior
management of corporate and business unit strategic objectives.
In compliance with Guideline 6, education of new directors is provided
through presentations and up-to-date materials which contain basic information
about Seagram and related matters. In addition,
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<PAGE> 338
Seagram board meetings are held at various corporate facilities to provide the
directors with additional insight into Seagram's businesses.
Seagram maintains an active investor relations program as provided in
Guideline 1. The Secretary of Seagram or the Vice President, Investor Relations
of JES, responds to all inquiries from shareholders, the investment community
and the general public. Seagram's board of directors is advised of inquiries
when appropriate. The investor relations program also includes periodic
presentations to the investment community. Seagram's board believes that the
existing program facilitates effective communication with Seagram's
shareholders, the general public and the investment community.
Although there is no formal procedure, as described in Guideline 14, to
enable an individual director to engage an outside advisor, directors may retain
outside advisors from time to time to represent and advise them at Seagram's
expense.
BOARD AND COMMITTEE MEETINGS
During the 2000 fiscal year Seagram's board of directors held eight
meetings and committees of the board held a total of 16 meetings. With the
exception of Cornelis Boonstra, Andre Desmarais and Barry Diller, all directors
attended 75% or more of the meetings of the board of directors and of the
committees of the board on which they served.
COMMITTEES
The four committees of Seagram's board of directors described below assist
the board in carrying out its responsibilities. In accordance with Guideline 3
and with the exception of the Executive Committee, each of the committees is
comprised entirely of "outside" directors, a majority of which are "unrelated".
All of the committees report to the board on a regular basis. Additional
information on each of the committees is set out below in accordance with
Guidelines 9, 10 and 13.
<TABLE>
<S> <C>
Executive Committee.
Members: The Honourable Charles R. Bronfman, Chairman
Edgar M. Bronfman
Edgar Bronfman, Jr.
Matthew W. Barrett
Cornelis Boonstra
Richard H. Brown
Barry Diller
Samuel Minzberg
Relatedness: Five members of the committee are "outside" directors and
four are "unrelated."
Meetings during the
2000 fiscal year: Two
Functions: Exercises all of the powers of Seagram's board of directors
in the management and direction of Seagram's operations,
except acts which by law must be performed by the full board
and matters which the full board retains for itself.
</TABLE>
331
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<TABLE>
<S> <C>
Corporate Governance Committee.
Members: Laurent Beaudoin, Chairman
Stephen R. Bronfman
David L. Johnston
Marie-Josee Kravis
John S. Weinberg
Relatedness: All members of the committee are "outside" directors and
three of the members are "unrelated."
Meetings during the
2000 fiscal year: One
Functions: Develops Seagram's approach to governance issues.
Reviews and assesses Seagram's procedures with respect to a
wide range of governance issues identified in the
Guidelines.
Reviews the form and adequacy of the compensation of
directors.
</TABLE>
<TABLE>
<S> <C>
Human Resources Committee.
Members: Marie-Josee Kravis, Chairman
Laurent Beaudoin
Richard H. Brown
Andre Desmarais
John S. Weinberg
Relatedness: All members are "outside" directors and four are
"unrelated."
Meetings during the
2000 fiscal year: Seven
Functions: Supervises development of management resources.
Reviews the performance and compensation of Seagram's Chief
Executive Officer.
Reviews the annual compensation of all officers of Seagram
and selected officers and employees of subsidiary companies.
Reviews all executive compensation plans and major changes
to existing employee benefit plans.
Reviews the succession plan for senior management.
</TABLE>
<TABLE>
<S> <C>
Audit Committee.
Members: Matthew W. Barrett, Chairman
Michele J. Hooper
David L. Johnston
Samuel Minzberg
Relatedness: All members of the committee are "outside" directors and
"unrelated."
Meetings during the 2000
fiscal year: Five
Functions: Assists Seagram's board of directors in fulfilling its
oversight responsibilities relating to Seagram's auditing,
accounting and external financial reporting practices.
</TABLE>
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<TABLE>
<S> <C>
Recommends the appointment of Seagram's independent accountants, evaluates the
accountants' performance and oversees the independence of the accountants.
Reviews and discusses with management and the independent accountants, Seagram's
annual and quarterly financial statements.
Reviews the planned scope and results of audit examinations by Seagram's
independent accountants and internal auditors.
Reviews Seagram's compliance, business practice, risk management, insurance and
retirement programs and policies.
</TABLE>
AUDIT COMMITTEE REPORT
The Committee has reviewed the audited financial statements of Seagram for
the fiscal year ended June 30, 2000 and discussed them with management and
Seagram's independent accountants, PricewaterhouseCoopers LLP. The Committee
also has discussed with the independent accountants the matters required to be
discussed by the U.S. Statement of Auditing Standards No. 61.
The Committee has received from the independent accountants the written
disclosures and letter required by the U.S. Independence Standards Board
Standard No. 1, and we have discussed the accountants' independence from Seagram
and management with the accountants.
Based on the review and discussions described above, we recommended to the
Board of Directors that Seagram's audited financial statements for the fiscal
year ended June 30, 2000 be included in Seagram's Annual Report on Form 10-K for
that fiscal year.
AUDIT COMMITTEE
Matthew W. Barrett, Chairman
Michele J. Hooper
David L. Johnston
Samuel Minzberg
COMPENSATION OF DIRECTORS
Non-employee directors are paid U.S.$42,500 a year plus a fee of U.S.$1,500
for each board and committee meeting attended. Directors are also reimbursed for
travel expenses incurred in connection with meetings attended. Committee
chairmen receive an additional U.S.$7,500 per year. Directors who are also
Seagram employees do not receive compensation by reason of their membership on,
or attendance at meetings of, the board or its committees. In accordance with
Guideline 8, the board, through it's Corporate Governance Committee,
periodically reviews the form and adequacy of the directors' compensation.
Non-employee directors receive at least 50% of their annual fees in Seagram
common shares or share equivalents pursuant to The Seagram Company Ltd. Stock
Plan for Non-Employee Directors. Under the plan, each non-employee director may
elect to receive either 50% or 100% of his or her annual retainer in Seagram
common shares or deferred share units. If a director elects to receive shares,
his or her annual retainer (net of withholding taxes) is used to purchase shares
for the director on the open market. If a director elects to receive deferred
share units, units representing the value of shares are credited to the
director's account based on the market value of the shares on the annual
crediting date. Deferred share units are paid to the director, along with the
value of dividends as if reinvested in additional shares, after termination of
board service. Payments are made in shares or cash, net of tax withholding,
based on the then market value of the shares. Fees for attending board and
committee meetings and/or for serving as a board committee chairman may also be
received in deferred share units at the election of non-employee directors.
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SHARE OWNERSHIP OF MANAGEMENT
The following table shows the number of shares which each of the directors
of Seagram and nominees for director, each of the persons named in the "Summary
Compensation Table" and the directors and executive officers of Seagram as a
group owned beneficially, or exercised control or direction over, as of October
23, 2000. Each trustee of a trust or a charitable foundation may be deemed to be
the beneficial owner of the shares held by the trust or foundation. Because
certain persons listed below serve as trustees of the same trusts or charitable
foundations, there are substantial duplications in the number of shares and
percentages shown in the table.
<TABLE>
<CAPTION>
DEFERRED
NUMBER PERCENTAGE SHARE
BENEFICIAL OWNER OF SHARES OF SHARES UNITS (1)
---------------- ----------- ----------- ---------
<S> <C> <C> <C>
Edgar M. Bronfman........................................ 62,396,173(2) 14.02% --
The Hon. Charles R. Bronfman, P.C., C.C. ................ 106,528,757(3) 23.94% --
Edgar Bronfman, Jr....................................... 63,685,509(4) 14.23% --
Samuel Bronfman II....................................... 390,314(5) * --
Stephen R. Bronfman...................................... 24,998,760(6) 5.62% 999
Matthew W. Barrett, O.C.................................. 1,000 * 6,279
Laurent Beaudoin, C.C. .................................. -- -- 4,416
Cornelis Boonstra........................................ 1,611 * 347
John D. Borgia........................................... 322,900(7) * --
Richard H. Brown......................................... 1,000 * 4,887
Andre Desmarais.......................................... 5,000 * 2,621
Barry Diller............................................. 1,000(8) * 3,205
Michele J. Hooper........................................ 4,093 * --
David L. Johnston, C.C. ................................. 400 * 6,268
Marie-Josee Kravis, O.C. ................................ 400 * 5,105
Robert W. Matschullat.................................... 1,295,500(9) * --
Brian C. Mulligan........................................ 209,458(10) * --
Samuel Minzberg.......................................... -- -- 4,128
John S. Weinberg......................................... 60,111,104(11) 13.53% 6,549
Directors and executive officers as a group.............. 112,402,446(12) 24.90% 44,804
</TABLE>
---------------
(*) Less than 1%.
(1) See "-- Corporate Governance -- Compensation of Directors" for a
description of the deferred share units under The Seagram Company Ltd.
Stock Plan for Non-Employee Directors.
(2) Includes 58,618,088 shares owned indirectly by the EMBT and 1,486,516
shares owned directly by the PBBT/EMBFT, trusts for which Mr. Bronfman
serves as a trustee, 115,840 shares owned directly by Mr. Bronfman, 696,601
shares issuable upon the exercise of currently exercisable options, 1,840
shares owned by Mr. Bronfman's spouse, 600 shares owned directly by his
children (other than Edgar Bronfman, Jr. and Samuel Bronfman II), and
240,356 shares owned by two charitable foundations of which Mr. Bronfman is
among the trustees. Mr. Bronfman disclaims beneficial ownership of the
foregoing shares, except to the extent of his beneficial interest in the
EMBT and the PBBT/EMBFT and with respect to shares owned directly by him.
In addition, Mr. Bronfman serves as a voting trustee with respect to the
1,236,332 shares subject to the de Gunzburg voting trust agreement with
respect to which Mr. Bronfman disclaims beneficial ownership.
(3) Includes 14,320,000 shares owned directly by the C.BFT, 20,364,000 shares
owned directly by the CRBFT, 5,000,000 shares owned directly by the CB
Family Trust and 1,300,000 shares owned directly by CRB Associates,
entities for which Mr. Bronfman serves as the voting trustee or in which he
has a beneficial interest, 1,000 shares owned directly by Mr. Bronfman,
592,301 shares issuable upon exercise of currently exercisable options,
12,000 shares owned indirectly by Mr. Bronfman's
334
<PAGE> 342
spouse, 24,000 shares owned directly by his daughter, and 3,574,520 shares
owned by four charitable foundations of which Mr. Bronfman is among the
directors or trustees. Mr. Bronfman disclaims beneficial ownership of the
foregoing shares, except to the extent of his beneficial interest in the
foregoing entities and with respect to shares owned directly by him. In
addition, Mr. Bronfman serves as the voting trustee with respect to
60,104,604 shares held by the EMBT and the PBBT/ EMBFT subject to the
Bronfman voting trust agreement and as a voting trustee with respect to
1,236,332 shares subject to the de Gunzburg voting trust agreement with
respect to which Mr. Bronfman disclaims beneficial ownership.
(4) Includes 58,618,088 shares owned indirectly by the EMBT and 1,486,516
shares owned directly by the PBBT/EMBFT, trusts for which Mr. Bronfman
serves as a trustee, 240 shares owned directly by Mr. Bronfman, 3,340,000
shares issuable upon exercise of options which are currently exercisable or
become exercisable within 60 days, 240,000 shares owned by a charitable
foundation of which Mr. Bronfman is among the trustees and 665 shares in
which Mr. Bronfman has an indirect interest through an investment in the
Retirement Savings and Investment Plan for Employees of Joseph E. Seagram &
Sons, Inc. and Affiliates (based on the value of such investment as of
October 23, 2000). Mr. Bronfman disclaims beneficial ownership of the
foregoing shares, except to the extent of his beneficial interest in the
EMBT and the PBBT/EMBFT and with respect to shares owned directly by him.
(5) Includes 240 shares owned directly by Mr. Bronfman, 149,834 shares issuable
upon exercise of currently exercisable options and 240,000 shares owned by
a charitable foundation of which Mr. Bronfman is among the trustees. Mr.
Bronfman disclaims beneficial ownership of the foregoing shares except the
shares owned directly by him.
(6) Includes 20,364,000 shares owned directly by the CRBFT, a trust for which
Mr. Bronfman serves as a trustee, 1,300,000 shares owned directly by CRB
Associates, and 3,334,760 shares owned directly by four charitable
foundations of which Mr. Bronfman is among the directors. Mr. Bronfman
disclaims beneficial ownership of the foregoing shares, except to the
extent of his beneficial interest in the CRBFT and CRB Associates.
(7) These shares are issuable upon exercise of options which are currently
exercisable or become exercisable within 60 days.
(8) These shares are held by Ranger Investments, L.P., a limited partnership in
which Mr. Diller owns a 99% interest.
(9) Includes 100,000 shares owned directly by Mr. Matschullat and 1,195,500
shares issuable upon exercise of options which are currently exercisable or
become exercisable within 60 days. See "-- Executive
Compensation -- Employment, Consulting and Termination Protection
Agreements."
(10) Includes 3,087 shares owned directly by Mr. Mulligan, 402 shares held by a
trustee under the Universal Incentive Program, which will vest April 1,
2001 and 205,949 shares issuable upon exercise of options which are
currently exercisable or become exercisable within 60 days.
(11) Includes 58,618,088 shares owned indirectly by the EMBT and 1,486,516
shares owned directly by the PBBT/EMBFT, trusts for which Mr. Weinberg
serves as a trustee, 1,000 shares owned directly by Mr. Weinberg and 5,500
shares owned by a trust established for the benefit of Mr. Weinberg for
which he serves as a trustee. Mr. Weinberg disclaims beneficial ownership
of the foregoing shares, except to the extent of his beneficial interest in
the trust established for his benefit and with respect to the shares owned
directly by him.
(12) Includes 7,116,655 shares issuable upon exercise of options which are
currently exercisable or become exercisable within 60 days.
335
<PAGE> 343
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
This table shows the compensation of Seagram's Chief Executive Officer and
each of Seagram's five other most highly compensated executive officers with
respect to the fiscal years ended June 30, 2000, June 30, 1999 and June 30,
1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ------------------------------------
AWARDS PAYOUTS
-------------------------- -------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP
SALARY BONUS COMPENSATION AWARD OPTIONS/ SARS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR (U.S.$) (U.S.$) (U.S.$) (#) (#) (U.S.$)
--------------------------- ------------- --------- --------- ------------ ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Edgar M. Bronfman............... June 30, 2000 825,006 1,237,500 355,274(2) 0 0 0
Chairman of the Board June 30, 1999 812,505 750,750 276,642 0 80,000 0
of Seagram and of JES June 30, 1998 750,000 750,000 370,083 0 80,000 0
Charles R. Bronfman............. June 30, 2000 659,997 990,000 63,132(3) 0 69,200 0
Co-Chairman of the Board of June 30, 1999 649,998 600,600 125,984 0 69,200 0
Seagram and of JES and June 30, 1998 600,000 600,000 66,684 0 69,200 0
Chairman of the Executive
Committee of Seagram
Edgar Bronfman, Jr.............. June 30, 2000 1,000,000 6,000,000 38,068 0 650,000 0
President and Chief Executive June 30, 1999 1,000,000 2,730,000 31,458 0 1,500,000 0
Officer of Seagram and of JES June 30, 1998 1,000,000 3,000,000 30,289 0 0 0
Brian C. Mulligan(4)............ June 30, 2000 1,124,583 2,500,000 22,559(5) 0 600,000 0
Executive Vice President and
Chief Financial Officer of
Seagram and of JES
John D. Borgia.................. June 30, 2000 526,680 742,500 20,715(6) 0 225,000 0
Executive Vice President, June 30, 1999 480,000 393,120 312,981 0 75,000 0
Human Resources of June 30, 1998 442,674 360,000 307,469 0 150,000 0
Seagram and of JES
Robert W. Matschullat(7)........ June 30, 2000 1,000,000 2,341,500 39,854(8) 0 0 0
Formerly Vice Chairman and June 30, 1999 1,000,000 2,068,200 26,296 0 0 0
Chief Financial Officer of June 30, 1998 920,015 2,250,000 9,934 0 1,500,000 0
Seagram and of JES
<CAPTION>
ALL
OTHER
COMPENSATION(1)
NAME AND PRINCIPAL POSITION (U.S.$)
--------------------------- ---------------
<S> <C>
Edgar M. Bronfman............... 21,964
Chairman of the Board 21,841
of Seagram and of JES 111,206
Charles R. Bronfman............. 0
Co-Chairman of the Board of 0
Seagram and of JES and 0
Chairman of the Executive
Committee of Seagram
Edgar Bronfman, Jr.............. 8,363
President and Chief Executive 8,370
Officer of Seagram and of JES 18,929
Brian C. Mulligan(4)............ 5,760
Executive Vice President and
Chief Financial Officer of
Seagram and of JES
John D. Borgia.................. 6,120
Executive Vice President, 5,760
Human Resources of 1,125
Seagram and of JES
Robert W. Matschullat(7)........ 4,300
Formerly Vice Chairman and 5,760
Chief Financial Officer of 1,125
Seagram and of JES
</TABLE>
<TABLE>
<CAPTION>
---------------
<S> <C>
(1) Reflects the aggregate value of the contributions by Seagram's subsidiaries under the Retirement Savings and Investment Plan for
Employees of JES and Affiliates and the current dollar value benefit of the premiums paid under the JES Insurance and Salary
Continuation Programs.
(2) Other annual compensation for the 2000 fiscal year includes U.S.$87,471 for financial counseling services.
(3) Other annual compensation for the 2000 fiscal year includes U.S.$19,355 imputed income on Seagram's payment of group life
insurance premiums.
(4) Mr. Mulligan became Executive Vice President and Chief Financial Officer of Seagram and of JES on January 1, 2000.
(5) Other annual compensation for the 2000 fiscal year includes U.S.$1,437 imputed income on Seagram's payment of group life
insurance premiums.
(6) Other annual compensation for the 2000 fiscal year includes U.S.$2,721 imputed income on Seagram's payment of group life
insurance premiums.
(7) Mr. Matschullat was Vice Chairman of Seagram and of JES until May 31, 2000 and Chief Financial Officer of Seagram and of JES
until December 31, 1999.
(8) Other annual compensation for the 2000 fiscal year includes U.S.$5,033 imputed income on Seagram's payment of group life
insurance premiums.
</TABLE>
336
<PAGE> 344
OPTION/SAR GRANTS IN 2000 FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/ SARS EXERCISE
OPTIONS/ SARS GRANTED TO OR BASE
GRANTED EMPLOYEES IN PRICE EXPIRATION 0%
NAME (#) FISCAL YEAR (U.S.$) DATE (U.S.$)
---- ------------- ------------- -------- ----------------- -------
<S> <C> <C> <C> <C> <C>
Edgar M. Bronfman............ 0 N/A N/A N/A N/A
Charles R. Bronfman.......... 69,200(1) 1% 61.4375 February 14, 2010 0
Edgar Bronfman, Jr........... 650,000(1) 7% 61.4375 February 14, 2010 0
Brian C. Mulligan............ 500,000(2) 5% 47.0938 November 2, 2009 0
100,000(1) 1% 61.4375 February 14, 2010 0
John D. Borgia............... 225,000(1) 2% 61.4375 February 14, 2010 0
Robert W. Matschullat........ 0 N/A N/A N/A N/A
All Shareholders(3).......... 0
Gain to Named Executive
Officers as a Percentage of
Gain to all Shareholders... 0%
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE APPRECIATION
FOR OPTION TERM
5% 10%
NAME (U.S.$) (U.S.$)
---- -------------- --------------
<S> <C> <C>
Edgar M. Bronfman............ N/A N/A
Charles R. Bronfman.......... 2,673,729 6,775,760
Edgar Bronfman, Jr........... 25,114,505 63,645,140
Brian C. Mulligan............ 14,808,500 37,527,700
3,863,770 9,791,560
John D. Borgia............... 8,693,483 22,031,010
Robert W. Matschullat........ N/A N/A
All Shareholders(3).......... 15,948,242,676 40,415,981,594
Gain to Named Executive
Officers as a Percentage of
Gain to all Shareholders... 0% 0%
</TABLE>
---------------
(1) Options to purchase shares were granted on February 15, 2000 and become
exercisable in equal installments over a three-year period beginning on the
first anniversary of the date of grant.
(2) Options to purchase shares were granted on November 3, 1999 and become
exercisable in equal installments over a five-year period that began on
January 1, 2000.
(3) The potential realizable gain to all shareholders is calculated based on
437,226,845 shares outstanding and a fair market value of U.S.$58.00 per
share on June 30, 2000.
AGGREGATED OPTION/SAR EXERCISES IN 2000 FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SARS AT OPTIONS/SARS AT
EXERCISE REALIZED FISCAL YEAR-END FISCAL YEAR-END
NAME (#) (U.S.$) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Edgar M. Bronfman.......... 115,600 4,822,635 696,601/ 79,999 18,612,664/ 1,089,146
Charles R. Bronfman........ 0 0 592,301/ 138,399 15,796,183/ 942,109
Edgar Bronfman, Jr......... 99,600 3,278,058 3,686,000/2,050,000 99,346,755/30,180,095
Brian C. Mulligan.......... 0 0 185,949/ 623,331 2,559,373/ 6,304,205
John D. Borgia............. 10,400 293,557 322,900/ 325,000 7,515,231/ 1,537,495
Robert W. Matschullat...... 0 0 1,195,500/ 900,000 22,121,439/14,109,330
</TABLE>
PENSION, BENEFIT EQUALIZATION, RETIREMENT SALARY CONTINUATION AND SEVERANCE
PLANS
Pension Plan
Seagram, through JES, maintains a pension plan for employees (including
Edgar M. Bronfman, Charles R. Bronfman, Edgar Bronfman, Jr., Brian C. Mulligan,
John D. Borgia and other officers) of JES and certain other U.S. subsidiaries.
The pension plan was amended on January 1, 1999 to migrate from a final average
pay plan to a new retirement account design in which JES applies annual
contribution credits as a percent of pay and annual fixed interest rate credits
to participants' account balances. JES also maintains an executive supplemental
pension plan to provide additional payments on an unfunded basis to certain
managers and executives (including Edgar M. Bronfman, Charles R. Bronfman, Edgar
Bronfman, Jr., Brian C. Mulligan, John D. Borgia and other officers). Beginning
in the year after any pension plan participant who is also a beneficial owner of
5% of the subject company has reached the age of 70 1/2, distributions with
respect to JES's qualified pension plan are required to be made to the
337
<PAGE> 345
participant under the Internal Revenue Code of 1986. In accordance with that
requirement, Edgar M. Bronfman received his first pension distribution of
U.S.$11,082 in April 2000.
Benefit Equalization Plan
A benefit equalization plan provides for additional payments on an unfunded
basis for certain senior executives of JES, including Edgar M. Bronfman, Charles
R. Bronfman, Edgar Bronfman, Jr., and John D. Borgia.
Senior executive employees participating in this plan are granted credit
for one year of additional service (up to a maximum of 15 years) for each year
of actual service, up to a combined aggregate of 35 years of service (up to 40
years under certain circumstances), if such employees have attained the age of
65 (or earlier under certain circumstances) and have accumulated at least ten
years of service for purposes of the pension plan.
The following table shows the estimated annual pension benefits (calculated
on a straight-life basis) payable on retirement to eligible employees at or
after age 65. Benefits are shown using an average compensation which is
calculated using the five most highly compensated years during the last ten
years of employment.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FIVE-YEAR AVERAGE ANNUAL PENSION FOR REPRESENTATIVE
FINAL COMPENSATION YEARS OF CONTINUOUS SERVICE
------------------ -----------------------------------------------------
5 10 20 30 40
------------------ ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
U.S.$ 800,000 60,000 120,000 240,000 359,000 479,000
1,200,000 90,000 180,000 360,000 539,000 719,000
1,600,000 120,000 240,000 480,000 719,000 959,000
2,000,000 150,000 300,000 600,000 899,000 1,199,000
2,400,000 180,000 360,000 720,000 1,079,000 1,439,000
2,800,000 210,000 420,000 840,000 1,259,000 1,679,000
3,200,000 240,000 480,000 960,000 1,439,000 1,919,000
3,600,000 270,000 540,000 1,080,000 1,619,000 2,159,000
4,000,000 300,000 600,000 1,200,000 1,799,000 2,399,000
4,400,000 330,000 660,000 1,320,000 1,979,000 2,639,000
4,800,000 360,000 720,000 1,440,000 2,159,000 2,879,000
</TABLE>
At June 30, 2000, Edgar M. Bronfman was credited with 40 years (the maximum
years permitted under the benefit equalization plan), Charles R. Bronfman was
credited with 42 months, Edgar Bronfman, Jr. was credited with 18 years and John
D. Borgia was credited with five years for purposes of the benefit equalization
plan.
JES has agreed with John D. Borgia that upon his retirement, the total
yearly pension payable to him shall not be less than the sum of U.S.$30,000
multiplied by the number of years (or portion of years) of his continuous
service with Seagram, up to the maximum benefit that would be payable to him
under the terms of the pension plan and the benefit equalization plan or
replacement plans at age 60.
JES has agreed with Robert W. Matschullat that upon his retirement he will
receive a minimum annual pension benefit of U.S.$50,000 multiplied by the number
of years (or portion of years) of his actual service to Seagram.
RETIREMENT SALARY CONTINUATION PLAN
JES maintains a program that provides retirement salary continuation
benefits for Edgar M. Bronfman and Edgar Bronfman, Jr. and certain other
executives of JES. If a participant retires after the age of 55
338
<PAGE> 346
with ten or more years of service, he will receive an amount payable annually
for ten years of up to 35% of the sum of his base salary in the last year of
employment plus the highest management incentive award previously received. As
of 1988, no new participants are being accepted into this program and, subject
to the terms of the program, existing participants will receive payments based
on their compensation levels at January 31, 1988.
OTHER RETIREMENT PLANS
Joseph E. Seagram & Sons, Limited, a Canadian subsidiary of Seagram,
maintains registered pension, unfunded pension and post-retirement consulting
plans for certain of Seagram's executive employees, including Charles R.
Bronfman. These plans are substantially equivalent to the pension, benefit
equalization and retirement salary continuation plans of JES. As of 1988, no new
participants are being accepted into the post-retirement consulting plan and,
subject to the terms of the program, existing participants will receive payments
based on their compensation levels at January 31, 1988. The estimated aggregate
annual pension benefits payable at normal retirement age, at or after age 60,
under the registered and unfunded plans are shown below. The benefits shown use
an average salary and cash bonus which is calculated using the five most highly
compensated years of the last ten years of employment.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL PENSION FOR REPRESENTATIVE
YEARS OF CONTINUOUS SERVICE
FIVE-YEAR AVERAGE -----------------------------------------------------------
FINAL COMPENSATION 5 10 20 30 40 50
------------------ ------- ------- ------- ------- ------- ---------
(CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
$ 600,000 90,000 180,000 270,000 360,000 405,000 450,000
800,000 120,000 240,000 360,000 480,000 540,000 600,000
1,000,000 150,000 300,000 450,000 600,000 675,000 750,000
1,200,000 180,000 360,000 540,000 720,000 810,000 900,000
1,400,000 210,000 420,000 630,000 840,000 945,000 1,050,000
</TABLE>
At June 30, 2000, Charles R. Bronfman was credited with 35 years of service
for purposes of the registered pension plan (the maximum years permitted by such
plan) and 46 years of service for purposes of the unfunded pension plan.
SEVERANCE PLAN
JES maintains a severance pay plan for certain non-union employees of JES
and certain of its U.S. subsidiaries, including Edgar M. Bronfman, Charles R.
Bronfman and Edgar Bronfman, Jr. The named executives are entitled to receive
benefits under the severance pay plan only if their employment is terminated due
to a permanent and complete closing of a location, a job elimination, or a
failure to consistently perform at a level that meets minimum acceptable
requirements. The severance pay plan provides benefits to eligible employees
equal to one-twelfth of their annual rate of base salary for each year of
service, subject to a maximum amount. The maximum period of time over which
benefits may be provided under the severance pay plan is 24 months.
EMPLOYMENT, CONSULTING AND TERMINATION PROTECTION AGREEMENTS
EDGAR BRONFMAN, JR.
Seagram has entered into a termination protection agreement with Edgar
Bronfman, Jr., its president and chief executive officer. See "The Merger
Transactions -- Structure and Background -- Interests of Directors and Executive
Officers in the Merger Transactions -- Termination Protection Agreements" above
for a summary of the payments and benefits under this agreement. Additionally,
Seagram has agreed to enter into an employment agreement with Mr. Bronfman that
will become effective upon completion of the merger transactions and will be
guaranteed by Vivendi Universal. See "The Merger Transactions --
339
<PAGE> 347
Structure and Background -- Interests of Directors and Executive Officers in the
Merger Transactions -- Employment Agreement with Edgar Bronfman, Jr."
BRIAN C. MULLIGAN
Seagram has entered into an employment agreement with Brian C. Mulligan,
its Executive Vice President and Chief Financial Officer. The employment
agreement has a five-year term, and provides for an annual base salary of
U.S.$1,000,000 and participation in all benefit plans and arrangements generally
applicable to Seagram senior executives. His target annual cash incentive bonus
for the fiscal year ended June 30, 2000 was U.S.$1.1 million and his target
bonus for each fiscal year through June 30, 2004 will be U.S.$1.5 million, plus
certain cost of living-based adjustments. His bonus amount for the six-month
final period of his employment term will equal the target bonus for the last
fiscal year ending June 30, 2004, plus those adjustments. Mr. Mulligan was
guaranteed a minimum bonus for the fiscal year ended June 30, 2000 of
U.S.$737,500 and will be guaranteed a minimum annual bonus each full fiscal year
thereafter of one-half of his annual target bonus amount. He also received a
discretionary supplemental bonus of U.S.$500,000 payable on September 1, 2000.
On November 3, 1999, Mr. Mulligan was granted options to purchase 500,000
Seagram common shares, which become exercisable in five equal annual
installments beginning January 1, 2000 and expire ten years from the date of
grant unless terminated earlier upon the occurrence of certain events. Under the
terms of his employment agreement, Seagram will recommend that the Human
Resources Committee of Seagram's board of directors grant Mr. Mulligan options
to purchase 100,000 Seagram common shares per year during his employment term,
beginning in fiscal year 2000.
If Mr. Mulligan terminates his employment with "good reason," as defined in
the contract, or Seagram terminates his employment without "cause" as defined in
the contract, (i) all options held by him will become exercisable in full; (ii)
he will be entitled to receive a discounted lump sum payment of all accrued and
unpaid salary and bonus, any unpaid supplemental bonus, his base salary and 100%
of each remaining annual bonus target payable through the expiration of his
original employment term (or if longer, 12 months); and (iii) he will be
entitled to continuation of medical coverage until the earlier of the date he
obtains new employment, or the original expiration date of the term (or if
later, 12 months after termination of his employment).
The employment agreement also provides for certain payments and benefits
if, within three years following a change of control of Seagram, as defined in
the employment agreement, Mr. Mulligan terminates his employment with good
reason, Seagram terminates his employment without cause, or his employment is
terminated in anticipation of a change of control that subsequently occurs. See
"The Merger Transactions -- Structure and Background -- Interests of Directors
and Executive Officers in the Merger Transactions -- Termination Protection
Agreements" above for a summary of these payments and benefits.
JOHN D. BORGIA
Seagram has entered into an employment agreement with John D. Borgia, its
Executive Vice President, Human Resources. The employment agreement has a
three-and-one-half-year term beginning January 1, 2000. Mr. Borgia's employment
agreement provides that he is paid an annual base salary of U.S.$550,000 during
the first year of his employment with U.S.$25,000 annual increases thereafter.
Mr. Borgia participates in all benefit plans and arrangements generally
applicable to Seagram senior executives. He also has the opportunity to earn an
annual cash incentive bonus for each fiscal year ending during his employment
term equal to a target amount of 90% of his annual base salary. On February 15,
2000, Mr. Borgia was granted options to purchase 225,000 Seagram common shares,
which become exercisable in three equal annual installments beginning on the
first anniversary of the date of grant. Under the terms of his employment
agreement, Mr. Borgia will also be considered for a grant of options in 2003.
If Seagram terminates Mr. Borgia's employment without cause, as defined in
the contract, (i) all options held by him will become exercisable in full, and
(ii) he will be entitled to receive all accrued and
340
<PAGE> 348
unpaid salary and bonus; his base salary and 100% of each remaining annual bonus
target payable through the expiration of his original employment term; and
continuation of medical, dental, life and disability insurance coverage in
effect for senior executive officers until the earlier of the date he obtains
new employment, or the original expiration date of his employment term. The
foregoing benefits will not be provided in the event Mr. Borgia's employment is
terminated without cause in relation to a change of control of Seagram. In that
case, he is entitled to receive the amounts provided under his termination
protection agreement as described under "The Merger Transactions -- Structure
and Background -- Interests of Directors and Executive Officers in the Merger
Transactions -- Termination Protection Agreements."
ROBERT W. MATSCHULLAT
In connection with his previous employment as Vice Chairman and Chief
Financial Officer and a director of Seagram, Robert W. Matschullat and Seagram
entered into an amended and restated employment agreement dated November 1,
1999. The employment agreement provided that Mr. Matschullat would continue as
Chief Financial Officer of Seagram until December 31, 1999 and as Vice Chairman
and a director of Seagram through May 31, 2000, at an annual salary rate of
U.S.$1 million. Thereafter, Mr. Matschullat agreed to continue his employment as
an advisor to Seagram through March 31, 2001 at a salary of U.S.$20,000 per
month. He has received an annual bonus of U.S.$2,341,500 for the fiscal year
ended June 30, 2000. Mr. Matschullat will be paid all annual bonus amounts
deferred by him, in addition to any earnings on those bonus amounts in
accordance with applicable deferral arrangements, in eight installments
beginning on July 1, 2005. Mr. Matschullat will participate in all benefit plans
and arrangements generally applicable to Seagram senior executives through March
31, 2001, except that his medical, dental and life insurance benefits will
continue until the earlier of June 30, 2002, or the date he becomes eligible for
coverage with a new employer.
If Mr. Matschullat terminates his employment or dies, or Seagram terminates
his employment at the end of the employment term or upon his obtaining other
employment, he will be entitled to receive: (i) all accrued and unpaid salary,
bonus or other compensation otherwise payable under his employment agreement;
(ii) a lump sum payment of U.S.$6,683,000; (iii) continued medical, dental and
life insurance coverage; and (iv) a lifetime pension of not less than
U.S.$50,000 per year, times his years of service with Seagram, with payments
beginning at age 60.
REPORT ON EXECUTIVE COMPENSATION
The following report on executive compensation is provided by the Human
Resources Committee of Seagram's board of directors, which consists of
non-employee directors.
Seagram uses the guidelines and methodology described below to determine
the appropriate compensation levels for its executives. However, executive
officers covered by employment agreements may have compensation terms that
differ from the guidelines. The terms of these employment agreements can be
found under the heading " -- Executive Compensation -- Employment, Consulting
and Termination Protection Agreements."
Seagram periodically reviews compensation data from surveys conducted by
independent compensation consultants in order to assess and assure the market
competitiveness of its executive compensation. The comparison group from which
the data is collected comprises a broad range of Fortune 500 and similar
international companies in general industry. In the case of Seagram's Chief
Executive Officer, the comparison group comprises 12 Fortune 500 and similar
international consumer product and entertainment companies. Companies of varying
sizes engaged in the beverage alcohol and entertainment businesses, some of
which are included in the comparison group, make up the peer group included in
the performance graph; however, the Committee believes the comparison group more
accurately reflects Seagram's competitors for executive talent. Taking into
account the comparison group compensation data, the Committee determines the
various components of compensation for each executive officer. Seagram seeks to
place each executive's total compensation, including base salary, annual
incentive awards and stock
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option grants, at approximately the 75th percentile of the total compensation
paid for similar positions in the comparison group.
A subcommittee consisting of the following members:
Marie-Josee Kravis
Laurent Beaudoin
Richard H. Brown
Andre Desmarais
approves awards and administers the Senior Executive Short-Term Incentive Plan
and the 1996 Stock Incentive Plan described below.
The Human Resources Committee determines compensation for the executive
officers, which consists primarily of the following three components:
- salary
- annual incentive compensation
- stock-based compensation
Salary. Each executive's salary is based on the executive's
responsibilities, skills and sustained performance. Executive officers' salaries
are maintained at competitive levels within relevant labor markets and are
reviewed annually to maintain this competitive position. In the 2000 fiscal
year, Seagram targeted base salaries at the 50th to 75th percentile of the
comparison group for similar positions.
Annual Incentive Compensation. Seagram pays annual incentive awards to
executive officers participating in Seagram's Senior Executive Short-Term
Incentive Plan or Seagram's Management Incentive Plan. For the 2000 fiscal year,
target awards under the Senior Executive Short-Term Incentive Plan and
Management Incentive Plan were based upon Seagram or its applicable operating
unit achieving prescribed objectives for earnings before interest, taxes,
depreciation and amortization ("EBITDA"). Under the plans, target annual
incentive awards for executive officers ranged from approximately 40% to 300% of
salary for the 2000 fiscal year. Awards under the Senior Executive Short-Term
Incentive Plan may be reduced for any reason including the Committee's
assessment of individual performance or of the financial performance of Seagram
or its operating units. Management Incentive Plan awards may be reduced or
increased based on an assessment of the individual executive's performance.
Awards to officers under the plans at the end of the 2000 fiscal year ranged
from 150% to 200% of targets. Executives may elect to receive their Management
Incentive Plan awards on a deferred basis in the form of cash or Seagram shares.
Stock-Based Compensation. Seagram's 1996 Stock Incentive Plan allows
participating executive officers and other participating employees to benefit
from appreciation in the value of Seagram common shares. Options to purchase
Seagram common shares are an important element of the total compensation
program.
Options granted under the 1996 Incentive Plan produce value for recipients
only if the price of Seagram common shares increases from the price on the grant
date. Seagram grants options to executive officers annually. The options have
ten-year terms (subject to early termination in certain circumstances) and
generally have three-year vesting periods (subject to acceleration in certain
circumstances). The 1996 Incentive Plan, however, permits the subcommittee to
grant options with different vesting periods. In determining the option grants
in a given year, Seagram generally does not take into account the amount and
terms of outstanding options held by executive officers.
Compensation for the Chief Executive Officer. For the 2000 fiscal year,
the base salary for Edgar Bronfman, Jr. remained at U.S.$1,000,000 and his
target annual incentive award was set at 300% of salary.
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Mr. Bronfman was awarded 200% of his target annual incentive award under the
Senior Executive Short-Term Incentive Plan for the 2000 fiscal year.
Under the five-year equity award program renewed by the Committee in 1998,
Mr. Bronfman has the opportunity to receive stock option grants should Seagram
common shares outperform the broader market, measured at the end of each
calendar year during the five-year period. As of the end of the first year under
the renewed program, Seagram's common share performance authorized such an
award. Taking this into account, along with the Committee's judgment concerning
the Company's strategic and operating progress, the Committee granted Mr.
Bronfman an option award in February 2000 covering 650,000 common shares.
Section 162(m) of the Internal Revenue Code of 1986. Section 162(m) of the
Internal Revenue Code of 1986 limits the deductibility of certain types of
compensation in excess of U.S.$1 million paid to persons named in the Summary
Compensation Table. Seagram believes that compensation paid under the Senior
Executive Short-Term Incentive Plan and awards of stock options under Seagram's
1996 Stock Incentive Plan satisfy the requirements of Section 162(m). However,
Section 162(m) may limit Seagram's or its affiliates' ability to deduct some
other types of compensation paid to individuals named in the Summary
Compensation Table. We believe Seagram should maintain the flexibility to design
compensation strategies that can respond quickly to the marketplace and
Seagram's needs even if such compensation is not fully deductible.
HUMAN RESOURCES COMMITTEE
Marie-Josee Kravis, Chairman
Laurent Beaudoin
Richard H. Brown
Andre Desmarais
John S. Weinberg
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PERFORMANCE GRAPH -- COMPARISON
The following graph compares the cumulative five-year total return of
Seagram common shares with the S&P 500, the Toronto Stock Exchange 300 Composite
Index ("TSE 300") and its peer group.
The peer group comprises companies included in the S&P Beverages
(Alcoholic) Index, certain non-U.S. competitors that compete with Seagram's
beverage alcohol business and certain entertainment companies that compete with
Seagram's entertainment business. In addition to Seagram, the members of the
peer group are Allied Domecq PLC, Brown-Forman Corporation, Diageo plc, EMI
Group plc, Fox Entertainment Group, Inc., Time Warner Inc., Viacom Inc. and The
Walt Disney Company.
The returns of each company have been weighted according to their
respective market capitalization as well as the respective revenues from
Seagram's entertainment and Spirits and Wine business segments.
The performance graph assumes that U.S.$100 was invested on June 30, 1995
in Seagram common shares, the S&P 500, the TSE 300 and the peer group and that
all dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
SEAGRAM VS. S&P 500, TSE 300, AND PEER GROUP
(TWELVE MONTHS ENDED JUNE 30)
[Performance Graph Appears Here]
<TABLE>
<CAPTION>
SEAGRAM S&P 500 TSE 300 PEER GROUP
------- ------- ------- ----------
<S> <C> <C> <C> <C>
1995 100 100 100 100
1996 99 126 114 98
1997 120 170 148 117
1998 125 221 172 163
1999 156 271 167 182
2000 182 291 246 196
</TABLE>
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HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All five members of the Human Resources Committee of Seagram's board of
directors are "outside" directors. Described below, however, is information
regarding certain entities with which certain of such directors have
relationships.
During the 2000 fiscal year, Seagram agreed to purchase an airplane from
Bombardier Inc. for approximately U.S.$37,700,000. Laurent Beaudoin, a Seagram
director, is Chairman of the Board, Chairman of the Executive Committee and a
director of Bombardier Inc.
Goldman, Sachs & Co. performs investment banking services and provides
investment advice to Seagram and its subsidiaries, including acting as financial
advisor to Seagram in connection with the merger transactions, as managing
underwriter or participating underwriter in connection with the sale of
securities of Seagram and JES, as a dealer in the sale of commercial paper
issued by JES, as a market maker in certain securities of JES and as a broker in
connection with Seagram's share purchase program. John S. Weinberg, a member of
the Human Resources Committee, is a Managing Director of Goldman, Sachs & Co.
TRANSACTIONS WITH DIRECTORS AND OTHERS
During the 2000 fiscal year, Claridge Inc. reimbursed a subsidiary of
Seagram for the use of aircraft owned by such subsidiary in the amount of
U.S.$199,777. The payment represented Claridge's pro rata share of the
applicable operating expenses of the aircraft. During the 2000 fiscal year,
Seagram paid or accrued rent and reimbursed expenses to Claridge in the amount
of Cdn.$99,320 (and Cdn.$84,000 during the current fiscal year to October 23,
2000) for the use by Seagram of office and parking space and secretarial
services. The CRBFT owns all of the shares of Claridge. Charles R. Bronfman and
Samuel Minzberg are among the directors and officers of Claridge.
During the 2000 fiscal year, The Andrea & Charles Bronfman Philanthropies,
Inc., a charitable organization, paid or accrued rent and reimbursed Seagram in
the amount of U.S.$67,368 (and approximately U.S.$21,000 during the current
fiscal year to October 23, 2000) for use by such organization of office space in
Seagram's offices in New York. Andrea Bronfman and Charles R. Bronfman are
directors of The Andrea & Charles Bronfman Philanthropies, Inc.
Since the beginning of the last fiscal year, Frank Alcock, the
father-in-law of Edgar Bronfman, Jr., has provided consulting services to
affiliates of Seagram for U.S.$6,250 per month.
Samuel Minzberg is of counsel to the Montreal office of Goodman Phillips &
Vineberg, a law firm which provided legal services to Seagram during the 2000
fiscal year.
Barclays extends credit and provides other services to Seagram and its
subsidiaries, including serving as a lender under several credit agreements.
Matthew W. Barrett, a Seagram director, is Group Chief Executive of Barclays PLC
and a director of Barclays PLC and Barclays Bank PLC.
Universal owns approximately 26% of the common stock of Loews Cineplex
Entertainment Corporation, based on the information as of May 15, 2000 set forth
in the proxy statement of Loews Cineplex dated May 25, 2000 and based on shares
outstanding as of August 31, 2000, as set forth in the quarterly report on Form
10-Q of Loews Cineplex for the quarter ended August 31, 2000. In the normal
course of its business, Universal receives certain film licensing fees from
Loews Cineplex and pays Loews Cineplex distribution fees. Entities and persons
related to Charles R. Bronfman hold approximately 7% of the common stock of
Loews Cineplex, based on shares outstanding as of August 31, 2000, as set forth
in the quarterly report on Form 10-Q of Loews Cineplex for the quarter ended
August 31, 2000.
In connection with Seagram's acquisition of PolyGram, Seagram and Philips
entered into a stockholders agreement providing for certain arrangements
relating to Philips' ownership of shares following consummation of the
acquisition. Under the stockholders agreement, Seagram agreed to use its best
efforts to cause the election of the chief executive officer of Philips to the
Seagram board of directors
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for so long as Philips beneficially owns at least 5% of the shares. As of
October 23, 2000, Philips owned approximately 10.77% of Seagram's common shares,
which it acquired as part of Seagram's acquisition of PolyGram in fiscal 1999.
Cornelis Boonstra is the Chairman of the Board of Management and President of
Philips. In addition, the agreement provides that at any time Philips is
entitled to designate a director, Philips will also be entitled to appoint one
ex officio member of the board of directors. The ex officio member will receive
notice of and attend board meetings and receive all information circulated or
made available to the board of directors. However, the ex officio member is not
a member of the board for purposes of determining a quorum or for any other
purpose, and does not have the right to vote on any matter voted on by the
board.
Under the stockholders agreement, subject to certain conditions, Philips
will vote its shares to cause each of the nominees designated by the board of
directors to be elected to the board. In connection with any vote of Seagram
shareholders relating to any other matter, unless Seagram otherwise consents in
writing, Philips will vote its shares, at its option, either proportionately on
the same basis as the other shareholders vote or as recommended by the board of
directors. The stockholders agreement also:
- restricts Philips from transferring its shares;
- prohibits Philips from acquiring any additional shares or participating
in certain extraordinary transactions involving Seagram or any material
portion of its business; and
- grants to Philips customary demand and piggyback rights for the
registration of its shares.
Philips and subsidiaries of Seagram are parties to intellectual property
and distribution arrangements containing normal business terms and conditions.
Universal holds an effective 43% interest in USA Networks, Inc. ("USA
Networks"), based on shares outstanding as of July 31, 2000, as set forth in the
quarterly report on Form 10-Q of USA Networks for the quarter ended June 30,
2000, through its ownership of common stock and class B common stock of USA
Networks and shares of USANi LLC, a subsidiary of USA Networks, which Universal
can exchange for common stock and class B common stock of USA Networks.
Universal is party to a governance agreement among USA Networks, Universal,
Liberty Media and Barry Diller. The governance agreement:
- limits Universal from acquiring additional equity securities of USA
Networks;
- restricts Universal from transferring USA Networks securities;
- provides for representation by Universal and Liberty Media on USA
Networks' board of directors; and
- lists fundamental actions that require the consent of Universal, Liberty
Media and Mr. Diller before USA Networks can take those actions.
In addition, Universal has entered into a stockholders agreement among
Universal, Liberty Media, Mr. Diller, USA Networks and Seagram. The stockholders
agreement:
- governs the acquisition of additional USA Networks securities by Liberty
Media;
- restricts the transfer of shares; and
- generally grants Mr. Diller voting control over all of the USA Networks
capital stock owned by Universal and Liberty Media except with respect to
the fundamental actions discussed above.
Universal is also party to a spinoff agreement among Universal, Liberty
Media and USA Networks providing for interim management arrangements in the
event that Mr. Diller ceases to be Chief Executive Officer of USA Networks or
becomes disabled. In addition, Universal has entered into agreements with USA
Networks providing for various ongoing business arrangements, including:
- an international distribution agreement granting Universal the right to
distribute internationally, programs produced by USA Networks for a fee;
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- a domestic distribution agreement granting USA Networks the right to
distribute specific Universal programming, including Universal's library
of television programs, for a fee; and
- a transition services agreement and agreements relating to merchandising,
music administration and music publishing, home video distribution, the
use by USA Networks of Universal's studio facilities and certain other
matters.
The parties negotiated these ongoing arrangements, which contain normal
business terms and conditions, on an arms' length basis. Under the agreement
governing Universal's investment in USA Networks, at various times since March
1998 Universal and Liberty Media have exercised their preemptive rights to
purchase additional shares of USANi LLC shares following issuances of common
stock by USA Networks. Universal and Liberty Media may continue to exercise
these preemptive rights from time to time in the future. Mr. Diller is the
Chairman of the Board and Chief Executive Officer of USA Networks and, based on
the information as of January 31, 2000 set forth in the proxy statement of USA
Networks dated March 6, 2000, owns or has the right to vote, pursuant to the
stockholders agreement, approximately 14% of the outstanding USA Networks common
stock and 100% of the outstanding USA Networks class B common stock and has
approximately 75% of the outstanding total voting power of USA Networks common
stock and USA Networks class B common stock.
On May 28, 1999, USA Networks acquired from Universal Studios Holding I
Corp. all of the capital stock of PolyGram Filmed Entertainment, Inc. ("PFE"),
including the domestic motion picture and home video distribution organization
conducted as PolyGram Films, PolyGram Video, PolyGram Filmed Entertainment
Canada, Gramercy Pictures, Interscope Communications and Propaganda Films.
Universal acquired PFE in December 1998 as part of Seagram's approximately
U.S.$10.6 billion acquisition of PolyGram. At the time of the sale of PFE to USA
Networks, USA Networks agreed to pay or assume certain liabilities relating to
the acquired businesses, and Universal and USA Networks entered into agreements
providing for various ongoing business arrangements between Universal and USA
Networks, including, among others:
- a domestic theatrical distribution agreement, pursuant to which USA
Networks made a U.S.$200 million interest bearing loan to Universal's
parent which is due in approximately eight years unless repaid earlier
from receipts arising from distribution of specified motion pictures
which USA Networks has the exclusive right to distribute theatrically, on
television and on video in the United States and Canada for a fee;
- an ancillary services agreement, pursuant to which the parties will
provide certain customary transitional services to each other during the
six months following the closing;
- a videogram fulfillment agreement, pursuant to which Universal or one of
its affiliates will provide certain "pick, pack and ship" and related
fulfillment services in the United States and Canada with respect to
videos containing motion pictures of USA Networks; and
- a music administration agreement, pursuant to which, subject to certain
specified exceptions, USA Networks appointed Universal-MCA Music
Publishing to be the exclusive administrator for 15 years of USA
Networks' interest in certain music publishing rights to music
compositions owned or controlled by USA Networks which are written for or
used in motion pictures and videos following the closing.
These arrangements were negotiated by the parties on an arms' length basis
and contain customary business terms and conditions. In the ordinary course of
business, and otherwise from time to time, Seagram and Vivendi Universal may
determine to enter into other agreements with USAi and its subsidiaries.
Seagram considers the amounts paid or received in the transactions
described under "Human Resources Committee Interlocks and Insider Participation"
to be reasonable and competitive and management believes they are comparable to
those which would have been paid to or received from others.
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Seagram maintains directors' and officers' liability insurance, which
insures the directors and officers of Seagram and its subsidiaries against
losses from certain claims brought against its directors and officers. The
policy has an aggregate limit of U.S.$100 million with a deductible of
U.S.$500,000. The annual premium is U.S.$537,256, which has been paid for the
policy year ending October 2000.
Charles R. Bronfman's principal residence is in Palm Beach, Florida, Edgar
Bronfman, Jr.'s principal residence is in New York, New York, Samuel Minzberg's
principal residence is in Westmount, Quebec, Frank Alcock's principal residence
is in Caracas, Venezuela, Matthew W. Barrett's principal residence is in London,
England, Cornelis Boonstra's principal residence is in Amsterdam, the
Netherlands and Barry Diller's principal residence is in Clearwater, Florida.
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CHAPTER TEN -- LEGAL MATTERS
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
Vivendi, CANAL+ and Vivendi Universal are corporations organized under the
laws of France. Seagram and Vivendi Universal Exchangeco are corporations
organized under the laws of Canada. Certain of those companies' directors and
officers are citizens or residents of countries other than the United States.
Substantial portions of those companies' assets are located outside the United
States. Accordingly, it may be difficult for investors:
- to obtain jurisdiction over Vivendi, Seagram, CANAL+, Vivendi Universal,
Vivendi Universal Exchangeco or their directors or officers in courts in
the United States in actions predicated on the civil liability provisions
of the U.S. federal securities laws;
- to enforce against Vivendi, Seagram, CANAL+, Vivendi Universal, Vivendi
Universal Exchangeco, or their directors or officers judgments obtained
in such actions;
- to obtain judgments against Vivendi, Seagram, CANAL+, Vivendi Universal,
Vivendi Universal Exchangeco or their directors or officers in original
actions in non-U.S. courts predicated solely upon the U.S. federal
securities laws; or
- to enforce against Vivendi, Seagram, CANAL+, Vivendi Universal, Vivendi
Universal Exchangeco or their directors or officers in non-U.S. courts
judgments of courts in the United States predicated upon the civil
liability provisions of the U.S. federal securities laws.
Actions brought in France for enforcement of judgments of U.S. courts
rendered against French persons, including directors and officers of Vivendi,
CANAL+ and Vivendi Universal, would require those persons to waive their right
to be sued in France under Article 15 of the French Civil Code. In addition,
actions in the United States under the U.S. federal securities laws could be
affected under certain circumstances by the French law of July 16, 1980, which
may preclude or restrict the obtaining of evidence in France or from French
persons in connection with those actions. Each of the foregoing statements
applies as well to certain of the experts listed below.
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EXPERTS
The consolidated financial statements of Vivendi included herein have been
so included in reliance on the report of Barbier Frinault & Cie and RSM Salustro
Reydel, independent accountants, given on the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of Seagram incorporated in this joint
proxy statement-prospectus by reference to the Annual Report on Form 10-K for
the year ended June 30, 2000, as amended, 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 CANAL+ included herein have been
so included in reliance on the report of Barbier Frinault & Cie and RSM Salustro
Reydel of such firm given on the authority of said firm as experts in accounting
and auditing.
SHAREHOLDER PROPOSALS
If the merger transactions are completed, Seagram shareholders will no
longer own Seagram common shares, and Seagram will not solicit proxies for an
annual meeting in 2001. If the merger transactions are not approved, Seagram
will hold an annual meeting in 2001. If you are a holder of Seagram common
shares and want to have a shareholder proposal considered for inclusion in the
proxy circular for that meeting, you must submit the proposal in writing to the
secretary of Seagram at 1430 Peel Street, Montreal, Quebec, Canada H3A 1S9 on or
before September 6, 2001. ANY SHAREHOLDER PROPOSAL THAT IS NOT SUBMITTED AS
DESCRIBED ABOVE WILL BE SUBJECT TO THE DISCRETIONARY AUTHORITY OF THE PERSONS
NAMED ON THE PROXY FOR SEAGRAM'S 2001 ANNUAL MEETING.
LEGAL MATTERS
The validity of the Vivendi Universal ordinary shares that will be issued
in the merger transactions will be passed on for Vivendi Universal by Gilbert
Klajnman.
Wachtell, Lipton, Rosen & Katz, special U.S. counsel to Vivendi, has passed
upon certain U.S. federal income tax considerations relating to the merger of
Vivendi into Vivendi Universal and holding the Vivendi Universal shares. Simpson
Thacher & Bartlett, U.S. counsel to Seagram, has passed upon certain U.S.
federal income tax considerations applicable to U.S. holders of Seagram common
shares who receive Vivendi Universal ADSs pursuant to the arrangement. Cleary,
Gottlieb, Steen & Hamilton, counsel to CANAL+, has passed upon certain U.S.
federal income tax considerations applicable to U.S. holders of CANAL+ shares
that receive Vivendi Universal shares pursuant to the Vivendi/ CANAL+
transactions. Osler, Hoskin & Harcourt LLP, Canadian counsel to Seagram, has
passed upon certain tax considerations under the Canadian Tax Act applicable to
certain holders of Seagram common shares. Bureau Francis Lefebvre, special
French tax counsel to Vivendi, has passed upon certain French tax considerations
applicable to dividends received in connection with Vivendi Universal shares and
to capital gains derived from the sale of Vivendi Universal shares by a
shareholder having his or her tax residence outside France.
WHERE YOU CAN FIND MORE INFORMATION
Vivendi and Seagram are subject to the information reporting requirements
of the Exchange Act and, in accordance with the Exchange Act, file certain
reports and other information with the SEC. Vivendi files annual reports,
current reports and other information with the SEC, and Seagram files annual,
quarterly and current reports, proxy statements and other information with the
SEC. You may read and copy any reports, proxy statements and other information
filed by Vivendi and Seagram at the SEC's Public Reference Rooms at 450 Fifth
Street, NW, Washington, D.C. 20549; Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; or Seven World Trade Center, New York,
New York 10048. You may also request copies of these documents, upon payment of
a duplicating fee, by writing to the Public Reference Section of the SEC. Please
call the SEC at 1-800-SEC-0330 for further
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information on the operation of the SEC's Public Reference Rooms. Vivendi's and
Seagram's SEC filings are also available to the public on the SEC's Internet
site (http://www.sec.gov).
Vivendi Universal has filed a registration statement on Form F-4 to
register with the SEC the Vivendi Universal ordinary shares to be delivered in
connection with the merger transactions. This joint proxy statement-prospectus
is a part of that registration statement and constitutes a prospectus of Vivendi
Universal in addition to being a proxy circular of Seagram for the annual and
special meeting of the Seagram shareholders and a proxy statement of each of
Vivendi and CANAL+ directed to U.S. persons that own Vivendi shares for the
extraordinary meeting of the Vivendi shareholders or that own CANAL+ shares for
the ordinary and extraordinary meeting of the CANAL+ shareholders. As allowed by
SEC rules, this joint proxy statement-prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement.
The SEC and the applicable Canadian securities regulatory authorities allow
Seagram to "incorporate by reference" information into this joint proxy
statement-prospectus, which means that Seagram can disclose information that is
important to you by referring you to other documents filed separately with the
SEC or the applicable Canadian securities regulatory authorities. The
information incorporated by reference is deemed to be part of this joint proxy
statement-prospectus, except for any information superseded by information in
this joint proxy statement-prospectus.
This joint proxy statement-prospectus incorporates by reference the
documents set forth below that Seagram has previously filed with the SEC (SEC
file number 1-2275) and the applicable Canadian securities regulatory
authorities:
- Seagram's Annual Report on Form 10-K for the fiscal year ended June 30,
2000, filed September 28, 2000, as amended by Seagram's Annual Report on
Form 10-K/A, filed October 30, 2000;
- Seagram's Current Report on Form 8-K dated June 19, 2000, filed June 26,
2000;
- Seagram's Current Report on Form 8-K dated August 17, 2000, filed August
17, 2000;
- Seagram's Current Report on Form 8-K dated October 31, 2000, filed
October 31, 2000; and
- Seagram's Current Report on Form 8-K dated November 1, 2000, filed
November 1, 2000.
We are also incorporating by reference additional documents that Seagram
files with the SEC and Canadian securities regulatory authorities between the
date of this joint proxy statement-prospectus and the date of the Seagram
meeting. All reports and other documents subsequently filed by Seagram pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the date of
the Seagram meeting shall be deemed to be incorporated by reference herein and
to be part hereof from the date of filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this document shall be deemed to be modified or superseded for
purposes of this joint proxy statement-prospectus to the extent that such a
statement modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute part of this joint proxy statement-prospectus.
If you are a Seagram shareholder you may have previously received some of
the documents incorporated by reference, but you can obtain any of them through
Seagram or the SEC. Documents incorporated by reference are available from
Seagram without charge. Exhibits to the documents will not be sent, however,
unless those exhibits have specifically been incorporated by reference in this
joint proxy statement-prospectus. Shareholders may obtain, without charge,
documents incorporated by reference in this joint proxy statement-prospectus by
requesting them in writing or by telephone from Seagram at the following
address:
THE SEAGRAM COMPANY LTD.
1430 Peel Street
Montreal, Quebec H3A 1S9
Canada
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If you would like to request documents from Seagram, please do so by
calling Shareholder Services at 1-514-987-5209 or sending an e-mail to
shareholders*[email protected] to receive them before the Seagram
meeting.
Vivendi has supplied all information contained in this joint proxy
statement-prospectus relating to Vivendi, Vivendi Universal and Vivendi
Universal Exchangeco, CANAL+ has supplied all information relating to CANAL+ and
Seagram has supplied all information relating to Seagram.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement-prospectus to vote on the merger
transactions. Neither Vivendi, Seagram nor CANAL+ has authorized anyone to
provide you with information different from that contained in the joint proxy
statement-prospectus. This joint proxy statement-prospectus is dated November 2,
2000. You should not assume that the information contained in this joint proxy
statement-prospectus is accurate as of any other date. Neither the mailing of
this joint proxy statement-prospectus, nor the delivery of Vivendi Universal
ordinary shares, Vivendi Universal ADSs, exchangeable shares, cash or other
consideration should be deemed to create any implication to the contrary.
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APPROVAL OF PROSPECTUS BY SEAGRAM BOARD OF DIRECTORS
The contents and sending of this joint proxy statement-prospectus have been
approved by resolution of Seagram's board of directors.
DATED at Montreal, Quebec, Canada this second day of November, 2000.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael C.L. Hallows
Michael C.L. Hallows
Secretary
353
<PAGE> 361
CHAPTER ELEVEN -- FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
VIVENDI
Unaudited Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999..................................... F-2
Unaudited Consolidated Income Statements for the six-month
periods ended June 30, 2000 and 1999...................... F-3
Unaudited Consolidated Statements of Cash Flows for the
six-month periods ended June 30, 2000 and 1999............ F-4
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the six-month period ended June 30, 2000....... F-5
Notes to Unaudited Consolidated Interim Financial
Statements................................................ F-6
Reports of Independent Public Accountants................... F-26
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-28
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-30
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended
December 31, 1999, 1998, 1997 and 1996.................... F-31
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-32
Notes to Consolidated Financial Statements.................. F-33
CANAL+
Unaudited Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999..................................... F-100
Unaudited Consolidated Income Statement for the six month
periods ended June 30, 1999 and 2000...................... F-101
Unaudited Consolidated Statements of Changes in
Shareholders' Equity for the six-month period ended June
30, 2000.................................................. F-102
Unaudited Consolidated Statements of Cash Flows for the
six-month periods ended June 30, 2000 and 1999............ F-103
Notes to Unaudited Consolidated Interim Financial
Statements................................................ F-104
Reports of Independent Public Accountants................... F-117
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-119
Consolidated Income Statement for the Years Ended December
1999, 1998 and 1997....................................... F-120
Consolidated Statement of Cash Flows for the Years Ended
December 1999, 1998 and 1997.............................. F-121
Notes to Consolidated Financial Statements.................. F-122
</TABLE>
F-1
<PAGE> 362
VIVENDI FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
---------------------------------------- ----------------------
U.S.$ EUROS EUROS
NOTES 2000 2000 1999(*) 1999
----- ------------------ --------- --------- ---------
(IN MILLIONS OF $) (IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C> <C>
ASSETS
GOODWILL......................... 9,756.5 10,210.2 10,388.6 10,388.6
OTHER INTANGIBLE ASSETS.......... 8,297.1 8,682.9 8,192.6 8,681.9
Property plant and equipment..... 23,753.9 24,858.5 26,569.1 26,569.1
Publicly-owned utility networks
financed and managed by the
group.......................... 5,384.0 5,634.4 3,985.8 3,985.8
Accumulated depreciation......... (10,550.7) (11,041.4) (10,577.5) (10,577.5)
TANGIBLE ASSETS.................. -- 18,587.2 19,451.5 19,977.4 19,977.4
--------- --------- --------- ---------
Investments accounted for using
the equity method.............. 3 2,349.5 2,458.8 781.9 781.9
Investments accounted for using
the cost method................ 4 903.9 945.9 2,415.6 2,415.6
Portfolio investments held as
fixed assets (securities)...... 508.0 531.6 534.4 534.4
Portfolio investments held as
fixed assets (others).......... 4 2,094.8 2,192.2 2,561.1 2,561.1
FINANCIAL ASSETS................. -- 5,856.2 6,128.5 6,293.0 6,293.0
--------- --------- --------- ---------
TOTAL LONG-TERM ASSETS........... -- 42,497.0 44,473.1 44,851.6 45,340.9
--------- --------- --------- ---------
Inventories and
work-in-progress............... 5 3,521.6 3,685.4 4,900.3 4,900.3
Accounts receivable.............. 6 17,041.2 17,833.6 22,164.1 22,391.7
Short-term loans................. 3,496.8 3,659.4 3,041.2 3,035.6
Cash and cash equivalents and
marketable securities.......... 7,054.8 7,382.8 7,144.7 7,108.5
TOTAL CURRENT ASSETS............. -- 31,114.4 32,561.2 37,250.3 37,436.1
--------- --------- --------- ---------
TOTAL ASSETS..................... -- 73,611.4 77,034.3 82,101.9 82,777.0
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Share capital.................... 3,182.5 3,330.5 3,276.1 3,276.1
Additional paid-in capital....... 4,707.8 4,926.7 4,350.8 4,350.8
Retained earnings................ 4,067.6 4,256.7 3,149.6 3,265.3
TOTAL SHAREHOLDERS' EQUITY....... 7 11,957.9 12,513.9 10,776.5 10,892.2
--------- --------- --------- ---------
MINORITY INTERESTS............... 3,920.8 4,103.1 3,754.5 4,052.4
DEFERRED INCOME.................. 1,255.6 1,314.0 1,306.4 1,306.4
PROVISIONS....................... 9 5,283.0 5,528.7 6,883.4 6,883.3
SUBORDINATED DEBT................ 8 150.5 157.5 178.3 178.3
Non-recourse project financing... 8 841.6 880.7 1,193.0 1,193.0
Other financial long-term debt... 8 17,144.9 17,942.1 17,861.7 17,861.7
LONG-TERM DEBT................... 8 17,986.5 18,822.8 19,054.7 19,054.7
--------- --------- --------- ---------
OTHER LONG-TERM LIABILITIES...... 1,295.1 1,355.3 1,560.2 1,560.2
TOTAL LONG-TERM LIABILITIES...... 41,849.4 43,795.3 43,514.0 43,927.5
--------- --------- --------- ---------
Accounts payable................. 10 17,532.4 18,347.7 23,565.6 23,832.1
Bank overdrafts and other
short-term borrowings.......... 14,229.6 14,891.3 15,022.3 15,017.4
TOTAL CURRENT LIABILITIES........ 31,762.0 33,239.0 38,587.9 38,849.5
--------- --------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY........... 73,611.4 77,034.3 82,101.9 82,777.0
========= ========= ========= =========
</TABLE>
---------------
(*) Proforma presented in accordance with Vivendi accounting policies as of June
30, 2000
F-2
<PAGE> 363
VIVENDI
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
6 MONTHS ENDED JUNE 30,
----------------------------------------------------------------
EUROS
U.S.$ ----------------------------------
NOTES 2000 2000 1999(*) 1999
----- ------------------ -------- --------- ---------
(IN MILLIONS OF $) (IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C> <C>
NET SALES........................... 14 18,551.2 19,413.8 18,076.1 18,199.6
Other revenues...................... 286.7 300.0 716.5 922.5
Selling, general and administrative
expenses.......................... (8,972.2) (9,389.4) (10,716.4) (10,733.2)
Personnel costs..................... (4,461.6) (4,669.1) (4,659.5) (4,705.7)
Taxes............................... (266.4) (278.8) (331.7) (334.1)
Other operating expenses............ (2,710.6) (2,836.6) (1,353.0) (1,356.5)
Depreciation and amortization....... (1,288.7) (1,348.6) (863.8) (1,084.1)
Employee profit-sharing............. (30.1) (31.5) (28.2) (28.2)
OPERATING INCOME.................... 1,108.3 1,159.8 840.0 880.3
-------- -------- --------- ---------
Financial expenses/income........... (114.5) (119.8) 165.3 79.9
Financial provisions................ (85.4) (89.4) (165.0) (166.5)
NET FINANCIAL EXPENSES/INCOME....... (199.9) (209.2) 0.3 (86.6)
-------- -------- --------- ---------
INCOME FROM OPERATIONS BEFORE
EXCEPTIONAL ITEMS AND INCOME
TAXES............................. 908.4 950.6 840.3 793.7
-------- -------- --------- ---------
Exceptional items................... 1,584.6 1,658.3 278.7 279.9
Depreciation and amortization....... 114.9 120.2 (184.6) (187.9)
INCOME BEFORE INCOME TAXES, GOODWILL
AMORTIZATION, EQUITY INTEREST AND
MINORITY INTEREST................. 2,607.9 2,729.1 934.4 885.7
-------- -------- --------- ---------
Income taxes and deferred tax....... 11 (664.4) (695.3) 70.6 57.9
INCOME BEFORE GOODWILL AMORTIZATION,
EQUITY INTEREST AND MINORITY
INTEREST.......................... 1,943.5 2,033.8 1,005.0 943.6
-------- -------- --------- ---------
Goodwill amortization............... (241.2) (252.4) (147.8) (148.7)
INCOME BEFORE EQUITY INTEREST AND
MINORITY INTEREST................. 1,702.3 1,781.4 857.2 794.9
-------- -------- --------- ---------
EQUITY IN NET INCOME OF
AFFILIATES........................ (97.5) (102.0) 55.7 64.2
Minority interest................... (251.2) (262.9) (65.8) (76.3)
-------- -------- --------- ---------
NET INCOME.......................... 1,353.6 1,416.5 847.1 782.8
======== ======== ========= =========
</TABLE>
---------------
(*) Pro forma presented in accordance with Vivendi accounting policies as of
June 30, 2000.
F-3
<PAGE> 364
VIVENDI
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------
U.S.$ EUROS
--------------- -----------------------
2000 2000 1999
--------------- --------- ----------
(IN MILLIONS $) (IN MILLIONS OF EUROS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.................................................. 1,353.6 1,416.5 782.7
Adjustment to reconcile net income to net cash provided by
operating activities
Depreciation and amortization........................... 1,539.8 1,611.3 1,523.7
Financial provisions.................................... 85.4 89.4 166.5
Gains on sale on property and equipment and financial
assets,net............................................ (1,901.7) (1,990.1) (484.9)
Undistributed earnings of affiliate, net................ 117.2 122.7 (8.5)
Deferred taxes.......................................... 278.3 291.2 (254.9)
Minority interests...................................... 251.2 262.9 76.4
Net changes in current assets and liabilities :
Prepaid, deferrals and accruals......................... (61.2) (64.0) (417.7)
Other working capital................................... (1,340.3) (1,402.6) (1,245.4)
-------- -------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 322.3 337.3 137.9
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................. (2,425.2) (2,538.0) (1,498.7)
Proceeds from sale of property, plant and equipment....... 2,269.9 2,375.4 183.0
Purchase of investments................................... (1,474.1) (1,542.6) (9,421.5)
Sales of investments...................................... 1,517.1 1,587.6 971.8
Purchase of portfolio investments......................... (106.4) (111.3) (436.1)
Sales of portfolio investments............................ 194.0 203.0 290.8
Disbursement on notes receivables......................... 42.7 44.7 (878.7)
Principal payment on notes receivables.................... 52.7 55.2 175.7
Net (increase) decrease in short term financial
receivables............................................. 1,839.5 1,925.0 (502.3)
Purchase of treasury shares held as marketable
securities.............................................. -- (173.8)
Sales (purchases) of other marketable securities.......... (740.7) (775.1) (1,216.6)
-------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES................... 1,169.5 1,223.9 (12,506.4)
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings.......... (7,800.8) (8,163.5) 7,124.4
Proceeds from issuance of borrowings and other long-term
debt.................................................... 5,731.1 5,997.7 5,748.9
Principal payment on borrowings and other long-term
debt.................................................... 435.4 455.6 (3,028.1)
Net proceeds from issuance of common stock................ 612.2 640.7 2,973.6
Purchase of treasury stock................................ -- (466.4)
Cash dividends paid....................................... (620.3) (649.1)
-------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... (1,642.2) (1,718.6) 12,352.4
Effect of foreign currency exchange rate changes on cash and
cash equivalents.......................................... (71.9) (76.6) (34.8)
-------- -------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS......................... (222.3) (234.0) (50.9)
======== ======== =========
CASH AND CASH EQUIVALENT:
Beginning................................................. 2,734.6 2,861.8 1,264.1
Ending.................................................... 2,511.0 2,627.8 1,213.2
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest................................................ 602.0 626.4 279.3
Income taxes............................................ 110.0 114.5 185.0
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition:
Purchase of affiliates by issuance of common stock......
Issuance of common stock in settlement of note
payable............................................... 619.6
Issuance of common stock in settlement of dividends..... -- -- --
</TABLE>
F-4
<PAGE> 365
VIVENDI
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
SHARE ADDITIONAL RETAINED NET SHAREHOLDERS'
CAPITAL PAID-IN CAPITAL EARNINGS INCOME EQUITY
------- --------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999.......... 3,276.1 4,350.8 1,833.9 1,431.4 10,892.2
Changes in accounting policy.......... (115.7) (115.7)
ADJUSTED BALANCE AT JANUARY 01,
2000................................ 3,276.1 4,350.8 1,718.2 1,431.4 10,776.5
Capital increase...................... 54.4 526.4 580.8
Goodwill.............................. 49.5 175.6 225.1
Dividends paid and net income
appropriation....................... 865.7 (1,431.4) (565.7)
Foreign currency translation
adjustment.......................... 86.0 86.0
Release of revaluation surplus and
other............................... (5.5) (5.5)
Net income for the period ended June
30, 2000............................ 1,416.5 1,416.5
BALANCE AT JUNE 30, 2000.............. 3,330.5 4,926.7 2,840.2 1,416.5 12,513.9
</TABLE>
F-5
<PAGE> 366
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1) BUSINESS DESCRIPTION
Vivendi, together with its subsidiaries and investees ("Vivendi" or the
"Company"), a French corporation (Societe Anonyme) provides a broad range of
services mainly in two core business sectors: Communication and Environmental
Services.
As part of its on-going strategy of focusing on these two business sectors,
the Company reduced its activities in i) the real estate business with the sale
of Nexity for a price of E42 million -- the company now retains certain residual
programs in-progress integrated into Vivendi Valorisation structure, and ii) the
construction business with the reduction of its stake in Vinci to 16.9%, which
resulted in a gain of E300 million.
In addition, the main changes in the consolidated companies for the first
half 2000 details as follows:
COMMUNICATION
On May 16, 2000, Vivendi signed an agreement with Vodafone, pursuant to
which Vivendi will create a 50/50 joint venture to operate and promote Vizzavi
providing a multi access Internet portal. During the first six months of 2000,
Vivendi made further acquisitions in the communication activity, among which a
i) 22% stake in Scoot.com, ii) 100% stake in I-France (internet activity), iii)
100% in the Hungarian telephone operator United Telecom Investment and a iv) 40%
stake in Kencell Communication Limited, a Kenyan mobile telephone operator.
ENVIRONMENTAL SERVICES
On February 2000, Vivendi sold to Reliant 21 independent power production
plants owned by Sithe Energies for E2.13 billion and recognized a gain of E450
million.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated interim financial statements of Vivendi are presented in
accordance with accounting principles generally accepted in France ("French
GAAP") and in accordance with the Conseil National de la Comptabilite (French
Accounting Authorities) recommendation of March 1999 about interim statements
and comply with the same accounting rules as year-end policies except for the
changes set out in paragraph "Changes in accounting principles".
In the opinion of the management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of financial position,
results of operations and cash flows for the interim periods have been made.
French GAAP differs in certain respects from accounting principles
generally accepted in the United States. A description of these differences and
their effects on net income and shareholders' equity is set forth in Note 15.
CONVENIENCE TRANSLATIONS
The consolidated balance sheet and consolidated statements of income and
cash flows include amounts as of and for the six-month period ended June 30,
2000 denominated in millions of U.S. dollars. These amounts have been prepared
using an exchange rate of U.S.$1 to E1.0465, which was the exchange rate as of
June 30, 2000. Convenience translations are presented solely for the convenience
of the reader of these financial statements and should not be construed as
representations that the local currency has been,
F-6
<PAGE> 367
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
could have been, or could in the future be converted into U.S. dollars at this
or any other rate of exchange.
CHANGE IN ACCOUNTING PRINCIPLES
As of January 1, 2000, the Company adopted new accounting principles
pursuant to:
- Revenues and expenses of subsidiaries' financial statements denominated
in a currency different from euros, which were previously translated at
the year-end exchange rate and are now translated at the average
exchange rate during the period. The cumulative effects of this change
in accounting principle were to decrease first half of 2000 net income
as of June 30, 2000 by E8.5 million.
- Gains on foreign currency transactions, which were previously deferred
and are now recorded in current period earnings. The cumulative effects
of this change in accounting principle were to increase first half of
2000 net income as of June 30, 2000 by E5.8 million and to increase
retained earnings by E44.8 million.
- Subscriber acquisition costs which were previously spread over 12 months
from the date the line is put into service and are now charged to
expense. The cumulative effects of this change in accounting principle
were to increase first half of 2000 net income as of June 30, 2000 by
E31.7 million and to decrease retained earnings by E160.5 million.
These changes were made to more closely align the Company's accounting
practices to US GAAP.
In order to facilitate the comparability of financial statements, pro forma
1999 financial statements are presented in accordance with Vivendi's accounting
policies as of June 30, 2000.
NEW ACCOUNTING PRONOUNCEMENTS IN FRANCE
A new set of accounting standards set forth by the "Comite de la
Reglementation Comptable" in April 1999, covering the consolidation
methodologies applicable to consolidated financial statements is effective for
fiscal years beginning on or after January 1, 2000. The adoption of these new
standards did not have any material impact on the Company's financial position
or results of operations.
F-7
<PAGE> 368
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
3) INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Investments accounted for using the equity method are detailed as follows
(in millions of Euros):
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------------------------
PROPORTIONATE
PROPORTIONATE SHARE OF NET
SHARE OF INCOME
INTEREST EQUITY (LOSS)
-------- ------------- -------------
2000 2000 2000
-------- ------------- -------------
<S> <C> <C> <C>
Elektrim Telekomunikacja SP ZOO................... 49.00 1,140.3 (38.9)
Telecom Developpement............................. 49.90 240.7 3.2
British Sky Broadcasting(1)(4).................... 18.84 191.8 (80.9)
Havas Advertising(2)(4)........................... 18.58 139.3 4.7
UGC............................................... 39.34 76.3 2.9
Philadelphia Suburban(4).......................... 16.12 63.1 4.0
UGC Cine Cite..................................... 18.42 61.4 (0.8)
Vinci(3)(4)....................................... 16.93 56.2 13.3
South Staffordshire(4)............................ 31.75 50.3 4.3
Xfera Moviles..................................... 27.50 -- 44.7
AOL Compuserve France SAS......................... 55.00 42.3 (7.6)
Bristol Waterworks Co.(4)......................... 24.14 35.4 0.2
Midkent(4)........................................ 23.76 27.2 1.5
Realia Business SA................................ 25.00 62.3 7.2
Other............................................. N/A 227.5 (15.1)
TOTAL................................... 2,458.8 (102.0)
======= ======
</TABLE>
---------------
(1) The company has assumed two debts obligation which are convertible into
shares of BskyB in a business combination. The Company owns 23.01% of the
BSkyB common shares outstanding (after capital increase reserved to Kirch),
but considers 4.17% of the total shares to be held for the repayment of the
convertible debts. Accordingly, the Company applies the equity method to the
percentages presented above.
(2) Vivendi controls 20% of voting rights in this company.
(3) During year 2000 first semester, Vivendi sold 32,3% of Vinci. In 1999, Vinci
was consolidated. Due to its double voting rights, Vivendi controls more
than 20% of Vinci voting rights.
(4) The June 30, 2000 quoted market price for these investments, which are
publicly listed, is as follows: British Sky Broadcasting: 7,057 million,
Havas Advertising: 717 million, Philadelphia Suburban: 141.9 million, Vinci:
296.6 million, South Stafforshire: 109.2 million, Bristol Waterworks Co.:
22.1 million, Midkent 28.1 million.
4) FINANCIAL ASSETS
Investments accounted for using the cost method
- The Company finalized the acquisition of its investment in Elektrim
Telekomunikacja SP Zoo in the beginning of year 2000. Consequently this
investment is now accounted for by the equity method.
F-8
<PAGE> 369
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
Other Portfolio investments held as fixed assets
The E368,9 million decrease between December 31, 1999 and June 30, 2000 of
Other Portfolio investments held as fixed assets mainly stems from:
- The sale of Vinci (net impact of E89 million),
- A debt abandonment of CGIS (net impact of E93 million),
- The reclassification as financial securities of Vivendi US Net (impact of
E114 million) due to a change in their holding term strategy, and
- The reimbursement by Television Holding SA of its debt to CANAL+ (impact
of E77 million).
5) INVENTORIES AND WORK IN PROGRESS
Inventories are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
ENVIRONMENTAL SERVICES, INCLUDING:.......................... 1,637.0 2,214.9
-Water...................................................... 1,090.7 1,525.4
-FCC........................................................ 107.6 230.3
-Sithe Energies............................................. 57.6 80.0
COMMUNICATION, INCLUDING:................................... 1,503.0 1,172.3
-Pay TV..................................................... 940.7 769.6
CONSTRUCTION................................................ -- 347.9
PROPERTY.................................................... 1,125.5 1,823.0
TOTAL....................................................... 4,265.5 5,558.1
Less valuation allowance.................................... (580.1) (657.8)
------- -------
NET VALUE................................................... 3,685.4 4,900.3
======= =======
</TABLE>
- Inventory and work in progress related to pay TV are comprised of the
Company's television broadcasting rights.
- Over the first semester 2000, Compagnie Generale d'Immobilier et de
Services went on with its divestiture policy, the effect of which is
reflected in the inventories decrease of the Property Segment.
6) ACCOUNTS RECEIVABLE
Accounts receivable detail as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Trade accounts receivable................................... 13,742.5 18,082.4
Valuation allowance......................................... (879.0) (1,068.3)
TOTAL TRADE ACCOUNTS RECEIVABLE............................. 12,863.5 17,041.1
VAT and Other taxes......................................... 2,435.7 2,644.0
Other including deferred tax................................ 2,534.4 2,733.6
-------- --------
TOTAL ACCOUNTS RECEIVABLE................................... 17,833.6 22,391.7
======== ========
</TABLE>
F-9
<PAGE> 370
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
The developments in the allowance for doubtful accounts for the year ended
December 31, 1999 and the six months ended June 30, 2000 are as follows:
<TABLE>
<S> <C>
Balance at December 31, 1999................................ 1,068.3
Amount charged to expense................................... 170.7
Utilization................................................. (109.2)
Reversal.................................................... (15.9)
Other movements*............................................ (234.9)
Balance at June 30, 2000.................................... 879.0
</TABLE>
---------------
* Other movements reflect changes in the scope of consolidation.
7) SHAREHOLDERS' EQUITY
During the first six months of 2000, the Company issued 9,482,743 shares
for a total of E571.3 million in connection with its obligations under the
employee stock purchase plan. In addition, the Company issued 404,749 shares for
a total of E9.1 million for the exercise of subscription options and issued
9,514 shares valued E0.4 million relating to the conversion of bonds and
warrants.
Goodwill totaling E225.1 million arising from business combinations was
recorded in additional paid-in capital in the first half of 2000.
The cumulative effect due to the change in accounting principles as of
January 1, 2000 was E(115.7) million.
8) DEBT
The table below presents an analysis of the consolidated long-term debt
balances by type of debt instrument (in millions of Euros):
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
----------- ---------------
<S> <C> <C>
Subordinated debt(a)...................................... 157.5 178.3
Non-recourse project financing(b)......................... 880.7 1,193.0
Other financial long-term debt:
Capital leases(c)....................................... 656.8 818.0
Vivendi convertible 1.25%(d)............................ 1,698.9 1,700.0
Vivendi Environnement 1.5%(e)........................... 2,870.8 3,028.8
BSkyB 3%(f)............................................. 134.8 155.1
Mediaset Spa 3.5%(g).................................... 74.9 181.9
Other................................................... 12,505.9 11,977.9
TOTAL..................................................... 18,980.3 19,233.0
======== ========
</TABLE>
---------------
(a) Subordinated debt consists primarily of:
-- a loan of E244 million to finance the wastewater treatment plant in
Zaragoza, Spain, underwritten by OTV on December 27, 1991 and repayable
over 15 years
-- $70 million of securities repayable over 15 years, issued on January 29,
1991 by Energies USA.
(b) This is non-recourse financing, i.e., it is guaranteed solely by the
projects which it finances. It concerns the Sithe Energies power plants
(E880.7 million). The corresponding assets are primarily
F-10
<PAGE> 371
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
included under the "heading property, plant and equipment". The decrease
mainly comes from the sale of power production plants to Reliant.
(c) The decrease mainly comes from the sale of Vinci for E124 million.
(d) On January 1999, Vivendi issued bonds that bear interest at 1.25%, with a
maturity in January 2004 and that are convertible at the option of the
bondholder, into Vivendi shares at a conversion rate of 1 bond to 3.047
shares. The maturity is January 1, 2004.
(e) On April 1999, Vivendi Environnement, a wholly owned subsidiary, issued
bonds that bear interest at 1.5%, with a maturity in January 2005, and that
are convertible, at the option of the bondholder, into Vivendi shares at a
conversion rate of 1 bond to 3.047 shares. If there is at the initial
offering of Vivendi Environnement shares, the bonds may be converted into
shares of Vivendi Environnement at a predetermined conversion rate.
(f) In connection with its acquisition of Pathe in September 1999, Vivendi
assumed bonds that bear interest at 3%, with a maturity in November 2003,
and that are exchangeable into BSkyB shares. Each bond may be exchanged at
the option of the bondholder for 188.5236 BSkyB shares. Vivendi currently
owns an adequate number of BSkyB shares to meet its maximum conversion
obligation.
(g) On April 1997, Canal+ issued bonds that bear interest at 3.5%, with a
maturity in March 2002, and that are exchangeable into Mediaset Spa shares.
Each bond may be exchanged at the option of the bondholder for 341.74
shares per bond. Canal+ currently owns an adequate number of Mediaset to
meet its maximum conversion.
9) RESERVES AND ALLOWANCES
Reserves and allowances are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
----------- ---------------
<S> <C> <C>
Litigation including social and fiscal.................... 693.3 1,081.8
Warranties and customer care.............................. 276.3 376.7
Financial depreciation*................................... 545.5 525.8
Maintenance and repair costs accrued in advance........... 400.6 432.7
Reserves related to fixed assets.......................... 144.6 152.1
Valuation allowance on Real Estate........................ 1,146.2 1,255.7
Valuation allowance on Work in progress and losses on long
term contracts.......................................... 467.2 684.8
Closure and post closure costs............................ 267.4 259.1
Pensions.................................................. 253.2 591.6
Restructuring costs....................................... 338.4 434.1
Losses on investments in unconsolidated companies......... 393.4 376.0
Others.................................................... 602.6 712.9
------- -------
TOTAL RESERVES AND ALLOWANCES............................. 5,528.7 6,883.3
======= =======
</TABLE>
---------------
* Financial depreciation of fixed assets relating to public service contracts.
F-11
<PAGE> 372
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
The developments in the reserve for restructuring costs for the year ended
December 31, 1999 and six months ended June 30, 2000 are as follows:
<TABLE>
<S> <C>
Balance at December 31, 1999................................ 434.1
Amount charged to expenses.................................. 28.4
Deductions of reserve
Utilization (cash).......................................... (81.2)
Reversal (change in estimate)............................... (0.8)
Other adjustments*.......................................... (42.1)
Balance at June 30, 2000.................................... 338.4
</TABLE>
---------------
* Other adjustments reflect changes in the scope of consolidation.
Provisions for restructuring by segment analyses are as follows:
<TABLE>
<CAPTION>
AT JUNE AT DECEMBER
2000 1999
------- -----------
<S> <C> <C>
Telecommunication........................................... 19.3 19.1
Publishing and multimedia................................... 51.7 53.5
Audiovisual................................................. 37.3 37.3
Internet.................................................... -- --
Water....................................................... 199.9 182.9
Waste management............................................ 23.0 20.0
Energy...................................................... 4.4 5.3
Transportation.............................................. 0.9 0.9
FCC......................................................... -- --
Construction................................................ -- 107.4
Real Estate................................................. 1.9 7.7
TOTAL....................................................... 338.4 434.1
===== =====
</TABLE>
10) ACCOUNTS PAYABLE
Accounts payable are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
----------- ---------------
<S> <C> <C>
Trade accounts payable.................................... 13,118.5 17,637.6
Social costs payable...................................... 3,787.8 4,613.3
Other..................................................... 1,441.3 1,581.2
TOTAL ACCOUNTS PAYABLE.................................... 18,347.6 23,832.1
</TABLE>
11) INCOME TAXES
Analysis of income tax expense (benefit)
F-12
<PAGE> 373
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
Components of the income tax provision (benefit) are as follows (in
millions of Euros):
<TABLE>
<CAPTION>
AT JUNE 30,
---------------
2000 1999
----- ------
<S> <C> <C>
Current income tax expense.................................. 404.1 195.0
Deferred income tax (benefit)............................... 291.2 (265.6)
----- ------
Total income tax expense (benefit).......................... 695.3 (70.6)
===== ======
</TABLE>
The 2000 income tax expense results from two main factors:
- the fiscal effect of the disposal of investments and businesses during
the first semester of 2000 (Vinci, CANAL SATELLITE, Multithematique,
GPU's assets)
- the decrease in value of deferred tax assets due to the constitution of a
new independent fiscal consolidated group for Vivendi Environnement, as a
direct consequence of the dilution of the Group in this company.
12) COMMITMENTS AND CONTINGENCIES
The most important changes relating to commitments and contingencies for
the six months ended June 30, 2000 are set out below:
COMMITMENTS AND CONTINGENT LIABILITIES
The Company has given specific guarantees that cover both prepayments
received by the Company and performance obligations relating to construction
contracts of the Company. These guarantees typically represent 20-30% of the
value of a contract, and in some cases can be 100% of the contract amount. These
guarantees represented E2,537.0 millions on December 31, 1999 and E1,017.4
millions on June 30, 2000. The decrease is due to the divestiture of Vinci,
which contributed in 1999 for an amount of E1,433.0 millions to these
guarantees.
In the first six months of 2000, the Company has given to the Spanish
Government a guarantee of E933.2 millions for the UMTS mobile telephony license.
13) INVESTMENTS ACCOUNTED FOR USING THE PROPORTIONATE CONSOLIDATION METHOD
Investments accounted for using the proportionate consolidation method
represent companies in which Vivendi and other shareholders have agreed to
exercise joint control over significant financial and operating policies.
F-13
<PAGE> 374
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information for major subsidiaries consolidated under
the proportionate consolidation method is as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ---------------
2000 1999
----------- ---------------
<S> <C> <C>
BALANCE SHEET DATA
Non-current assets........................................ 4,410.6 4,324.6
Current assets............................................ 1,749.4 2,835.7
Total assets.............................................. 6,160.0 7,160.3
Shareholders' equity...................................... 110.2 1,878.6
Minority interests........................................ 1,194.7 244.1
Financial debt............................................ 1,523.8 1,557.4
Reserves and other liabilities............................ 3,331.3 3,480.2
Total liabilities and shareholders equity................. 6,160.0 7,160.3
INCOME STATEMENT DATA
Net sales................................................. 1,564.0 2,508.5
Operating income.......................................... 165.9 222.8
Net income................................................ 32.8 80.2
</TABLE>
14) NET REVENUES
Net revenues for the six months ended June 30, 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------
2000 1999
-------- --------
(E MILLIONS)
<S> <C> <C>
Telecommunication........................................... 2,465.3 1,912.6
Publishing and multimedia................................... 1,624.9 1,654.1
Audiovisual................................................. 1,951.5 99.0
Internet.................................................... 14.9 23.6
-------- --------
COMMUNICATION............................................... 6,056.6 3,689.3
Water....................................................... 6,050.2 4,048.2
Waste management............................................ 2,377.6 1,483.4
Energy...................................................... 1,588.0 1,919.4
Transportation.............................................. 1,505.2 1,085.4
FCC......................................................... 1,005,7 987.8
-------- --------
ENVIRONMENTAL SERVICES...................................... 12,526.7 9,524.2
Construction................................................ -- 3,876.2
Real Estate................................................. -- 982.3
-------- --------
CONSTRUCTION AND REAL ESTATE................................ -- 4,858.5
OTHERS...................................................... 830.5 4.1
-------- --------
TOTAL REVENUE FROM EXTERNAL CUSTOMERS....................... 19,413.8 18,076.1
======== ========
</TABLE>
During the first half of 2000, the Vivendi Group generated sales of E19.4
billion, compared with E18.1 billion for the same period in the previous year.
This represented a 7.4% growth in sales. These sales figures have been impacted
by the sale of Vinci and Nexity which took effect as from January 1, 2000 but
F-14
<PAGE> 375
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
also include the full-period impact of the major acquisitions during 1999,
principally US Filter and Canal+.
The internal growth rate was 15.6% and the effect of exchange rate
variances was 2.9%. The Communications and Environmental Services Divisions
represent revenues of E18.6 billion, reflecting a gross increase of 46% and
an internal growth rate of 15%. The portion generated by international
activities represented E8.6 billion, which represents an increase of 74% as
compared to 1999 first semester.
The net effect of changes in scope of consolidation is a reduction of
E1.3 billion of the Group revenues among which:
- a reduction of E4.7 billion related to the sale of non core
activities (Construction and Real Estate businesses through the sale of
Vinci and Nexity)
- an increase of E1.7 billion for Communication activities
- an increase of E1.7 billion for Environmental services.
15) SUPPLEMENTAL DISCLOSURES (UNAUDITED)
The following information has been prepared to present supplemental
disclosures required under US GAAP and SEC regulations applicable to the
Company.
15A) SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING POLICIES GENERALLY
ACCEPTED IN THE UNITED STATES AND FRANCE.
The consolidated interim financial statements of Vivendi have been prepared
in accordance with French GAAP, which differs in certain significant respects
from US GAAP. The principal differences between French GAAP and US GAAP as they
relate to Vivendi are discussed in further detail below.
CONSOLIDATION OF LESS THAN MAJORITY OWNED ENTITIES
Under French GAAP, if a shareholder has substantive and effective control
of a less than 50% owned entity, consolidation is appropriate.
Under US GAAP, control is normally defined as voting control (over 50%)
although there may be facts and circumstances that permit consolidation in other
cases. In the case of the Company's 49% interest in Canal+, consolidation is
considered appropriate under French GAAP while under US GAAP equity accounting
would be considered appropriate.
There is no difference in net income or shareholder's equity that results
from this difference in treatment.
USE OF THE PROPORTIONATE CONSOLIDATION METHOD
Under French GAAP, it is appropriate to use the proportionate consolidation
method for subsidiaries over which the Company and other shareholders have
agreed to exercise joint control over significant Financial and operating
policies. Under the proportionate consolidation method, the Company recognizes
the assets, liabilities, equity, revenue and expenses of subsidiaries to the
extent of its interest in the Company ownership.
Under US GAAP, when the Company controls a subsidiary based on majority
ownership or voting or other rights, the subsidiary is fully consolidated. When
the Company does not exercise control over a subsidiary, but has significant
influence over the entity, the Company uses the equity method to account for its
investment.
F-15
<PAGE> 376
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
This difference in accounting policy has no effect on either net income or
shareholders' equity.
USE OF EQUITY METHOD
Under French GAAP, there are several criteria to be met which result in the
presumption that equity accounting should be used. For investments under 20%,
equity accounting is followed if the investor is determined to have significant
influence due to the relative level of ownership, board of directors
representation, and other contractual relationships; another consideration is
the level of ownership by others in the investee.
Under US GAAP, equity accounting is generally required when an investor's
ownership interest is equal to or greater than 20% of the investee's total
voting securities. In unusual situations where the ownership interest is less
than 20%, equity accounting may be appropriate if significant influence exists
as the result of other contractual relationships and board representation.
CURRENCY TRANSLATION ADJUSTMENTS
Translation of Financial statements
In Vivendi year 1999 financial statements, the balance sheets and related
statements of income of subsidiaries whose functional currency were different
from that of the parent were translated into the reporting currency at the
applicable year-end exchange rate, which is permitted under French GAAP.
Translation gains and losses were recorded as a component of shareholders'
equity, or in minority interest as appropriate.
Under US GAAP, when subsidiaries' Financial statements are denominated in a
currency different from the parent, assets and liabilities are translated at the
year-end exchange rates, which is consistent with French GAAP, however revenue
and expenses are translated at the average exchange rate during the year.
As of January 1, 2000 the Company changed its French GAAP accounting
principles to translate revenue and expenses at the average exchange rate during
the period.
Under French GAAP, the balance sheets and statements of income and cash
flows of subsidiaries operating in countries where the local currency is deemed
to be highly inflationary are translated into a stable currency of a country
that has a similar economy. Related translation gains or losses are recorded in
current period earnings. These Financial statements are then translated from the
stable currency into the reporting currency using year-end exchange rates, and
translation gains or losses are recorded in retained earnings.
Under US GAAP, for subsidiaries operating in countries where the functional
currency is deemed to be highly inflationary, the functional currency is
considered to be the Company's reporting currency.
Accordingly, balance sheets and statements of income and cash flows are
remeasured for the functional currency into the reporting currency, and
translation gains or losses are recorded in current period earnings.
Foreign currency transactions
In 1999, the Company accounting policy under French GAAP was to defer
unrealized gains on foreign currency transactions.
Under US GAAP, gains on foreign currency transactions are recorded in the
current period earnings.
F-16
<PAGE> 377
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
As of January 1, 2000, the Company changed its French GAAP accounting
principles to record gains on foreign currency transactions in the current
period earnings.
BUSINESS COMBINATIONS GOODWILL
Under both US and French GAAP, goodwill arising from purchase business
combinations is determined as the excess of the consideration paid by the
acquirer over the fair value of the identifiable assets acquired and liabilities
assumed as of the acquisition date.
Certain significant acquisitions, particularly Havas and Pathe, have been
accounted for as mergers as permitted under French GAAP. Under this method, the
assets and liabilities of the acquired company are accounted for at historical
cost. Goodwill is recorded to the extent that there is a difference between the
value of shares issued and the equity of ownership interests acquired valued at
historical cost. Under US GAAP, these mergers that did not meet criteria for
pooling are considered as purchase business combinations. Accordingly, the
assets acquired and liabilities assumed are recorded at fair value.
The consideration paid is determined to be equal to the fair value of the
shares issued to effect the transaction. The excess of the consideration paid
over the fair value of net assets acquired is recorded as goodwill, as described
above.
Under French GAAP, the tax benefit of acquired deductible temporary
differences and carry forwards may be recognized in Financial statements
subsequent to the acquisition date when previously reserved through a valuation
allowance. Under US GAAP, this tax benefit is applied to reduce any goodwill
related to that acquisition.
In accordance with French GAAP, the Company recognizes goodwill as an asset
and amortizes it over the estimated useful life. However, if the acquisition has
been paid in equity securities of the Company, the resulting goodwill may be
recorded as a reduction of shareholders' equity. Furthermore, trademarks, market
share and editorial resources acquired in a business combination are not
required to be amortized.
Under US GAAP, goodwill is recorded as an asset and amortized over the
estimated useful life, not to exceed 40 years. Market share and editorial
resources would not be considered as a separately identifiable intangible asset,
but as a component of goodwill, and would be recorded as an asset and amortized
over the estimated useful life not to exceed 40 years. All other separately
identifiable intangible assets acquired are recognized on the balance sheet and
amortized over their useful lives.
In connection with its acquisition of Pathe, the Company assumed debt that
is payable in common shares of BSkyB. In addition, the Company acquired common
shares of BSkyB, a portion of which has been designated as a portfolio
investment to be used for the redemption of the debt. Accordingly, under French
GAAP, both portfolio investment and related convertible debt are accounted for
at historical cost.
Under US GAAP the investment in BSkyB is accounted for using the equity
method. With respect to convertible debt, a repayment liability equal to the
fair value of underlying stock must be recorded when the bondholder has the
option and is likely to redeem the debt in stock. This liability may be recorded
as an adjustment to the debt obligation or as a separate accrual and would have
been recorded at the acquisition date. Changes in the fair value of the
underlying shares are recognized in current period net income.
DISPOSITION DATE OF AN INVESTMENT
Under French GAAP, the disposition date of an investment is generally
established by the date of the written agreement which defines the terms of the
disposition and provides with the effective transfer of this investment.
F-17
<PAGE> 378
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
Under US GAAP, APB 16 defines the effective date of a disposition as being
ordinarily the date assets are given and other assets are received or securities
are issued.
INTANGIBLE ASSETS
Under French GAAP, certain costs, such as subscriber acquisition costs,
start-up and certain types of advertising costs, are capitalized and amortized
over their useful lives or the duration of the contract, if applicable.
Under US GAAP, subscriber acquisition costs, start-up and advertising costs
are charged to expense in the period they are incurred.
As of January 1, 2000 the Company changed its French GAAP accounting
principles to expense as incurred subscribers acquisition costs.
IMPAIRMENT/REAL ESTATE OPERATIONS
French GAAP requires the carrying value of such assets to be reviewed for
impairment but does not request a methodology as detailed as under US GAAP. The
resulting impairment, if any, is recorded as a reserve, which may be reversed in
later periods if there is a recovery in the value of the assets.
Under US GAAP, assets to be reviewed for impairment are grouped at an
appropriate level when groups of assets generate joint cash flows. US GAAP also
requires that assets are classified as either held for use or to be disposed,
with the appropriate accounting based on this classification. An asset held for
use is evaluated for impairment when events and circumstances indicate that the
asset might be impaired and the undiscounted cash flows estimated to be
generated by that asset is less than the carrying amount of that asset. Assets
determined to be impaired are valued at fair value. The resulting impairment, if
any, is recorded as a reduction of the asset carrying value, and may not be
reversed in later periods.
The Company's impairment of long-lived assets primarily relates to its real
estate assets. During 1990 to 1996, the Company disposed of certain real estate
properties in which it maintained a continued involvement.
In the French GAAP financial statements, these transactions were treated as
sales and therefore removed from balance sheet, and the profit and loss included
in net income. Provisions relating to the sale arrangements were provided as
necessary.
The transactions do not meet the sales criteria under US GAAP and therefore
are considered as financial arrangements. The related real estate assets, which
would have been recorded under US GAAP, must also be considered for impairment.
Accordingly, sales provisions were reversed.
LEASE CONTRACTS
The Company recognizes assets and debts corresponding to certain types of
lease contracts including a purchase option (known in France as "credit-bail").
Under French GAAP, lease payments corresponding to all other types of loans are
expensed as incurred.
Under US GAAP, leases are classified as capital or operating leases. Leases
that meet the criteria of capital leases are recognized as assets with a
corresponding amount presented as debt on the balance sheet. Recorded assets are
depreciated over their estimated useful lives.
PUBLIC SERVICE CONTRACTS
Commitments to maintain and repair assets.
F-18
<PAGE> 379
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
Under French GAAP, a few consolidated subsidiaries, being generally jointly
controlled, apply the accrue in advance method to account for repair costs.
Under US GAAP, the Company applies the expensed as incurred method for
maintenance and repair expenditures.
PAYMENT TO LOCAL AUTHORITIES
Under French GAAP, payments specifically related to the remaining debt
service on facilities are capitalized and charged to income on a straight-line
basis over the contract period. The difference between cash payments and the
expense recorded is capitalized as a prepaid expense.
Under US GAAP, the present value of the obligation corresponding to debt
service payments is recognized as a liability.
CONSTRUCTION CONTRACTS
Under French GAAP, the Company records the percentage of completion for
buildings, civil engineering and road works contracts according to its earned
status method which is based upon the unit of work performed method and can
differ from US GAAP percentage of completion method measured on cost incurred to
date to total estimated cost. In addition, as allowed under French GAAP, the
Company segments contracts and therefore income of the period is recognized
without reference to the total gross profit ratio of the contract. However, when
gross profit ratio of the period is greater than the gross profit ratio of the
contract, the Company books a reserve for deferred income. This method can
differ from US GAAP which requires that certain specific criteria be met in
order for a contract to be segmented.
RESERVES
Under French GAAP, certain reserves and allowances may be provided,
including reserves for repairs and replacement and restructuring charges, when
it is possible that those costs will be incurred or when management decisions
are taken, but not yet documented.
Under US GAAP, contingent losses are accrued only if it is probable that a
liability had been incurred at the date of the Financial statements and the
amount of loss can be reasonably estimated. In addition, for certain reserves,
such as restructuring charges, additional criteria must be met. If these
criteria are not met, the provision for these reserves and allowance may not be
recognized.
INCOME TAXES
Vivendi recognizes deferred taxes on the basis of timing differences
between accounting and taxable income. The Company does not recognize deferred
tax assets on net operating loss carryforwards and on timing differences when
the recovery of the related deferred tax asset is not probable.
Under US GAAP, deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and net
operating loss and tax credit carryforward and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
F-19
<PAGE> 380
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
FINANCIAL INSTRUMENTS
Investment securities
Under French GAAP, investments in debt and non-consolidated equity
securities are recorded at acquisition cost and an allowance is provided if
management deems that there has been an other-than-temporary decline in fair
value. Unrealized gains and temporary unrealized losses are not recognized.
Under US GAAP, investments in debt and equity securities are classified
into three categories and accounted for as follows: Debt securities that the
Company has the intention and ability to hold to maturity are carried at cost
and classified as "held-to-maturity". Debt and equity securities that are
acquired and held principally for the purpose of sale in the near term are
classified as "trading securities" and are reported at fair value, with
unrealized gains and losses included in earnings. All other investment
securities not otherwise classified as either "held-to-maturity" or "trading"
are classified as "available-for-sale" securities and reported at fair value,
with unrealized gains and losses excluded from earnings and reported in
shareholders' equity.
Treasury shares
Under French GAAP, shares of the Company's own stock owned by the Company
and its subsidiaries are recorded as marketable securities in the consolidated
Financial statements if those shares are acquired to stabilize the market price
or in connection with stock options granted to directors and employees.
Under US GAAP, treasury shares are recorded as a reduction of shareholders'
equity. Profit and loss on the disposal of treasury shares is recognized as an
adjustment to shareholders' equity.
Derivative Financial instruments
Under French GAAP, the criteria for hedge accounting for derivative
Financial instruments does not require documentation of specific designation to
the hedged item, nor the documentation of ongoing effectiveness of the hedge
relationship. Derivative Financial instruments that meet hedge criteria under
French GAAP are not recorded on the consolidated balance sheet. The impact of
the derivative financial instruments on the statement of income is recorded upon
settlement or the payment or receipt of cash.
Under US GAAP, derivative financial instruments for which the Company has
not specifically designated or has not assessed effectiveness do not meet hedge
accounting criteria. Such instruments are recorded on the consolidated balance
sheet at fair value and related changes in fair value are recognized in current
period net income.
During 1998, in connection with the acquisition of 49% of the Spanish
holding company that owns 56.5% of FCC, the Company has granted an option to the
primary shareholder of that holding company.
This option grants the primary shareholder the right to sell to the
Company, at any time between April 18, 2000 and October 6, 2008, her remaining
51% in the holding company at a price based on the average market value of FCC's
shares during the three months preceding the exercise of the option. Under
French GAAP, the option is not recorded until it is exercised. Under US GAAP, a
liability is recorded equal to the fair value of the put option and changes in
the fair value of the option are recorded as a charge to current period
earnings.
STOCK-BASED COMPENSATION
Under French GAAP, common shares issued upon the exercise of options
granted to employees and directors are recorded as an increase to share capital
at the cumulative exercise price. Vivendi shares sold to employees through
qualified employee stock purchase plans are reclassified from marketable
securities
F-20
<PAGE> 381
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
to share capital. The difference between the carrying value of the treasury
shares and the cumulative exercise price by the stock purchase plan is
recognized as a gain or loss in the period that the shares are sold. In
accordance with French GAAP, the Company has not recorded compensation expense
on stock-based plans with a discounted strike price up to 20% from the fair
value of the common shares at the date of grant.
Under US GAAP, APB Opinion No. 25 defines plans that grant or sell common
shares to employees as compensatory if such plans are not open to substantially
all employees and do not require the employee to make a reasonable investment in
the shares, usually defined as no less than 85% of the market value at the grant
date. If a plan is deemed to be compensatory, APB Opinion 25 requires that
compensation arising from such plans is to be measured based on the intrinsic
value of the shares granted or sold to employees. For fixed plans, the
compensation expense is calculated as the difference between the fair value at
the grant date and the employee strike price. Compensation expense for
compensatory stock based plans is recognized in the period benefited.
PENSION PLANS
Prior to its change in accounting policy in January 1998, the Company
recorded as pension expense the benefits paid to retired employees and the
premiums paid for insurance contracts for employees in service at that time. In
January 1998, the Company changed its accounting policy to record pension
obligations, covering all eligible employees, using the projected unit credit
method.
Under US GAAP, the projected unit credit method is required to be applied
as of January 1, 1989.
The transition obligation or fund excess determined as of January 1, 1989
is amortized over the average remaining service period of the population that
was covered under the plan at that date.
Under French GAAP, postretirement benefits other than pensions are recorded
as expense when amounts are paid.
Under US GAAP, the Company must recognize an obligation for amounts to be
paid under postretirement plans, other than pensions. A postretirement
transition obligation may be determined as of January 1, 1995 and amortized over
the average remaining service period of employees covered by the plan. Current
period charges are based on estimated future payments to expected retirees.
NEW ACCOUNTING PRONOUNCEMENTS IN THE UNITED STATES
Statement of Financial Accounting Standards Statement of Financial
Accounting Standards No. 133, "Accounting No. 133, "Accounting for Derivative
Instruments and Hedging Activities" was issued in June 1998 and requires
companies to recognize all derivative instruments as assets or liabilities in
the balance sheet and to measure those instruments at fair value. SFAS No. 137
extends the effective date to all fiscal years beginning after June 15, 2000.
The Company has not yet determined the timing of adoption of SFAS No 133 and has
not yet quantified the accounting consequences of this new standard.
In March of 2000 the Emerging Issues Task Force ("EITF") of the FASB reach
a consensus in EITF Issue 00-2 Accounting for Website development costs which is
effective for fiscal quarters beginning after June 30, 2000. Management does not
believe that the adoption of this EITF will have a material effect on the
Company's accounting policies or results of operations.
Staff Accounting Bulletin No 101, issued in December 1999, summarizes
certain of the Staff views in applying generally accepted accounting principles
to revenue recognition in financial statements.
The application of this bulletin does not have a material effect on the
Company's policies or result of operations.
F-21
<PAGE> 382
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
15B) RECONCILIATION OF EQUITY AND NET INCOME TO US GAAP
The following is a summary reconciliation of shareholders equity, as
reported in the consolidated balance sheet to shareholders, equity as adjusted
for the approximate effects of the application of US GAAP for the six months
ended June 30, 2000, and net income as reported in the consolidated statement of
income to net income as adjusted for the approximate effects of the application
of US GAAP for the six months ended June 30, 2000 and June 30, 1999 (in millions
of Euros).
<TABLE>
<CAPTION>
AT JUNE 30,
2000
-----------
<S> <C>
Shareholders' equity as reported in the consolidated balance
sheet..................................................... 12,513.9
Adjustments to conform to US GAAP:
Currency translation adjustments.......................... (63.9)
Business combinations / Goodwill.......................... 7,479.0
Intangible assets......................................... (285.4)
Leasing contracts......................................... (12.4)
Impairment / Real Estate.................................. (93.0)
Public service contracts.................................. 120.7
Construction contracts.................................... (29.8)
Reserves.................................................. 155.1
Financial instruments..................................... (2,618.0)
Pension plans and stock based compensation................ (12.9)
Others.................................................... (478.7)
Tax effect on the above adjustments....................... 99.2
--------
US GAAP Shareholders' equity................................ 16,773.8
========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
JUNE 30,
---------------------
2000 1999
--------- --------
<S> <C> <C>
Net income as reported in the consolidated statements of
income.................................................... 1,416.5 782.8
Adjustments to conform to US GAAP:
Currency translation adjustments.......................... 2.6 32.6
Business combinations / Goodwill.......................... (303.4) (234.6)
Intangible assets......................................... (55.3) (53.2)
Leasing contracts......................................... 1.8 0.7
Impairment / Real Estate.................................. (28.0) 310.0
Public service contracts.................................. 7.1 3.3
Construction contracts.................................... 0.0 (6.0)
Reserves.................................................. (22.9) (43.2)
Financial instruments..................................... (156.2) (151.5)
Pension plans and stock based compensation................ (99.9) (160.9)
Others.................................................... (372.3) 3.7
Tax effect on the above adjustments....................... 142.7 (293.5)
------- ------
US GAAP net income.......................................... 532.8 190.3
======= ======
</TABLE>
F-22
<PAGE> 383
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
BASIC AND DILUTED EARNINGS PER SHARE
For US GAAP purposes, basic earning per share is computed in the same
manner as earnings per share under French GAAP by dividing net income by the
weighted average number of shares outstanding. Diluted earnings per share
reflects the potential dilution that would occur if all securities and other
contracts to issue ordinary shares were exercised or converted (see note 8). Net
income represents the earnings of the Company after minority interests. The
computation of diluted earnings per share is as follows (in millions of Euros or
millions of shares, except earnings per share):
<TABLE>
<CAPTION>
AT JUNE 30,
--------------
2000 1999
----- -----
<S> <C> <C>
Net income.................................................. 532.8 190.3
----- -----
Income before extraordinary items -- diluted................ 532.8 190.3
===== =====
Weighted average number of shares
Outstanding -- basic...................................... 566.1 476.9
===== =====
Dilutive effect of:
Shares issuable on exercise of dilutive options........... 2.4 2.9
Shares attributable to stock purchase plans............... 7.5 3.0
Shares applicable to warrants............................. 8.9 9.7
----- -----
Weighted average number of shares
Outstanding -- diluted.................................... 584.9 492.5
===== =====
Earnings per share:
Basic..................................................... 0.94 0.40
===== =====
Diluted................................................... 0.91 0.39
===== =====
</TABLE>
Debt convertible into Vivendi shares (see note 8) was not included in the
computation of diluted Earning per share because to do so would have been
antidilutive for the period presented.
15C) PRESENTATION OF THE BALANCE SHEET AN INCOME STATEMENT IN US GAAP FORMAT
For purposes of presenting a consolidated condensed balance sheet as of
June 30, 2000 and consolidated condensed income statements for the six-month
periods ended June 30, 2000 and June 30, 1999 in a format consistent with US
GAAP, the Company has reflected the financial statement impact of those
reconciling differences between French GAAP and US GAAP presented in Note 15B.
The subsidiaries consolidated using the proportionate method under French GAAP
are still consolidated under the same method. In addition, due to the
significance of CANAL+, the 2000 consolidated condensed US GAAP format financial
statements reflect the deconsolidation of CANAL+ and the application of the
equity method for the Company's investment in CANAL+.
OPERATING INCOME
French GAAP defines exceptional items in a manner that differs from the
definition of extraordinary items under US GAAP. As a consequence, items
classified as exceptional for French GAAP purposes have been reclassified to the
appropriate income statement captions determined under US GAAP. With the
exception of gains and losses on sales of shares of affiliated companies,
exceptional items relating to the operations of Vivendi have been included in
the determination of operating income.
F-23
<PAGE> 384
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INCOME
Capital gains or losses on sales of consolidated entities or equity
affiliates are considered for French GAAP purposes as extraordinary income,
whereas they are classified for US GAAP purposes as other income (loss).
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
JUNE 30,
----------------------
2000 1999
--------- ---------
(E MILLIONS)
<S> <C> <C>
NET SALES(*)................................................ 17,191.2 17,611.0
Cost of sales............................................... (12,364.4) (13,620.7)
Selling, general and administrative costs................... (3,661.0) (3,429.4)
OPERATING MARGIN............................................ 1,165.8 560.9
Goodwill amortization....................................... (268.1) (198.0)
Other operating expenses and revenue........................ (289.6) (121.8)
OPERATING INCOME............................................ 608.1 241.1
Financial income............................................ (396.1) (287.1)
Other income................................................ 1,140.4 484.0
NET INCOME BEFORE TAXES, MINORITY INTEREST AND EQUITY
INTEREST.................................................. 1,352.4 438.0
Taxes....................................................... (459.3) (225.5)
NET INCOME BEFORE MINORITY INTEREST AND EQUITY INTEREST..... 893.1 212.5
Equity interest............................................. (158.3) 26.0
Minority interest........................................... (202.0) (48.2)
Net income.................................................. 532.8 190.3
</TABLE>
---------------
*included excise taxes and contribution collected on behalf of local authorities
for an amount of E921.9 and E903.6 for the six months ended June 30,
2000 and 1999, respectively.
<TABLE>
<CAPTION>
AT JUNE 30,
2000
------------
(E MILLIONS)
<S> <C>
Current assets.............................................. 25,935
Long term assets............................................ 44,858
TOTAL ASSETS................................................ 70,793
Current liabilities......................................... 28,457
Long term liabilities....................................... 23,380
Minority interests.......................................... 2,183
Shareholder's equity........................................ 16,773
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................. 70,793
</TABLE>
15D) COMPREHENSIVE INCOME
The concept of comprehensive income does not exist under French GAAP. In US
GAAP, SFAS 130, "Reporting comprehensive income," defines comprehensive income
to include, net of tax impact (in millions of euros):
- minimum pension liability adjustments,
- unrealized gains and losses on investment securities classified as
"available for sale,"
- foreign currency translation adjustments.
F-24
<PAGE> 385
VIVENDI
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Net income for the six-month period ended June 30, 1999..... 190.3
Foreign currency translation adjustment..................... 81.4
Unrealized losses on equity securities...................... 245.9
Comprehensive income at June 30, 1999....................... 517.6
Net income for the six-month period ended June 30, 2000..... 532.8
Foreign currency translation adjustment..................... 75.2
Unrealized losses on equity securities...................... (143.0)
Comprehensive income at June 30, 2000....................... 465.0
</TABLE>
F-25
<PAGE> 386
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Vivendi:
We have audited the accompanying consolidated balance sheet of Vivendi and
subsidiaries (together the "Company"), as of December 31, 1999 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended, expressed in Euros. We have also audited the
information presented in Note 22 and 23 and Note 25, which includes the
approximate effect of the differences between accounting principles generally
accepted in France and the United States on the consolidated net income and
shareholders' equity of Vivendi as of December 31, 1999 and 1998 and for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. Barbier Frinault & Cie did not audit
the financial statements of the Company as of and for the year ended December
31, 1998. Those statements were audited by RSM Salustro Reydel whose report has
been furnished to Barbier Frinault & Cie and whose opinion, insofar as it
relates to amounts included in Note 22, 23 and 25 that are based on accounting
principles generally accepted in France for 1998, is based on that report.
We conducted our audit in accordance with auditing standards generally accepted
in France and the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts (including the conversion of certain
financial information of Vivendi as of December 31, 1999 and 1998 and for the
years then ended to accounting principles generally accepted in the United
States) and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, (a) the financial position of Vivendi and subsidiaries as
of December 31, 1999 and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in France and (b) the information with respect to accounting principles
generally accepted in the United States as of and for the years ended December
31, 1999 and December 31, 1998 set forth in the Note 25.
The accounting practices of the Company used in preparing the accompanying
financial statements vary in certain respects from accounting principles
generally accepted in the United States. A description of the significant
differences between the Company's accounting practices and accounting principles
generally accepted in the United States and the approximate effect of those
differences on consolidated net income and shareholders' equity for the two
years ended December 31, 1999 is set forth in Note 25 to the consolidated
financial statements.
Barbier Frinault & Cie, RSM Salustro Reydel
a member firm of Arthur Andersen
/s/ Barbier Frinault & Cie /s/ RSM Salustro Reydel
Paris, France
March 10, 2000
(Except with respect to the matters discussed in Note 25 as to which the date is
September 6, 2000)
F-26
<PAGE> 387
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Vivendi:
We have audited the accompanying consolidated balance sheet of Vivendi and
subsidiaries (together "the Company"), as of December 31, 1998 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the two years in the two year period ended December 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in France which are substantially similar to those generally accepted in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vivendi and subsidiaries as of
December 31, 1998 and the results of their operations and their cash flows for
each of the two years in the two year period ended December 31, 1998 in
conformity with accounting principles generally accepted in France.
The accompanying financial statements include changes in accounting policies
relating to pension commitments that were adopted by certain subsidiaries of the
Company as of January 1, 1997 and as of January 1, 1998 for the remaining
subsidiaries of Vivendi. The Company also changed its accounting policies
relating to capital leases and the use of the percentage of completion method as
of January 1, 1998. These changes are described in Note 2.
RSM Salustro Reydel
/s/ RSM Salustro Reydel
Paris, France
March 10, 2000
(Except with respect to the matters discussed in Note 25 as to which the date is
September 6, 2000)
F-27
<PAGE> 388
VIVENDI
CONSOLIDATED BALANCE SHEETS -- ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
NOTES 1999 1999 1998
----- ------------ --------- --------
($ MILLIONS) (E MILLIONS)
<S> <C> <C> <C> <C>
GOODWILL, NET..................................... 3 9,927.0 10,388.6 4,514.9
OTHER INTANGIBLE ASSETS, NET...................... 4 8,296.1 8,681.9 3,282.7
Property plant and equipment...................... 25,388.5 26,569.1 18,641.1
Publicly-owned utility networks................... 3,808.7 3,985.8 1,206.3
Accumulated depreciation.......................... (10,107.5) (10,577.5) (7,605.3)
--------- --------- --------
PROPERTY, PLANT AND EQUIPMENT, NET................ 6 19,089.7 19,977.4 12,242.1
Investments accounted for using the equity
method.......................................... 5 747.2 781.9 1,738.1
Investments accounted for using the cost method... 7 2,308.3 2,415.6 668.6
Portfolio investments held as fixed assets
(securities).................................... 7 510.6 534.4 876.3
Portfolio investments held as fixed assets
(others)........................................ 7 2,447.3 2,561.1 2,749.9
--------- --------- --------
FINANCIAL ASSETS.................................. 6,013.4 6,293.0 6,032.9
--------- --------- --------
TOTAL LONG-TERM ASSETS............................ 43,326.2 45,340.9 26,072.6
Inventories and work-in-progress.................. 8 4,682.6 4,900.3 2,996.0
Accounts receivable............................... 9 21,396.8 22,391.7 13,369.2
Short-term loans.................................. 2,900.7 3,035.6 2,078.8
Cash, cash equivalents and marketable
securities...................................... 10 6,792.6 7,108.5 4,465.8
--------- --------- --------
TOTAL CURRENT ASSETS.............................. 35,772.7 37,436.1 22,909.8
--------- --------- --------
TOTAL ASSETS...................................... 79,098.9 82,777.0 48,982.4
========= ========= ========
</TABLE>
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 389
VIVENDI
CONSOLIDATED BALANCE SHEETS -- LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
NOTES 1999 1999 1998
----- ------------ -------- --------
($ MILLIONS) (E MILLIONS)
<S> <C> <C> <C> <C>
Share capital...................................... 3,130.5 3,276.1 2,431.0
Additional paid-in capital......................... 4,157.5 4,350.8 3,429.1
Retained earnings.................................. 3,120.2 3,265.3 1,980.1
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY......................... 11 10,408.2 10,892.2 7,840.2
MINORITY INTERESTS................................. 12 3,872.3 4,052.4 2,423.0
DEFERRED INCOME.................................... 1,248.4 1,306.4 715.4
RESERVES AND ALLOWANCES............................ 14 6,577.5 6,883.3 5,931.7
SUBORDINATED DEBT.................................. 13 170.4 178.3 174.0
Non-recourse project financing..................... 13 1,140.0 1,193.0 1,059.7
Other financial long-term debt..................... 13 17,068.0 17,861.7 8,722.8
-------- -------- --------
LONG-TERM DEBT..................................... 13 18,208.0 19,054.7 9,782.5
OTHER LONG-TERM LIABILITIES........................ 1,490.9 1,560.2 987.7
-------- -------- --------
TOTAL LONG-TERM LIABILITIES........................ 41,975.7 43,927.5 27,854.5
Accounts payable................................... 15 22,773.1 23,832.1 16,077.3
Bank overdrafts and other short-term borrowings.... 14,350.1 15,017.4 5,050.6
-------- -------- --------
TOTAL CURRENT LIABILITIES.......................... 37,123.2 38,849.5 21,127.9
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... 79,098.9 82,777.0 48,982.4
======== ======== ========
</TABLE>
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 390
VIVENDI
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
NOTES 1999 1999 1998 1997
----- ------------ --------- --------- ---------
($ MILLIONS) (E MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE.............................. 39,773.1 41,622.5 31,737.1 25,476.6
Other revenue........................ 1,864.6 1,951.3 1,516.8 954.6
Purchases and external costs......... (22,659.2) (23,712.9) (18,575.3) (14,810.9)
Personnel costs...................... (9,906.6) (10,367.3) (8,165.8) (6,760.5)
Taxes................................ (629.9) (659.2) (627.9) (475.7)
Other operating expenses............. (3,642.4) (3,811.8) (2,662.5) (2,434.3)
Depreciation and amortization........ (2,559.3) (2,678.3) (1,831.7) (1,314.0)
Employee profit-sharing.............. (61.0) (63.8) (59.3) (40.3)
OPERATING INCOME..................... 2,179.3 2,280.5 1,331.4 595.5
--------- --------- --------- ---------
Financial (expenses) income.......... (54.7) (57.2) 307.3 (180.5)
Financial provisions................. (155.7) (162.9) (298.0) (120.8)
NET FINANCIAL (EXPENSES) INCOME...... (210.4) (220.1) 9.3 (301.3)
--------- --------- --------- ---------
INCOME FROM OPERATIONS BEFORE
EXCEPTIONAL ITEMS AND INCOME
TAXES.............................. 1,968.9 2,060.4 1,340.7 294.2
--------- --------- --------- ---------
Exceptional items.................... (873.7) (914.3) 42.7 1,777.5
Depreciation, amortization and
provisions on exceptional items.... 73.1 76.5 206.6 (898.9)
INCOME BEFORE INCOME TAXES, GOODWILL
AMORTIZATION, EQUITY INTEREST AND
MINORITY INTEREST.................. 1,168.3 1,222.6 1,590.0 1,172.8
--------- --------- --------- ---------
Income taxes and deferred tax........ 16 758.0 793.2 (90.0) (194.7)
INCOME BEFORE GOODWILL AMORTIZATION,
EQUITY INTEREST AND MINORITY
INTEREST........................... 1,926.3 2,015.8 1,500.0 978.1
--------- --------- --------- ---------
Goodwill amortization................ (584.8) (612.0) (209.5) (374.7)
INCOME BEFORE EQUITY INTEREST AND
MINORITY INTEREST.................. 1,341.5 1,403.8 1,290.5 603.4
--------- --------- --------- ---------
EQUITY IN NET INCOME OF AFFILIATES... 31.4 32.9 42.5 103.6
Minority interest.................... (5.1) (5.3) (212.2) 115.1
NET INCOME........................... 1,367.8 1,431.4 1,120.8 822.1
========= ========= ========= =========
</TABLE>
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
F-30
<PAGE> 391
VIVENDI
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
SHARE PAID-IN RETAINED NET SHAREHOLDERS'
NOTES CAPITAL CAPITAL EARNINGS INCOME EQUITY
----- ------- ---------- -------- -------- -------------
(E MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996......... 1,869.2 2,358.3 609.6 297.7 5,134.8
Net income for the year 1997......... 822.1 822.1
Foreign currency translation
adjustment......................... 208.4 208.4
Dividends paid and net income
appropriation...................... 71.9 (297.7) (225.8)
Goodwill............................. (31.9) (31.9)
Capital increase..................... 11 174.3 910.9 1,085.2
Release of revaluation surplus and
other.............................. (146.1) (146.1)
------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1997......... 2,043.5 3,237.3 743.8 822.1 6,846.7
Changes in accounting methods........ 11 (226.8) (226.8)
------- -------- ------- -------- --------
RESTATED NET TOTAL AT DECEMBER 31,
1997............................... 2,043.5 3,237.3 517.0 822.1 6,619.9
Net income for the year 1998......... 1,120.8 1,120.8
Foreign currency translation
adjustment......................... (168.7) (168.7)
Dividends paid and net income
appropriation...................... 516.2 (822.1) (305.9)
Goodwill............................. 11 (579.0) (579.0)
Capital increase..................... 11 387.5 770.8 1,158.3
Release of revaluation surplus and
other.............................. (5.2) (5.2)
------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1998......... 2,431.0 3,429.1 859.3 1,120.8 7,840.2
Net income for the year 1999......... 1,431.4 1,431.4
Foreign currency translation
adjustment......................... 383.3 383.3
Dividends paid and net income
appropriation...................... 707.3 (1,120.8) (413.5)
Goodwill............................. 3&11 (4,310.3) (4,310.3)
Capital increase..................... 11 845.1 5,232.0 6,077.1
Release of revaluation surplus and
other.............................. (116.0) (116.0)
------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1999......... 3,276.1 4,350.8 1,833.9 1,431.4 10,892.2
======= ======== ======= ======== ========
</TABLE>
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 392
VIVENDI
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
U.S. $ EUROS
------------ -------------------------------
1999 1999 1998 1997
------------ --------- -------- --------
($ MILLIONS) (E MILLIONS)
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income................................................ 1,367.8 1,431.4 1,120.8 822.1
Adjustments to reconcile net income to net cash provided
by operating activities.................................
Depreciation and amortization........................... 3,334.6 3,489.7 2,125.0 2,822.3
Financial provisions.................................... 155.7 162.9 298.0 120.8
Gains on sale on property and equipment and financial
assets, net............................................ (640.2) (670.0) (297.9) (2,120.7)
Undistributed earnings of affiliate, net................ 48.5 50.8 38.8 (27.4)
Deferred taxes.......................................... (976.7) (1,022.1) (279.4) 53.9
Minority interests...................................... 5.1 5.3 212.2 (115.1)
Net changes in current assets and liabilities:
Prepaid, deferrals and accruals....................... (1,045.7) (1,094.3) (536.1) (423.5)
Other working capital................................. (902.3) (944.3) 216.5 468.8
--------- --------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 1,346.8 1,409.4 2,897.9 1,601.2
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................. (5,444.1) (5,697.3) (3,942.1) (2,289.9)
Proceeds from sale of property, plant and equipment....... 1,043.6 1,092.1 191.7 289.1
Purchase of investments................................... (11,439.8) (11,971.7) (2,229.0) (3,139.4)
Sales of investments...................................... 2,584.3 2,704.5 2,532.7 2,950.0
Purchase of portfolio investments......................... (684.6) (716.4) (168.1) (169.4)
Sales of portfolio investments............................ 643.4 673.3 579.3 283.6
Disbursement on notes receivables......................... (1,071.2) (1,121.0) (522.1) (576.6)
Principal payment on notes receivables.................... 1,760.0 1,841.8 192.1 600.0
Net (increase) decrease in short-term financial
receivables............................................. (115.3) (120.7) 1,421.2 (491.9)
Purchase of treasury shares held as marketable
securities.............................................. (1,339.5) (1,401.8) (288.7) (252.1)
Sales (purchases) of other marketable securities.......... 1,109.4 1,161.0 (692.8) (309.8)
--------- --------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES................... (12,953.8) (13,556.2) (2,925.8) (3,106.4)
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings.......... 8,861.3 9,273.4 (1,384.2) (1,675.3)
Proceeds from insurance of borrowings and other long-term
debt.................................................... 11,175.9 11,695.6 2,850.7 1,868.3
Principal payment on borrowings and other long-term
debt.................................................... (9,459.6) (9,899.5) (1,042.4) (853.2)
Net proceeds from issuance of common stock................ 3,149.1 3,295.5 146.8 2,381.4
Purchase of treasury stock................................ (129.3) (135.3) -- --
Cash dividends paid....................................... (462.3) (483.8) (348.3) (56.8)
--------- --------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 13,135.1 13,745.9 222.6 1,664.4
Effect of foreign currency exchange rate changes on cash and
cash equivalents.......................................... (1.4) (1.5) 89.3 36.1
--------- --------- -------- --------
CHANGE IN CASH AND CASH EQUIVALENTS......................... 1,526.7 1,597.6 284.0 195.3
========= ========= ======== ========
CASH AND CASH EQUIVALENTS:
Beginning................................................. 1,208.0 1,264.2 980.2 784.9
Ending.................................................... 2,734.6 2,861.8 1,264.2 980.2
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest................................................ 833.2 871.9 408.0 334.0
Income taxes............................................ 353.1 369.5 140.8 181.4
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition:
Purchase of affiliates by issuance of common stock...... 2,126.3 2,225.2 923.1 41.9
Issuance of common stock in settlement of note
payable................................................ 592.1 619.6 150.0 768.5
Issuance of common stock in settlement of dividends..... 162.4
</TABLE>
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 393
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BUSINESS DESCRIPTION
Vivendi, together with its subsidiaries and investees ("Vivendi" or the
"Company"), a French corporation (Societe Anonyme) provides a broad range of
services mainly in three primary business sectors: Communication and
Environmental Services, which are the two core business sectors of the Company,
and Construction and Real Estate, whose activities the Company has been
reducing.
Incorporated in 1853, where it originally supplied water in French cities,
the Company experienced mostly internal growth until the early 1980s, when it
significantly diversified its environmental activities by entering the waste
management, energy and transportation businesses. The Company entered into the
communication sector, through its participation in the establishment of the
first French pay television service, CANAL+, in 1983, and in 1987 by launching
Societe Francaise du Radiotelephone ("SFR"), the first private mobile telephony
operator in France. In addition, the Company entered the multimedia and
publishing sector through the acquisition of Havas (1998) and Cendant Software
(1998). In 1988, the Company reinforced operations in the construction sector
through the purchase of Societe Generale d'Entreprises ("Vinci"), a French
building and civil engineering company.
Following is a brief description of the operating activities in each of the
business sectors:
COMMUNICATION (TELECOMMUNICATION, MULTIMEDIA AND PUBLISHING, AUDIOVISUAL AND
INTERNET SEGMENTS)
The Company provides a wide variety of communication, entertainment and
educational products and services, from mobile telephony and Internet services
to film production and publishing. The primary focus of the communication
business is on developing integrated telecommunication and multimedia services
for the European market and establishing and developing Internet websites and
services.
ENVIRONMENTAL SERVICES (WATER, WASTE MANAGEMENT, ENERGY, TRANSPORTATION AND
FOMENTO DE CONSTRUCCIONES Y CONTRATAS ("FCC") SEGMENTS)
The Company is a provider of environmental management services to a wide
range of public authorities and industrial, commercial and residential
customers. The Company offers a variety of integrated services, including water
treatment and system operation, waste management, energy services and power
generation, and transportation services. The Company also jointly controls FCC,
a Spanish publicly listed multi-services environmental and construction company.
CONSTRUCTION AND REAL ESTATE SEGMENTS
As part of the on-going strategy of the Company of focusing on
Communication and Environmental services, the Company decided in 1999 to reduce
its activities in the real estate and construction businesses. The Company will
retain certain real estate assets consisting primarily of investments arising
out of past real estate development projects. In January 2000, the Company has
reduced its stake in the Construction Group, Vinci to 16.9% and in July 2000 the
Company has sold Nexity to institutional investors.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements of Vivendi have been prepared in
accordance with accounting principles generally accepted in France ("French
GAAP"). The financial statements of foreign subsidiaries have, when necessary,
been adjusted to comply with French GAAP. French GAAP differs in certain
respects from accounting principles generally accepted in the United States. A
description of these differences and their effects on net income and
shareholders' equity is set forth in Note 25. The financial
F-33
<PAGE> 394
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements have been formatted in the original French GAAP financial statements
presentation and where necessary have been modified to include certain
additional disclosures in order to conform more closely with the content of
financial statements required by the generally accepted accounting principles in
the United States ("US GAAP").
CONVENIENCE TRANSLATIONS
The consolidated balance sheet and consolidated statements of income and
cash flows include amounts as of and for the year ended December 31, 1999
denominated in millions of U.S. dollars. These amounts are presented as
permitted convenience translations under Rule 3-20 of Regulation S-X of the U.S.
Securities and Exchange Commission and have been prepared using an exchange rate
of U.S.$1 to E1.0465, which was the exchange rate as of June 30, 2000.
Convenience translations are presented solely for the convenience of the reader
of these financial statements and should not be construed as representations
that the local currency has been, could have been, or could in the future be
converted into U.S. dollars at this or any other rate of exchange.
PRINCIPLES OF CONSOLIDATION
All material companies in which Vivendi has legal or effective control are
consolidated. The Company consolidates Cegetel and CANAL+, in which it owns less
than 50% of the voting shares. The Company has a direct and indirect ownership
interest in Cegetel totaling 44%. Cegetel is consolidated because, through a
shareholders' agreement, the Company has a majority of the shareholder voting
rights. The Company has a 49% direct ownership interest in CANAL+. With respect
to CANAL+, the Company has the ability to control major decisions through its
Board representatives and through its participation on the Compensation
Committee of the Board. The Company has a direct and indirect ownership interest
in Societe Generale d'Enterprises ("S.G.E.," renamed Vinci in 2000) totaling
49.2%. Pursuant to a decision of a general meeting of the shareholders of
S.G.E., double voting rights were granted to all shares held by the same
shareholder for at least two years. As a result of this decision, the Company
controls S.G.E. as of December 31, 1999 through its holding of 62.97% of the
voting rights. In addition, the Company only consolidates the subsidiary if no
other shareholder or group of shareholders exercise substantive participating
rights, which would allow those shareholders to veto or block decisions taken by
the Company. The Company uses the equity method of accounting for its
investments in certain subsidiaries in which it owns less than 20% of the voting
shares. In these situations, the Company exercises significant influence over
the operating and financial decisions of the subsidiary either (a) through a
disproportionate representation on the subsidiary's board of directors, e.g.,
the percentage of directors appointed to the board by the Company is greater
than the percentage of its shareholding interest and those directors allow the
Company to exercise significant influence, and (b) because there is no other
shareholder with a majority voting ownership in the subsidiary, which is a
consideration under French accounting principles to determine whether
significant influence exists, or (c) because the Company exercises substantive
participating rights, through shareholders agreements, that allow the Company to
veto or block decisions taken by the subsidiary board. Significant investments
in which Vivendi has 20% to 50% ownership or otherwise exercises significant
influence are accounted for under the equity method. The proportionate method of
consolidation is used for investments in jointly controlled companies, where
Vivendi and outside shareholders have agreed to exercise joint control over
significant financial and operations policies. For such entities, the Company
records its proportionate interest in the balance sheet and income statement
accounts. All other investments in affiliates which are not consolidated are
accounted for at cost. Subsidiaries acquired are included in the consolidated
financial statements as of the acquisition date or the most recent balance sheet
date. All material intercompany transactions have been eliminated. In the case
of proportionally consolidated companies, intercompany transactions are
eliminated on the basis of Vivendi interest in the company involved.
F-34
<PAGE> 395
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and the disclosures of contingent assets and
liabilities. Actual results could differ significantly from these estimates.
Significant estimates made by management in the preparation of these
financial statements include amounts for pension liabilities, deferred taxes,
valuation estimates for long-lived assets, total gross revenue on film and
television rights, as well as recorded and disclosed amounts for certain
financial instruments.
INTRODUCTION OF THE EURO
Since the introduction of the euro on January 1, 1999, the functional and
reporting currency of the Company has been the euro. Prior to this date, the
functional and reporting currency of the Company was the French franc.
Consequently, prior periods have been restated from French francs into euros
using the official fixed exchange rate E1 = FF 6.55957. These restated financial
statements depict the same trends as the financial statements previously
prepared using the French franc. Further, the restated financial statements will
not be comparable to financial statements of other companies that report in
euros and have restated prior periods from currencies different than the French
franc.
TRANSLATION OF FOREIGN SUBSIDIARIES' FINANCIAL STATEMENTS
Balance sheets, statements of income and cash flows of subsidiaries whose
functional currency is different from that of the parent are translated into the
reporting currency at the applicable year-end exchange rates. Translation gains
and losses are recorded in retained earnings. The exchange rates of the
significant currencies of non-euro countries used in the preparation of the
consolidated financial statements were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
US dollar................................................... 0.995 0.857 0.913
Pound sterling.............................................. 1.608 1.418 1.512
</TABLE>
For subsidiaries operating in countries where the local currency is deemed
to be highly inflationary, balance sheets and statements of income and cash
flows are translated into a stable currency of a country that has a similar
economy. Related translation gains or losses are recorded in current period
earnings. These financial statements are then translated from the stable
currency into the reporting currency using year-end exchanges rates, and related
translation gains or losses are recorded in retained earnings.
Subsequent to December 31, 1998, balance sheets, statements of income and
cash flows of subsidiaries located in countries that have adopted the Euro as
their official currency are translated from the former national currencies to
the Euro at the official fixed exchange rates that have been established as of
January 1, 1999 and are no longer subject to fluctuation.
REVENUE RECOGNITION
Revenue is recorded when title passes to the customer or when services are
rendered in accordance with contracts. Title passes to the customer when goods
are shipped. Revenues relating to specific sectors are discussed in applicable
sections of this footnote.
GOODWILL AND BUSINESS COMBINATIONS
All business combinations are accounted for as purchases or mergers. Under
the purchase accounting method, assets acquired and liabilities assumed are
recorded at fair value. The excess of the purchase price
F-35
<PAGE> 396
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
over the fair value of net assets acquired, if any, is capitalized as goodwill
and amortized over the estimated period of benefit on a straight-line basis. The
amortization periods for goodwill range from 10 to 40 years.
Certain significant acquisitions have been accounted for as mergers as
permitted under French GAAP. Under this method, the assets and liabilities of
the acquired company are accounted for at historical cost. Goodwill corresponds
to the difference between the value of shares issued and the equity of ownership
interests acquired, valued at historical cost.
In accordance with French GAAP, for transactions where acquisitions are
completed through issuance of capital, the portion of goodwill attributable to
such proceeds may be charged to shareholders' equity, up to the amount of the
related share premium.
OTHER INTANGIBLE ASSETS
Market share and editorial resources (see accounting policies specific to
the communication sector) are not amortized.
Start-up costs relating to the implementation of new activities including
pre-operating costs and film development rights, are amortized over their
estimated useful life.
Other intangible assets include costs incurred to obtain contracts, such as
mobile subscribers acquisition costs and fees paid to local authorities for
public services contracts. Subscribers acquisition costs are amortized over the
contract period of 12 months. Fees paid to local authorities are amortized over
the duration of the contract, which is up to 30 years.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
following useful lives:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIVES
IN YEARS
----------------------
<S> <C>
Buildings................................................... 20 to 50
Equipment and machinery..................................... 3 to 15
</TABLE>
Assets financed by leasing contracts that include a purchase option (known
in France as "credit-bail") are capitalized and amortized over the shorter of
the lease term or the estimated useful lives of the assets. Amortization expense
on assets acquired under such leases is included with depreciation and
amortization expense.
VALUATION OF LONG-LIVED ASSETS
The carrying value of long-lived assets, including goodwill and other
intangible assets, is reviewed on a regular basis for the existence of facts or
circumstances, both internally and externally, that may suggest impairment.
Should impairment be indicated, a valuation allowance is established, based on
estimated fair value.
FINANCIAL ASSETS
Investments accounted for using the cost method
Investments in unconsolidated affiliates are carried at cost. Any negative
difference between carrying value and fair value that is determined to be other
than temporary is reserved.
F-36
<PAGE> 397
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Portfolio investments held as fixed assets
Portfolio and other investments include unlisted and listed equity
securities of unconsolidated subsidiaries and long-term loans that are recorded
at cost. When fair value is less than cost and is determined to be other than
temporary, a valuation allowance may be provided. Estimated fair value is
determined on the basis of Vivendi's share of the equity of the companies
concerned adjusted to market value in the case of listed securities, and of
their earnings growth prospects.
INVENTORIES AND WORK-IN-PROGRESS
The Company values inventories according to the provisions of the French
Commercial Code, either on a first-in-first-out or a weighted average cost
basis. Inventories are stated at the lower of cost or net realizable value.
Work-in-progress consists primarily of long-term contracts incurred in the
Construction and Real Estate sector.
DEFERRED TAXES
Deferred tax assets are recognized for deductible timing differences, net
tax operating loss carryforwards and tax credit carryforwards. Deferred tax
liabilities are recognized for taxable timing differences. Deferred tax assets
are recorded at their estimated net realizable value. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
enactment date.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash and cash equivalents include all cash balances and short-term highly
liquid investments with original maturities of three months or less at the time
of purchase and are stated at cost which approximates their fair value.
Marketable securities include Vivendi treasury shares and other highly
liquid investments. Vivendi treasury shares are classified as marketable
securities when they are acquired to stabilize the market price of Vivendi
shares or in connection with stock options granted to directors and employees.
Treasury shares held for other reasons are recorded as an offset to
shareholders' equity. Marketable securities are carried at cost, and a valuation
allowance is provided if the fair value is less than the carrying value.
PENSION PLANS
Vivendi has several pension plans that cover substantially all employees.
Vivendi determines its pension obligations using the projected unit credit
method. This method considers the probability of personnel remaining with
Vivendi until retirement, the foreseeable changes in future compensation, and
the appropriate discount rate for each country in which Vivendi maintains a
pension plan. This results in the recognition of pension-related assets or
liabilities, and the recognition of the related net expenses over the estimated
term of service of the employees.
Vivendi's employees in France and most other European countries are
eligible, for severance pay pursuant to applicable law immediately upon
termination. Vivendi reserves for such employee termination liabilities using
the projected unit credit method.
Prior to 1998, Vivendi only recorded the benefits paid to retired employees
and the premiums paid for insurance contracts that covered pension benefits and
retirement indemnities for employees in service at that time as pension
expenses.
F-37
<PAGE> 398
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK BASED COMPENSATION
Vivendi has adopted stock option incentive plans that grant options on its
common shares to certain directors and officers. The purpose of these stock
option plans is to align the interest of management with the interest of
shareholders by providing certain officers and other key employees with
additional incentives to increase the Company's performance on a long-term
basis. Shareholders' equity is credited for the cumulative strike price to
reflect the issuance of shares upon the exercise of options. Treasury shares
that are held by the Company to fulfill its obligations under stock options
granted have been recorded in the balance sheet as marketable securities and are
carried at the lower of their historical cost or fair value. Vivendi recognizes
any resulting holding gain or loss in the period that the shares are sold to the
plan.
The Company also maintains employee stock purchase plans that allow
substantially all full-time employees of Vivendi and certain of its subsidiaries
to purchase shares of Vivendi. Shares purchased by employees under these plans
are subject to certain restrictions over the sale or transfer of the shares by
employees for a five-year period. The shares are sold to employees at a discount
of 20% from the average market price of Vivendi stock over the last 20 business
days prior to the date that the share grant is authorized by the Board of
Directors.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company manages certain of its financial risks by using derivative
financial instruments that qualify as hedges.
The Company primarily uses interest rate swaps and caps to manage interest
rate risks relating to its funding costs. The goal of these swaps is, depending
on the circumstances involved, to modify from fixed to floating rates and from
floating to fixed as well as to modify the underlying index on floating rate
debt. The goal of the interest caps is to limit the upside risk relating to
floating rate debt. Interest rate swaps that modify borrowings or designated
assets are accounted for on an accrual basis. Premiums paid for interest rate
caps are expensed as incurred.
The Company uses currency swaps and forward exchange contracts to manage
its foreign currency risk. Forward exchange contracts are used to hedge firm and
anticipated transactions relating to assets denominated in foreign currencies.
Currency rate swaps are used to modify the interest rate and currency of foreign
denominated debt. Gains and losses arising from the change in the fair value of
currency instruments that qualify for hedge accounting treatment are deferred
until related gains or losses on hedged items are realized.
Other derivative financial instruments are used by the Company to hedge a
part of public debt with principal repayment terms based on the value of Vivendi
stock. These instruments effectively modify the principal terms to a fixed
amount and the rates to floating rates.
Any financial instruments that do not qualify as hedges for financial
reporting purposes are recorded at the lower of cost or fair value in other
current assets or liabilities and the profit or loss relating to the periodic
change in fair value is recorded as income or expense in the current period.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are converted into euros at the exchange rate
on the transaction date. At year-end, receivables and payables denominated in
foreign currencies are translated into euros at the year-end exchange rates. The
resulting exchange losses are expensed in the current period earnings and
unrealized gains are deferred.
F-38
<PAGE> 399
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Exchange losses on borrowings denominated in foreign currencies that
qualify as hedges of net investments in foreign subsidiaries are included as
translation adjustments as a separate component of shareholders' equity.
RESEARCH AND DEVELOPMENT
The Research and Development costs are expensed as incurred. Research and
Development costs were E121 million, E62 million and E46 million for the years
ended December 31, 1999, 1998 and 1997, respectively.
ACCOUNTING FOR INTERNAL USE SOFTWARE
Direct internal and external costs incurred to develop computer software
for internal use are capitalized during the application development stage and
otherwise expensed. Such costs are amortized over their useful life. Policies
applied by specific sectors are discussed in applicable sections of this
footnote.
ACCOUNTING FOR COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE
MARKETED
All costs incurred to establish the technological feasibility of a computer
software product to be sold, leased, or otherwise marketed are research and
development costs. Such costs are charged as expenses as they are incurred. The
technological feasibility of a computer software product is established when the
Company has completed all planning, designing, coding, and testing activities
that are necessary to establish that the product can be produced to meet its
design specifications. The period between establishing the technological
feasibility and the generation of a working model of the software to be marketed
is not material; therefore, the Company expenses all costs relating to external
use software.
ADVERTISING COSTS
The cost of advertising is expensed as incurred; however, certain costs
specifically related to the change of Company corporate name have been
capitalized and amortized over 3 years.
EARNINGS PER SHARE
Earnings per share is based on net income after taxes divided by the
weighted average number of common shares outstanding.
ACCOUNTING POLICIES SPECIFIC TO THE COMMUNICATION SECTOR
Audiovisual segment
Revenue from broadcast advertising is recognized when commercials are
aired. Revenue from television subscription services related to cable and
satellite programming services is recognized as the services are provided.
Revenue from the theatrical distribution of motion pictures is recognized when
the motion pictures are exhibited.
Film and television rights are stated at the lower of cost, less
accumulated amortization, or net realizable value. Television broadcast
programming licenses and rights and related liabilities are recorded at
contractual price when the screening certificate is obtained or from the
signature date of the contract, if later. Films and television production costs
are expensed based on the ratio of the current period's gross revenue to
estimated total gross revenue from all sources on an individual production
basis. Revenue estimates are reviewed periodically and amortization is adjusted
accordingly.
F-39
<PAGE> 400
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Television network and station rights for theatrical movies and other
long-term programming are charged to expense primarily on the usage of programs.
Multi-year sports rights are charged to expense over the term of the contract.
Estimates of total gross revenue can change significantly due to a variety
of factors, including the level of market acceptance of the film and television
products, advertising rates and subscriber fees. Accordingly, revenue estimates
are reviewed periodically and the related asset amortization is adjusted
prospectively, if necessary. Such adjustments could have a material effect on
results of operations in future periods.
Telecommunication segment
Revenue from the telecommunication segment are recognized when the services
are provided. Telecommunication subscription revenue fees are deferred and
recognized over the contract term, generally 12 months. Prepaid
telecommunication fees are deferred and recognized when minutes are used.
Discounts granted to customers represent mobile purchase incentives
(service credit for 12 months) and discounts on packs (mobile granted access to
an SFR flat-rate tariff including connection). These discounts are treated as a
reduction in revenue, and are spread over 12 months from the date the line is
put into service.
Internet segment
Website development costs are expensed as incurred.
Multimedia and publishing segment
Revenue in the publishing segment is comprised of magazine advertising
revenue which is earned when the advertisement runs and publication subscription
revenue which is recognized over the term of the subscription on a straight-line
basis. In addition, revenue in this segment is generated from book and software
sales which is recognized when legal title to goods transfers upon shipment to
the retailer.
ACCOUNTING POLICIES SPECIFIC TO THE ENVIRONMENTAL SERVICES SECTOR
Contractual Environment
Vivendi holds public service contracts relating to its operations in water
distribution and treatment, district heating networks, urban transportation and
waste collection and treatment. Under the French legal system, there are three
primary types of public service contracts: "Affermage" (public service
management) where the operator is granted the obligation to manage and maintain
facilities owned and financed by local authorities, "Concession", facility
management contracts which are similar to a BOT (Build Operate Transfer
agreements) and contracts presenting mixed characteristics of "Affermage"
(public service management) and "Concession" contracts.
In France, Vivendi mainly operates "Affermage" (public service management)
contracts.
Revenue Recognition
Revenue is recognized when services are rendered.
Facilities
Facilities operated by the Company are generally financed by local
authorities and remain their property throughout the contract period. Individual
facilities financed by the Company as a consequence of
F-40
<PAGE> 401
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
specific contractual terms are recorded as fixed assets and depreciated to their
estimated residual value, if any, on the shorter of their economic useful lives
or the contract's term. Wherever the contract's term is shorter than the
economic useful life of the asset, such depreciation is classified as a
liability as a financial depreciation.
Commitments to maintain and repair assets
Vivendi generally assumes a contractual obligation to maintain and repair
facilities managed through public service contracts. Corresponding repair and
maintenance costs are expensed as incurred, except for some investments in joint
ventures where these costs are accrued in advance.
Fees paid to local authorities
Vivendi does not have any obligation for compensation payments to local
authorities during the contract period, except for fees that have been agreed by
both parties and formally defined by the contract.
Vivendi's policy is to expense as incurred fees that are paid to local
authorities when these fees are paid annually and to amortize these costs on a
straight-line basis when the fees consist of payments at the beginning of the
contract.
Landfill capitalization and depletion
Landfill sites are carried out at cost and amortized ratably using the
units of production method over the estimated useful life of the site as the
airspace of the landfill is consumed.
Landfill costs include capitalized engineering and other professional fees
paid to third parties incurred to obtain a disposal facility permit.
When the Company determines that the facility cannot be developed or the
likelihood of grant of the permit cannot be documented before its final
authorization, as it is the case in France and the U.K., these costs are
expensed as incurred.
Landfill closure and post-closure costs
The Company has financial obligations relating to closure and post-closure
costs and the remediation of disposal facilities it operates or is otherwise
responsible for. The Company accrues a reserve for these estimated future costs
pro rata over the estimated useful life of the facilities.
ACCOUNTING POLICIES SPECIFIC TO THE CONSTRUCTION AND REAL ESTATE SECTOR
Real Estate segment
Real estate companies recognize revenue on real estate development projects
using the percentage-of-completion method when certain criteria are met or upon
consummation of the sales contract and delivery of the real estate. Unsold units
are included in work-in-progress at the lower of carrying value or estimated
fair value at completion less cost to sell.
For rental properties, the difference between rental income and operating
costs is charged to earnings. Provisions are made, as appropriate, to reduce
rental properties to the lower of cost or fair value.
Construction contracts
Construction companies recognize margin using the percentage of completion
method. The percentage of completion method was adopted on January 1, 1998 by
companies operating in the Construction and Real Estate business segments for
contracts in excess of six months in duration. Contracts in these sectors
F-41
<PAGE> 402
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with an anticipated duration of less than six months are accounted for under the
completed contract method. For building and civil engineering and road works,
the Company recognizes percentage of completion based upon the unit of work
performed method. This "technical progress" is measured by Company engineers
based upon procedures approved by management. For other activities where the
measurement of technical progress is not practicable, progress is measured by
the ratio of costs incurred in the period to the total estimated costs of the
contracts.
The Company determines substantial completion of a contract whenever work
has been accepted by clients. This approval is materialized by the signature by
the client of a specific report.
The Company recognizes costs related to claims as incurred whereas revenues
are recognized when they are approved by the customer. If the additional costs
are not the result of deficiencies in the contractor's performance, such
revenues are nevertheless recognized if assessed by management as having a legal
basis in the contract, were unforeseen at the contract date, are based on
reasonable, identifiable, verifiable costs which are probable to result in
additional revenue.
Over the period of construction costs and revenues at completion are
periodically revised to take into account identified modifications of the terms
of the contract. Impacts of such changes in estimated gross profit are
recognized in the income of the period if the Company becomes aware of them
prior to the issuance of the financial statements. In addition, whenever a loss
at completion becomes probable due to these changes, a provision to cover the
loss is made.
CHANGE IN ACCOUNTING PRINCIPLES
As of January 1, 1997, for certain subsidiaries of the Company and as of
January 1, 1998, for the remaining other subsidiaries, Vivendi adopted new
accounting principles pursuant to changes in French GAAP for pensions. As of
January 1, 1998 and pursuant to recommendations made by the "Conseil National de
la Comptabilite" on June 18, 1997, Vivendi adopted new accounting principles
pursuant to changes in French GAAP for capital leases and long-term construction
contracts. These changes were made to more closely align the Company's
accounting practices to International Accounting Standards. The cumulative
effects of these changes in accounting principles were to increase 1998 net
income by E10.3 million and to decrease retained earnings by E226.8 million.
NEW ACCOUNTING PRONOUNCEMENTS IN FRANCE
A new set of accounting standards set forth by the "Comite de la
Reglementation Comptable" in April 1999, covering the consolidation
methodologies applicable to consolidated financial statements will be effective
for fiscal years beginning on or after January 1, 2000. The Company does not
expect that the adoption of these new standards will have any material impact on
the Company's financial position or results of operations.
F-42
<PAGE> 403
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3) GOODWILL AND BUSINESS COMBINATIONS
Goodwill by segment is detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1999 1998
------------------------------------ -------
ACCUMULATED
GROSS AMORTIZATION NET NET
-------- ------------ -------- -------
<S> <C> <C> <C> <C>
Telecommunication........................ 1,866.2 (153.5) 1,712.7 1,566.5
Multimedia and Publishing................ 650.5 (55.6) 594.9 309.7
Audiovisual.............................. 2,307.5 (142.3) 2,165.2 456.2
Internet................................. -- -- -- --
-------- -------- -------- -------
COMMUNICATION............................ 4,824.2 (351.4) 4,472.8 2,332.4
-------- -------- -------- -------
Water.................................... 2,779.6 (352.7) 2,426.9 336.2
Waste management......................... 1,317.1 (115.1) 1,202.0 423.3
Energy................................... 875.4 (190.3) 685.1 352.8
Transportation........................... 196.0 (51.6) 144.4 93.5
FCC...................................... 734.7 (75.9) 658.8 627.6
-------- -------- -------- -------
ENVIRONMENTAL SERVICES................... 5,902.8 (785.6) 5,117.2 1,833.4
-------- -------- -------- -------
Construction............................. 1,015.4 (313.1) 702.3 236.7
Real Estate.............................. 255.9 (166.2) 89.7 111.7
-------- -------- -------- -------
CONSTRUCTION & REAL ESTATE............... 1,271.3 (479.3) 792.0 348.4
-------- -------- -------- -------
OTHER.................................... 139.7 (133.1) 6.6 0.7
-------- -------- -------- -------
TOTAL.................................... 12,138.0 (1,749.4) 10,388.6 4,514.9
======== ======== ======== =======
</TABLE>
Total goodwill amortization expense for the years ended December 31, 1999,
1998 and 1997 was E612.0 million, E209.5 million and E374.7 million,
respectively.
The following is a summary of the most significant acquisitions during the
periods presented in the accompanying financial statements:
HAVAS
Effective January 1, 1998, Vivendi acquired the remaining 70.6% of Havas, a
publishing and multimedia company. In exchange for these shares, Vivendi issued
69,236,562 shares of common stock to Havas shareholders. Cumulated with the
shares acquired in 1997 the total goodwill related to Havas is detailed as
follows being considered that the 1998 transaction is accounted for as a merger
(in millions of Euros):
<TABLE>
<S> <C>
Book value of net tangible and intangible assets acquired... 1,336
Purchase price.............................................. 2,595
-----
Goodwill.................................................... 1,259
-----
Goodwill recorded as an asset............................... 680
Goodwill charged to shareholders' equity.................... 579
</TABLE>
Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.
F-43
<PAGE> 404
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FCC
In October 1998, Vivendi acquired 49% and obtained joint control of a
Spanish holding company whose only asset is a 56.5% ownership interest in FCC, a
publicly listed company in Spain active in the environmental services sector.
Vivendi paid E794 million in cash in exchange for the interest in the holding
company. The holding company, which fully consolidates FCC, is reflected in the
Company's financial statements on the proportionate consolidation method. The
details of the acquisition are as follows (in millions of Euros):
<TABLE>
<S> <C>
Fair value of net tangible and intangible assets acquired... 240
Purchase price.............................................. 794
---
Goodwill.................................................... 554
---
Goodwill recorded as an asset............................... 554
</TABLE>
Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.
HAVAS INTERACTIVE
In January 1999, Vivendi acquired 100% of the outstanding shares of Cendant
Software (renamed Havas Interactive), a US based software development company
which produces games and educational CD-ROM. The transaction was accounted for
as a purchase. Vivendi made a payment of E678 million in exchange for the shares
of Havas Interactive. The details of the acquisition are as follows (in millions
of Euros):
<TABLE>
<S> <C>
Fair value of net tangible and intangible assets acquired... 396
Purchase price.............................................. 678
---
Goodwill.................................................... 282
---
Goodwill recorded as an asset............................... 282
</TABLE>
Goodwill recorded as an asset arising from this transaction is being
amortized over 10 years.
USFILTER
In April 1999, Vivendi acquired 100% of the outstanding shares of USFilter,
a US based water treatment and equipment manufacturing company. The transaction
was accounted for as a purchase. Vivendi paid E5,801 million in cash and
financed through issuance of bonds and issuance of Vivendi common shares. The
details of the acquisition are as follows (in millions of Euros):
<TABLE>
<S> <C>
Fair value of net tangible and intangible assets acquired... 1,224
Purchase price.............................................. 5,801
-----
Goodwill.................................................... 4,577
-----
Goodwill recorded as an asset............................... 1,801
Goodwill charged to shareholders' equity.................... 2,776
</TABLE>
Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.
CANAL+
In September 1999, Vivendi acquired control of CANAL+, a pay television
service company located in Europe, through the acquisition of an additional 15%
of the outstanding shares and increased its ownership percentage from 34% at
December 31, 1998 to 49% at December 31, 1999. The Company's
F-44
<PAGE> 405
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
control is derived (i) from the fact that Vivendi had a majority of the Board of
Directors, as well as the committees of the Board which are responsible for key
operating and financial decisions, (ii) from the French law, which stipulates
that no individual entity can own, either directly or indirectly, more than 49%
of a television broadcaster, and (iii) from the absence of any other significant
shareholder of CANAL+. Indeed, no other shareholder holds rights that allow him
to substantially participate in the management of CANAL+. To acquire the 15%
interest, Vivendi issued 17,500,000 shares of common stock to third parties in
exchange for the shares of CANAL+. The details of the acquisition are as follows
(in millions of Euros):
<TABLE>
<S> <C>
Fair value of net tangible and intangible assets acquired... 215
Purchase price.............................................. 1,374
-----
Goodwill.................................................... 1,159
-----
Goodwill recorded as an asset............................... --
Goodwill charged to shareholders' equity.................... 1,159
</TABLE>
BRITISH SKY BROADCASTING (BSKYB)
During 1999, the Company acquired an interest and met criteria of
significant influence in BSkyB through the purchase of shares held by Granada
and Pearson (11.8%) for E1,203.3 million, and through the merger with Pathe
(12.7%).
Vivendi issued 4,254,300 shares of common stock and paid E873.8 million in
cash in exchange for the shares of BSkyB.
Vivendi subsequently disposed of substantially all of the Pathe operating
activities and retained Pathe's 12.7% interest in BSkyB. E383.0 million of the
original goodwill has been allocated to the disposed activities.
The related goodwill was determined after allocation of the purchase price
to the former Pathe's activities disposed of in 1999 and amounts to E1,604
million among which E306 million was charged to shareholder's equity.
Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.
The following summary, prepared on a pro forma basis, combines the results
of operations as if all entities acquired in purchase business combinations
during 1999 had been completed as of the beginning of the periods presented (in
millions of Euros, except per share amounts):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Pro forma sales............................................. 45,414.5 38,935.9
Pro forma net income........................................ 1,385.6 655.9
Pro forma earnings per share................................ 2.44 1.26
</TABLE>
F-45
<PAGE> 406
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary, prepared on a pro forma basis, combines the results
of operations as if all entities acquired in purchase business combinations
during 1998 had been completed as of the beginning of the periods presented (in
millions of Euros, except per share amounts):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Pro forma sales............................................. 32,450.4 29,588.6
Pro forma net income........................................ 1,106.5 957.7
Pro forma earnings per share................................ 2.5 2.08
</TABLE>
4) OTHER INTANGIBLE ASSETS
Intangible assets other than goodwill are detailed as follows (in millions
of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
NET NET
------- -------
<S> <C> <C>
Fees paid to local authorities.............................. 516.9 554.7
Trademarks, market share, editorial resources............... 5,395.7 1,453.9
Software.................................................... 459.0 335.3
Prepaid expenses............................................ 1,192.0 668.9
Audiovisual and musical rights.............................. 823.6 --
Other....................................................... 294.7 269.9
------- -------
TOTAL....................................................... 8,681.9 3,282.7
======= =======
</TABLE>
Fees paid to local authorities relating to public service contracts, which
are located primarily in France, amounted to E516.9 million and E554.7 million
for the years ending December 31, 1999 and 1998, respectively. These are
amortized over the term of the contracts.
Trademarks, market share and editorial resources mostly relate to Vivendi's
water, waste management and transportation, media and audiovisual activities, in
the amounts of E2,059.2 million, E318.8 million, E1,726.4 million and E1,067.7
million, respectively, at December 31, 1999 and E26 million, E281 million,
E1,087 million and E0 million, respectively, at December 31, 1998. The carrying
value of market share is reviewed for realization each year on the same basis of
criteria used to assess its initial value, such as the market position, net
sales, and gross operating surplus or deficit. If the review indicates an other
than temporary reduction in value, a valuation allowance is recorded.
Prepaid expenses of E1,192 million at December 31, 1999 and E668.9 million
at December 31, 1998, primarily relate to the difference between the contractual
amounts of debt servicing payments to municipalities and the expense charged to
income over the period of public service contracts, and to the balance of mobile
subscriber acquisition costs.
Total amortization expense for other intangible assets for the years ended
December 31, 1999, 1998 and 1997 was E367.2 million, E195.7 million and E138.0
million, respectively.
Accumulated amortization amounted to E2,563.4 million and E875.8 million as
of December 31, 1999 and 1998, respectively.
F-46
<PAGE> 407
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5) INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Investments accounted for using the equity method are detailed as follows
(in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
PROPORTIONATE SHARE PROPORTIONATE SHARE OF NET
INTEREST OF EQUITY INCOME (LOSS)
-------------- ------------------- --------------------------
1999 1998 1999 1998 1999 1998 1997
----- ----- ------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CANAL+........................... (1) N/A 33.94% N/A 524.0 N/A (9.6) N/A
Telecom Developpement............ 49.90% 49.90% 241.4 238.5 (1.1) (17.1) (13.9)
Havas Advertising................ (2)(8) 19.71% 29.85% 127.8 155.6 11.3 13.6 --
Cofiroute........................ 31.13% 31.13% 105.0 105.5 26.0 21.4 19.0
UGC.............................. 39.34% 38.04% 71.1 63.1 0.4 0.6 1.6
AOL CompuServe France SAS........ (3) 55.00% -- 59.3 -- (8.6) -- --
Philadelphia Suburban............ (8) 15.87% 13.18% 55.0 26.5 5.4 3.2 2.8
UGC CineCite..................... 19.44% -- 52.0 -- 0.3 -- --
South Staffordshire.............. (8) 32.71% 33.17% 47.0 37.3 10.1 7.7 7.5
Bristol Waterworks Co............ (8) 24.14% 24.19% 36.3 29.1 5.1 4.7 4.2
Midkent.......................... (8) 23.82% 24.00% 27.2 20.7 6.1 4.9 5.2
British Sky Broadcasting......... (4)(8) 23.36% -- (250.0) -- (13.7) -- --
Audiofina........................ (5) -- 18.36% -- 229.4 -- 10.4 --
CANAL+ DA........................ (6) N/A 25.00% N/A 50.0 -- (0.2) --
Magyar Telecom................... (6) N/A 39.92% N/A 37.4 -- (1.5) (0.2)
Consumers Water.................. N/A 22.62% N/A 22.2 -- 2.5 1.9
Other............................ (7) N/A N/A 209.8 198.8 (8.4) 1.9 75.4
------ ------- ----- ----- -----
TOTAL............................ 781.9 1,738.1 32.9 42.5 103.6
====== ======= ===== ===== =====
</TABLE>
---------------
(1) Vivendi acquired an additional 15% of the capital stock of CANAL+ in
September 1999, bringing Vivendi's total equity interest to 49%. CANAL+ was
consolidated beginning October 1, 1999, due to the acquisition of effective
control.
(2) At the end of 1999, Vivendi sold 9% of Havas Advertising.
(3) The rights granted to minority shareholders limit Vivendi's role to that of
significant influence, and not control.
(4) As described in note 13, the Company has assumed a debt obligation which is
convertible into shares of BSkyB in a business combination. The Company owns
24.43% of the BSkyB common shares outstanding, but considers 1.07% of the
total shares to be held for the repayment of the convertible debt.
Accordingly, the Company applies the equity method to the percentages
presented above.
(5) During 1999, Audiofina was disposed of.
(6) Magyar Telecom and CANAL+ DA were fully consolidated in 1999.
(7) Other investment consists of various entities accounted for using the equity
method as of December 31, 1997, all of which were sold or consolidated in
1998.
(8) The December 31, 1999 quoted market price for these investments, which are
publicly listed, is as follows: Havas Advertising: E633 million,
Philadelphia Suburban: E142 million, South Staffordshire: E98 million,
Bristol Waterworks Co: E31 million, Midkent: E25 million, British Sky
Broadcasting: E6,766 million.
Dividends received from the equity affiliates amount to E83.7 million in
1999, E81.3 million in 1998, and E76.2 million in 1997.
F-47
<PAGE> 408
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information for equity method investees is as follows
(in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
BALANCE SHEET DATA
Long-term assets...................................... 6,472.1 10,303.1
Current assets........................................ 3,911.7 5,470.5
Total assets.......................................... 10,383.8 15,773.6
Shareholders' equity.................................. 1,294.7 5,055.5
Minority interests.................................... 111.6 191.8
Financial debt........................................ 3,719.7 4,650.6
Reserves and other liabilities........................ 5,257.8 5,875.7
Total liabilities and shareholders' equity............ 10,383.8 15,773.6
INCOME STATEMENT DATA
Net revenue........................................... 12,086.3 11,232.2 9,290.6
Operating income...................................... 173.8 755.6 590.5
Net income (loss)..................................... (308.2) 209.1 519.5
</TABLE>
6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment by segment are detailed as follows (in
millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
1999 1998
---------------------------------------------------------- --------
PROPERTY, ACCUMULATED NET NET
PLANT AND PUBLICLY-OWNED DEPRECIATION/ TANGIBLE TANGIBLE
EQUIPMENT UTILITY NETWORKS(A) AMORTIZATION ASSETS ASSETS
--------- ------------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Telecommunication............... 3,642.3 7.2 (1,012.6) 2,636.9 2,104.4
Multimedia and publishing....... 511.4 -- (246.5) 264.9 301.8
Audiovisual activities.......... 2,338.4 0.9 (1,696.8) 642.5 20.6
Internet........................ -- -- -- -- --
-------- ------- --------- -------- --------
COMMUNICATION................... 6,492.1 8.1 (2,955.9) 3,544.3 2,426.8
-------- ------- --------- -------- --------
Water........................... 4,397.1 2,652.0 (1,587.4) 5,461.7 2,152.3
Waste Management................ 3,988.6 12.5 (1,770.8) 2,230.3 1,505.7
Energy.......................... 5,442.1 575.1 (1,196.4) 4,820.8 2,730.7
Transportation.................. 1,425.3 200.9 (658.0) 968.2 533.9
FCC............................. 1,130.0 -- (484.1) 645.9 462.8
-------- ------- --------- -------- --------
ENVIRONMENTAL SERVICES.......... 16,383.1 3,440.5 (5,696.7) 14,126.9 7,385.4
-------- ------- --------- -------- --------
Construction.................... 2,239.9 529.2 (1,560.1) 1,209.0 786.7
Real Estate..................... 1,331.8 8.0 (341.6) 998.2 1,585.6
-------- ------- --------- -------- --------
CONSTRUCTION & REAL ESTATE...... 3,571.7 537.2 (1,901.7) 2,207.2 2,372.3
-------- ------- --------- -------- --------
OTHER........................... 122.2 -- (23.2) 99.0 57.6
-------- ------- --------- -------- --------
TOTAL........................... 26,569.1 3,985.8 (10,577.5) 19,977.4 12,242.1
======== ======= ========= ======== ========
</TABLE>
---------------
* (a) See applicable section of Note 2.
F-48
<PAGE> 409
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The break-out of property, plant and equipment net is as follows (in
millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ 1,773.2 1,427.9
Buildings................................................... 2,680.2 2,602.1
Equipment and machinery..................................... 8,352.4 5,225.9
Construction in progress.................................... 1,323.0 905.7
Other....................................................... 2,253.6 995.4
-------- --------
PROPERTY, PLANT AND EQUIPMENT............................... 16,382.4 11,157.0
-------- --------
PUBLICLY OWNED UTILITY NETWORKS............................. 3,595.0 1,085.1
-------- --------
TOTAL....................................................... 19,977.4 12,242.1
======== ========
</TABLE>
Tangible assets financed by leasing contracts, including purchase options,
amount to E1,139.2 million and E1,258.0 million at December 31, 1999 and 1998,
respectively. Accumulated amortization related to these assets financed under
capital leases was E379.9 million and E456.8 million at December 31, 1999 and
1998, respectively.
As of December 31, 1999 and 1998, property plant and equipment totaling
E2.1 billion and E1.5 billion were pledged as collateral for borrowings from
banks. See note 13.
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was E1,898.1 million, E1,385.7 million and E883.8 million, respectively.
7) FINANCIAL ASSETS
Investments accounted for using the cost method
Investments accounted for using the cost method are detailed as follows (in
millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1999 1998
------------------------------- -----
GROSS ALLOWANCE NET NET
------- --------- ------- -----
<S> <C> <C> <C> <C> <C>
Elektrim Telekomunikacja SP Zoo......... (1) 1,209.2 -- 1,209.2 --
Canal Satellite......................... (2) 304.0 -- 304.0 --
Mediaset SpA............................ 143.6 -- 143.6 --
Television Holding SA................... (4) 85.7 -- 85.7 --
Domino.................................. 59.3 -- 59.3 --
Csatorna Uzemeltetesi Holding
Reszvenyta............................ 40.0 -- 40.0 --
Fovarosi Csatomazasi Muvek
Reszvenytarsasag...................... 37.8 -- 37.8 37.8
Mitteldeutsche
Wasserversorgungsgeselt............... (3) 34.2 -- 34.2 --
Coprim.................................. 31.5 (31.5) -- 4.1
Norsk Gjenvinning....................... 29.2 -- 29.2 --
CGEA Bresil............................. (3) 23.7 -- 23.7 --
Misrfone................................ 22.5 -- 22.5 22.5
@viso................................... (3) 20.1 -- 20.1 --
Le Vidal................................ -- -- -- 86.6
</TABLE>
F-49
<PAGE> 410
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1999 1998
------------------------------- -----
GROSS ALLOWANCE NET NET
------- --------- ------- -----
<S> <C> <C> <C> <C> <C>
Sanepar................................. -- -- -- 59.3
Other................................... (5) 676.5 (270.2) 406.3 458.3
------- ------ ------- -----
TOTAL................................... 2,717.3 (301.7) 2,415.6 668.6
======= ====== ======= =====
</TABLE>
---------------
(1) Elektrim Telekomunikacja SP Zoo was accounted for using the cost method as
of December 31, 1999 because the acquisition was consummated in December,
1999, and significant "suspensive" conditions were not fulfilled before the
beginning of year 2000.
(2) Vivendi acquired additional shares through Pathe merger in 1999. These
shares are accounted for using the cost method as they are deemed to be
temporary due to their expected sale, which is expected to occur in 2000.
(3) Companies acquired or set up at the end of 1999.
(4) Equity stakes disposed of in 2000.
(5) As of December 31, 1998, "Other" includes Lucia (E11.6 million), and
Editions Gallimard (E15.1 million), which were sold in 1999 and l'Etudiant
(E26.5 million), Severoceske Vodovody Akanalizace AS (E23.1 million), Terre
Armee Internationale (E20.7 million), which are consolidated in 1999, and
other investments whose gross book value is under E20 million.
F-50
<PAGE> 411
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PORTFOLIO INVESTMENTS
Portfolio investments securities held as fixed assets are detailed as
follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------------------
1999 1998
---------------------------------------------- ----------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
----- ---------- ---------- --------- ----- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Saint-Gobain.......... 119.2 130.7 -- 249.9 341.9 333.4 -- 675.3
Facic*................ 185.1 -- -- 185.1 185.1 -- -- 185.1
Alcatel............... 145.1 298.8 -- 443.9 167.3 86.3 -- 253.6
Eiffage............... 56.6 -- (14.0) 42.6 56.6 -- (15.6) 41.0
Societe Generale...... -- -- -- -- 21.8 12.7 -- 34.5
Others (with unit book
value of under
E40 million)... 49.0 64.3 (6.6) 106.7 127.5 14.3 (8.3) 133.5
----- ----- ----- ------- ----- ----- ----- -------
TOTAL GROSS AMOUNT.... 555.0 493.8 (20.6) 1,028.2 900.2 446.7 (23.9) 1,323.0
Valuation allowance... (20.6) -- 20.6 0.0 (23.9) -- 23.9 0.0
----- ----- ----- ------- ----- ----- ----- -------
TOTAL NET AMOUNT...... 534.4 493.8 0.0 1,028.2 876.3 446.7 0.0 1,323.0
===== ===== ===== ======= ===== ===== ===== =======
</TABLE>
---------------
* One of the parent companies of Washington Baltimore.
Other portfolio investments held as fixed assets are detailed as follows
(in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Unlisted investments........................................ 417.8 338.8
Long-term loans............................................. 1,350.5 2,025.9
Other....................................................... 918.8 492.2
------- -------
2,687.1 2,856.9
Valuation allowance......................................... (126.0) (107.0)
------- -------
TOTAL NET AMOUNT............................................ 2,561.1 2,749.9
======= =======
</TABLE>
Unlisted investments consist of bonds, equity investments in start-up
companies, and mutual fund shares, of E111.4 million, E114.2 million
and E35.7 million, respectively, at December 31, 1999.
Long-term loans relate mainly to Real Estate operations for an amount of
E776 million as of December 31, 1999 and to environment companies, for an
amount of E301 million as of December 31, 1999.
Other investments consist mainly of loans by CANAL+ and US Filter and bond
discount related to Vivendi Environnement.
F-51
<PAGE> 412
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8) INVENTORIES AND WORK IN PROGRESS
Inventories are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
ENVIRONMENTAL SERVICES, INCLUDING:.......................... 2,214.9 799.6
Water....................................................... 1,525.4 311.4
FCC......................................................... 230.3 190.7
Sithe Energies.............................................. 80.0 20.8
COMMUNICATION, INCLUDING:................................... 1,172.3 431.9
Pay TV...................................................... 769.6 --
CONSTRUCTION................................................ 347.9 321.0
PROPERTY.................................................... 1,823.0 2,106.1
TOTAL....................................................... 5,558.1 3,658.6
Less valuation allowance.................................... (657.8) (662.6)
NET VALUE................................................... 4,900.3 2,996.0
======= =======
</TABLE>
At December 31, 1999 inventories related to the water segment include net
amounts of E613 million and E595 million due to the consolidation of
USFilter and Berliner Wasser Betriebe, respectively.
Inventory and work in progress related to pay TV are comprised of the
Company's television broadcasting rights.
For Compagnie Generale d'Immobilier et de Services, inventories and
construction in process include in particular:
-- E814.9 million of assets recorded as "Vivendi Valorisation" net of
a E335.9 million provision of which E586.5 million, net of
E193.9 million of provisions, represent multi-year development
projects in the Greater Paris region (in the La Defense business
district), in other parts of France and in Babelsberg near Potsdam in
Germany.
-- E606.3 million for assets pooled in a new legal structure called
"Nexity" scheduled for disposal in 2000.
9) ACCOUNTS RECEIVABLE
Accounts receivable are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Trade accounts receivable................................... 18,082.4 11,567.8
Valuation allowance......................................... (1,068.3) (706.2)
TOTAL TRADE ACCOUNTS RECEIVABLE............................. 17,014.1 10,861.6
VAT and other taxes......................................... 2,644.0 1,802.5
Other including deferred tax................................ 2,733.6 705.1
-------- --------
TOTAL ACCOUNTS RECEIVABLE................................... 22,391.7 13,369.2
======== ========
</TABLE>
F-52
<PAGE> 413
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The developments in the allowance for doubtful accounts for the years ended
December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1999 1998
------- ------
<S> <C> <C>
Balance at beginning of period.............................. 706.2 472.4
Amount charged to expense................................... 514.3 290.2
Deductions of reserve....................................... (248.1) (137.2)
Other adjustments*.......................................... 95.9 80.8
Balance at end of period.................................... 1,068.0 706.2
</TABLE>
---------------
* Other adjustments reflect changes in the scope of consolidation.
10) CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash, cash equivalents and marketable securities are detailed as follows
(in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Cash and cash equivalents (net)............................. 2,857.2 1,259.0
Marketable securities....................................... 4,251.3 3,206.8
------- -------
Total cash, cash equivalents and marketable securities...... 7,108.5 4,465.8
------- -------
</TABLE>
11) SHAREHOLDERS' EQUITY
During 1997, the Company issued 2,310,588 shares with a value of E110.4
million in connection with its obligations under the employee stock purchase
plan and stock option plans. In addition, the Company issued 23,565,648 shares
with a value of E768.5 million relating to the conversion of bonds, and
4,749,207 shares with a value of E162.3 million relating to the conversion of
cash dividends to shares of the Company. In 1997, the Company also issued
1,295,676 shares valued at E41.8 million in exchange for outstanding shares of
Water companies, and 6,354 shares valued at E0.3 million, relating to the
exercise of warrants.
During 1998, the Company issued 6,370,689 shares with a value of E205.5
million in connection with its obligations under the employee stock purchase
plan and stock option plans, and 647,139 shares valued at E29.6 million in
connection with conversion of bonds and exercise of warrants. In addition, the
Company issued 69,236,562 shares valued at E923.2 million in connection with the
acquisition of Havas. Goodwill of E579.0 million arising from this transaction
was recorded in additional paid-in capital. The cumulative effect due to the
change in accounting principles as of January 1, 1998 was E(226.8) million. This
net amount includes E(170.6) million due to the change in accounting related to
capital leases and E(56.2) million due to the change in pension accounting.
During 1999, the Company issued 45,505,197 shares for a total of E2,681.0
million for the exercise of subscription options. In addition, the Company
issued 25,747,392 shares with a value of E522.0 million relating to the
acquisition of Pathe. The Company also issued 4,254,300 shares with a value of
E325.0 million relating to the acquisition of BSkyB, and 17,500,000 shares with
a value of E1,373.0 million relating to the acquisition of CANAL+ shares from
Richemont. Lastly, the Company issued 9,813,432 shares with a value of E524.0
million in connection with its obligations under the employee stock purchase
plan and stock option plans, and issued 19,712,100 shares valued at E652.0
million relating to the conversion of bonds and warrants. Goodwill totaling
E4,310.3 million arising from business combinations was recorded in additional
paid-in capital in 1999.
F-53
<PAGE> 414
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's consolidated and unconsolidated subsidiaries have certain
restrictions on the distribution of net equity. These restrictions mainly
concern French companies where, pursuant to French law, they are legally
required to reserve a minimum of 5% of its annual net income within the retained
earnings account. This minimum contribution is not required once the reserve
equals 10% of the aggregate nominal share capital. The legal reserve is
distributable only upon liquidation. At December 31, 1999, the parent company
has reserved a total of E223.1 million, which represents 7% of the aggregate
share capital of E3,276.1 million.
On May 2, 1997, the Company issued 130,359,688 warrants to the Company's
shareholders. The warrants grant the holder the right to receive shares of the
Company at a predetermined price, originally denominated in French francs, upon
exercise of 40 warrants. In May 1999, the Company adjusted the terms of the
warrants consistent with the Company's stock-split and the redenomination of its
capital into Euros. As a result of the adjustment, holders of these warrants may
receive 3.05 new common shares at a price of E137.2 for the exercise of 40
warrants. As of December 31, 1999, 116,485,647 of these warrants remain
outstanding.
The share capital of the Company consisted of 595,648,168 shares as at
December 31, 1999 and 478,389,918 as of December 31, 1998. All shares have one
voting right and may be registered upon request by the owners. Registered shares
held by shareholders of the European Union for at least two years have two
voting rights. The treasury shares have no voting rights. The number of voting
rights outstanding was 624,506,807 as of December 31, 1999 and 522,009,171 as of
December 1998.
12) MINORITY INTERESTS
Minority interests are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
MINORITY INTERESTS AT JANUARY 1,............................ 2,423.0 1,742.3
------- -------
Changes in consolidation.................................... 1,596.9 534.1
Minority interests in income of consolidated subsidiaries... 5.3 212.2
Dividends paid by consolidated subsidiaries................. (70.3) (37.2)
Impact of foreign currency fluctuations on minority
interests................................................. 84.1 (21.0)
Other changes............................................... 13.4 (7.4)
------- -------
MINORITY INTERESTS AT DECEMBER 31, ......................... 4,052.4 2,423.0
======= =======
</TABLE>
Changes in consolidation in 1999 primarily result from the impact of the
full consolidation of CANAL+ beginning in October 1999 of E784.9 million, from
the impact of the increase in Sithe's capital issued to third parties of E173.0
million, and the impact of the acquisition of Berliner Wasser Betriebe of E545.8
million, whose consolidated financial statements included minority interests.
In 1998, the acquisition of 49% of the Spanish holding company that
consolidates FCC had an impact of E370.2 million on change in scope of
consolidation.
F-54
<PAGE> 415
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13) DEBT
The table below presents an analysis of the consolidated long-term debt
balances by type of debt instrument (in millions of euros) :
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Subordinated debt(a)........................................ 178.3 174.0
Non-recourse project financing(b)........................... 1,193.0 1,059.7
Other financial long-term debt:
Capital leases............................................ 818.0 892.9
Vivendi convertible 1.25%(c).............................. 1,700.0 --
Vivendi Environnement 1.5%(d)............................. 3,028.8 --
BSkyB 3%(e)............................................... 155.1 --
Mediaset Spa 3.5%(f)...................................... 181.9 --
Other..................................................... 11,977.9 7,829.9
-------- -------
Total....................................................... 19,233.0 9,956.5
======== =======
</TABLE>
---------------
(a) Subordinated debt consists primarily of:
-- a loan of E244 million to finance the wastewater treatment plant in
Zaragoza, Spain, underwritten by OTV on December 27, 1991 and repayable
over 15 years
-- $70 million of securities repayable over 15 years, issued on January
29, 1991 by Energies USA.
(b) This is non-recourse financing, i.e., it is guaranteed solely by the
projects which it finances. It concerns the Sithe Energies power plants
(E1,193 million). The corresponding assets are primarily included under the
heading "property, plant and equipment".
(c) On January 1999, Vivendi issued bonds that bear interest at 1.25%, with a
maturity in January 2004 and that are convertible at the option of the
bondholder, into Vivendi shares at a conversion rate of 1 bond to 3.047
shares. The maturity is January 1, 2004.
(d) On April 1999, Vivendi Environnement, a wholly owned subsidiary, issued
bonds that bear interest at 1.5%, with a maturity in January 2005, and that
are convertible, at the option of the bondholder, into Vivendi shares at a
conversion rate of 1 bond to 3.047 shares. If there is an initial offering
of Vivendi Environnement shares, the bonds may be converted into shares of
Vivendi Environnement at a predetermined conversion rate.
(e) In connection with its acquisition of Pathe in September 1999, Vivendi
assumed bonds that bear interest at 3%, with a maturity in November 2003,
and that are exchangeable into BSkyB shares. Each bond may be exchanged at
the option of the bondholder for 188.5236 BSkyB shares. Vivendi currently
owns an adequate number of BSkyB shares to meet its maximum conversion
obligation.
(f) On April 1997, CANAL+ issued bonds that bear interest at 3.5%, with a
maturity in March 2002, and that are exchangeable into Mediaset Spa shares.
Each bond may be exchanged at the option of the bondholder for 341.74
shares per bond. CANAL+ currently owns an adequate number of Mediaset to
meet its maximum conversion.
F-55
<PAGE> 416
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt listed according to the currency in which it is denominated
is as follows (in millions of euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Euros....................................................... 15,032.4 7,014.8
US Dollar................................................... 3,604.8 1,765.2
Pound Sterling.............................................. 247.4 42.8
Australian Dollar........................................... 166.6 179.6
Canadian Dollar............................................. 82.0 82.4
Other....................................................... 99.8 871.7
-------- -------
Total....................................................... 19,233.0 9,956.5
======== =======
</TABLE>
The table below presents a summary of the repayment schedules of the
long-term debt excluding subordinated securities (in millions of euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Due between one and two years............................... 4,781.0 2,435.6
Due between two and five years.............................. 8,080.4 2,485.5
Due after five years........................................ 6,193.3 4,861.4
-------- -------
Total....................................................... 19,054.7 9,782.5
======== =======
</TABLE>
At the end of 1999, E2.1 billion in bank borrowings was supported by
collateral guarantees, including E1.5 billion for the financing of power
plants in the United States and E90 million for the financing of the water
treatment plants of Wyuna Water in Australia.
14) RESERVES AND ALLOWANCES
Reserves and allowances are detailed as follows (in millions of euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Litigation including social and fiscal...................... 1,081.8 808.6
Warranties and customer care................................ 376.7 418.7
Financial depreciation*..................................... 525.8 489.6
Maintenance and repair costs accrued in advance............. 432.7 320.4
Reserves related to fixed assets............................ 152.1 182.7
Valuation allowance on Real Estate.......................... 1,255.7 1,607.4
Valuation allowance on Work in progress and losses on
long-termcontracts........................................ 684.8 490.2
Closure and post closure costs.............................. 259.1 142.4
Pensions.................................................... 591.6 458.7
Restructuring costs......................................... 434.1 267.0
Losses on investments in unconsolidated companies........... 376.0 294.7
Others...................................................... 712.9 451.3
------- -------
Total reserves and allowances............................... 6,883.3 5,931.7
======= =======
</TABLE>
---------------
* Financial depreciation of fixed assets relating to public service contracts.
F-56
<PAGE> 417
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The developments in the reserve for restructuring costs for the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Balance at beginning of period.............................. 267.0 244.7
Amount charged to expenses.................................. 94.3 103.5
Deductions of reserve
Utilization (cash)........................................ (125.4) (114.1)
Reversal (change in estimate)............................. (39.6) (26.7)
Other adjustments*.......................................... 237.8 59.6
Balance at end of period.................................... 434.1 267.0
</TABLE>
---------------
* Other adjustments reflect changes in the scope of consolidation.
Provisions for restructuring by segment analyses as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(IN MILLIONS OF
EUROS)
<S> <C> <C>
Telecommunication........................................... 19.1 34.2
Publishing and Multimedia................................... 53.5 56.1
Audiovisual................................................. 37.3 --
Internet.................................................... -- --
Water....................................................... 182.9 24.2
Waste Management............................................ 20.0 2.9
Energy...................................................... 5.3 10.7
Transportation.............................................. 0.9 1.2
FCC......................................................... -- --
Construction................................................ 107.4 128.3
Real Estate................................................. 7.7 9.4
Total....................................................... 434.1 267.0
</TABLE>
The changes in the scope of consolidation in 1999 are mainly explained by
the acquisitions of USFilter and Medimedia, whereas the changes in the scope of
consolidation in 1998 are mainly explained by the acquisition of Anaya.
15) ACCOUNTS PAYABLE
Accounts payable are detailed as follows (in millions of euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Trade accounts payable...................................... 17,637.6 11,788.0
Social costs payable........................................ 4,613.3 3,761.2
Other....................................................... 1,581.2 528.1
-------- --------
TOTAL ACCOUNTS PAYABLE...................................... 23,832.1 16,077.3
======== ========
</TABLE>
F-57
<PAGE> 418
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16) INCOME TAXES
Analysis of income tax expense (benefit)
Components of the income tax provision (benefit) are as follows (in
millions of euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1999 1998 1997
-------- ------ -----
<S> <C> <C> <C>
France................................................. 56.8 96.6 67.7
Other countries........................................ 172.0 273.4 73.1
Current income tax expense............................... 228.8 370.0 140.8
France................................................. (926.3) (394.5) 7.9
Other countries........................................ (95.7) 114.5 46.0
Deferred income tax (benefit)............................ (1,022.0) (280.0) 53.9
-------- ------ -----
Total income tax expense (benefit)....................... (793.2) 90.0 194.7
======== ====== =====
</TABLE>
DEFERRED TAX ASSETS AND LIABILITIES
The timing differences which give rise to significant deferred tax assets
and liabilities are as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
- Employee benefits....................................... 118.1 96.4
- Provisions for risks and liabilities.................... 931.1 745.9
- Tax loss including Real Estate operations............... 3,645.0 1,317.9
- Other timing differences................................ 520.0 253.5
GROSS DEFERRED TAX ASSETS................................... 5,214.2 2,413.7
DEFERRED TAX ASSETS NOT RECORDED IN THE BOOKS(A)............ (2,480.5) (1,708.6)
-------- --------
Deferred tax assets recorded in the books................... 2,733.7 705.1
======== ========
Deferred tax liabilities:
- Depreciation............................................ 606.6 359.2
- Reevaluation of assets.................................. 656.5 10.1
- Other taxable timing differences........................ 318.0 158.7
-------- --------
Gross deferred tax liabilities.............................. 1,581.1 528.0
======== ========
</TABLE>
---------------
(a) The evolution of tax assets not recorded in the books between 1998 and 1999
is mainly due to the consolidation of CANAL+.
Deferred tax assets are recorded in the consolidated balance sheets in the
caption Accounts Receivable. Deferred tax liabilities are recorded in the
caption Accounts Payable.
Undistributed earnings of subsidiaries are indefinitely reinvested in
operations and will be remitted substantially free of additional tax.
F-58
<PAGE> 419
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TAX RATE RECONCILIATION
A reconciliation of the French statutory tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Statutory tax rate......................................... 40.0% 41.6% 41.6%
Goodwill amortization not deductible for tax purpose..... 38.4% 7.2% 15.4%
Permanent differences.................................... (79.1)% 7.1% (93.0)%
Lower tax rate on long-term capital gains and losses..... (22.3)% (6.1)% 0.0%
Tax losses including real estate operations.............. (93.9)% (36.9)% 63.0%
Other, net............................................... (7.4)% (5.5)% (7.9)%
------ ----- -----
Effective tax rate(a)...................................... (124.3)% 7.4% 19.1%
====== ===== =====
</TABLE>
---------------
(a) The effective tax rate is computed by dividing "Income taxes and deferred
taxes" by "Net income before income taxes and deferred taxes."
NET OPERATING TAX LOSS SAVING
At December 31, 1999, the Company has tax losses which represent a
potential tax saving of E3,645.0 millions (computed with the enacted tax rate).
Tax losses expire as follows:
<TABLE>
<CAPTION>
YEARS AMOUNT
----- ------------
(E MILLIONS)
<S> <C>
2000........................................................ 119.3
2001........................................................ 83.4
2002........................................................ 144.1
2003........................................................ 315.4
2004........................................................ 579.4
2005 and thereafter......................................... 1,511.2
Unlimited................................................... 892.2
-------
Total....................................................... 3,645.0
=======
</TABLE>
17) PENSION PLANS AND POST RETIREMENT BENEFITS OTHER THAN PENSION PLANS
In accordance with the laws and practices of each country, the Company
participates in employee benefit pension plans offering death and disability
healthcare, retirement and special termination benefits. Those plans provide
various benefits including flat payments per year of service and final pay plans
that are integrated with local social security and multi-employer plans.
Most of the pension plans are funded with investments made in various
instruments such as insurance contracts and equity and debt investment
securities. These pension plans do not hold investments in the Company's shares.
For defined contribution plans and multi-employer plans, the Company
records expense equal to the contributions paid. For defined benefit pension
plans, accruals and prepaid expenses are determined using the projected unit
credit method.
F-59
<PAGE> 420
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Special termination benefits are recorded on an accrual basis at the time
the offer is accepted by the employees or their representatives.
18) DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED COUNTERPARTY RISK
Vivendi is subject to various market risks in connection with its
operations. Derivative financial instruments are used to manage interest rate
risk, primarily related to financing activities, and foreign currency risk
associated with foreign denominated assets and liabilities.
Credit risk associated with the derivative financial instrument portfolio
is managed through credit approvals, investment limits and credit monitoring
procedures. Counterparties are limited to large highly rated financial
institutions.
INTEREST RATE SWAPS AND CAPS
Interest rate swaps are generally used to modify the interest rate terms of
long-term debt. This includes, depending on the circumstances involved, the
modification from fixed to floating rates and from floating to fixed, as well as
the modification of the underlying index on floating rate debt. Certain of the
interest rate swaps employed by the Company have delayed start dates. Interest
rate caps are used to limit the upside risk relating to floating rate debt.
CURRENCY FORWARD CONTRACTS, OPTIONS AND RATE SWAPS
Currency options and forward contracts are used to hedge firm and
anticipated transactions relating to assets denominated in foreign currencies.
Currency rate swaps are used to modify the interest rate and currency of foreign
denominated debt.
OTHER DERIVATIVE FINANCIAL INSTRUMENTS
Other derivative financial instruments may be used by the Company to hedge
other specifically identified risks. As of December 31, 1999 the Company had
instruments that were used to modify the terms of its public debt, with
principal repayment terms based on the value of Vivendi stock. These instruments
effectively modify the principal terms to a fixed amount and the rates to
floating rates.
Derivative financial instruments held by the Company as of December 31,
1999 and 1998 are summarized below. Notional amounts represent the levels of
involvement by the Company and are not indicative of gains or losses. Interest
rates for variable instruments are based on contractual rates as of the end of
the period (in millions of Euros).
F-60
<PAGE> 421
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
----------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------
<S> <C> <C> <C> <C>
INTEREST RATE HEDGING ACTIVITY
Interest rate swaps -- pay fixed rate
Notional amount....................................... 7,368.0 323.4 3,337.9 3,706.7
Average received rate (as of 12.31.99)................ 3.68%
Average paid rate..................................... 4.77%
Interest rate swaps -- pay variable rate
Notional amount....................................... 1,888.7 84.8 1,386.0 417.9
Average received rate................................. 6.55%
Average paid rate (as of 12.31.99).................... 3.77%
Cross currency interest rate swap(a)
Notional amount....................................... 172.6 -- 172.6 --
Average received rate (as of 12.31.99)................ 3.34%
Average paid rate (as of 12.31.99).................... 2.29%
Interest rate caps
Notional amount....................................... 4,705.2 1,042.4 1,810.9 1,851.9
Guarantee rate........................................ 4.89%
FOREIGN CURRENCY HEDGING ACTIVITY
Forward exchange contracts
Notional amount....................................... 1,626.0 1,626.0 -- --
OTHER DERIVATIVE FINANCIAL INSTRUMENTS
Specialized indexed swaps(b)
Notional amount....................................... 377.0 -- 177.8 199.2
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
----------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------
<S> <C> <C> <C> <C>
INTEREST RATE HEDGING ACTIVITY
Interest rate swaps -- pay fixed rate
Notional amount....................................... 8,425.5 1,051.5 2,443.5 4,930.5
Average received rate (as of 12.31.98)................ 3.76%
Average paid rate..................................... 4.87%
Interest rate swaps -- pay variable rate
Notional amount....................................... 2,234.3 -- 900.5 1,333.8
Average received rate................................. 6.69%
Average paid rate (as of 12.31.98).................... 3.69%
Cross currency interest rate swap(a)
Notional amount....................................... 172.6 -- 172.6 --
Average received rate (as of 12.31.98)................ 3.25%
Average paid rate (as of 12.31.98).................... 2.34%
Interest rate caps
Notional amount....................................... 6,869.9 487.8 3,615.6 2,766.5
Guarantee rate........................................ 4.60%
Interest rate floors
Notional amount....................................... 152.5 152.5 -- --
Guarantee rate........................................ 3.60%
</TABLE>
F-61
<PAGE> 422
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
----------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------
<S> <C> <C> <C> <C>
FOREIGN CURRENCY HEDGING ACTIVITY
Forward exchange contracts............................ 516.9 516.9 -- --
Notional amount.......................................
OTHER DERIVATIVE FINANCIAL INSTRUMENTS
Specialized indexed swaps(b)
Notional amount....................................... 324.0 -- 177.8 146.2
</TABLE>
---------------
(a) Cross currency swaps primarily consist of financial instruments that
exchange floating rates between Yen and Euro.
(b) Specialized indexed swaps consist of financial instruments that receive an
amount indexed to Vivendi's share performance and pay based on a variable
interest rate. These swaps are used as an economic hedge of certain
equity-linked bonds issued by Vivendi.
19) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following information is provided in order to meet the US GAAP
requirements for disclosures of the fair value of certain types of financial
instruments. A summary of the assumptions used by management to estimate the
fair value of each financial instrument is listed below:
INVESTMENTS ACCOUNTED FOR USING THE COST METHOD AND PORTFOLIO INVESTMENTS
The fair value of publicly traded equity securities is estimated using
quoted market prices, where available. If a quoted market price is not
available, fair value is estimated by management based on net carrying value.
LOANS
The fair value of loans, which have been included in portfolio investments
held as fixed assets (others) in the balance sheet, is estimated by discounting
the future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. These cash flow assumptions include adjustments to reflect estimates
of uncollectable amounts. Management has determined that the book value of loans
with variable rates or with maturities less than one year reasonably approximate
fair value.
LONG TERM DEBT
The fair value of the Company's long term debt is estimated by discounting
the future cash flows using the current rates at which similar loans have been
offered to the Company for debt of the same remaining maturity. For exchange
traded debt, fair value is estimated using quoted market prices. Long term debt
included in the table below includes amounts relating to the short term portion
that are classified as short term debt for balance sheet purposes.
FINANCIAL DERIVATIVE
The fair value of financial derivative financial instruments generally
reflects the estimated amounts that the Company would expect to pay or receive
to terminate these contracts. Dealer quotes or valuation
F-62
<PAGE> 423
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
models have been used to estimate the fair value of these contracts as of the
reporting date (in millions of Euros).
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1999 1998
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET
FINANCIAL ASSETS
Investments........................................ 2,415.6 2,896.7 668.6 668.7
Portfolio investments held as fixed assets
(securities)..................................... 534.4 1,028.2 876.3 1,205.3
Other investments and loans........................ 2,561.1 2,550.9 2,749.9 2,969.5
Treasury shares.................................... 2,020.0 2,562.0 628.7 728.3
FINANCIAL LIABILITIES
Long-term debt..................................... 19,233.0 20,020.6 9,956.5 11,185.7
OFF-BALANCE SHEET
TREASURY MANAGEMENT
Interest rate swaps................................ -- 171.0 -- (263.0)
Interest caps and floors........................... -- 86.6 -- 31.0
Cross currency interest rate swaps................. -- 43.6 -- 0.2
Other specialized swaps............................ -- 56.7 -- 35.9
Forward currency exchange contacts................. -- 6.6 -- (1.8)
Calls and puts on marketable securities............ -- (48.9) -- (213.0)
</TABLE>
Financial instruments including cash and cash equivalents, accounts
receivable, short-term loans, accounts payable and bank overdrafts and
short-term borrowings are excluded from the above table. For these instruments,
fair value was estimated to be the carrying amount due to the short maturity.
20) COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENT LIABILITIES
Vivendi's contingent liabilities relating to certain performance guarantees
by segments are as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Construction................................................ 1,213.1 960.2
Water....................................................... 847.3 604.0
Waste-management............................................ 369.5 341.4
Audiovisual................................................. 393.0 --
Property and other activities............................... 1,271.6 566.0
------- -------
TOTAL....................................................... 4,094.5 2,471.6
======= =======
</TABLE>
Under the Berlin water contract, the Company may be obligated to pay
approximately E613 million to previous land owners, not indemnified by the
Berlin government, who present claims for payments.
The Company has given specific guarantees that cover both prepayments
received by the Company and performance obligations relating to construction
contracts of the Company. These guarantees typically represent 20-30% of the
value of a contract, and in some cases can be 100% of the contract amount.
F-63
<PAGE> 424
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contingent liabilities in the real estate segment consist of pledges in the
amounts of E211 million, E188 million and E104 million, and guarantees to banks
in the amounts of E52 million, E72 million and E127 million as at December 31,
1999, 1998 and 1997, respectively. In 1999, they include commitments given of
E500 million regarding certain environmental and regulatory warranties, in
connection with the sale of property assets.
CAPITAL LEASES AND OTHER LONG TERM LEASES
Vivendi finances certain operating assets and investment properties through
capital leases (including a purchase option (known in France as "credit bail")).
Minimum future payments under these capital lease obligations at December 31,
1999 and December 31, 1998 represent E1.1 billion and E1.3 billion.
At year end there is a long term lease back arrangement concluded with the
owner of the La Villette tower block representing an annual charge amounting to
E9.5 million.
In addition, the disposal of three office building in April 1996 was
accompanied by a 30-year lease back arrangement effective upon completion of the
building (two of the buildings were completed in April 1998 and the third is to
be handed over in April 2000).
In 1996, three buildings were sold in Berlin. The transaction comprises
lease back arrangements for periods ranging from ten to thirty years. The annual
rental charge is E21.9 million. The difference between Vivendi's rental
obligation under the leases and the market rent is reserved when unfavorable.
OTHER COMMITMENTS
The Company has entered into a contract to purchase exclusive broadcasting
rights for films and sporting events, under various agreements expiring through
2009. As described in note 2, under certain public service contracts, the
Company has assumed fees obligation with local authorities. At December 31,
1999, the minimum future payments of these other commitments are summarized as
follows (in millions of Euros):
<TABLE>
<CAPTION>
PUBLIC
BROADCASTING SERVICE
RIGHTS CONTRACTS TOTAL
------------ --------- -------
<S> <C> <C> <C>
2000................................................ 1,706.1 46.3 1,752.4
2001................................................ 1,351.8 43.2 1,395.0
2002................................................ 1,023.8 38.7 1,062.5
2003................................................ 894.7 34.5 929.2
2004................................................ 761.6 30.8 792.4
2005 and thereafter................................. 797.0 134.5 931.5
------- ----- -------
Total minimum future payments....................... 6,535.0 328.0 6,863.0
======= ===== =======
</TABLE>
LITIGATION
The Company is subject to various litigation in the normal course of
business. Although it is not possible to predict the outcome of such litigation
with certainty, based on the facts known to the Company and after consultation
with counsel, management believes that such litigation will not have a material
adverse effect on the Company's financial position or results of operations.
F-64
<PAGE> 425
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENVIRONMENTAL MATTERS
Vivendi's operations are subject to evolving and increasingly stringent
environmental regulations in a number of jurisdictions. Vivendi's operations are
covered by insurance policies. At December 31, 1999, there are no significant
environmental losses.
21) INVESTMENTS ACCOUNTED FOR USING THE PROPORTIONATE CONSOLIDATION METHOD
Investments accounted for using the proportionate consolidation method
represent companies in which Vivendi and other shareholders have agreed to
exercise joint control over significant financial and operating policies.
Summarized financial information for major subsidiaries consolidated under
the proportionate consolidation method is as follows (in millions of euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -----
<S> <C> <C> <C>
BALANCE SHEET DATA
Non-current assets....................................... 4,324.6 988.4
Current assets........................................... 2,835.7 1,637.6
Total assets............................................. 7,160.3 2,626.0
Shareholders' equity..................................... 1,878.6 436.4
Minority interests....................................... 244.1 220.9
Financial debt........................................... 1,557.4 310.7
Reserves and other liabilities........................... 3,480.2 1,658.0
Total liabilities and shareholders' equity............... 7,160.3 2,626.0
INCOME STATEMENT DATA
Net sales................................................ 2,508.5 1,401.7 620.5
Operating income......................................... 222.8 103.8 17.1
Net income............................................... 80.2 46.1 2.5
</TABLE>
22) SEGMENT INFORMATION
In accordance with the provision of FAS 131, the Company has identified 11
reportable segments which include: Telecommunication, Multimedia and Publishing,
Audiovisual, Internet, Water, Waste Management, Energy, Transportation, FCC,
Construction and Real Estate. These segments are consistent with the basis on
which management evaluates investments and results.
The Telecommunication segment offers mobile telephony and fixed telephony
services.
The Multimedia and Publishing segment includes book publishing, business
and professional press, education material and games.
The Audiovisual segment produces and distributes subscription television
services.
The Internet segment develops internet websites and services.
The Water segment integrates water and wastewater activities such as water
distribution, water and wastewater treatment, industrial process water,
manufacturing of water treatment equipment and systems.
The Waste Management segment collects, processes and disposes of household
and industrial waste.
The Energy segment includes independent power production and energy
optimization and related services.
F-65
<PAGE> 426
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Transportation segment focuses on the operation of passenger
transportation services, both road and rail networks.
FCC is a separate segment that operates in construction, urban sanitation
and water services, cement production and urban related activities in Spain and
Latin America.
The Construction segment is organized into concession and services,
mechanical and electrical, road works, building and civil engineering.
The Real Estate segment develops, sells and finances property, targeting
both individual and corporate clients.
REVENUE FROM EXTERNAL CUSTOMERS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(E MILLIONS)
<S> <C> <C> <C>
Telecommunication........................................... 4,102.2 2,875.2 1,618.3
Publishing and multimedia................................... 3,316.9 2,876.3 --
Audiovisual................................................. 1,151.8 200.6 47.3
Internet.................................................... 2.0 -- --
-------- -------- --------
COMMUNICATION............................................... 8,572.9 5,952.1 1,665.6
Water....................................................... 10,683.7 6,857.7 6,577.6
Waste management............................................ 3,520.5 2,836.5 2,214.8
Energy...................................................... 3,891.2 3,514.0 3,844.9
Transportation.............................................. 2,456.8 1,991.8 1,688.7
FCC......................................................... 1,876.0 847.2 --
-------- -------- --------
ENVIRONMENTAL SERVICES...................................... 22,428.2 16,047.2 14,326.0
Construction................................................ 8,903.0 7,886.2 8,009.0
Real Estate................................................. 1,686.0 1,818.7 1,444.6
-------- -------- --------
CONSTRUCTION AND REAL ESTATE................................ 10,589.0 9,704.9 9,453.6
OTHERS...................................................... 32.4 32.9 31.4
-------- -------- --------
TOTAL REVENUE FROM EXTERNAL CUSTOMERS....................... 41,622.5 31,737.1 25,476.6
======== ======== ========
</TABLE>
F-66
<PAGE> 427
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE BETWEEN SEGMENTS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
(E MILLIONS)
<S> <C> <C> <C>
Telecommunication........................................... 68.3 64.9 44.3
Publishing and multimedia................................... 12.7 2.6 --
Audiovisual................................................. 1.0 3.2 0.2
Internet.................................................... -- -- --
----- ----- -----
COMMUNICATION............................................... 82.0 70.7 44.5
Water....................................................... 528.6 598.9 228.1
Waste management............................................ 30.5 60.7 60.2
Energy...................................................... 44.4 36.9 52.1
Transportation.............................................. 10.1 5.1 2.3
FCC......................................................... -- -- --
----- ----- -----
ENVIRONMENTAL SERVICES...................................... 613.6 701.6 342.7
Construction................................................ 42.8 46.0 44.6
Real Estate................................................. 66.1 67.2 88.6
----- ----- -----
CONSTRUCTION AND REAL ESTATE................................ 108.9 113.2 133.2
OTHERS...................................................... 58.7 4.5 12.7
----- ----- -----
TOTAL REVENUE BETWEEN SEGMENTS.............................. 863.2 890.0 533.1
===== ===== =====
</TABLE>
F-67
<PAGE> 428
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMORTIZATION EXPENSE
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(E MILLIONS)
<S> <C> <C> <C> <C>
Telecommunication......................................... 1,022.5 651.6 518.4
Publishing and multimedia................................. 62.9 104.3 --
Audiovisual............................................... 178.9 6.4 --
Internet.................................................. -- -- --
------- ------- -------
COMMUNICATION............................................. 1,264.3 762.3 518.4
Water..................................................... 373.4 225.8 187.7
Waste management.......................................... 315.5 240.2 184.4
Energy.................................................... 196.8 199.6 59.4
Transportation............................................ 85.6 69.2 51.1
FCC....................................................... 80.3 44.5 --
------- ------- -------
ENVIRONMENTAL SERVICES.................................... 1,051.6 779.3 482.6
Construction.............................................. 248.4 186.7 224.3
Real Estate............................................... 64.7 34.0 (61.8)
------- ------- -------
CONSTRUCTION AND REAL ESTATE.............................. 313.1 220.7 162.5
OTHERS.................................................... 49.3 69.4 150.5
------- ------- -------
TOTAL AMORTIZATION EXPENSE(1)............................. 2,678.3 1,831.7 1,314.0
======= ======= =======
</TABLE>
---------------
(1) Amortization expense includes both tangible and intangible assets.
OPERATING INCOME
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- ------
(E MILLIONS)
<S> <C> <C> <C> <C>
Telecommunication......................................... 350.6 22.5 (187.8)
Publishing and multimedia................................. 354.5 252.2 --
Audiovisual............................................... (102.7) (4.7) (10.9)
Internet.................................................. (50.8) (6.4) --
------- ------- ------
COMMUNICATION............................................. 551.6 263.6 (198.7)
Water..................................................... 792.6 405.0 383.2
Waste management.......................................... 277.7 225.8 158.3
Energy.................................................... 297.3 290.5 261.1
Transportation............................................ 96.1 75.2 45.4
FCC....................................................... 190.5 74.5 --
------- ------- ------
ENVIRONMENTAL SERVICES.................................... 1,654.2 1,071.0 848.0
Construction.............................................. 175.7 82.4 (3.5)
Real Estate............................................... 36.8 (3.0) (55.3)
------- ------- ------
CONSTRUCTION AND REAL ESTATE.............................. 212.5 79.4 (58.8)
OTHERS.................................................... (137.8) (82.6) 5.0
------- ------- ------
TOTAL OPERATING INCOME.................................... 2,280.5 1,331.4 595.5
======= ======= ======
</TABLE>
F-68
<PAGE> 429
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- ------
(E MILLIONS)
<S> <C> <C> <C> <C>
Net financial income (expense)(1)......................... (220.1) 9.3 (301.3)
Net exceptional income (expense)(2)....................... (837.8) 249.3 878.6
Income tax benefit (expense)(3)........................... 793.2 (90.0) (194.7)
Goodwill amortization(4).................................. (612.0) (209.5) (374.7)
NET INCOME AFTER GOODWILL AMORTIZATION AND BEFORE EQUITY
AND MINORITY INTERESTS.................................. 1,403.8 1,290.5 603.4
======= ======= ======
</TABLE>
---------------
(1) The Company manages financial income (expense) on a corporate basis.
Accordingly, an allocation of financial income (expense) would not present
meaningful information.
(2) Exceptional items primarily relate to losses incurred on sales of real
estate and gains on sales of financial assets managed on a corporate basis.
(3) The Company has established tax consolidation groups in order to maximize
its tax efficiency. These groups are comprised of companies in different
segments within a particular tax jurisdiction.
(4) Goodwill amortization is allocated to segments in the following table.
SIGNIFICANT NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1999 1998 1997
------ ------ --------
(E MILLIONS)
<S> <C> <C> <C> <C>
Telecommunication......................................... 5.8 27.7 931.3
Publishing and multimedia................................. (3.1) 45.3 --
Audiovisual............................................... (335.3) (1.2) --
Internet.................................................. -- -- --
------ ------ --------
COMMUNICATION............................................. (332.6) 71.8 931.3
Water..................................................... (88.5) (20.3) (127.1)
Waste management.......................................... 7.2 (58.8) (20.5)
Transportation............................................ 3.1 (1.9) 5.7
Energy.................................................... 45.3 (188.7) 249.8
FCC....................................................... 0.2 (11.3) --
------ ------ --------
ENVIRONMENTAL SERVICES.................................... (32.7) (281.0) 107.9
Construction.............................................. 22.2 76.2 (66.7)
Real Estate............................................... 503.9 194.1 (1,052.3)
------ ------ --------
CONSTRUCTION AND REAL ESTATE.............................. 526.1 270.3 (1,119.0)
OTHERS.................................................... (78.6) 211.8 274.7
------ ------ --------
TOTAL NON-CASH TRANSACTIONS(1)............................ 82.2 272.9 194.9
====== ====== ========
</TABLE>
---------------
(1) Significant non-cash transactions have been included as exceptional items,
dilution results, depreciation, amortization and provision on exceptional
items, and dilution result.
F-69
<PAGE> 430
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TOTAL ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
(E MILLIONS)
<S> <C> <C>
Telecommunication........................................... 9,158.6 6,429.1
Publishing and multimedia................................... 5,206.1 3,740.7
Audiovisual................................................. 8,749.0 1,336.4
Internet.................................................... 34.5 11.6
-------- --------
COMMUNICATION............................................... 23,148.2 11,517.8
Water....................................................... 22,510.1 5,697.6
Waste management............................................ 5,793.5 3,560.8
Transportation.............................................. 2,012.5 1,377.0
Energy...................................................... 9,122.1 5,535.3
FCC......................................................... 2,973.2 2,531.6
-------- --------
ENVIRONMENTAL SERVICES...................................... 42,411.4 18,702.3
Construction................................................ 7,802.7 6,326.7
Real Estate................................................. 5,451.8 5,920.6
-------- --------
CONSTRUCTION AND REAL ESTATE................................ 13,254.5 12,247.3
OTHERS...................................................... 3,962.9 6,515.0
-------- --------
TOTAL ASSETS................................................ 82,777.0 48,982.4
======== ========
</TABLE>
EXPENDITURES FOR LONG-LIVED ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(E MILLIONS)
<S> <C> <C> <C>
Telecommunication........................................... 1,053.3 1,220.6 752.1
Publishing and multimedia................................... 95.5 141.8 --
Audiovisual................................................. 205.9 14.4 1.2
Internet.................................................... 6.1 0.4 0.0
------- ------- -------
COMMUNICATION............................................... 1,360.8 1,377.2 753.3
Water....................................................... 736.0 430.4 425.9
Waste management............................................ 412.5 385.1 355.0
Transportation.............................................. 241.4 183.6 62.3
Energy...................................................... 2,407.7 1,104.0 319.3
FCC......................................................... 107.9 68.5 --
------- ------- -------
ENVIRONMENTAL SERVICES...................................... 3,905.5 2,171.6 1,162.5
Construction................................................ 242.8 219.8 163.9
Real Estate................................................. 96.1 76.9 65.2
------- ------- -------
CONSTRUCTION AND REAL ESTATE................................ 338.9 296.7 229.1
OTHERS...................................................... 23.1 63.4 0.4
------- ------- -------
TOTAL EXPENDITURES.......................................... 5,628.3 3,908.9 2,145.3
======= ======= =======
</TABLE>
F-70
<PAGE> 431
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EQUITY METHOD INVESTMENTS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
SHARE IN NET SHARE IN NET SHARE IN NET
INVESTMENT EARNINGS INVESTMENT EARNINGS INVESTMENT EARNINGS
---------- ------------ ---------- ------------ ---------- ------------
(E MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Telecommunication............ 237.8 0.2 270.2 (20.5) 431.2 (15.1)
Publishing and multimedia.... 134.6 9.8 391.0 14.1 811.5 35.8
Audiovisual.................. (87.7) (42.5) 652.8 (3.4) 54.0 (40.9)
Internet..................... 28.0 (8.6) -- -- -- --
----- ----- ------- ----- ------- -----
COMMUNICATION................ 312.7 (41.1) 1,314.0 (9.8) 1,296.7 (20.2)
Water........................ 200.5 31.8 177.2 25.3 162.2 23.7
Waste management............. 6.1 0.7 4.2 0.6 47.3 2.0
Energy....................... 5.7 1.7 18.0 1.3 789.9 64.4
Transportation............... 7.8 0.3 6.9 0.3 3.6 0.7
FCC.......................... 124.5 10.9 91.8 4.4 -- --
----- ----- ------- ----- ------- -----
ENVIRONMENTAL SERVICES....... 344.6 45.4 298.1 31.9 1,003.0 90.8
Construction................. 121.2 27.5 118.9 20.3 104.6 19.1
Real Estate.................. 10.4 (0.2) 14.3 1.3 11.3 0.4
----- ----- ------- ----- ------- -----
CONSTRUCTION AND REAL
ESTATE..................... 131.6 27.3 133.2 21.6 115.9 19.5
OTHERS....................... (7.0) 1.3 (7.2) (1.2) 94.7 13.5
----- ----- ------- ----- ------- -----
TOTAL........................ 781.9 32.9 1,738.1 42.5 2,510.3 103.6
===== ===== ======= ===== ======= =====
</TABLE>
GEOGRAPHICAL BREAKDOWN OF NET SALES
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
-------------------------------------------------------------------
UNITED REST OF UNITED STATES REST OF
FRANCE KINGDOM EUROPE OF AMERICA THE WORLD TOTAL
-------- ------- ------- ------------- --------- --------
(E MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Communication........................ 6.833.0 188.6 822.2 517.8 211.3 8,572.9
Environmental Service................ 9,952.8 2,589.8 4,169.4 4,420.9 1,315.3 22,428.2
Construction and Real Estate......... 6,967.0 706.6 2,378.1 75.4 461.9 10,589.0
Others............................... 32.4 -- -- -- -- 32.4
-------- ------- ------- ------- ------- --------
TOTAL................................ 23,785.2 3,465.0 7,369.7 5,014.1 1,988.5 41,622.5
======== ======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
-------------------------------------------------------------------
UNITED REST OF UNITED STATES REST OF
FRANCE KINGDOM EUROPE OF AMERICA THE WORLD TOTAL
-------- ------- ------- ------------- --------- --------
(E MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Communication........................ 5,111.2 168.9 451.9 49.0 135.2 5,916.2
Environmental Service................ 9,413.6 2,230.9 2,475.7 1,215.8 711.2 16,047.2
Construction and Real Estate......... 6,866.8 547.6 1,865.6 3.0 457.7 9,740.7
Others............................... 32.4 -- 0.1 -- 0.4 32.9
-------- ------- ------- ------- ------- --------
TOTAL................................ 21,424.0 2,947.4 4,793.3 1,267.8 1,304.5 31,737.0
======== ======= ======= ======= ======= ========
</TABLE>
F-71
<PAGE> 432
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-------------------------------------------------------------------
UNITED REST OF UNITED STATES REST OF
FRANCE KINGDOM EUROPE OF AMERICA THE WORLD TOTAL
-------- ------- ------- ------------- --------- --------
(E MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Communication........................ 1,642.1 -- 23.5 -- -- 1,665.6
Environmental Service................ 8,967.8 2,178.1 922.3 1,700.2 557.6 14,326.0
Construction and Real Estate......... 6,630.7 538.9 1,778.7 7.3 498.0 9,453.6
Others............................... 31.2 0.1 0.0 -- 0.1 31.4
-------- ------- ------- ------- ------- --------
TOTAL................................ 17,271.8 2,717.1 2,724.5 1,707.5 1,055.7 25,476.6
======== ======= ======= ======= ======= ========
</TABLE>
GEOGRAPHICAL BREAKDOWN OF LONG LIVED ASSETS
<TABLE>
<CAPTION>
UNITED REST OF UNITED STATES REST OF
FRANCE KINGDOM EUROPE OF AMERICA THE WORLD TOTAL
-------- ------- ------- ------------- --------- --------
(E MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998.............. 17,186.5 1,931.0 4,829.5 1,726.6 399.0 26,072.6
As of December 31, 1999.............. 18,994.8 3,748.0 9,656.4 12,268.2 673.5 45,340.9
</TABLE>
23) RELATED PARTY TRANSACTIONS
The main transactions with related parties (principally all the investments
carried under the equity method and subsidiaries excluded from consolidation)
and amounts receivable from and payable to them were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1999 1998
------ ------
(E MILLIONS)
<S> <C> <C>
Receivables
Trade accounts............................................ 174.3 120.0
Loans..................................................... 241.1 205.9
Payables
Trade accounts............................................ 581.2 392.9
Loans..................................................... 281.1 426.1
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1999 1998
------ ------
(E MILLIONS)
<S> <C> <C>
Sales....................................................... 630.6 501.8
Purchases................................................... 604.2 409.0
Net interest income/(expense)............................... 7.8 (15.1)
</TABLE>
In addition to the items above, the Company has entered into certain
related party transactions described below:
-- on April 30, 1999, Compagnie de Saint-Gobain acquired from Vivendi 3
million Saint-Gobain shares at a price of E482.7 million (E160.91 per
share), and Vivendi acquired from Compagnie de Saint-Gobain 4.7 million
Vivendi shares at a price of E807.5 million (E171.81 per share, before
the three-for-one stock split). These purchases were made through the
exercise of Saint-Gobain's and Vivendi's respective call options
mutually granted in 1998 under the plan for the reduction of their
cross-holdings;
F-72
<PAGE> 433
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
-- Telecom Developpement ("TD") owned by Cegetel (49.9%) and Societe
Nationale des Chemins de Fer Francais (50.1%), the leading French
railway company is linked by a commercial agreement with Cegetel. It
gives TD the exclusive right to carry Cegetel's long distance calls,
subject to competitive pricing.
24) LISTING OF MAIN COMPANIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS IN
1999
Vivendi Group consolidated in 1999 more than 4,600 companies compared with
3,371 in 1998. The principal companies are:
<TABLE>
<CAPTION>
CONSOLIDATION INTERESTS %
COMPANIES METHOD HELD
--------- ------------- -----------
<S> <C> <C>
VIVENDI (1) 100.00
Vivendi Environnement (1) 100.00
1. WATER
VIVENDI WATER (1) 100.00
Generale des Eaux -- Sahide and its subsidiaries (1) 100.00
IN FRANCE:
Compagnie des Eaux et de l'Ozone (1) 100.00
Compagnie des Eaux de Paris (1) 100.00
Societe Francaise de Distribution d'Eau (1) 95.35
Compagnie Fermiere de Services Publics (1) 99.13
Compagnie Mediterraneenne d'exploitation des Services
d'Eau (1) 98.67
Societe des Eaux de Melun (1) 98.66
Societe des Eaux de Marseille and its subsidiaries (2) 48.79
Societe des Eaux du Nord (2) 49.53
Societe des Eaux de Versailles et de Saint-Cloud (1) 50.00
Sade-Compagnie Generale de Travaux d'Hydraulique and its
subsidiaries (1) 97.98
Omnium de Traitements et de Valorisation (OTV) and its
subsidiaries (1) 100.00
Bonna Sabla (1) 98.23
Sainte-Lizaigne SA (1) 100.00
OUTSIDE FRANCE:
General Utilities PLC and its subsidiaries (1) 100.00
USFilter Corporation and its subsidiaries (1) 100.00
Berliner Wasser Betriebe (2) 22.50
Servitec KFT (1) 100.00
Operacion y Mantenimiento de Sistemas de Agua S.A. and its
subsidiaries (2) 50.00
CGE Utilities (Malaisie) (2) 45.00
Coget (1) 100.00
Compagnie Generale des Eaux Portugal (1) 100.00
CGE Australia PTY Limited and its subsidiaries (1) 100.00
OEWA Wasser und Abwasser (1) 99.50
</TABLE>
F-73
<PAGE> 434
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATION INTERESTS %
COMPANIES METHOD HELD
--------- ------------- -----------
<S> <C> <C>
2. ENERGY
ENERGY -- SERVICES
Dalkia and its subsidiaries (1) 99.47
INDEPENDENT POWER PRODUCTION
Energies USA (1) 100.00
Sithe Energies Inc. (1) 61.41
3. WASTE-MANAGEMENT
Compagnie Generale d'Entreprises Automobiles and its
subsidiaries (CGEA) (1) 100.00
Societe d'Assainissement Rationnel et de Pompage and its
subsidiaries (S.A.R.P.) (1) 98.20
SARP-Industries and its subsidiaries (1) 99.37
Societe d'Equipements Manutentions et Transports (SEMAT) (1) 99.66
Sedibex (1) 99.67
Onyx Environmental Group Plc (1) 100.00
Onyx North America Corp. (1) 100.00
Superior Services (1) 100.00
Collex Waste Management Pty Ltd. (1) 97.00
Onyx Umweltservice Gmbh (1) 51.00
4. TRANSPORTATION
CGEA Transport (Compagnie Generale d'Entreprises
Automobiles) and its subsidiaries (1) 100.00
Aktiebolaget Linjebuss (1) 100.00
Connex Rail Ltd. (1) 100.00
5. F.C.C.
F.C.C. and its subsidiaries (F.C.C.) (2) 27.70
6. TELECOMMUNICATION
CEGETEL AND ITS SUBSIDIARIES(A) (1) 44.00
Including:
-- Societe Francaise du Radiotelephone (S.F.R.)
-- Cegetel 7
-- Cegetel Entreprises
-- Telecom Developpement
Compagnie Transatlantique de Telecommunications (Transtel) (1) 70.00
Vivendi Telecommunications International and its
subsidiaries (1) 100.00
7. MEDIA AND PUBLISHING
Havas and its subsidiaries (1) 100.00
Including:
Havas Interactive Inc.
U.G.C. and its subsidiaries (3) 39.34
8. AUDIOVISUAL
British Sky Broadcasting Group (BskyB) (3) 23.36
CANAL+ and its subsidiaries (1) 49.00
Antennes Tonna (2) 49.00
9. CONSTRUCTION AND REAL ESTATE
Societe Generale d'Entreprises and its subsidiaries
(S.G.E.) (1) 49.21
Compagnie Generale d'Immobilier et de Services (C.G.I.S.) (1) 100.00
</TABLE>
F-74
<PAGE> 435
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATION INTERESTS %
COMPANIES METHOD HELD
--------- ------------- -----------
<S> <C> <C>
10. MULTIPLE ACTIVITY AND HOLDING COMPANIES
Vivendi North America Company Inc. (1) 100.00
Vivendi Asia Pacific Pte Ltd. (1) 100.00
Vivendi U.K. (1) 100.00
Gelgin Limited (1) 100.00
</TABLE>
---------------
(1) = Consolidation
(2) = Proportionate consolidation
(3) = Equity method
(a) Vivendi has majority voting rights and control of the Board of Directors of
Cegetel.
25) SUPPLEMENTAL DISCLOSURES
The following information has been prepared to present supplemental
disclosures required under US GAAP and SEC regulations applicable to the
Company.
25A) SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING POLICIES GENERALLY
ACCEPTED IN THE UNITED STATES AND FRANCE
The consolidated financial statements of Vivendi have been prepared in
accordance with French GAAP, which differs in certain significant respects from
US GAAP. The principal differences between French GAAP and US GAAP as they
relate to Vivendi are discussed in further detail below.
CONSOLIDATION OF LESS THAN MAJORITY OWNED ENTITIES
Under French GAAP, if a shareholder has substantive and effective control
of a less than 50% owned entity, consolidation is appropriate.
Under US GAAP, control is normally defined as voting control (over 50%)
although there may be facts and circumstances that permit consolidation in other
cases. In the case of the Company's 49% interest in Canal+, consolidation is
considered appropriate under French GAAP while under US GAAP equity accounting
would be considered appropriate.
There is no difference in net income or shareholder's equity that results
from this difference in treatment. See 25H for additional disclosures.
USE OF THE PROPORTIONATE CONSOLIDATION METHOD
Under French GAAP, it is appropriate to use the proportionate consolidation
method for subsidiaries over which the Company and other shareholders have
agreed to exercise joint control over significant financial and operating
policies. Under the proportionate consolidation method, the Company recognizes
the assets, liabilities, equity, revenue and expenses of subsidiaries to the
extent of its interest in the Company ownership.
Under US GAAP, when the Company controls a subsidiary based on majority
ownership or voting or other rights, the subsidiary is fully consolidated. When
the Company does not exercise control over a subsidiary, but has significant
influence over the entity, the Company uses the equity method to account for its
investment.
This difference in accounting policy has no effect on either net income or
shareholders' equity.
F-75
<PAGE> 436
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF EQUITY METHOD
Under French GAAP, there are several criteria to be met which result in the
presumption that equity accounting should be used. For investments under 20%,
equity accounting is followed if the investor is determined to have significant
influence due to the relative level of ownership, board of directors
representation, and other contractual relationships; another consideration is
the level of ownership by others in the investee. In determining its significant
influence in such subsidiaries, the Company applies the criteria described in
Note 2.
Under US GAAP, equity accounting is generally required when an investor's
ownership interest is equal to or greater than 20% of the investee's total
voting securities. In unusual situations where the ownership interest is less
than 20%, equity accounting may be appropriate if significant influence exists
as the result of other contractual relationships and board representation.
CURRENCY TRANSLATION ADJUSTMENTS
Translation of financial statements
The balance sheets and related statements of income of subsidiaries whose
functional currency is different from that of the parent are translated into the
reporting currency at the applicable year-end exchange rate which is permitted
under French GAAP. Translation gains and losses are recorded as a component of
shareholders' equity, or in minority interest as appropriate.
Under US GAAP, when subsidiaries' financial statements are denominated in a
currency different from the parent, assets and liabilities are translated at the
year-end exchange rates, which is consistent with French GAAP, however revenue
and expenses are translated at the average exchange rate during the year.
Under French GAAP, the balance sheets and statements of income and cash
flows of subsidiaries operating in countries where the local currency is deemed
to be highly inflationary are translated into a stable currency of a country
that has a similar economy. Related translation gains or losses are recorded in
current period earnings. These financial statements are then translated from the
stable currency into the reporting currency using year-end exchange rates, and
translation gains or losses are recorded in retained earnings.
Under US GAAP, for subsidiaries operating in countries where the functional
currency is deemed to be highly inflationary, the functional currency is
considered to be the Company's reporting currency. Accordingly, balance sheets
and statements of income and cash flows are remeasured for the functional
currency into the reporting currency, and translation gains or losses are
recorded in current period earnings.
Foreign currency transactions
Under French GAAP, foreign currency transactions are converted into
reporting currency at the exchange rate on the transaction date. At year-end,
receivables and payables denominated in foreign currencies are translated into
reporting currency at the year-end exchange rate. The resulting exchange losses
are expensed in the current period earnings and unrealized gains are deferred.
Under US GAAP, both the resulting exchange gains and losses are recorded in
the current period earnings.
F-76
<PAGE> 437
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BUSINESS COMBINATIONS -- GOODWILL
Under both US and French GAAP, goodwill arising from purchase business
combinations is determined as the excess of the consideration paid by the
acquirer over the fair value of the identifiable assets acquired and liabilities
assumed as of the acquisition date.
Certain significant acquisitions, particularly Havas and Pathe, have been
accounted for as mergers as permitted under French GAAP. Under this method, the
assets and liabilities of the acquired company are accounted for at historical
cost. Goodwill is recorded to the extent that there is a difference between the
value of shares issued and the equity of ownership interests acquired valued at
historical cost.
Under US GAAP, these mergers that did not meet criteria for pooling are
considered as purchase business combinations. Accordingly, the assets acquired
and liabilities assumed are recorded at fair value. The consideration paid is
determined to be equal to the fair value of the shares issued to effect the
transaction. The excess of the consideration paid over the fair value of net
assets acquired is recorded as goodwill, as described above.
Under French GAAP, the tax benefit of acquired deductible temporary
differences and carry forwards may be recognized in financial statements
subsequent to the acquisition date when previously reserved through a valuation
allowance. Under US GAAP, this tax benefit is applied to reduce any goodwill
related to that acquisition.
In accordance with French GAAP, the Company recognizes goodwill as an asset
and amortizes it over the estimated useful life. However, if the acquisition has
been paid in equity securities of the Company, the resulting goodwill may be
recorded as a reduction of shareholders' equity. Furthermore, trademarks, market
share and editorial resources acquired in a business combination are not
required to be amortized.
Under US GAAP, goodwill is recorded as an asset and amortized over the
estimated useful life, not to exceed 40 years. Market share and editorial
resources would not be considered as a separately identifiable intangible asset,
but as a component of goodwill, and would be recorded as an asset and amortized
over the estimated useful life not to exceed 40 years. All other separately
identifiable intangible assets acquired are recognized on the balance sheet and
amortized over their useful lives.
In connection with its acquisition of Pathe, the Company assumed debt that
is payable in common shares of BSkyB. In addition, the Company acquired common
shares of BSkyB, a portion of which has been designated as a portfolio
investment to be used for the redemption of the debt. Accordingly, under French
GAAP, both portfolio investment and related convertible debt are accounted for
at historical cost. Under US GAAP the investment in BSkyB is accounted for using
the equity method. With respect to convertible debt, a repayment liability equal
to the fair value of underlying stock must be recorded when the bondholder has
the option and is likely to redeem the debt in stock. This liability may be
recorded as an adjustment to the debt obligation or as a separate accrual and
would have been recorded at the acquisition date. Changes in the fair value of
the underlying shares are recognized in current period net income.
INTANGIBLE ASSETS
Under French GAAP, certain costs, such as subscriber acquisition costs,
start-up and certain types of advertising costs, are capitalized and amortized
over their useful lives or the duration of the contract, if applicable.
Under US GAAP, subscriber acquisition costs, start-up and advertising costs
are charged to expense in the period they are incurred.
F-77
<PAGE> 438
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under French GAAP, the costs of television and station rights relating to
theatrical movies and other long-term programming of a film is expensed upon
first broadcast or showing of the film. Under US GAAP, these costs are expensed
over the estimated number of times shown.
LEASE CONTRACTS
The Company recognizes assets and debts corresponding to certain types of
lease contracts including a purchase option (known in France as "credit-bail").
Under French GAAP, lease payments corresponding to all other types of loans are
expensed as incurred.
Under US GAAP, leases are classified as capital or operating leases. Leases
that meet the criteria of capital leases are recognized as assets with a
corresponding amount presented as debt on the balance sheet. Recorded assets are
depreciated over their estimated useful lives.
IMPAIRMENT/REAL ESTATE OPERATIONS
French GAAP requires the carrying value of such assets to be reviewed for
impairment but does not request a methodology as detailed as under US GAAP. The
resulting impairment, if any, is recorded as a reserve which may be reversed in
later periods if there is a recovery in the value of the assets.
Under US GAAP, assets to be reviewed for impairment are grouped at an
appropriate level when groups of assets generate joint cash flows. US GAAP also
requires that assets are classified as either held for use or to be disposed,
with the appropriate accounting based on this classification. An asset held for
use is evaluated for impairment when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of those assets.
Assets determined to be impaired are valued at fair value. The resulting
impairment, if any, is recorded as a reduction of the asset carrying value, and
may not be reversed in a later period.
The Company's impairment of long-lived assets primarily relates to its real
estate assets. During 1990 to 1996, the Company disposed of certain real estate
properties in which it maintained a continued involvement.
In the French GAAP financial statements, these transactions were treated as
sales and therefore removed from the balance sheet, and the profit and loss
included in net income. Provisions relating to the sale arrangements were
provided as necessary.
The transactions do not meet the sales criteria under US GAAP and therefore
are considered as financial arrangements. The related real estate assets which
would have been recorded under US GAAP must also be considered for impairment.
Accordingly, sales provisions were reversed.
PUBLIC SERVICE CONTRACTS
Commitments to maintain and repair assets
Under French GAAP, a few consolidated subsidiaries, being generally jointly
controlled, apply the accrue in advance method to account for repair costs.
Under US GAAP, the Company applies the expensed as incurred method for
maintenance and repair expenditures.
F-78
<PAGE> 439
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payment to local authorities
Under French GAAP, payments specifically related to the remaining debt
service on facilities are capitalized and charged to income on a straight-line
basis over the contract period. The difference between cash payments and the
expense recorded is capitalized as a prepaid expense.
Under US GAAP, the present value of the obligation corresponding to debt
service payments is recognized as a liability.
CONSTRUCTION CONTRACTS
Under French GAAP, the Company records the percentage of completion for
buildings, civil engineering and road works contracts according to its earned
status method which is based upon the unit of work performed method and can
differ from US GAAP percentage of completion method measured on cost incurred to
date to total estimated cost. In addition, as allowed under French GAAP, the
Company segments contracts and therefore income of the period is recognized
without reference to the total gross profit ratio of the contract. However, when
gross profit ratio of the period is greater than the gross profit ratio of the
contract, the Company books a reserve for deferred income. This method can
differ from US GAAP which requires that certain specific criteria be met in
order for a contract to be segmented.
RESERVES
Under French GAAP, certain reserves and allowances may be provided,
including reserves for repairs and replacement, restructuring charges and Year
2000 compliance costs, when it is possible that those costs will be incurred or
when management decisions are taken, but not yet documented.
Under US GAAP, contingent losses are accrued only if it is probable that a
liability had been incurred at the date of the financial statements and the
amount of loss can be reasonably estimated. In addition, for certain reserves,
such as restructuring charges, additional criteria must be met. If these
criteria are not met, the provision for these reserves and allowance may not be
recognized.
INCOME TAXES
Vivendi recognizes deferred taxes on the basis of timing differences
between accounting and taxable income. The Company does not recognize deferred
tax assets on net operating loss carryforwards and on timing differences when
the recovery of the related deferred tax asset is not probable.
Under US GAAP, deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and net
operating loss and tax credit carryforward and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
FINANCIAL INSTRUMENTS
Investment securities
Under French GAAP, investments in debt and non-consolidated equity
securities are recorded at acquisition cost and an allowance is provided if
management deems that there has been an other-than-temporary decline in fair
value. Unrealized gains and temporary unrealized losses are not recognized.
Under US GAAP, investments in debt and equity securities are classified
into three categories and accounted for as follows: Debt securities that the
Company has the intention and ability to hold to
F-79
<PAGE> 440
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturity are carried at cost and classified as "held-to-maturity." Debt and
equity securities that are acquired and held principally for the purpose of sale
in the near term are classified as "trading securities" and are reported at fair
value, with unrealized gains and losses included in earnings. All other
investment securities not otherwise classified as either "held-to-maturity" or
"trading" are classified as "available-for-sale" securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported in
shareholders' equity.
Treasury shares
Under French GAAP, shares of the Company's own stock owned by the Company
and its subsidiaries are recorded as marketable securities in the consolidated
financial statements if those shares are acquired to stabilize the market price
or in connection with stock options granted to directors and employees.
Under US GAAP, treasury shares are recorded as a reduction of shareholders'
equity. Profit and loss on the disposal of treasury shares is recognized as an
adjustment to shareholders' equity.
Derivative financial instruments
Under French GAAP, the criteria for hedge accounting for derivative
financial instruments does not require documentation of specific designation to
the hedged item, nor the documentation of ongoing effectiveness of the hedge
relationship. Derivative financial instruments that meet hedge criteria under
French GAAP are not recorded on the consolidated balance sheet. The impact of
the derivative financial instruments on the statement of income is recorded upon
settlement or the payment or receipt of cash.
Under US GAAP, derivative financial instruments for which the Company has
not specifically designated or has not assessed effectiveness do not meet hedge
accounting criteria. Such instruments are recorded on the consolidated balance
sheet at fair value and related changes in fair value are recognized in current
period net income.
During 1998, in connection with the acquisition of 49% of the Spanish
holding company that owns 56.5% of FCC, the Company has granted an option to the
primary shareholder of that holding company. This option grants the primary
shareholder the right to sell to the Company, at any time between April 18, 2000
and October 6, 2008, her remaining 51% in the holding company at a price based
on the average market value of FCC's shares during the three months preceding
the exercise of the option. Under French GAAP, the option is not recorded in the
financial statements until it is exercised. Under US GAAP, a liability is
recorded equal to the fair value of the put option and changes in the fair value
of the option are recorded as a charge to current period earnings.
STOCK-BASED COMPENSATION
Under French GAAP, common shares issued upon the exercise of options
granted to employees and directors are recorded as an increase to share capital
at the cumulative exercise price. Vivendi shares sold to employees through
qualified employee stock purchase plans are reclassified from marketable
securities to share capital. The difference between the carrying value of the
treasury shares and the cumulative exercise price by the stock purchase plan is
recognized as a gain or loss in the period that the shares are sold. In
accordance with French GAAP, the Company has not recorded compensation expense
on stock-based plans with a discounted strike price up to 20% from the fair
value of the common shares at the date of grant.
Under US GAAP, APB Opinion No. 25 defines plans that grant or sell common
shares to employees as compensatory if such plans are not open to substantially
all employees and do not require the employee to make a reasonable investment in
the shares, usually defined as no less than 85% of the market value at the grant
date. If a plan is deemed to be compensatory, APB Opinion 25 requires that
compensation
F-80
<PAGE> 441
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
arising from such plans is to be measured based on the intrinsic value of the
shares granted or sold to employees. For fixed plans, the compensation expense
is calculated as the difference between the fair value at the grant date and the
employee strike price. Compensation expense for compensatory stock based plans
is recognized in the period benefited.
PENSION PLANS
As described further in Note 2, prior to its change in accounting policy in
January 1998, the Company recorded as pension expense the benefits paid to
retired employees and the premiums paid for insurance contracts for employees in
service at that time. In January 1998, the Company changed its accounting policy
to record pension obligations, covering all eligible employees, using the
projected unit credit method.
Under US GAAP, the projected unit credit method is required to be applied
as of January 1, 1989. The transition obligation or fund excess determined as of
January 1, 1989 is amortized over the average remaining service period of the
population that was covered under the plan at that date.
Under French GAAP, postretirement benefits other than pensions are recorded
as expense when amounts are paid.
Under US GAAP, the Company must recognize an obligation for amounts to be
paid under postretirement plans, other than pensions. A postretirement
transition obligation may be determined as of January 1, 1995 and amortized over
the average remaining service period of employees covered by the plan. Current
period charges are based on estimated future payments to expected retirees.
NEW ACCOUNTING PRONOUNCEMENTS IN THE UNITED STATES
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998 and
requires companies to recognize all derivative instruments as assets or
liabilities in the balance sheet and to measure those instruments at fair value.
SFAS No. 137 extends the effective date to all fiscal years beginning after June
15, 2000. The Company has not yet determined the timing of adoption of SFAS No.
133 and has not yet quantified the accounting consequences of this new standard.
Staff Accounting Bulletin No. 101, issued in December 1999, summarizes
certain of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company has not
determined the impact that this Bulletin would have under US GAAP on its
consolidated financial statements.
In March of 2000 the Emerging Issues Task Force ("EITF") of the FASB
reached a consensus in EITF Issue 00-2 Accounting for Website Development Costs
which is effective for fiscal quarters beginning after June 30, 2000. Management
does not believe that the adoption of this EITF will have a material effect on
the Company's accounting policies or results of operations.
In June of 2000, the Accounting Standards Executive Committee (AcSEC) of
the AICPA issued SOP 00-2 "Accounting by Producers or Distributors of Films" and
the FASB issued FASB Statement No. 139 "Recission of FASB Statement No. 53 and
amendments to FASB Statements Nos. 63, 89 and 121." These statements establish
new accounting and reporting standards for all producers and distributors that
own or hold the rights to distribute or exploit films. The statement of position
provides that the cumulative effect of changes in accounting principles caused
by adoption of the provisions of the statement of position should be included in
the determination of net income in conformity with Accounting Principles Board
Opinion No. 20, "Accounting Changes." The statements are simultaneously
effective for fiscal years beginning after December 15, 2000 and could have a
material impact on the Company's results of operations and financial position.
The Company is currently quantifying the impact of such adoption.
F-81
<PAGE> 442
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
25B) RECONCILIATION OF EQUITY AND NET INCOME TO US GAAP
The following is a summary reconciliation of shareholders equity, as
reported in the consolidated balance sheet to shareholders' equity as adjusted
for the approximate effects of the application of US GAAP for the periods ended
December 31, 1999 and 1998, and net income as reported in the consolidated
statement of income to net income as adjusted for the approximate effects of the
application of US GAAP for the periods ended December 31, 1999 and 1998 (in
millions of Euros).
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Shareholders' equity as reported in the consolidated balance
sheet..................................................... 10,892.2 7,840.2
Adjustments to conform to US GAAP:
Currency translation adjustments.......................... (35.0) 3.0
Business combinations/Goodwill............................ 7,876.3 3,160.0
Intangible assets......................................... (460.9) (269.4)
Leasing contracts......................................... (14.2) (15.3)
Impairment/Real Estate.................................... (64.9) (586.0)
Public service contracts.................................. 113.9 105.2
Construction contracts.................................... (29.8) 8.3
Reserves for restructuring liabilities.................... 146.2 104.5
Other reserves............................................ 33.5 42.8
Financial instruments..................................... (1,532.8) (266.8)
Pension plans and stock based compensation................ (8.9) 11.6
Others.................................................... (36.4) (46.7)
Tax effect on the above adjustments....................... 75.3 174.0
-------- --------
US GAAP Shareholders' equity................................ 16,954.5 10,265.4
======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Net income as reported in the consolidated statements of
income.................................................... 1,431.4 1,120.8
Adjustments to conform to US GAAP:
Currency translation adjustments.......................... 13.0 25.0
Business combinations/Goodwill............................ (1,052.7) (191.0)
Intangible assets......................................... (191.5) (118.5)
Leasing contracts......................................... 1.1 1.4
Impairment/Real Estate.................................... 521.1 74.9
Public service contracts.................................. 8.7 (8.7)
Construction contracts.................................... (38.1) (1.8)
Reserves for restructuring liabilities.................... 26.0 1.7
Other reserves............................................ 6.4 (31.6)
Financial instruments..................................... (208.0) (325.8)
Pension plans and stock based compensation................ (240.5) (58.2)
Others.................................................... 9.9 (11.8)
Tax effect on the above adjustments....................... (40.7) 88.8
-------- --------
US GAAP net income.......................................... 246.1 565.2
======== ========
</TABLE>
F-82
<PAGE> 443
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BASIC AND DILUTED EARNINGS PER SHARE
For US GAAP purposes, basic earning per share is computed in the same
manner as earnings per share under French GAAP by dividing net income by the
weighted average number of shares outstanding. Diluted earnings per share
reflects the potential dilution that would occur if all securities and other
contracts to issue ordinary shares were exercised or converted (see Note 13).
Net income represents the earnings of the Company after minority interests. The
computation of diluted earnings per share is as follows (in millions of Euros or
millions of shares, except earnings per share):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Net income.................................................. 246.1 565.2
----- -----
Income before extraordinary items -- diluted................ 275.9 565.2
===== =====
Weighted average number of shares
Outstanding -- basic...................................... 511.3 438.3
===== =====
Dilutive effect of:
Shares issuable on exercise of dilutive options........... 2.3 2.9
Shares attributable to stock purchase plans............... 2.7 1.0
Shares applicable to warrants............................. 8.9 9.3
----- -----
Weighted average number of shares
Outstanding -- diluted.................................... 525.2 451.5
===== =====
Earnings per share:
Basic..................................................... 0.48 1.29
===== =====
Diluted................................................... 0.47 1.25
===== =====
</TABLE>
Debt convertible into Vivendi shares (see Note 13) was not included in the
computation of diluted Earning per share because to do so would have been
antidilutive for the period presented.
25C) PRESENTATION OF THE BALANCE SHEET AND INCOME STATEMENT IN US GAAP FORMAT
For purposes of presenting a consolidated condensed balance sheet as of
December 31, 1999 and 1998 and consolidated condensed income statements for the
years ended December 31, 1999 and 1998 in a format consistent with US GAAP, the
Company has reflected the financial statement impact of those reconciling
differences between French GAAP and US GAAP presented in Note 25B. The
subsidiaries consolidated using the proportionate method under French GAAP are
still consolidated under the same method. In addition, due to the significance
of CANAL+, the 1999 consolidated condensed US GAAP format financial statements
reflect the deconsolidation of CANAL+ and the application of the equity method
for the Company's investment in CANAL+.
OPERATING INCOME
French GAAP defines exceptional items in a manner that differs from the
definition of extraordinary items under US GAAP. As a consequence, items
classified as exceptional for French GAAP purposes have been reclassified to the
appropriate income statement captions determined under US GAAP. With the
exception of gains and losses on sales of shares of affiliated companies,
exceptional items relating to the operations of Vivendi have been included in
the determination of operating income.
F-83
<PAGE> 444
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INCOME
Capital gains or losses on sale of consolidated entities or equity
affiliates are considered for French GAAP purposes as extraordinary income,
whereas they are classified for US GAAP purposes as other income (loss).
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1999 1998
--------- ---------
(E MILLIONS)
<S> <C> <C>
NET SALES(*)................................................ 39,052.5 29,745.0
Costs of sales.............................................. (28,898.0) (23,084.3)
Selling, general and administrative costs................... (8,467.3) (5,589.2)
OPERATING MARGIN............................................ 1,687.2 1,071.5
Goodwill amortization....................................... (770.8) (295.0)
Other operating expenses and revenue........................ (1,437.1) (194.9)
OPERATING INCOME............................................ (520.7) 581.6
Financial income............................................ (401.8) (361.2)
Other income................................................ 535.4 473.3
NET INCOME BEFORE TAXES, MINORITY INTEREST AND EQUITY
INTEREST.................................................. (387.1) 693.7
Taxes....................................................... 675.0 41.7
NET INCOME BEFORE MINORITY INTEREST AND EQUITY INTEREST..... 287.9 735.4
Equity interest............................................. (65.6) (0.3)
Minority interest........................................... 23.8 (169.9)
NET INCOME.................................................. 246.1 565.2
</TABLE>
---------------
(*) included excise taxes and contribution collected on behalf of local
authorities for an amount of E2,112 million and E2,023 million for 1999 and
1998, respectively.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
----------------------------------------------- -----------------------------
FRENCH RECONCILING CANAL+ US FRENCH RECONCILING US
GAAP ITEMS DECONSOLIDATION GAAP GAAP ITEMS GAAP
------ ----------- --------------- ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets........... 37,436 (1,913) (2,511) 33,012 22,910 (18) 22,892
Long term assets......... 45,341 8,301 (3,917) 49,725 26,072 4,560 30,632
Total assets............. 82,777 6,388 (6,428) 82,737 48,982 4,542 53,524
Current liabilities...... 38,850 1,411 (3,746) 36,515 21,128 708 21,836
Long term liabilities.... 28,983 (1,503) (1,336) 26,144 17,591 1,489 19,080
Minority interests....... 4,052 418 (1,346) 3,124 2,423 (80) 2,343
Shareholder's equity..... 10,892 6,062 0 16,954 7,840 2,425 10,265
Total liabilities and
shareholder's equity... 82,777 6,388 (6,428) 82,737 48,982 4,542 53,524
</TABLE>
25D) COMPREHENSIVE INCOME
The concept of comprehensive income does not exist under French GAAP. In US
GAAP, SFAS 130, "Reporting comprehensive income," defines comprehensive income
to include, net of tax impact (in million of Euros):
-- minimum pension liability adjustments,
-- unrealized gains and losses on investment securities classified as
"available for sale,"
F-84
<PAGE> 445
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
-- foreign currency translation adjustments.
<TABLE>
<S> <C>
Net income for the year ended December 31, 1998............. 565.2
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... (225.7)
Unrealized losses on equity securities.................... (197.0)
------
Other comprehensive income.................................. (422.7)
------
Comprehensive income for the year ended December 31, 1998... 142.5
------
Net income for year ended December 31, 1999................. 246.1
Other comprehensive income, net of tax
Foreign currency translation adjustment................... 332.3
Unrealized gains on equity securities..................... 110.0
------
Other comprehensive income.................................. 442.3
------
Comprehensive income for the year ended December 31, 1999... 688.4
------
</TABLE>
25E) STOCK BASED COMPENSATION
VIVENDI STOCK OPTION PLANS
Beginning in 1997, Vivendi adopted stock option incentive plans that grant
options on its common shares to certain directors and officers. The purpose of
the stock option plans is to align the interest of management with the interest
of shareholders by providing certain officers and other key employees with
additional incentives to increase the Company's performance on a long-term
basis. Under the Company's "classic" plan, Vivendi grants options at a strike
price discounted 12.5% to 20% from the fair market value of the stock on the
date of grant. These options are granted with a contractual life of eight to ten
years and vest over a five-year period from the date of grant. Options have been
granted under the classic plan each year since its inception. Vivendi has
adopted another fixed stock option plan in 1997 that grants options to a limited
number of senior managers with a strike price at a premium to the fair market
value of the stock on the date of grant.
Vivendi has adopted a variable stock option plan in 1999 that grants
options to a limited number of senior managers. The number of options granted
under this plan is measured twice over a five-year vesting period. The first
measurement date is after three years, and the second after five years. At each
measurement date, the number of options to be granted is based upon a formula
that measures the performance of Vivendi stock against the performance of a
basket of peer companies. The options then become immediately exercisable. If a
participant leaves the Company before either of the measurement dates, he
forfeits eligibility for the award.
In November 1999, the Company granted ten stock options to each of its
employees. These 2,530,200 options have been granted at an exercise prices of
E62.6, which represented a 20% discount from the market price of Vivendi shares
at the grant date. The options vested immediately but are exercisable after a
period up of three years. In certain countries, stock appreciation rights have
been granted in place of stock options due to regulatory reasons.
No compensation expense has been recorded in connection with stock options
granted by the Company under French GAAP. Under US GAAP, the compensation
expense recorded by the Company is E16.5 million and E85.8 million for the years
ended 31 December, 1998 and 1999, respectively.
F-85
<PAGE> 446
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information relating to Vivendi stock options granted during 1999, 1998 and
1997 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE (E)
---------- ------------------
<S> <C> <C>
December 31, 1996....................................... 6,392,664 21.5
---------- ----
Granted............................................... 3,241,934 42.6
Exercised............................................. (1,151,065) 20.1
Forfeited............................................. (7,069) 9.0
---------- ----
December 31, 1997....................................... 8,476,464 29.8
---------- ----
Granted............................................... 2,192,760 50.5
Exercised............................................. (1,039,335) 21.4
Forfeited............................................. (36,232) 12.0
---------- ----
December 31, 1998....................................... 9,593,657 35.5
---------- ----
Granted............................................... 11,628,678 68.4
Exercised............................................. (1,851,063) 22.5
Forfeited............................................. (42,616) 19.7
---------- ----
December 31, 1999....................................... 19,328,656 56.6
========== ====
</TABLE>
At December 31, 1999, 1998, and 1997, 2,309,077, 4,162,924 and 4,279,752
options were exercisable at weighted average exercise prices of E21.9, E22.0,
and E21.4 per share, respectively. The options outstanding at December 31, 1999
expire in various years through 2009.
Information about VIVENDI stock options outstanding at December 31, 1999 is
summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------
EXERCISE PRICE NUMBER WEIGHTED AVERAGE NUMBER
(E) OUTSTANDING REMAINING LIFE(A) EXERCISABLE
-------------- ----------- ----------------- -----------
<S> <C> <C> <C>
19.2 114,037 0.81 114,037
21.5 176,307 1.89 176,307
19.2 139,944 0.83 139,944
19.3 386,183 2.80 386,183
22.2 342,392 3.70 342,392
22.1 796,691 4.48 796,691
26.3 353,523 1.92 353,523
30.9 1,229,096 5.71 --
50.0 1,980,974 4.71 --
50.5 2,180,831 6.51 --
61.3 42,672 7.06 --
65.0 3,302,569 7.27 --
73.0 5,729,237 7.36 --
61.8 15,000 7.69 --
62.6 9,000 7.90 --
62.6 2,530,200 7.90 --
---- ---------- ---- ---------
56.6 19,328,656 6.43 2,309,077
==== ========== ==== =========
</TABLE>
F-86
<PAGE> 447
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the stock option plans adopted prior to January 1, 1998, the Company
intends to settle options through the issuance of new shares. For stock options
plans adopted in 1998 and later, the Company intends to settle options with
treasury shares. As of December 31, 1999 and 1998, the Company has designated
approximately 5.5 million and 1.8 million treasury shares, respectively, to
settle its potential obligation under stock option plans.
In addition to the corporate plans described above, the following
consolidated subsidiaries maintained stock-based plans for their employees which
are denominated in the subsidiary's stock. Following is a description of the
significant plans.
CANAL+ STOCK OPTION PLANS
CANAL+ has adopted several fixed stock option plans that are settled in its
own shares. Options granted under most of these plans are granted to employees
at a strike price with a discount between 0% and 10% from the market value of
the shares at the grant date.
For plans adopted prior to January 1, 1998, options that are exercised are
settled through the issuance of new shares. The options vest ratably over a
five-year period and are valid up to five years from the date of grant. For
plans adopted in 1998 and later, options that are exercised are settled with
CANAL+ treasury shares. These options vest in a graduated manner over five years
and are valid up to five years from the date of grant. CANAL+ manages its
exposure to the price risk associated with the shares required to settle the
options through the issuance of put and call options settled in its own stock.
In 1998, CANAL+ adopted a stock option plan that grants options to a
limited number of senior managers. The options, which vest five years after the
date of grant, have a strike price that was significantly higher than the market
price of CANAL+ shares at the grant date.
No compensation expense has been recorded in connection with the stock
options granted by CANAL+ under French GAAP. Under US GAAP, the compensation
cost recorded by the Company is respectively E1.7 million and E1.2 million for
the years ended December 31, 1998 and 1999.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
CANAL+ SHARES EXERCISE PRICE(E)
------ --------- -----------------
<S> <C> <C>
December 31, 1996........................................... 1,280,000 27.6
--------- ----
Granted................................................... -- --
Exercised................................................. (23,668) 27.3
Canceled.................................................. -- --
--------- ----
December 31, 1997........................................... 1,256,332 27.6
--------- ----
Granted................................................... 1,946,400 47.3
Exercised................................................. (65,388) 27.3
Canceled.................................................. -- --
--------- ----
December 31, 1998........................................... 3,137,344 39.8
--------- ----
Granted................................................... 88,000 64.1
Exercised................................................. (397,972) 27.3
Canceled.................................................. -- --
--------- ----
December 31, 1999........................................... 2,827,372 42.4
========= ====
</TABLE>
F-87
<PAGE> 448
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------
EXERCISE PRICE NUMBER WEIGHTED AVERAGE NUMBER
(E) OUTSTANDING REMAINING LIFE(A) EXERCISABLE
-------------- ----------- ----------------- -----------
<S> <C> <C> <C>
27.3 715,972 0.70 715,972
31.4 37,000 0.93 37,000
33.9 40,000 1.18 32,000
41.3 1,350,400 3.48 135,040
61.0 596,000 3.48 --
64.0 40,000 4.44 --
64.2 48,000 4.73 --
---- --------- ---- -------
42.4 2,827,372 2.75 920,012
==== ========= ==== =======
</TABLE>
At December 31, 1999, 1998 and 1997, 920,012, 926,944 and 736,333 options
were exercisable as weighted average exercise prices of E29.8, E27.6 and E27.6
per share, respectively. The options outstanding at December 31, 1999 expire in
years through 2004.
VINCI STOCK OPTION PLANS
Vinci has adopted several fixed stock option plans that are settled in its
own shares. Options granted under these plans are granted to employees at a
discount of 20% from the average market price of Vinci shares over the last 20
business days prior to the grant date. These options have a contractual life of
up to ten years and vest from one to five years from the grant date. For plans
adopted prior to January 1, 1998, options that are exercised are settled through
the issuance of new shares. For plans adopted in 1998 and later, options that
are exercised are settled with Vinci treasury shares.
No compensation expense has been recorded in connection with the stock
options granted by Vinci under French GAAP. Under US GAAP, the compensation cost
recorded is respectively E0.8 million and E0.5 million for years ended December
31, 1999 and 1998.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE(E)
--------- -----------------
<S> <C> <C>
December 31, 1996........................................... 1,134,535 24.3
--------- ----
Granted................................................... -- --
Exercised................................................. (99,028) 18.7
Forfeited................................................. (31,961) 24.7
--------- ----
December 31, 1997........................................... 1,003,546 24.8
--------- ----
Granted................................................... 1,059,193 31.8
Exercised................................................. (343,530) 22.5
Forfeited................................................. (33,805) 24.8
--------- ----
December 31, 1998........................................... 1,685,404 29.7
--------- ----
Granted................................................... 3,765,058 42.0
Exercised................................................. (285,963) 26.4
Forfeited................................................. (34,191) 24.8
--------- ----
December 31, 1999........................................... 5,130,308 39.0
========= ====
</TABLE>
F-88
<PAGE> 449
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------
EXERCISE PRICE NUMBER WEIGHTED AVERAGE NUMBER
(E) OUTSTANDING REMAINING LIFE(A) EXERCISABLE
-------------- ----------- ----------------- -----------
<S> <C> <C> <C>
25.9 41,455 1.93 41,455
16.8 53,259 2.85 53,259
30.9 118,840 3.85 118,840
25.0 116,923 4.84 116,923
25.6 220,403 8.17 220,403
33.7 814,368 5.17 --
38.0 654,068 9.19 --
---- --------- ---- -------
33.8 101,490 5.18 --
---- --------- ---- -------
42.3 1,003,193 9.69 --
---- --------- ---- -------
43.7 2,006,309 9.69 --
---- --------- ---- -------
39.0 5,130,308 8.37 550,880
==== ========= ==== =======
</TABLE>
At December 31, 1999, 1998 and 1997, 550,880, 948,460 and 1,246,038 options
were exercisable as weighted average exercise prices of E25.8, E23.7 and E24.3
per share, respectively. The options outstanding at December 31, 1999 expire in
years through 2009.
COFIRA
In January 1994, Cofira, a consolidated subsidiary of Vivendi and
Telecommunication holding company, granted 246,800 stock options for key
employees with an exercise price of E15.24. As Cofira is not a public company,
the exercise price was fixed to shareholder's equity plus 30% at the date of
grant. These options vest over a five-year period and may be exercised up to
eight years from the grant date.
HAVAS INTERACTIVE
On July 1, 1999 Havas Interactive granted two stock based plans, one
management option plan and one stock appreciation right plan.
<TABLE>
<CAPTION>
MANAGEMENT
SARS OPTIONS PLAN
--------- ------------
<S> <C> <C>
Number of participants...................................... 710 18
Number of shares authorised................................. 4,875,000 2,625,000
Number of shares granted.................................... 3,605,600 2,077,106
Number of shares forfeited.................................. 585,500 340,500
--------- ---------
Balance December 31,1999.................................... 3,020,100 1,736,606
</TABLE>
The stock options and appreciation rights granted under the plans vest over
a five-year period from the date of grant and may be exercised up to 10 years
from the grant date. As Havas Interactive is not a public company, the exercise
price and the selling price are determined as a factor of company EBITDA. For
the management option plan, the participant shall have the right to sell to
Havas Interactive the shares at the selling price stated in the contract. In
1999, Havas Interactive recorded compensation expense related to these plans of
E3.6 million.
F-89
<PAGE> 450
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SITHE
In 1999, pursuant to the 1998 Employee Restricted Stock Ownership Plan
under which certain employees are awarded a portion of their annual incentive
compensation in the form of restricted common stock of the company at a 20%
discount to its fair market value, Sithe purchased for approximately E4.5
million and held in trust 3,274 shares of the Company's common stock with
respect to the portion of 1998 incentive compensation so awarded.
In July, 1999, pursuant to the 1999 Stock Retention Plan (the "Plan"),
Sithe awarded to certain employees 8,976 shares of unissued restricted common
stock ("RSAs") and 15,615 nonqualified options to purchase the Company's common
stock at the then fair market value of E1,920 per share.
The participant shall have the right during the one-year period following
vesting to sell to Sithe and Sithe shall have the right upon the one-year
anniversary of vesting to purchase all or any portion of the RSAs at fair market
value. In 1999, Sithe recorded compensation expense related to this plan of E3.9
million.
EMPLOYEE STOCK PURCHASE PLANS
Vivendi maintains savings plans that allow substantially all full time
employees of Vivendi and its subsidiaries to purchase shares of Vivendi. The
shares are sold to employees at a discount of 20% from the average market price
of Vivendi stock over the last 20 business days prior to the date of
authorization by the management committee. Shares purchased by employees under
these plans are subject to certain restrictions over the sale or transfer of the
shares by employees.
Shares sold to employee stock purchase plans are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
Number of shares................................... 6,608,980 1,511,769 936,912
Proceeds on sales (E millions)..................... 480.1 156.4 72.9
Average cost of treasury sales (in E).............. 72.6 103.5 77.8
</TABLE>
Under US GAAP, the compensation cost recorded by the Company for the years
ended December 31, 1999 and 1998 is respectively E160.8 million and E54.1
million.
Vinci maintains saving plans that allow all full time employees of Vinci
and its subsidiaries to purchase shares of Vinci. The shares are sold at a
discount of 20% from the average market price of Vinci stock over the last 20
business day prior to the date of authorization by the Board of Directors.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Number of shares...................................... 560,350 820,292 417,730
Proceeds on sales (E millions)........................ 15.6 14.9 5.4
Average cost of treasury sales (in E)................. 27.9 18.1 12.9
</TABLE>
The compensation cost recorded by the Company for years ended December 31,
1999 and 1998 is respectively E7.5 million and E14.7 million.
Vivendi applies the intrinsic value method to account for compensation cost
associated with options granted to employees. In accordance with French GAAP,
the Company has not recorded compensation expense on options granted with a
discounted strike price up to 20% from the fair value of shares at the date of
grant. Had compensation cost for stock options awarded under these plans been
determined based on the fair value at the dates of grant consistent with the
methodology of SFAS 123, Vivendi's net income
F-90
<PAGE> 451
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and basic earnings per share, as determined in accordance with US GAAP, would
have reflected the following pro forma amounts (in millions of euros, except per
share amounts):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1999 1998
------- ------
<S> <C> <C>
US GAAP net income.......................................... 246.1 565.2
Basic earning per share..................................... 0.48 1.29
Impact of fair value method of stock options................ (52.2) (18.0)
Pro forma US GAAP net income................................ 193.9 547.2
Pro forma basic earnings per share.......................... 0.38 1.26
</TABLE>
The fair value of each Vivendi, Vinci and CANAL+ option grant is estimated
on the date of grant using the Binomial option pricing model with the following
assumptions for the grants:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
VIVENDI
Expected life (years)....................................... 6.53 5.64 5.76
Interest rate............................................... 4.56% 4.70% 5.42%
Volatility.................................................. 6.51% 6.51% 6.51%
Dividend yield.............................................. 1.14% 1.14% 1.14%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
CANAL+
Expected life............................................... 2.74 3.43 2.72
Interest rate............................................... 4.56% 4.70 5.42%
Volatility.................................................. 12.32% 12.32% 12.32%
Dividend yield.............................................. 0.48% 0.48% 0.48%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
VINCI
Expected life............................................... 8.45 6.14 6.51
Interest rate............................................... 4.56% 4.70 5.42%
Volatility.................................................. 13.14% 13.14% 13.14%
Dividend yield.............................................. 2.20% 2.20% 2.20%
</TABLE>
F-91
<PAGE> 452
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
25F) PENSION PLAN AND OTHER COST RETIREMENT BENEFITS OTHER THAN PENSION PLANS
Disclosures, presented in accordance with SFAS 132, are as follows (in
millions of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------ --------------
1999 1998 1999 1998
------- ------- ----- -----
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
BENEFIT OBLIGATION AT BEGINNING OF YEAR............... 1,334.2 1,235.5 9.0 9.2
Service cost............................................. 71.8 69.0 0.1 0.1
Interest cost............................................ 91.3 84.2 0.4 0.5
Plan participants contributions.......................... 11.9 10.6 -- --
Business combinations.................................... 100.2 42.2 -- --
Disposals................................................ (10.5) (1.1) -- --
Curtailments............................................. (2.8) (0.4) -- --
Actuarial loss (gain).................................... 14.3 5.2 (1.5) (0.1)
Benefits paid............................................ (71.8) (61.3) (0.7) (0.7)
Special termination benefits............................. -- -- -- --
Others (foreign currency translation).................... 107.0 (49.7) -- --
------- ------- ---- ----
BENEFIT OBLIGATION AT END OF YEAR..................... 1,645.6 1,334.2 7.3 9.0
======= ======= ==== ====
CHANGE IN PLAN ASSETS
FAIR VALUE OF PLAN ASSETS AT BEGINNING OF YEAR........ 1,155.9 1,093.6 -- --
Actual return on plan assets............................. 232.5 108.7 -- --
Company contributions.................................... 45.7 63.4 0.7 0.7
Plan participants contributions.......................... 11.9 10.6 -- --
Business combinations.................................... 3.9 10.6 -- --
Disposal................................................. (2.0) (0.7) -- --
Benefits paid............................................ (71.8) (61.3) (0.7) (0.7)
Others (foreign currency translation).................... 157.4 (69.0) -- --
------- ------- ---- ----
FAIR VALUE OF PLAN ASSETS AT END OF YEAR.............. 1,533.5 1,155.9 -- --
======= ======= ==== ====
Funded status of the plan................................ (112.1) (178.3) (7.4) (9.0)
Unrecognized actuarial loss.............................. (154.6) (15.9) (1.6) (0.1)
Unrecognized actuarial prior service cost................ (153.6) (146.6) -- --
Unrecognized actuarial transition obligation............. (26.1) (21.4) -- --
------- ------- ---- ----
ACCRUED BENEFIT COST.................................. (446.4) (362.2) (9.0) (9.1)
======= ======= ==== ====
Write off of prepaid on multi-employer scheme
overtime(*).............................................. (24.9) (14.2) -- 0
------- ------- ---- ----
Net (accrued) benefit cost under US GAAP................... (471.3) (376.4) (9.0) (9.1)
======= ======= ==== ====
</TABLE>
---------------
(*) Prepaid arising from multi-employer plans overtime (activities under lease
contract) are written off by since there are serious doubts that they could
be recoverable through future contribution holidays.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligation
in excess of plan assets were E447 million, E356 million and E32 million,
respectively, as of December 31, 1999, E576 million, E471 million and E25
million, respectively, as of December 31, 1998.
F-92
<PAGE> 453
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts recognized in the balance sheets consist of (in millions of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Accrued benefit liability (including MLA)........... (586.5) (466.4) (9.0) (9.1)
Prepaid benefit cost................................ 114.5 86.9 -- --
------ ------ ---- ----
NET AMOUNT ACCRUED FOR UNDER US GAAP................ (472.0) (379.5) (9.0) (9.1)
====== ====== ==== ====
Intangible assets (MLA)(a).......................... 0.7 3.1 -- --
------ ------ ---- ----
NET AMOUNT RECOGNIZED UNDER US GAAP................. (471.3) (376.4) (9.0) (9.1)
====== ====== ==== ====
</TABLE>
---------------
a) Adjustment for US GAAP purpose: the benefit liability accrued under US GAAP
has to be the minimum between the accumulated benefit obligation net of fair
value of plan assets and the net amount recognized under US GAAP.
Net accruals in the accompanying consolidated balance sheet can be compared
with balances determined under US GAAP as follows (in millions of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
NET AMOUNT ACCRUED FOR UNDER US GAAP................ (472.0) (379.5) (9.0) (9.1)
Excess funding of plans recognized in income only
when paid back to the Company..................... (3.4) (12.6) -- --
Impacts of transition obligation, of prior service
cost and of actuarial gains recognized with a
different timing under local regulations.......... (29.7) (6.4) -- 0.1
Minimum liability adjustments (MLA)................. 0.7 3.1 -- --
------ ------ ---- ----
NET AMOUNT ACCRUED FOR UNDER FRENCH GAAP IN THE
ACCOMPANYING CONSOLIDATED BALANCE SHEET........... (504.4) (395.4) (9.0) (9.0)
====== ====== ==== ====
Accrued............................................. (582.6) (449.7) (9.0) (9.0)
Prepaid............................................. 78.2 54.3 -- --
</TABLE>
Net periodic cost under US GAAP was as follows (in millions of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Service cost.......................................... 71.8 69.0 -- --
Expected interest cost................................ 91.3 84.2 0.1 0.1
Expected return on plan assets........................ (93.5) (90.0) 0.5 0.5
Amortization of unrecognized prior service cost....... (12.1) (11.9) -- --
Amortization of actuarial net loss (gain)............. 0.7 4.8 -- --
Amortization of net transition obligation............. (1.2) (0.9) -- --
Curtailments/Settlements.............................. (2.8) (0.4) -- --
Special Termination benefits.......................... -- -- -- --
----- ----- --- ---
Net periodic benefit cost............................. 54.2 54.8 0.6 0.6
===== ===== === ===
Write-off of prepaid on multi-employer scheme
overtime............................................ 8.2 7.3 -- --
Net periodic benefit cost under US GAAP............... 62.4 62.1 0.6 0.6
</TABLE>
F-93
<PAGE> 454
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual cost under French GAAP was E80.9 million and E64.6 million for the
years ended December 31, 1999, and 1998, respectively. The difference between
these amounts and the annual cost under US GAAP primarily results from the
difference in timing of amortization of the initial transition liability and of
actuarial gains and losses. In addition, certain companies do not recognize the
excess funding.
Weighted-average assumptions as of December 31 are as follows (in millions
of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
1998 1999 1998 1999
------ ------ ----- -----
<S> <C> <C> <C> <C>
Discount rate..................................... 6.5% 5.8% 5.0% 5.0%
Rate of compensation increase..................... N/A N/A N/A N/A
Expected return on plan assets.................... 8.2% 7.4% 6.0% 6.0%
Expected residual active life (in years).......... 14.4 13.7 15.0 15.0
</TABLE>
Regarding the other benefits plans, a one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
<S> <C> <C>
Effect on total of service and interest cost
components....................................... 0.0 0.0
Effect on the postretirement benefit obligation.... 0.3 (0.2)
</TABLE>
25G) CAPITAL AND OPERATING LEASE
The Company has entered into capital and operating leases. At December
1999, the minimum future payments under these leases, properly classified under
US GAAP, is as follows (in millions of Euros):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ --------- -------
<S> <C> <C>
2000........................................................ 617.2 219.3
2001........................................................ 609.0 214.6
2002........................................................ 541.3 213.1
2003........................................................ 519.5 204.6
2004........................................................ 415.9 212.6
2005 and thereafter......................................... 2.147.6 1,971.3
------- -------
Total minimum future capital lease payments................. 4,850.5 3,035.5
Less amounts representing interest.......................... -- 1,514.6
------- -------
Present value of net minimum future capital lease
payments.................................................. -- 1,520.9
======= =======
</TABLE>
F-94
<PAGE> 455
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
25H) CONSOLIDATION OF LESS THAN MAJORITY OWNED ENTITIES
CANAL+ has been consolidated in the financial statements under French GAAP
since the Company gained effective control in October, 1999. Summarized
information concerning CANAL+ under French GAAP is presented below:
Income Statement Information (E millions)
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Revenues.................................................... 2,475 3,291
Operating income............................................ 51 (23)
Net financial income (expense).............................. (3) (40)
Net income (loss)........................................... (28) (336)
Net income applicable to Vivendi ownership(*)............... (10) (167)
</TABLE>
Balance Sheet Information (E millions)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Goodwill.................................................... 265 252
Other Intangible Assets..................................... 1,669 1,891
Property, Plant and Equipment............................... 746 758
Financial Assets............................................ 908 888
Current Assets.............................................. 1,661 2,779
Total Assets.............................................. 5,249 6,568
Shareholders' Equity........................................ 1,545 1,127
Minority Interests.......................................... 88 61
Reserves and allowances..................................... 705 604
Long term Debt.............................................. 504 1,101
Current Liabilities......................................... 2,407 3,675
Total Liabilities and Equity.............................. 5,249 6,568
Shareholders' equity applicable to Vivendi ownership(*)..... 524 550
</TABLE>
---------------
* (respectively 34%/49% before/after September 1999)
F-95
<PAGE> 456
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
25I) RESTRUCTURING COSTS
Provisions for restructuring by segment details as follows:
<TABLE>
<CAPTION>
BALANCE CHANGE IN BALANCE CHANGE IN
DEC. 31, SCOPE OF DEC. 31, SCOPE OF
EMPLOYEE TERMINATION COSTS 1996 CONSOLIDATION ADDITIONS UTILIZATION REVERSAL 1997 CONSOLIDATION ADDITIONS
----------------------------- -------- ------------- --------- ----------- -------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Publishing and Multimedia.... 47.8 26.0
Water........................
Waste Management............. 2.1
Energy....................... 27.0 11.3 (17.2) 21.1
Construction................. 48.3 64.5 (79.9) 32.9 1.5 61.0
Real Estate.................. 7.2 7.2 0.2 3.4
---- --- ----- ----- --- ---- ---- -----
Total..................... 82.5 0.0 75.8 (97.1) 0.0 61.2 49.5 92.5
==== === ===== ===== === ==== ==== =====
<CAPTION>
BALANCE CHANGE IN BALANCE
DEC. 31, SCOPE OF DEC. 31,
EMPLOYEE TERMINATION COSTS UTILIZATION REVERSAL 1998 CONSOLIDATION ADDITIONS UTILIZATION REVERSAL 1999
----------------------------- ----------- -------- -------- ------------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Publishing and Multimedia.... (34.6) (0.8) 38.4 14.6 18.0 (42.6) (1.4) 27.0
Water........................ 54.2 (11.7) 42.5
Waste Management............. 2.1 2.0 4.1
Energy....................... (10.3) 10.8 (5.5) 5.3
Construction................. (51.8) (1.2) 42.4 44.5 (50.9) (0.3) 35.7
Real Estate.................. (1.5) 9.3 (1.7) 5.7 (5.6) 7.7
------ ---- ----- ---- ----- ------ ---- -----
Total..................... (98.2) (2.0) 103.0 67.1 70.2 (116.3) (1.7) 122.3
====== ==== ===== ==== ===== ====== ==== =====
<CAPTION>
EMPLOYEE TERMINATION COSTS NOTE
----------------------------- ----
<S> <C>
Publishing and Multimedia.... (a)
Water........................ (b)
Waste Management.............
Energy.......................
Construction................. (c)
Real Estate..................
Total.....................
</TABLE>
<TABLE>
<CAPTION>
BALANCE CHANGE IN BALANCE CHANGE IN
DEC. 31, SCOPE OF DEC. 31, SCOPE OF
OTHER RESTRUCTURING COSTS 1996 CONSOLIDATION ADDITIONS UTILIZATION REVERSAL 1997 CONSOLIDATION ADDITIONS
----------------------------- -------- ------------- --------- ----------- -------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Telecommunications........... 59.4 59.4 (3.3)
Publishing and Multimedia....
Water........................ 2.7 6.8 19.8 (0.3) 29.0 (1.0) 9.5
Transportation............... 1.2 1.2
---- --- ----- ----- --- ----- ---- -----
Total..................... 3.9 6.8 79.2 (0.3) 0.0 89.6 (4.3) 9.5
---- --- ----- ----- --- ----- ---- -----
Total..................... 86.4 6.8 155.0 (97.4) 0.0 150.8 45.2 102.0
==== === ===== ===== === ===== ==== =====
<CAPTION>
BALANCE CHANGE IN BALANCE
DEC. 31, SCOPE OF DEC. 31,
OTHER RESTRUCTURING COSTS UTILIZATION REVERSAL 1998 CONSOLIDATION ADDITIONS UTILIZATION REVERSAL 1999
----------------------------- ----------- -------- -------- ------------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Telecommunications........... (21.7) (0.3) 34.1 (4.1) 1.4 (12.4) 19.0
Publishing and Multimedia.... 6.8 (1.5) 5.3
Water........................ (13.3) 24.2 55.1 28.8 (34.2) 73.9
Transportation............... 1.2 (0.3) 0.9
------ ---- ----- ----- ----- ------ ---- -----
Total..................... (35.0) (0.3) 59.5 57.8 30.2 (48.4) 99.1
------ ---- ----- ----- ----- ------ ---- -----
Total..................... (133.2) (2.3) 162.5 124.9 100.4 (164.7) (1.7) 221.4
====== ==== ===== ===== ===== ====== ==== =====
<CAPTION>
OTHER RESTRUCTURING COSTS NOTE
----------------------------- ----
<S> <C>
Telecommunications........... (d)
Publishing and Multimedia....
Water........................ (b)
Transportation...............
Total.....................
Total.....................
</TABLE>
F-96
<PAGE> 457
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As previously discussed, the Company has grown through significant
acquisitions in the past several years. As a result of these acquisitions and
the need to streamline and integrate the resulting operating entities, the
Company's various business segments have implemented various restructuring
plans, primarily related to the consolidation of facilities. As a result, the
Company has incurred significant costs associated with the elimination of such
facilities and related reductions in employee headcount. These costs include
amounts associated with employee termination and early retirement programs,
asset divestitures, and costs associated with lease and other contract
terminations. These plans are generally completed within one year of initiation.
In addition to restructuring plans initiated by the Company, certain of the
acquired businesses had initiated and were executing restructuring plans at the
time of acquisition. The Company evaluated these restructuring plans at the time
of acquisition to determine whether such plans were consistent with the
Company's integration strategy. If consistent, such reserves were established
through purchase accounting and have been reflected as "Change in scope of
consolidation" in the table above. A description of the Company's various
restructuring plans by business segment is detailed below.
(a) Publishing and Multimedia
As previously indicated, Havas was first consolidated with Vivendi in 1998.
Havas reserves associated with its pre-acquisition restructuring plans consist
primarily of costs associated with headcount reduction programs at several
operating units and have been included in "Change in scope of consolidation" in
1998. The balance of the amount reflected in "Change in scope of consolidation"
relates primarily to the acquisitions of Anaya and Medimedia in 1998 and 1999,
respectively.
During the acquisition of Grupo Anaya in September 1998, the Company
determined that certain sales and administrative offices were redundant. The
Company established a termination plan amounting to E 10.8 million involving
approximately 240 employees (12 management employees and 228 administrative and
sales employees). The Company paid E 8.5 million in severance costs and 167
employees had been terminated as of December 31, 1999.
During the acquisition of Medimedia in August 1999, the Company implemented
a restructuring plan with costs of approximately E 11 million. The plan included
an accrual of E 4.2 million associated with severance costs related to the
termination of approximately 40 employees, and an accrual of E 6.8 million
related to the closure and disposal of several operating facilities. During the
fourth quarter of 1999, E 0.5 million in severance payments were made in
connection with the termination of five employees together with E 1.3 million in
facility exit costs.
The Company's business units comprising the Publishing and Multimedia
segment have implemented certain other restructuring activities during 1998 and
1999. The most significant of these activities is a termination plan relating to
the reduction of administrative headcount at Havas, which resulted in
termination costs of E 5.3 million. These costs were accrued in 1998 and paid in
1999.
(b) Water
Beginning in 1997, the Company implemented a three-year restructuring plan
associated with its water businesses located in France. The primary purpose of
the restructuring plan is to consolidate individual facilities originally
established with the sole purpose of administering municipal water service
contracts. The costs associated with the plan relate primarily to lease
termination and other costs to exit facilities. The plan will result in a
restructuring of the Company's existing operating structure from 334 local
units, 86 intermediary levels and 31 regional agencies to 140 local units, 50
business units and 10 regional agencies. The plan is expected to be completed in
2000.
As previously discussed, the Company acquired USFilter in April 1999. In
conjunction with the acquisition, the Company evaluated USFilter's ongoing
restructuring plans. This evaluation resulted in the
F-97
<PAGE> 458
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
continuation of certain restructuring efforts and the implementation of
additional restructuring plans to streamline USFilter's resulting manufacturing
and production base and to redesign its distribution network. The revised
restructuring plans identified certain manufacturing facilities, distribution
sites, sales and administrative offices, retail outlets and related assets that
became redundant or non-strategic upon consummation of the transaction. The
costs associated with the plan totaled E109.4 million and are reflected in
"Change in scope of consolidation." The costs consisted of E54.2 million in
severance and employee termination costs related to a reduction of the combined
workforce of 1,465 employees (189 management employees, 456 administrative
employees, 684 manufacturing employees and 136 sales employees), and
E55.1 million in facility exit costs, including assets write-downs, lease
terminations and other exit costs. During 1999, the Company incurred costs of
E31.6 million in connection with the plan, including E11.7 million in
severance payments in connection with the termination of approximately 350
employees and E19.9 million in facility exit costs. As of December 31,
1999, a total accrual of approximately E77.7 million remained, consisting
of E42.5 million in severance and employee termination accruals and
E35.2 million in other restructuring costs (primarily attributable to
facility consolidation). The remaining costs are expected to be incurred during
2000. Additional costs to complete the restructuring plan are not expected to be
material and are expected to be incurred during the current fiscal year.
(c) Construction
Beginning in 1996, the Company recorded provisions for restructuring plans,
in the amount of E48.3 million, consisting of severance and employee
termination costs. These plans were executed in 1997, resulting in a headcount
reduction of 1,566 employees (259 management employees and 1,307 construction
employees).
During 1997, the Company established additional restructuring plans,
primarily related to planned headcount reduction, in the amount of
E64.5 million. These plans consisted of accruals associated with the
termination of 2,106 employees (483 management employees and 1,623 construction
employees).
During 1997, the Company incurred charges of E31.6 million in
connection with these plans, which resulted in a reduction of the workforce of
1,028 employees (210 management employees and 818 construction employees). The
remaining portion of these plans were executed in 1998, resulting in charges of
E31.7 million and a 1,078 decrease in the number of employees (273
management employees and 805 construction employees).
In 1998, the Company's management continued the review of its activities
and internal organization, a review that prompted the implementation of
additional restructuring plans. These plans resulted in an accrual of
E61.0 million and consisted of severance and employee termination costs for
1,939 employees (194 management employees and 1,745 construction employees).
During this period, the Company incurred costs associated with such plans in an
amount of E18.6 million for a total of 591 employees (59 management
employees and 532 construction employees). The remaining portion of the plan was
executed in 1999 for a total cost of E42.1 million.
In 1999, the Company established a restructuring plan as a result of a
general decline in construction demand in markets serviced by its German
subsidiaries. Additionally, the Company implemented plans in its civil
engineering entities to adapt the business to new technology, including digital
technology related to electrical contracting. These plans resulted in an accrual
of E44.5 million, in connection with a workforce reduction of 1,460
employees (277 management employees and 1,183 workers). During 1999, the Company
incurred E8.8 million in connection with such plans and reduced its number
of employees by 288 (49 management employees and 239 construction employees).
F-98
<PAGE> 459
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Telecommunications
In December 1997, SFR decided to discontinue mobile telephone service
operations utilizing analog technology. In connection with this decision, a
reserve of approximately E60.0 million was provided in connection with the
phasing out of the subscriber base and associated technology.
25J) SUBSEQUENT EVENTS
On February 10, 2000, Vivendi reduced its interest in Vinci from 49.3% to
16.9% by selling 13.8 million shares of Vinci to institutional investors, for
E607.2 million and recognized a gain of E300 million. Vivendi waived its double
voting rights on the remaining shares as part of this sale. Vivendi has also
agreed not to sell any additional Vinci shares until February 2001, at which
time Vivendi plans to complete its divestiture by selling the remaining shares
on the market.
On February 2000, Vivendi sold to Reliant 21 independent power production
plants for E2.13 billion and recognized a gain of E450 million.
Subsequent to the restructuring of the activity of CGIS into two separate
companies, Nexity and Vivendi Valorisation, Vivendi has sold Nexity beginning of
July to institutional investors without major gain or loss.
On May 16, 2000, and following a cooperation agreement signed on January
30, 2000, Vivendi, through its subsidiary Vivendi Net, and Vodafone AirTouch,
entered into an agreement to create an equally owned joint venture called
VIZZAVI, to establish a Multi Access Portal for the European market.
On June 20, 2000, the Company entered into an agreement to combine with The
Seagram Company Ltd. and CANAL+. These transactions will be effected through the
Company merging with and into one of its wholly-owned subsidiaries, which will
then acquire all of the non-regulated operations of CANAL+. The non-regulated
operations of CANAL+ include all CANAL+ operations except for the license to
broadcast television in France and the French subscriber base. Vivendi Universal
will then acquire all of the outstanding shares of Seagram pursuant to a plan of
arrangement under Canadian law.
On June 22, 2000, the Company entered into a memorandum of understanding
with Electricite de France (EDF), the French National Power Utility, in order to
offer an integrated service from power generation to energy services primarily
to large industrial clients throughout the European deregulated market. This
will be accomplished through the sale of 34% share in Dalkia's parent company to
EDF.
The Company recently completed an initial public offering in France as well
as an international private placement of its wholly-owned subsidiary, Vivendi
Environnement, which regroups all of the Company's environmental services. The
Company retains an approximately 63% interest in Vivendi Environnement.
In fiscal year 2000, Vivendi disposed of a significant portion of its
investments in the Construction segment. On February 10, 2000, Vivendi reduced
its interest in Vinci from 49.3% to 16.7% by selling 13.8 million shares of
Vinci to institutional investors for E572 million and recognized a gain of
E306 million. Vivendi has double voting rights on certain of its remaining
shares that allow the Company to exercise a significant influence over Vinci.
Accordingly, Vivendi accounts for its investment in Vinci using the equity
method subsequent to the transaction.
F-99
<PAGE> 460
CANAL+ FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
AT JUNE 30, AT JUNE 30, AT DECEMBER 31,
NOTES 2000 2000 1999
----- ----------- ----------- ---------------
U.S.$ EUROS EUROS
----------- ----------- ---------------
(IN MILLIONS OF EUROS,
IN MILLIONS OF U.S.$)
<S> <C> <C> <C> <C>
ASSETS
Goodwill...................................... 3.1 561 587 252
Intangible assets............................. 1,878 1,965 1,891
Tangible assets............................... 759 794 758
Investments in companies accounted for by the
equity method............................... 108 113 97
Other investments............................. 3.2 535 560 790
Total non-current assets...................... 3,841 4,019 3,789
Programs, broadcasting rights and other
inventories................................. 3.3 872 913 760
Accounts receivable........................... 1,434 1,501 1,462
Prepaid expenses and deferred charges......... 110 115 102
Cash and marketable securities................ 892 933 455
Current assets................................ 3,308 3,462 2,779
Total Assets........................ 7,149 7,481 6,568
LIABILITIES AND SHAREHOLDERS' EQUITY
Common stock.................................. 91 95 95
Additional paid-in capital and retained
earnings.................................... 900 942 1,368
Net income for the period..................... 99 104 (336)
Total shareholders' equity.................... 3.4 1,090 1,141 1,127
Minority interests............................ 169 176 61
Reserves for contingencies.................... 596 624 604
Borrowings.................................... 3.5 3,231 3,381 2,801
Subscribers' deposits and prepayments......... 413 432 423
Trade payables................................ 1,542 1,614 1,420
Accrued expenses and deferred income.......... 3.6 108 113 132
Other liabilities............................. 5,294 5,540 4,776
Total Liabilities and Shareholders'
equity............................ 7,149 7,481 6,568
</TABLE>
F-100
<PAGE> 461
CANAL+
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30,
NOTES 2000 2000 1999
----- ------------ ------------ ------------
U.S.$ EUROS EUROS
------------ ------------ ------------
(IN MILLIONS OF EUROS,
IN MILLIONS OF U.S.$)
<S> <C> <C> <C> <C>
Subscriptions................................... 1,387 1,451 1,277
Advertising and sponsoring...................... 76 80 55
Other revenues.................................. 312 327 215
Total revenues.................................. 4.1 1,775 1,858 1,547
Cost of sales................................... (1,342) (1,405) (1,097)
Gross margin.................................... 433 453 450
General and administrative expenses............. (431) (451) (408)
Operating Income................................ 2 2 42
Net interest income............................. 4.2 4 4 (7)
Income from continuing operations before tax.... 6 6 35
Income taxes.................................... 4.4 (52) (54) (31)
Income from continuing operations after tax..... (46) (48) 4
Losses of companies accounted for by the equity
method........................................ (44) (46) (36)
Net income (loss) before exceptional items and
amortization of goodwill...................... (90) (94) (32)
Minority interests.............................. 4 4 15
Income from continuing operations, after
minority interests............................ (86) (90) (17)
Exceptional income (expense), net of tax, after
minority interests............................ 4.3 196 205 (10)
Amortization of goodwill, after minority
interests..................................... (11) (11) (9)
Net income...................................... 99 104 (36)
(in euros)
Earnings per share.............................. 0.79 0.82 0.29
</TABLE>
F-101
<PAGE> 462
CANAL+
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE GROUP
COMMON PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
STOCK CAPITAL EARNINGS* ADJUSTMENTS EQUITY
------ ---------- --------- ----------- -------------
(IN MILLION OF EUROS)
<S> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY AS OF DECEMBER 31,
1999................................... 95 760 265 7 1,127
Capital stock increase................... 5 5
Goodwill Studio Canal.................... 30 30
Effect of new accounting
pronouncements......................... (25) (25)
Foreign currency translation
adjustments............................ 1 1
Dividends paid and net income
appropriations......................... (101) (101)
Consolidated net income as of June 30,
2000................................... 104 104
SHAREHOLDERS' EQUITY AS OF JUNE 30,
2000................................... 95 795 243 8 1,141
</TABLE>
---------------
* Including net income/(loss) for the year.
F-102
<PAGE> 463
CANAL+
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30,
2000 2000 1999
------------ ------------ ------------
U.S. $ EUROS EUROS
------------ ------------ ------------
(IN MILLIONS OF EUROS, IN MILLION OF U.S.$)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... 99 104 (36)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and provisions......... 264 276 208
Net (gain)/loss on sales of assets................ (255) (267) (39)
Minority interests................................ 0 0 (13)
Losses of companies accounted for the equity
method......................................... 44 46 36
Other............................................. (5) (5) (6)
Cash Flow........................................... 147 154 150
Changes in working capital items
Change in programs, broadcasting rights and other
inventories.................................... (167) (175) 47
Security deposits................................. (9) (9) 7
Other............................................. (147) (154) (286)
NET CASH PROVIDED BY OPERATING ACTIVITIES(A)........ (176) (184) (82)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of :................................... (336) (351) (529)
Intangibles....................................... (157) (164) (117)
Tangibles : -- Decoders........................... (84) (88) (68)
-- Others............................. (44) (46) (28)
Investments....................................... (51) (53) (316)
Proceeds from the sales of :........................ 161 168 20
Tangibles and intangible assets................... 3 3 3
Investments....................................... 158 165 17
Net cash used in acquisitions and disposals of
subsidiaries...................................... (20) (21) (9)
NET CASH USED IN INVESTING ACTIVITIES(B)............ (195) (204) (518)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock............................ 194 203 75
Canal+............................................ 4 5 1
Minority interests................................ 190 198 74
Dividends paid...................................... 1 1 31
Dividends paid to Parent Company shareholders....... 0
Dividends paid to minority interests in
subsidiaries...................................... 1 1 31
Increase in borrowings.............................. 525 549 355
Repayment of borrowings............................. (34) (36) (29)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES(C)..................................... 686 717 432
EFFECT OF EXCHANGE RATE CHANGES ON CASH(D).......... (6) (6) (2)
NET CHANGE IN CASH AND CASH EQUIVALENTS(A+B+C+D).... 309 323 (170)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR(E)... (906) (949) (567)
CASH AND CASH EQUIVALENTS AT END OF
YEAR(A+B+C+D+E)................................... (597) (626) (737)
</TABLE>
F-103
<PAGE> 464
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
I -- BUSINESS DESCRIPTION
Canal+, together with its subsidiaries and investees ("Canal+" or the
"Company"), a French corporation (Societe Anonyme) provides a broad range of
services mainly in the communication sector.
On January, Canal+ signed an agreement with Lagardere, pursuant to which
Lagardere will own a 34% stake in Canal Satellite and a 27.4% stake in
Multithematiques.
On April, Studio Canal contributed its Ellipse shares to Expand in exchange
for a 35% interest in the new merged group, Expand, mainly involved in
television programs productions. On May, Studio Canal opened its shareholding to
French and international investors thanks to an E207 million increase of
capital.
On May, Canal+ sold its 24.7% interest in Vox to CLT-UFA.
In the first six month period, Canal+ increased its shareholding in
Sogecable (Spanish pay TV activity), Eurosports (European sport channel),
Societe Europeenne de Controle d'Acces (conditional access systems) and Canal+
Belgique (Belgium pay TV activity).
II -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 -- Basis of preparation
The interim consolidated financial statements of Canal+ are presented in
accordance with accounting principles generally accepted in France ("French
GAAP") and in accordance with the Conseil National de la Comptabilite (French
Accounting Authorities) recommendation of March 1999 about interim statements
and comply with the same accounting rules as year-end policies except for the
changes set out in paragraph "2.2 -- New accounting pronouncements in France".
French GAAP differs in certain respects from accounting principles
generally accepted in the United States. A description of these differences and
their effects on net income and shareholders' equity is set forth in Note VII.
The financial statements have been formatted in the original French GAAP
financial statements presentation and where necessary have been modified to
include certain additional disclosures in order to conform more closely with the
content of financial statements required by the generally accepted accounting
principles in the United States ("US GAAP").
2.2 -- New accounting pronouncements in France
A new set of accounting standards set forth by the "Comite de la
Reglementation Comptable" in April 1999, covering the consolidation
methodologies applicable to consolidated financial statements is effective for
fiscal years beginning on or after January 1, 2000. The adoption of these new
standards results in the recognition of deferred tax liabilities on all
differences between the tax and book values of assets and liabilities whereas,
prior to these new accounting pronouncements, no deferred tax liability was
registered when temporary differences were recurring and such qualified in
substance as permanent. The cumulative effect of this change was to decrease
retained earnings by E25 million.
2.3 -- Convenience translations
The consolidated balance sheet and consolidated statements of income and
cash flows include amounts as of and for the six-month period ended June 30,
2000 denominated in millions of U.S. dollars. These amounts have been prepared
using an exchange rate of U.S.$1 to E1.0465, which was the exchange rate as
of June 30, 2000. Convenience translations are presented solely for the
convenience of the reader of these financial statements and would not be
construed as representations that the local currency has been, could have been,
or could in the future be converted into U.S. dollars at this or any other rate
of exchange.
F-104
<PAGE> 465
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
III -- NOTES TO THE CONSOLIDATED BALANCE-SHEET
3.1 -- Goodwill
The E335 million increase in goodwill results from the acquisition of
shares of Sogecable (E91 million), Eurosport SCS (E80 million),
Societe Europeenne de Controle d'Acces (E61 million), Canal+ Belgique
(E57 million) and Expand (E37 million).
3.2 -- Other investments
Other investments include shares in non consolidated companies and any loan
related to these investments.
They can be analyzed as follows at June 30, 2000 (in millions of Euros):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 2000 1999
------------------------- ------------
COST PROVISIONS NET NET
---- ---------- --- ------------
<S> <C> <C> <C> <C> <C>
Mediaset SpA.................................... (1) 59 59 143
Television Holding S.A.......................... (2) -- -- -- 86
(10% of CANALSATELLITE)
CANALSATELITTE.................................. (2) -- -- -- 65
MCM Euromusique................................. 12 12 11
Others.......................................... 77 (61) 16 20
Total........................................... 148 (61) 87 325
Loans related to interests in companies and
other investments............................. 498 (25) 473 465
--- --- --- ---
TOTAL........................................... 646 (86) 560 790
=== === === ===
</TABLE>
---------------
1) The decrease in Mediaset shares is a result of convertible bond exchanges
that took place during the six month period ended June 30.
2) Television Holding S.A., which owned an 10% interest in Canal Satellite, and
the 4% interest in Canal Satellite classified as other investments at the end
of 1999 have been sold to Lagardere.
3.3 -- Inventories
The increase in inventory (E153 million) mainly relates to additional
Italian soccer broadcasting rights purchased by Telepiu.
3.4 -- Shareholders' equity
During the first six months of 2000, the Company issued 161,565 shares for
a total of E5 million in connection with its obligations under the employee
stock purchase plan. Studio Canal goodwill totaling E30 million arising
from business combinations was recorded in additional paid-in capital in the
first half of 2000. The cumulative effect of the new accounting pronouncements
charged against net equity as of January 1, 2000 was E25 million.
F-105
<PAGE> 466
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
3.5 -- Borrowings
The table below presents an analysis of the consolidated financial balances
by type of debt instrument (in millions of Euros):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Spot market borrowings...................................... 897 826
Short term bank borrowings for operations................... 662 578
Bank borrowings and comparable items........................ 1,559 1,404
Bonds (a)................................................... 482 589
Leasing..................................................... 296 285
Advances to companies accounted for by the equity method or
unconsolidated............................................ 31 33
Other....................................................... 1,013 490
----- -----
Total....................................................... 3,381 2,801
===== =====
</TABLE>
---------------
(a) On April 1997, Canal+ issued bonds that bear interest at 3.5%, with a
maturity in March 2002, and that are exchangeable into Mediaset Spa shares.
Each bond may be exchanged at the option of the bondholder for 341.74 shares
per bond. Canal+ currently owns an adequate number of Mediaset to meet its
maximum conversion.
Financial debt listed according to the currency in which it is denominated
is as follows (in millions of Euros):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Euros....................................................... 1,976 1,068
French Francs............................................... 1,022 1,538
US Dollar................................................... 183 5
Pound Sterling.............................................. 14 15
Italian Lira................................................ 175 174
Swiss Francs................................................ 8 --
Belgian Francs.............................................. 3 --
Other....................................................... -- 1
----- -----
Total....................................................... 3,381 2,801
===== =====
</TABLE>
The table below presents a summary of the repayment schedules of the
financial debts (in millions of Euros):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Due within one year......................................... 2,378 1,700
Due between one and two years............................... 68 --
Due between two and five years.............................. 822 599
Due after five years........................................ 113 502
----- -----
Total....................................................... 3,381 2,801
===== =====
</TABLE>
F-106
<PAGE> 467
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
3.6 -- Accrued expenses and deferred income
Changes in accrued expenses and deferred income result from increases of
tax debts, mainly deferred tax liabilities, and from deferred payment of the
1999 dividends.
IV -- NOTES TO THE CONSOLIDATED INCOME STATEMENT
4.1 -- Revenues
Net revenues for the six months ended June 30, 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------
2000 1999
------- -------
(E MILLIONS)
<S> <C> <C>
Subscription................................................ 1,451 1,277
Advertising and sponsoring.................................. 80 55
Production and broadcasting rights.......................... 199 122
Other....................................................... 128 93
----- -----
TOTAL....................................................... 1,858 1,547
===== =====
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------
2000 1999
------- -------
(E MILLIONS)
<S> <C> <C>
Pay TV France............................................... 1,116 1,030
Pay TV International........................................ 461 356
Production and broadcasting rights.......................... 199 122
Other....................................................... 82 39
----- -----
TOTAL....................................................... 1,858 1,547
===== =====
</TABLE>
During the first half of 2000, the Canal+ Group generated sales of
E1.858 million. This represented a 20% growth in sales. These sales figures
include the increase of the pay-TV activity (E1.577 million, 14% increase
compared to last year) mainly coming from the international activities (29%
increase). In the Production and broadcasting rights activity, sales reached
E199 million. This represented a 63% growth in sales, mainly coming from
Sport+'s sports broadcasting rights business (turnover of E79 million
compared to E9 million for the same period in the previous year) and the
increase of Studio Canal sales (sales of E120 million, 6% increase compared
to last year figure).
4.2 -- Net interest (expense)/income
Net interest (expense)/income for the six months ended June 30, 2000 and
1999 were as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------
2000 1999
---- ----
(E MILLIONS)
<S> <C> <C>
Income from short term investments.......................... 1 2
Income from investments in non-consolidated companies....... 54 22
Interest (expense)/income................................... (55) (40)
Other....................................................... 4 9
--- ---
TOTAL....................................................... 4 (7)
=== ===
</TABLE>
F-107
<PAGE> 468
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
The net financial income results from a gain (E42 million) on the
conversion of bonds into Mediaset Spa shares and on a capital gain (E19
million) resulting from the sales of Vivendi shares. Interest expenses increased
due to the change in the net financial debts position of the Group (E2,4
billion as of June 30, 2000 compared to E1,9 billion as of June 30, 1999).
4.3 -- Exceptional income/(expense)
The exceptional profit (net of tax E205 million), results from the
capital gain on the disposal of the Vox shares (E45 million) and on the
sale of the 4% interest in Canal Satellite (E80 million). Dilution profits
result from the increase in capital of Multithematiques (E21 million) and
of StudioCanal (E71 million).
4.4 -- Income taxes
Components of the income tax expense (benefit) are as follows (in millions
of Euros):
<TABLE>
<CAPTION>
JUNE 30,
------------
2000 1999
---- ----
<S> <C> <C>
Current income tax expense.................................. 52 46
Deferred income tax (benefit)............................... 2 (15)
-- ---
Total income tax expense (benefit).......................... 54 31
== ===
</TABLE>
The amount of income tax expense mainly results from the taxable income on
French operations. The increase resulted primarily from the recognition of
deferred tax assets which, with respect to certain foreign subsidiaries tax
losses, was limited to the amount that is expected to be used.
V -- COMMITMENTS AND CONTINGENCIES
The financial commitments given have decreased from E6,929 million as
of December 31, 1999 to E6,550 million as of June 30, 2000. The most
important commitments mainly relates to contracts on broadcasting rights for
movies, programs and sports and satellites space capacity rental agreements. The
decrease in financial commitments is mainly due to decrease in movie-related and
sports related commitments.
VI -- SUBSEQUENT EVENTS
The Canal+ Group has announced in June 2000 an alliance between Seagram,
Canal+ and Vivendi which should lead to the creation of Groupe Vivendi Universal
by the end of the year.
VII -- SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING POLICIES GENERALLY
ACCEPTED IN THE UNITED STATES AND FRANCE.
The consolidated financial statements of CANAL+ have been prepared in
accordance with French GAAP, which differ in certain significant respects from
US GAAP. Set forth below is a summary of the areas in which differences between
French GAAP and US GAAP could significantly affect the group's results of
operations and financial position.
7.1 -- Valuation Differences
a) Consolidation
Under French GAAP, companies are consolidated when the parent company
demonstrates effective control over those companies.
F-108
<PAGE> 469
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
Under US GAAP, control is normally defined as a voting control (over 50%),
although there may be facts and circumstances that permit consolidation in other
cases.
Disposition date of an investment
Under French GAAP, the disposition date of an investment is generally
established by the date of the written agreement which defines the terms of the
disposition and provides with the effective transfer of this investment.
Under US GAAP, APB 16 defines the effective date of a disposition as being
ordinarily the date assets are given and other assets are received or securities
are issued.
b) Business combinations
Under French GAAP, business combinations are generally accounted for under
the purchase method of accounting. Assets acquired and liabilities assumed may
not always be systematically adjusted to their fair market value.
Under exceptional conditions, the residual goodwill can be written off
against shareholders' equity for business combinations entered into before
periods beginning on or after January 1, 2000. Such exceptional circumstances
arise when the consideration given to the seller includes stock issued by the
acquirer. In that case, the portion of the goodwill corresponding to the
proportion of the acquisition price paid in acquirer's shares is written off
against the paid-in surplus.
Under US GAAP, assets acquired and liabilities assumed are restated at
their fair market values at the time of combination. The difference between the
fair market values of the net assets and the consideration given represents
goodwill. Under US GAAP, this goodwill cannot be written off against
shareholders' equity.
c) Deferred taxation
Under French GAAP, deferred tax assets and liabilities arise from timing
differences between taxable income and accounting income. Deferred tax assets
are recognized when it is probable that sufficient taxable profits will be
available against which the deferred tax assets can be utilized.
Under US GAAP, deferred tax liabilities and assets record the tax effect of
almost all differences between the tax and book values of assets and
liabilities, including net operating loss carry-forwards. If it is more likely
than not that some or all of the deferred tax asset will not be realized, a
valuation allowance is established through a charge to income. A company may
look to probable future taxable income as well as tax planning strategies to
determine the realizability of deferred tax assets.
d) Contingencies
Under French GAAP, a material contingent loss should be recorded if it is
probable that the loss will be incurred, it is directly and mostly linked to a
current period event, and reasonable estimate of the loss can be made. A
contingent loss not recorded must be disclosed in the notes to the financial
statements unless the possibility of the loss being incurred is remote.
Under US GAAP, loss contingencies should be recorded if (based on
information available prior to issuance of financial statements) it is probable
that an asset has been impaired or a liability has been incurred as of the
balance sheet date and the amount of the loss can be reasonably estimated. All
reasonably possible losses should be disclosed. General contingency reserves are
not permitted.
F-109
<PAGE> 470
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
e) Intangible assets
Under French GAAP, certain costs, such as start-up costs, are capitalized
and amortized over their useful lives.
Under US GAAP, these costs are charged as expenses when incurred.
f) Satellite space capacity rental agreements
CANAL+ rents satellite space capacity according to lease agreements signed
for a period of 10 years and which include scheduled rent increases.
Under French GAAP, rental on an operating lease is charged to expense over
the lease term as it becomes payable.
Under US GAAP, the effects of the scheduled rent increases are recognized
on a straight-line basis over the lease term.
g) Film distribution and broadcasting
Revenue recognition
Under French GAAP, revenues deriving from outright sales are recognized
when i) the license fee and the cost of each films are known, ii) collectibility
of the fee is certain and iii) the film has been delivered or when the screening
certificate is obtained.
Under US GAAP, such revenues are recognized when, in addition to the above
mentioned criteria, the purchaser's contractual distribution rights begin.
SOFICA share purchase agreements
French tax regulations grant tax advantages to individual investments in
special film support vehicles called SOFICAs. Investors purchase shares in the
SOFICA with resale guaranteed at a level of 85% or 100% of the face value of the
shares. These funds are used to finance film production, in exchange for a
percentage of the rights to the films involved. Under French GAAP, at the
closing of each fiscal year, a provision is made if the market value of the
SOFICA shares as determined on the basis of the value of the rights held is less
than the minimum guaranteed purchase price. Under US GAAP, such special film
support vehicles should be consolidated.
License agreements for program Material
A broadcaster accounts for a license agreement for program material as a
purchase of a right.
Under French GAAP, the acquisition costs are fully amortized at first
showing.
Under US GAAP, the acquisition costs are amortized based on the estimated
number of future showings.
h) Financial instruments
Investment securities
Under French GAAP, investments in debt and non-consolidated equity
securities are recorded at acquisition cost and an allowance is provided if
management deems that there has been an other than temporary decline in fair
value. Unrealized gains and temporary unrealized losses are not recognized.
F-110
<PAGE> 471
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
Under US GAAP, investments in debt and equity securities are classified
into three categories and accounted for as follows: Debt securities that the
Company has the intention and ability to hold to maturity are carried at cost
and classified as "held-to-maturity". Debt and equity securities that are
acquired and held principally for the purpose of sale in the near term are
classified as "trading securities" and are reported at fair value, with
unrealized gains and losses included in earnings. All other investment
securities not otherwise classified as either "held-to-maturity" or "trading"
are classified as "available-for-sale" securities and reported at fair value,
with unrealized gains and losses excluded from earnings and reported in
shareholders' equity.
Treasury shares
Under French GAAP, shares of the Company's own stock owned by the Company
and its subsidiaries are recorded as marketable securities in the consolidated
financial statements if those shares are acquired to stabilize the market price
or in connection with stock options granted to directors and employees.
Under US GAAP, treasury shares are recorded as a reduction of shareholders'
equity. Profit and loss on the disposal of treasury shares is recognized as an
adjustment to shareholders' equity.
i) Derivative financial instruments
Under French GAAP, the criteria for hedge accounting for derivative
financial instruments does not require documentation of specific designation to
the hedged item, nor the documentation of ongoing effectiveness of the hedge
relationship. Derivative financial instruments that meet hedge criteria under
French GAAP are not recorded on the consolidated balance sheet. The impact of
the derivative financial instruments on the statement of income is recorded upon
settlement or the payment or receipt of cash.
Under US GAAP, derivative financial instruments for which the Company has
not specifically designated or has not assessed effectiveness do not meet hedge
accounting criteria. Such instruments are recorded on the consolidated balance
sheet at fair value and related changes in fair value are recognized in current
period net income.
j) Stock-based compensation
Under French GAAP, common shares issued upon the exercise of options
granted to employees and directors are recorded as an increase to share capital
at the cumulative exercise price. CANAL+ shares sold to employees through
qualified employee stock purchase plans are reclassified from marketable
securities to share capital. The difference between the carrying value of the
treasury shares and the cumulative exercise price by the stock purchase plan is
recognized as a gain or loss in the period that the shares are sold. In
accordance with French GAAP, the Company has not recorded compensation expense
on stock-based plans with a discounted strike price up to 20% from the fair
value of the common shares at the date of grant.
Under US GAAP, APB Opinion No. 25 defines plans that grant or sell common
shares to employees as compensatory if such plans are not open to substantially
all employees and do not require the employee to make a reasonable investment in
the shares, usually defined as no less than 85% of the market value at the grant
date. If a plan is deemed to be compensatory, APB Opinion 25 requires that
compensation arising from such plans is to be measured based on the intrinsic
value of the shares granted or sold to employees. For Fixed plans, the
compensation expense is calculated as the difference between the fair value at
the grant date and the employee strike price. Compensation expense for
compensatory stock-based plans is recognized in the period benefited.
F-111
<PAGE> 472
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
k) Pension plans
Under French GAAP, the Company records pension obligations, covering all
eligible employees, using the projected unit credit method.
Under US GAAP, the projected unit credit method is required to be applied
as of January 1, 1989. The transition obligation or fund excess determined as of
January 1, 1989 is amortized over the average remaining service period of the
population that was covered under the plan at that date.
Under French GAAP, postretirement benefits other than pensions are recorded
as expense when amounts are paid.
Under US GAAP, the Company must recognize an obligation for amounts to be
paid under postretirement plans, other than pensions. A postretirement
transition obligation may be determined as of January 1, 1995 and amortized over
the average remaining service period of employees covered by the plan. Current
period charges are based on estimated future payments to expected retirees.
l) Decoders replacement
Under French GAAP, a strategic decision to replace long-lived assets before
the end of their expected useful life is accounted for as a contingent
liability, for its estimated cost when this decision is made by Management.
Under US GAAP, if this strategic decision is determined not to lead to an
impairment as defined by SFAS 121, the reduction of the useful life is reflected
prospectively as a change in estimate and generates an incremental amortization
expense during the newly established remaining period of useful life.
French GAAP requires that material subsequent events that occur after the
current financial year end but prior to the issuance of the financial statements
be recorded in the current-year financial statements. Accordingly, the liability
associated with the replacement of the decoders was recorded in 1999 and
included in the caption "Reserves." Under US GAAP, since the strategic decision
to write off decoders and adopt a plan of replacement was approved by an
appropriate level of management in February 2000, no accounting event was
recorded in the 1999 financial statements.
The related 1999 US GAAP reconciling item consisted in the reversal of the
decoder replacement liability recorded under French GAAP, which would not have
been recorded under US GAAP. As of June 30, 2000, the increased depreciation
expense is due to the change in the estimated lives of the assets for US GAAP
purposes and results in reconciling items.
m) Non-monetary assets received in an exchange transaction
Under French GAAP, non-monetary assets received in an exchange transaction
are recorded at the historical carrying value of the non-monetary assets
surrendered. In 1999, CANAL+ received shares of Vivendi in exchange for its
shares of Pathe following the merger of Vivendi and Pathe.
Under US GAAP, non-monetary assets received in an exchange transaction are
recorded at the fair value of the non-monetary assets surrendered if the fair
value is determinable. As the assets exchanged are not considered to be similar
productive assets, a gain is recognized for the excess of the fair value of the
Pathe shares over their carrying value.
7.2 -- Presentations Differences
a) Balance sheet presentation
Under French GAAP, the current/noncurrent (long-term/short-term)
distinction is not made on the face of the balance sheet; it is disclosed in the
notes to the consolidated financial statements.
F-112
<PAGE> 473
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
Under US GAAP, such classification is required on the face of the balance
sheet.
New films, and television programs are recorded as intangible assets under
French GAAP and inventory under US GAAP.
b) Statement of comprehensive income
The consolidated financial statements in France include the balance sheet,
the profit and loss statements the statements of cash flow and notes. Under US
GAAP, a statement of comprehensive income is also required.
7.3 -- Reconciliation of Equity and Net Income to US GAAP
The following is a summary reconciliation of shareholders' equity, as
reported in the consolidated balance sheet to shareholders' equity as adjusted
for the approximate effects of the application of US GAAP for the periods ended
June 30, 2000, and net income as reported in the consolidated statement of
income to net income as adjusted for the approximate effects of the application
of US GAAP for the period ended June 30, 2000 and 1999 (in millions of Euros).
<TABLE>
<CAPTION>
AT
JUNE 30,
2000
--------
<S> <C>
SHAREHOLDERS' EQUITY AS REPORTED IN THE CONSOLIDATED BALANCE
SHEET..................................................... 1,141
Adjustments to conform to US GAAP:
Business combinations/Goodwill............................ 947
Intangible assets......................................... (14)
Satellite space capacity leasing contracts................ (14)
Reserves.................................................. 422
Loss Contingencies & others............................ 162
Decoders............................................... 256
Soficas................................................ 4
Financial instruments..................................... 29
Pension plans and stock based compensation................ 9
Deferred taxes............................................ (173)
Film distribution and broadcasting........................ 1
Tax effect on the above adjustments....................... (62)
US GAAP SHAREHOLDERS' EQUITY................................ 2,286
</TABLE>
F-113
<PAGE> 474
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED JUNE 30,
--------------
2000 1999
----- -----
<S> <C> <C>
NET INCOME AS REPORTED IN THE CONSOLIDATED STATEMENTS OF
INCOME.................................................... 104 (36)
Adjustments to conform to US GAAP:
Business combinations/Goodwill............................ (164) (25)
Intangible assets......................................... 3 (7)
Satellite space capacity leasing contracts................ 1 1
Reserves.................................................. (37) (14)
Loss Contingencies & others............................ (9) (15)
Decoders............................................... (29) 0
Soficas................................................ 0 1
Financial instruments..................................... (35) (28)
Pension plans and stock based compensation................ 2 1
Deferred tax.............................................. (2) (25)
Film distribution and broadcasting........................ (2) (0)
Tax effect on the above adjustments....................... 40 (1)
US GAAP NET INCOME.......................................... (90) (134)
</TABLE>
Basic and diluted earnings per share
For US GAAP purposes, basic earnings per share is computed in the same
manner as earnings per share under French GAAP by dividing net income by the
weighted average number of shares outstanding.
Diluted earnings per share reflects the potential dilution that would occur
if all securities and other contracts to issue ordinary shares were exercised or
converted. Net income represents the earnings of the Company after minority
interests. The computation of diluted earnings per share is as follows (in
E Millions, except earnings per share):
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net income.................................................. (90) (134)
Income before extraordinary items-diluted................... (90) (134)
Weighted average number of shares Outstanding-basic......... 126,044,962 125,574,624
Dilutive effect of:
Shares issuable on exercise of dilutive options...........
Shares purchased with proceeds of options and warrants.... 2,216,161 1,226,141
Shares applicable to warrants.............................
Weighted average number of shares
Outstanding-diluted......................................... 128,261,123 126,800,765
Earnings per share:
Basic..................................................... (0.71) (1.07)
Diluted..................................................... (0.71) (1.07)
</TABLE>
7.4 -- Presentation of the Balance Sheet and Income Statement in US GAAP
Format
For purposes of presenting a consolidated condensed balance sheet as of
June 30, 2000 and consolidated condensed income statements for the six month
period ended June 30, 2000 and June 30,
F-114
<PAGE> 475
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
1999 in a format consistent with US GAAP, the Company has reflected the
financial statement impact of those reconciling differences between French GAAP
and US GAAP presented in Note VII.
French GAAP defines exceptional items in a manner that differs from the
definition of extraordinary items under US GAAP. As a consequence, items
classified as exceptional for French GAAP purposes have been reclassified to the
appropriate income statement captions determined under US GAAP.
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED JUNE 30,
----------------
2000 1999
------ ------
(E MILLIONS)
<S> <C> <C>
NET SALES................................................... 1,854 1,544
Costs of sales.............................................. (1,409) (1,094)
Selling, general and administrative costs................... (457) (428)
OPERATING MARGIN............................................ (12) 22
Goodwill amortization....................................... (42) (34)
Other operating expenses and revenues....................... (70) (18)
OPERATING INCOME............................................ (124) (29)
Financial income............................................ (31) (30)
Other income................................................ 181 8
NET INCOME BEFORE TAXES, MINORITY INTEREST AND EQUITY
INTEREST.................................................. 26 (51)
Taxes....................................................... (70) (61)
NET INCOME BEFORE MINORITY INTEREST AND EQUITY INTEREST..... (44) (112)
Equity interest............................................. (46) (36)
Minority interest........................................... 0 (14)
NET INCOME.................................................. (90) (134)
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
2000
------------
(E MILLIONS)
<S> <C>
Current assets.............................................. 2,791
Long term assets............................................ 5,514
TOTAL ASSETS................................................ 8,305
Current liabilities......................................... 3,765
Long term liabilities....................................... 2,040
Minority interests.......................................... 214
Shareholder's equity........................................ 2,286
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................. 8,305
</TABLE>
7.5 -- Comprehensive income
The concept of comprehensive income does not exist under French GAAP. In US
GAAP, SFAS 130, "Reporting comprehensive income," defines comprehensive income
to include, net of tax impact
(in million of Euros):
- unrealized gains and losses on investment securities classified as
"available for sale,"
- foreign currency translation adjustments.
F-115
<PAGE> 476
CANAL+
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Net income for the period ended June 30, 1999............... (134)
Foreign currency translation adjustment..................... 3
Unrealized gains and (losses) on investment securities...... 31
COMPREHENSIVE INCOME FOR THE PERIOD ENDED JUNE 30, 1999..... (100)
Net income for the period ended June 30, 2000............... (90)
Foreign currency translation adjustment..................... 1
Unrealized gains and (losses) on investment securities...... (19)
COMPREHENSIVE INCOME FOR THE PERIOD ENDED JUNE 30, 2000..... (108)
</TABLE>
F-116
<PAGE> 477
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the shareholders of CANAL+:
We have audited the accompanying consolidated balance sheet of CANAL+ and
subsidiaries (together "the Company") as of December 31, 1999 and the related
consolidated statement of income for the year then ended. We have also audited
the information presented in Note IX, which includes the approximate effect of
the difference between accounting principles generally accepted in France and
the United States on the consolidated net income and shareholders' equity of
CANAL+ as of December 31, 1999 and 1998 and for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with French generally accepted
auditing standards that are substantially similar to those generally accepted in
the United States. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the management, as well as evaluating the overall financial statements'
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, (a) the financial position of CANAL+ and subsidiaries
as of December 31, 1999 and the results of their operations for the year then
ended in conformity with accounting principles generally accepted in France and
(b) the information with respect to accounting principles generally accepted in
the United States as of and for the years ended December 31, 1999 and December
31, 1998 set forth in the Note IX.
The accounting practices of the Company used in preparing the accompanying
financial statements vary in certain respects from accounting principles
generally accepted in the United States. A description of the significant
differences between the Company's accounting practices and accounting principles
generally accepted in the United States and the approximate effect of those
differences on consolidated net income and shareholders' equity for the two
years ended December 31, 1999 is set forth in Note IX to the consolidated
financial statements.
/s/ BARBIER FRINAULT & CIE
------------------------------------------------------
Barbier Frinault & Cie
A member firm of Arthur Andersen
/s/ RSM SALUSTRO REYDEL
------------------------------------------------------
RSM Salustro Reydel
Paris, France
March 8, 2000
(Except with respect to the matters discussed in Note IX as to which the date is
October 27, 2000)
F-117
<PAGE> 478
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the shareholders of CANAL+:
We have audited the accompanying consolidated balance sheets of CANAL+ and
subsidiaries (together "the Company") as of December 31, 1998 and the related
consolidated statements of income for each of the two years in the two year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with French generally accepted
auditing standards that are substantially similar to those generally accepted in
the United States. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the management, as well as evaluating the overall financial statements'
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CANAL+ and subsidiaries as
of December 31, 1998, and the results of their operations for each of the two
years in the two year period ended December 31, 1998 in conformity with
accounting principles generally accepted in France.
Paris, France
March 8, 2000
Statutory Auditors
/s/ Barbier Frinault & Cie
Barbier Frinault & Cie
A member firm of Arthur Andersen
/s/ RSM Salustro Reydel
RSM Salustro Reydel
F-118
<PAGE> 479
CANAL+
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
AT DECEMBER 31, 1998 1998
NOTES 1999 PROFORMA REPORTED
----- --------------- --------------- ---------------
(E MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Goodwill............................... 2.1 252 265 265
Intangible assets...................... 2.2 1,891 1,684 1,669
Tangible assets........................ 2.3 758 894 746
Investments in companies accounted by
the equity method.................... 2.4 97 98 98
Other investments...................... 2.5 790 673 810
Total non-current assets............... 3,789 3,614 3,589
Programs, broadcasting rights and other
inventories.......................... 2.6 760 438 329
Accounts receivable.................... 2.7 1,462 1,146 1,044
Prepaid expenses and deferred
charges.............................. 102 64 58
Cash and marketable securities......... 2.8 455 265 229
Current assets......................... 2,779 1,913 1,660
----- ----- -----
Total Assets................. 6,568 5,527 5,249
===== ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Common stock........................... 95 96 96
Additional paid-in capital and retained
earnings............................. 1,369 1,477 1,477
Net income for the year................ (336) (28) (28)
Total shareholders' equity............. 2.9 1,128 1,545 1,545
Minority interests..................... 2.10 61 54 88
Reserves for contingencies............. 2.11 604 430 705
Borrowings............................. 2.12 2,801 1,930 1,435
Subscribers' deposits and
prepayments.......................... 2.13 423 398 378
Trade payables......................... 2.14 1,420 1,092 1,021
Accrued expenses and deferred income... 2.15 131 78 77
Other liabilities...................... 4,775 3,498 2,911
----- ----- -----
Total Liabilities and
Shareholders' Equity....... 6,568 5,527 5,249
===== ===== =====
</TABLE>
F-119
<PAGE> 480
CANAL+
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE YEAR ENDED YEAR ENDED FOR THE
YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED
DECEMBER 31, 1998 1998 DECEMBER 31,
NOTES 1999 PROFORMA REPORTED 1997
----- ------------ ------------ ------------ ------------
(E MILLIONS)
<S> <C> <C> <C> <C> <C>
Subscriptions................... 2,613 2,253 1,921 1,561
Advertising and sponsoring...... 106 94 82 74
Other revenues.................. 572 491 472 437
Total revenues.................. 3.1 3,291 2,838 2,475 2,072
Cost of sales................... 3.2 (2,478) (2,189) (1,827) (1,525)
Gross margin.................... 813 649 648 547
General and administrative
expenses...................... 3.3 (836) (745) (597) (525)
Operating income................ 3.6 (23) (96) 51 22
Net interest income............. 3.7 (40) (38) (3) 8
Income from continuing
operations before tax......... (63) (134) 48 30
Income taxes.................... (22) 9 (32) (27)
Income from continuing
operations after tax.......... (85) (125) 16 3
Losses of companies accounted
for by the equity method...... 3.8 (69) (64) (123) (118)
Net income (loss) before
exceptional items and
amortization of
goodwill...................... (154) (189) (107) (115)
Minority interests.............. 3.9 18 32 18 22
Income from continuing
operations, after minority
interests..................... (136) (157) (89) (93)
Exceptional income (expense),
net of tax, after minority
interests..................... 3.11 (183) 144 76 340
Amortization of goodwill, after
minority interests............ (17) (15) (15) (14)
Net income...................... (336) (28) (28) 233
EBITDA.......................... 423 323 437 368
Primary earnings per share...... 1.11 (2.67) (0.22) (0.22) 1.98
Fully-diluted earnings per
share......................... 1.11 (2.66) (0.22) (0.22) 1.95
</TABLE>
F-120
<PAGE> 481
CANAL+
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE YEAR ENDED YEAR ENDED FOR THE
YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED
DECEMBER 31, 1998 1998 DECEMBER 31,
1999 PROFORMA REPORTED 1997
------------ ------------ ------------ ------------
(E MILLIONS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... (336) (28) (28) 233
Adjustments to reconcile net income to net cash
provided by operating activities
- Depreciation, amortization and provisions........ 866 372 426 481
- Net (gain)/loss on sales of assets............... (137) (93) (93) (443)
- Minority interests............................... (54) (33) (20) (26)
- Losses of companies accounted for by the equity
method........................................... 77 64 124 118
- Other............................................ (19) (4) (4) (13)
------ ------ ------ ------
Cash flow.......................................... 397 278 405 350
Changes in working capital items
- Change in programs, broadcasting rights and other
inventories...................................... (322) (110) (6) (48)
- Security deposits................................ 35 37 22 4
- Other............................................ (124) (62) 51 (123)
------ ------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES(A)....... (14) 143 472 183
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of: .................................. (960) (646) (622) (664)
- Intangibles...................................... (295) (265) (249) (191)
- Tangibles -- Decoders............................ (132) (246) (173) (171)
-- Others............................. (78) (56) (45) (37)
- Investments...................................... (455) (79) (155) (265)
Proceeds from the sale of: ........................ 84 297 297 40
- Tangible and intangible assets................... 17 7 7 17
- Investments...................................... 67 290 290 23
Net cash used in acquisitions and disposals of
subsidiaries..................................... (30) 157 35 (880)
------ ------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES(B)........... (906) (192) (290) (1,504)
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock
- CANAL+........................................... 11 2 2 1
- Minority interests............................... 121 67 10 41
Dividends paid to Parent Company shareholders...... (100) (96) (96) (9)
Dividends paid to minority interests in
subsidiaries..................................... 31 22 22 15
Increase in borrowings............................. 878 243 16 493
Repayment of borrowings............................ (398) (198) (183) (23)
------ ------ ------ ------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES(C).................................... 543 40 (229) 518
------ ------ ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH(D)......... (5) (1) (0) 9
------ ------ ------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS
(A+B+C+D)........................................ (382) (10) (47) (794)
------ ------ ------ ------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR(E).......................................... (567) (557) (557) 237
------ ------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR
(A+B+C+D+E)...................................... (949) (567) (604) (557)
------ ------ ------ ------
</TABLE>
F-121
<PAGE> 482
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I -- ACCOUNTING PRINCIPLES
1.1/ General Principles
The consolidated financial statements of CANAL+ have been prepared in
accordance with the French legal and regulatory provisions in effect.
NEW ACCOUNTING PRONOUNCEMENTS IN FRANCE
A new set of accounting standards set forth by the "Comite de la
Reglementation Comptable" in April 1999, covering the consolidation
methodologies applicable to consolidated financial statements will be effective
for fiscal years beginning on or after January 1, 2000. The Company does not
expect that the adoption of these new standards will have any material impact on
the Company's financial position or results of operations.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and the disclosures of contingent assets and
liabilities. Actual results could differ significantly from these estimates.
Significant estimates made by management in the preparation of these financial
statements include amounts for pension liabilities, deferred taxes, valuation
estimates for long-lived assets, total gross revenue on film and television
rights, as well as recorded and disclosed amounts for certain financial
instruments.
1.2/ Significant Events and Impact on Comparability of the Statements
1.2.1. Consolidation of TELE+ through the full consolidation method
Prior to 1999 the Company had sought for a strategic partner to acquire a
45% interest in Telepiu. Therefore this ownership interest was considered as
temporary and Telepiu was accounted for by the equity method. The Company was
committed to provide financing to Telepiu in order to fund its operating losses.
As a result, the Company has reported its equity in the Telepiu losses
irrespective of its investment. During 1999, the Company determined that it
would retain control of Telepiu and therefore has consolidated Telepiu
throughout the year.
The change in accounting method has no impact on the Company's consolidated
net income or shareholder's equity. In order to provide comparability of the
financial information, 1998 pro forma financial statements including Telepiu on
a consolidated basis have been presented.
No major change in consolidation took place in 1999, with the exception of
the increase in the TELE+ holding (a 9% net increase in the percentage held) and
the change in the consolidation method cited above.
1.2.2. Reporting of an extraordinary provision
In order to introduce the net-top-box (second generation digital set-top
boxes providing access to the Internet) more quickly, an extraordinary net tax
provision of E220 M was recorded in order to cover the accelerated rate of
depreciation of the current generation of digital set-top boxes. This provision
was calculated based on the assumption that the replacement of set-top boxes
will be completed on average by December 31, 2001 for the French, Italian and
Spanish markets. The basis for calculating the provision includes the currently
installed digital set-top boxes as well as those that will be provided to new
subscribers in 2000.
F-122
<PAGE> 483
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1.3/ Consolidation Principles
1.3.1. Basis of consolidation
All material companies in which CANAL+ has legal or effective control are
consolidated. In addition, the Company only consolidates the subsidiary if no
other shareholder or group of shareholders exercise substantive participating
rights, which would allow those shareholders to veto or block decisions taken by
the Company.
Significant investments in which CANAL+ has 20% to 50% ownership or
otherwise exercises significant influence are accounted for under the equity
method.
The Company uses the equity method of accounting for its investments in
certain subsidiaries in which it owns less than 20% of the voting shares. In
these situations, the Company exercises significant influence over the operating
and financial decisions of the subsidiary either (a) through a disproportionate
representation on the subsidiary's board of directors, e.g., the percentage of
directors appointed to the board by the Company is greater than the percentage
of its shareholding interest and those directors allow the Company to exercise
significant influence, and (b) because there is no other shareholder with a
majority voting ownership in the subsidiary, which is a consideration under
French accounting principles to determine whether significant influence exists,
or (c) because the Company exercises substantive participating rights, through
shareholders' agreements, that allow the Company to veto or block decisions
taken by the subsidiary board.
Of the 150 companies included in 1999 (151 in 1998), 118 were fully
consolidated (120 in 1998) and 32 were accounted for by the equity method (31 in
1998).
All other investments in affiliates, which are not consolidated, are
accounted for at cost.
Subsidiaries acquired are included in the consolidated financial statements
as of the acquisition date or the most recent balance sheet date. All material
intercompany transactions have been eliminated.
Changes in the scope of consolidation are indicated in paragraph VIII.
1.3.2. Basis of preparation
The consolidated financial statements of CANAL+ have been prepared in
accordance with accounting principles generally accepted in France ("French
GAAP"). The financial statements of foreign subsidiaries have, when necessary,
been adjusted to comply with French GAAP. French GAAP differs in certain
respects from accounting principles generally accepted in the United States. A
description of these differences and their effects on net income and
shareholders' equity is set forth in Note IX.
1.3.3. Goodwill
Goodwill represents the difference between the acquisition price of a
consolidated company and the Group's stake in the fair value of the underlying
net assets at the date of acquisition, after deduction of the items that can be
recorded as entries under assets and liabilities. Goodwill is recorded under
"Non-current assets" and amortized over a maximum of 20 years. Goodwill
representing small amounts is written off during the year.
The CANAL+ shares issued in 1997 in payment for the NetHold shares were
issued at a price of FRF 30 (par value FRF 20, plus a premium of FRF 10), in
order to limit differences between the consolidated financial statements and the
Company accounts, for an overall total of E28 million. The difference
between this total amount and the fair value (based on the market price) of the
NetHold shares acquired (E1,096 million) corresponds to the fraction of the
goodwill that could have been charged against the premium if the CANAL+ shares
had been issued at market price.
F-123
<PAGE> 484
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The goodwill arising on acquisition of CANAL+ Image (formerly UGC DA), in
an amount of E253 million, was written off against the related premium. If
this accounting treatment had not been applied, amortization of goodwill,
calculated over a 20-year period, would have been increased by E13 million.
1.3.4. Translation of financial statements and foreign currency
transactions
Translation of financial statements
The balance sheets and statements of income of subsidiaries whose
functional currency is different from that of the parent are translated into the
reporting currency at respectively the applicable year-end exchange rate and at
the average exchange rate during the year. Translation gains and losses are
recorded in other comprehensive income as a component of shareholders' equity,
or in minority interest as appropriate.
Foreign currency transactions
Foreign currency transactions are converted into the reporting currency at
the exchange rate on the transaction date. At year-end, receivables and payables
denominated in foreign currencies are translated into the reporting currency at
the year-end exchange rate. The resulting exchange gains and losses are expensed
in the current period earnings.
1.3.5. Accounting periods
All companies with different year-ends to that of the Group have been
consolidated on the basis of interim financial statements prepared at December
31. The results of companies acquired or sold during the year are consolidated
for the period subsequent to the date of acquisition or prior to the date of
sale.
1.3.6. Deferred Taxes
Deferred taxes are recorded in respect of temporary differences between the
book value and the tax value of assets and liabilities.
A deferred tax asset is recorded for the Group's equity in the losses of
foreign subsidiaries. This asset is calculated at the current tax rate in the
case of companies that have reached the breakeven point and at a reduced rate in
other cases. The amount recognized is limited to deferred tax assets that can
reasonably be expected to lead to a tax benefit in the foreseeable future.
In accordance with the liability method of accounting for deferred taxes,
the effect of any changes in tax rates on the deferred taxes recorded in prior
years is reflected in the income statement for the year in which the change in
tax rate becomes certain.
In view of the time limit for the utilization of tax losses incurred by the
NetHold Group prior to its acquisition by CANAL+, deferred tax assets have been
recognized (at a reduced rate) only for potential tax savings arising form
post-acquisition losses.
1.4/ Films and Screening Rights of Production and Rights Management
Subsidiaries
The film rights held by the production subsidiary Le Studio CANAL+ are
capitalized as intangible assets pro rata to the advances paid to the producers
or holders of rights.
The total cost is accounted for upon completion of filming (in the case of
coproductions), or when the screening certificate is obtained (in those cases
where screening rights are acquired). The capitalized cost of coproduced films
financed by debt includes the related interest expense.
F-124
<PAGE> 485
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Film costs are amortized at a rate based on the ratio between actual net
receipts to date and estimated total net receipts. The estimates of total
receipts are reviewed periodically by management and adjusted, where applicable,
to reflect actual receipts. If anticipated total net receipts represent less
than the cost of the film, a reserve is set up for the difference.
Screening rights are amortized on the same basis.
1.5/ Leases
When significant, capital leases are recorded as an asset and an
obligation. The capitalized value of the lease is equal to the value of the
asset at the inception of the lease and is amortized by the straight-line
method. The obligation, representing minimum lease payments over the term of the
lease, is included in borrowings and the fraction of the lease payments
corresponding to principal repayments is treated as a reduction of debt.
1.6/ Investments
Non-consolidated investments are stated at cost. If the fair value of an
investment falls below cost, an allowance is recorded for the difference. Fair
value is determined in particular on the basis of comparisons with similar
securities or the outlook for future earnings.
1.7/ Programs and Broadcasting Rights of Premium Channels
"Programs and broadcasting rights," which are recorded under inventory,
include:
- Purchased broadcasting rights (after technical acceptance by the channels
of the copy received), excluding rights that have expired and rights
related to programs that have already been broadcast.
- Programs produced by the Company that have not yet been broadcast.
- Programs in the process of being acquired or produced, for which the copy
has not yet received the channels' technical acceptance. These programs
are valued on the basis of the expenditure incurred or advances paid up
to the year-end.
Programs are taken out of "inventory" when first broadcast.
1.8/ Marketable securities
Marketable securities include CANAL+ treasury shares and other highly
liquid investments. CANAL+ treasury shares are classified as marketable
securities when they are acquired to stabilize the market price of CANAL+ shares
or in connection with stock options granted to directors and employees. Treasury
shares held for other reasons are recorded as a reduction to shareholders'
equity. Marketable securities are carried at cost, and a valuation allowance is
provided if the fair value is less than the carrying value.
1.9/ Subscriptions
Subscription revenue is determined on the basis of the number of
subscribers served during the month.
Prepaid subscriptions are included in current liabilities, under
"Subscribers' deposits and prepayments."
The future liability in respect of subscriptions paid by standing order and
the corresponding subscriptions not yet collected are included in "Commitments."
F-125
<PAGE> 486
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1.10/ Decoders
Decoders are depreciated on a straight-line basis over their estimated
useful life of 5 years beginning in the month they are installed. In February
2000, a strategic decision was made to undertake their replacement of the
digital decoders in use with a new generation offering Internet access. As a
consequence an extraordinary provision in the amount E220 million, net of
tax was recorded for the estimated loss resulting from the future disposition of
the related assets before the end of their expected useful life. The provision
is reflected in the consolidated financial statement under the heading
"Extraordinary income net of tax".
1.11/ Earnings Per Share
Primary consolidated (loss)/earnings per share, amounting to E(2.67)
in 1999, is calculated on the basis of the weighted average number of shares
outstanding during the year.
Diluted earning per share is calculated after taking into account the
weighted average number of shares that would be issued assuming full conversion
of convertible bonds and full exercise of stock options.
This calculation also takes into account the resulting saving in interest
expense, net of tax. Fully diluted (loss)/earnings per share amounted to
E(2.66) in 1999.
Owing to the 4-for-1 stock split in 1999, the 1997 and the 1998 pro forma
net loss per share was divided by 4.
1.12/ Management of Financial Risk
CANAL+ has developed and set up procedures for identifying and controlling
different financial risks (foreign currency exchange risk and rate risk) that
the Company is exposed to and to this end took the following steps:
- consolidated exposure to financial risks and realized netting of
fluctuations;
- set up management procedures within the Group to handle these risks;
- set limits to and controlled the risks encountered;
- utilized adopted derivative products, such as futures contracts, swaps,
and options.
1.13/ Research and Development Expenses
Expenses for research and development are recorded under charges.
II -- NOTES TO THE CONSOLIDATED BALANCE SHEET
2.1/ Goodwill
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS OF
EUROS)
<S> <C> <C>
Gross....................................................... 336 332
Amortization................................................ (84) (67)
--- ---
Net......................................................... 252 265
=== ===
</TABLE>
F-126
<PAGE> 487
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The breakdown of goodwill by company is as follows:
<TABLE>
<CAPTION>
AMORTIZATION AMORTIZATION 1999 1998
COMPANY PERIOD GROSS AND PROVISIONS NET NET
------- ------------ ----- -------------- ---- ----
(IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C> <C>
CANAL+ Europe (NetHold)...................... 20 183 (25) 158 167
CANALSATELLITE............................... 20 63 (6) 57 60
Numericable.................................. 20 24 (6) 18 19
Antennes Tonna............................... -- 20 (20) -- --
TV Sport..................................... 20 9 (5) 4 5
ESO.......................................... -- 6 (6) -- --
Films Alain Sarde............................ 15 3 (2) 1 1
La SESE...................................... 6 3 (3) -- --
Other........................................ -- 25 (11) 14 13
-- --- --- --- ---
Total........................................ 336 (84) 252 265
== === === === ===
</TABLE>
There is no significant variation in goodwill, except for:
- The difference in comparison with the first consolidation stems from the
increased stake in TELE+ (10%), all of which was recorded in "intangible
assets."
- The additional 14% investment in the capital of CANALSATELLITE, which is
being held temporarily (transfer to Lagardere is expected in 2000,
following the agreement signed in January 2000), has not been
consolidated.
F-127
<PAGE> 488
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2.2/ Intangible Assets
Significant changes in intangible assets can be analyzed as follows:
<TABLE>
<CAPTION>
COPRODUCTION/ ADVANCES ON OTHER
DELEGATED BROADCASTING COPRODUCTIONS IN INTANGIBLE
PRODUCTION RIGHTS PROGRESS ASSETS TOTAL
------------- ------------ ---------------- ---------- ------
(IN MILLIONS OF E)
<S> <C> <C> <C> <C> <C>
Gross reported at December 31,
1998......................... 803 1,002 137 1,008 2,950
Impact of consolidation of
TELE+........................ -- -- -- 28 28
---- ----- ---- ----- ------
Pro forma gross at December 31,
1998......................... 803 1,002 137 1,036 2,978
==== ===== ==== ===== ======
Acquisitions/production........ 81 57 157 13 308
Disposals/write-offs........... (2) (7) (7) (9) (25)
Reclassifications*............. 66 34 (116) 9 (7)
Effect of changes in scope of
consolidation................ 15 (6) 1 134** 144
Effect of merger............... -- -- -- 5 5
---- ----- ---- ----- ------
Effect of exchange rate
fluctuations................. -- 16 -- -- 16
---- ----- ---- ----- ------
Gross at December 31, 1999..... 963 1,096 172 1,188 3,419
Amortization................... (885) (550) (13) (80) (1,528)
Net at December 31, 1999....... 78 546 159 1,108 1,891
==== ===== ==== ===== ======
</TABLE>
---------------
* Reclassifications correspond mainly to transfers from "Advances on
coproductions in progress" to "Coproductions/delegated productions" and
"Broadcasting rights."
** The acquisition of an additional 10% in capital of TELE+ in July 1999, then
the transfer of 0.852% to RAI are recorded in "Effect of change in the scope
of consolidation for E134 million".
The cost of the films coproduced with Le Studio CANAL+ amounted to
E464 million at December 31, 1999, including E16 million in interest
expense capitalized in prior years and E2 million capitalized in 1999.
As of December 31, 1999, the production cost of films produced and
delivered during the year totaled the E35 million for the Ellipse Group,
compared to E23 million for CANAL+.
The increase in advances on coproductions in progress concerns Le Studio
CANAL+ (E96 million), the Ellipse Group (E17 million), and CANAL+
(E18 million). "Other intangible assets" are primarily made up of the
intangibles recorded from the TELE+ acquisition (E1,068 million at
December 31, 1999, compared to E934 million at December 31, 1998).
F-128
<PAGE> 489
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in amortization:
<TABLE>
<CAPTION>
COPRODUCTION/ ADVANCES ON OTHER
DELEGATED BROADCASTING COPRODUCTIONS INTANGIBLE
PRODUCTION RIGHTS IN PROGRESS ASSETS* TOTAL
------------- ------------ ------------- ---------- -----
(IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C> <C>
Accumulated amortization on December 31,
1998.................................... 737 471 11 62 1,281
Amortization of TELE+..................... -- -- -- 13 13
--- --- -- -- -----
Pro forma amortization on December 31,
1998.................................... 737 471 11 75 1,294
--- --- -- -- -----
Charge for the year....................... 154 86 2 10 252
Reversals of amortization on disposals.... (18) (5) (1) (7) (30)
Reclassifications......................... -- (2) 1 2 1
Effect of changes in scope of
consolidation........................... 12 (5) -- -- 6
Effect of exchange rate fluctuations...... -- 5 -- -- 5
--- --- -- -- -----
Accumulated amortization at December 31,
1999.................................... 885 550 13 80 1,528
--- --- -- -- -----
</TABLE>
---------------
* Intangibles recorded at the time of the purchase of TELE+ were not amortized.
Most of the other intangible long-term assets were amortized over a period
between three and five years.
2.3/ Tangible Assets
Significant changes in tangible assets can be analyzed as follows:
<TABLE>
<CAPTION>
LAND/
BUILDINGS EQUIPMENT OTHER TANGIBLES DECODERS TOTAL
--------- --------- --------------- -------- ------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C> <C>
GROSS AT DECEMBER 31, 1998................... 207 516 118 939 1,779
Effect of TELE+ consolidation................ 8 104 -- 147 259
--- ---- --- ------ ------
PRO FORMA GROSS AT DECEMBER 31, 1998......... 215 620 118 1,086 2,038
--- ---- --- ------ ------
Acquisitions/creations....................... 7 51 35 139 232
Disposals/scrapping.......................... -- (5) (5) (4) (14)
Reclassifications............................ 1 8 7 -- 18
Effect of changes in scope of
consolidation.............................. -- -- (2) -- (2)
--- ---- --- ------ ------
Goodwill..................................... -- 2 -- -- 2
--- ---- --- ------ ------
Gross at December 31, 1999**................. 223 676 153 1,221 2,273
Accumulated depreciation..................... (52) (477) (73) *(913) (1,515)
Net at December 31, 1999..................... 171 199 80 308 758
--- ---- --- ------ ------
</TABLE>
---------------
* Includes E168 million in provisions for changing the fleet of current digital
decoders.
** The value of goods acquired by lease increased to E148 million for land and
buildings, to E216 million for technical material and to E638 million for
decoders.
F-129
<PAGE> 490
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation:
<TABLE>
<CAPTION>
LAND/ OTHER TANGIBLE
BUILDINGS EQUIPMENT ASSETS DECODERS TOTAL
--------- --------- -------------- -------- -----
(IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C> <C>
Accumulated depreciation at December
31, 1998............................. 42 371 62 557 1,032
Effect of TELE+ consolidation.......... 3 67 -- 42 112
-- --- -- ---- -----
Pro forma depreciation on December 31,
1998................................. 45 438 62 599 1,144
-- --- -- ---- -----
Charge for the year.................... 7 43 14 *323 387
Reversals of depreciation on
disposals............................ -- (5) (3) (9) (17)
Effect of changes in scope of
consolidation........................ -- -- (1) -- (1)
-- --- -- ---- -----
Goodwill............................... -- 1 -- -- 2
-- --- -- ---- -----
Accumulated depreciation at December
31, 1999............................. 52 477 72 913 1,515
</TABLE>
---------------
* Includes E168 million in provisions for building up the fleet of current
digital decoders.
Depreciation is charged by the straight-line method over estimated useful
lives, as follows:
<TABLE>
<S> <C>
- Buildings................................................. 30 years
- Improvements.............................................. 8 years
- Technical facilities and equipment........................ 5 years
- Decoders (Syster, Mediasat)............................... 5 years
- Other..................................................... 2 to 10 years
</TABLE>
NC Numericable's concession networks are depreciated over the life of the
concession (20 years average).
2.4/ Investments in Companies Accounted for by the Equity Method
This item corresponds to CANAL+'s share in the net assets of companies
accounted for by the equity method. Investments in companies with negative net
equity are recorded on the liabilities side of the consolidated balance sheet,
under "Reserves for contingencies."
Investments recorded under assets can be analyzed as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS OF
EUROS)
<S> <C> <C>
Sogecable................................................... 40 33
Financiere On Line (AOL).................................... 22 31
PSG......................................................... 7 7
CANAL+ Belgium.............................................. 6 6
Multithematiques............................................ -- 5
Nagra+...................................................... 2 3
Other....................................................... 20 13
-- --
Total............................................. 97 98
== ==
</TABLE>
F-130
<PAGE> 491
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments recorded under liabilities are as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
TELE+ (90%)................................................. -- -- 301
Canal Digital............................................... 16 33 33
CANAL+ Poland............................................... 5 28 28
MDO......................................................... 12 14 14
Sedat....................................................... 8 6 6
Cine Classics BV............................................ -- 6 6
Other....................................................... 13 10 10
-- -- ---
Total............................................. 55 97 398
== == ===
</TABLE>
2.5/ Other Investments
Other investments include shares in non-consolidated companies and any
loans related to these investments. They can be analyzed as follows at December
31, 1999:
<TABLE>
<CAPTION>
1998 1998
1999 1999 1999 PRO FORMA REPORTED
% INTEREST COST PROVISIONS NET NET NET
---------- ---- ---------- ----- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C> <C> <C>
Mediaset........................... 3.5% 143 -- 143 269 269
Television Holding S.A.**.......... 100.0% 86 -- 86 -- --
(10% of CANALSATELLITE)
CANALSATELLITE..................... 4.0% 65 -- 65 -- --
MCM Euromusique.................... 19.998% 11 -- 11 11 11
Other.............................. -- 27 (7) 20 47 47
--- --- --- --- ---
Total.............................. 332 (7) 325 327 327
Loans related to interests in
companies and other
investments*..................... 487 (22) 465 346 484
--- --- --- --- ---
Total.............................. 819 (29) 790 673 810
=== === === === ===
</TABLE>
---------------
* The increase under this heading corresponds in particular to the increase in
Television Holding Loan to E75 million and to the increase in the PSG
Football advance for E37 million.
** CANAL+ investment in Television Holding S.A. is considered to be temporary
since Management determines that it would sell this investment within a year.
Accordingly this investment has been accounted for at cost.
The decrease in Mediaset shares is a result of convertible bond exchanges
that took place during the 1999 fiscal year.
The E137 million difference between the 1998 reported amount of loans
related to investments and the 1998 pro forma amount is due to the level of
advances granted to TELE+ and eliminated in the framework of the total
consolidation method.
F-131
<PAGE> 492
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2.6/ Inventories
Inventories may be analyzed as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Motion pictures.......................................... 267 218 218
Television productions................................... 466 195 92
Other.................................................... 37 37 31
--- --- ---
Gross.................................................... 770 450 341
Allowances............................................... (10) (12) (12)
--- --- ---
Net...................................................... 760 438 329
=== === ===
</TABLE>
The increase in program inventory is due to the TELE+'s acquisition of
broadcasting rights for Italian soccer matches (Juventus, Milan, 1st and 2nd
division) and the acquisition of the right for five years to exclusive royalties
from derivative products of France's largest soccer teams.
2.7/ Trade Receivables
Trade receivables can be analyzed as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Subscriber.............................................. 220 147 80
Other trade receivables................................. 581 476 444
Tax receivables......................................... 246 166 146
Deferred tax assets..................................... 371 231 163
Other receivables....................................... 144 240 249
----- ----- -----
Gross................................................... 1,562 1,260 1,082
Allowances.............................................. (100) (114) (38)
----- ----- -----
Net..................................................... 1,462 1,146 1,044
===== ===== =====
</TABLE>
The increase in subscribers is primarily attributable to TELE+; the
increase in other receivables comes from sales from Sport+ (E65 million)
increased deferred tax assets, and from tax credits accounted for in the
provisions related to digital set-top boxes (E69 million).
Conversely, the receipt of E54 million in payment from Exante in early
January 1999 for the subscribed capital increase for NC NumeriCable decreased
receivables under "Other."
F-132
<PAGE> 493
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2.8/ Marketable Securities, Cash, and Net Cash and Cash Equivalents
These items can be analyzed as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
------ --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Company stock.......................................... 13 -- --
Mutual fund units (FCP and SICAV)...................... 74 71 71
Other*................................................. 192 10 10
Provisions............................................. (1) (1) (1)
------ ---- ----
Marketable securities.................................. 278 80 80
------ ---- ----
Cash................................................... 177 185 149
Total.................................................. 455 265 229
Short-term bank borrowings............................. (826) (446) (446)
Bank credit accounts................................... (578) (387) (387)
Cash credit............................................ (1,404) (833) (833)
Net cash and cash equivalents.......................... (949) (568) (604)
====== ==== ====
</TABLE>
---------------
* Including E190 million in Vivendi shares received on the occasion of the
Pathe/Vivendi merger.
The company did not carry out any speculative transactions during the year
and did not have any material positions in new financial instruments at the
year-end.
The company carried out two transactions that securitized receivables from
the subscriber bases of CANAL+ and CANALSATELLITE in the amounts of E263 million
and E103 million, respectively. The offset of the amounts received from these
transactions appears in "Borrowings."
F-133
<PAGE> 494
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2.9/ Consolidated Shareholders' Equity
At December 31, 1999, the capital of the parent Company was represented by
125,953,464 shares with a par value of E0.75.
<TABLE>
<CAPTION>
GROUP
ADDITIONAL CUMULATIVE SHARE-
NUMBER COMMON PAID-IN RETAINED TRANSLATION HOLDERS'
OF SHARES STOCK CAPITAL EARNINGS* ADJUSTMENT EQUITY
----------- ------ ---------- --------- ----------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996................. 24,581,784 75 689 684 (5) 1,443
1997 consolidated net income......... -- -- -- 233 -- 233
NetHold shares contributed........... 6,142,532 19 2 -- -- 21
Stock dividends...................... 614,043 2 83 (93) -- (8)
Exercise of stock options............ 21,917 -- 3 -- -- 3
Adjustment of goodwill on OPE
UGC DA acquisition................... -- -- (31) -- -- (31)
Translation adjustment............... -- -- -- -- (2) (2)
----------- --- --- ---- -- -----
At December 31, 1997................. 31,360,276 96 746 824 (7) 1,659
1998 consolidated net income......... -- -- -- (28) -- (28)
Exercise of stock options............ 16,347 -- 2 -- -- 2
UGC DA conversion options............ 8,500 -- 1 -- -- 1
Translation adjustment............... -- -- -- -- 7 7
Cash dividends....................... -- -- -- (96) -- (96)
----------- --- --- ---- -- -----
At December 31, 1998................. 31,385,123 96 749 700 -- 1,545
After stock splits................... 125,540,492 96 749 700 -- 1,545
----------- --- --- ---- -- -----
1999 consolidated net income......... -- -- -- (336) -- (336)
Exercise of stock options............ 412,972 -- 11 -- -- 11
UGC DA conversion options............ -- -- 1 -- -- 1
Conversion of common stock in E...... -- (1) -- 1 -- --
Translation adjustment............... -- -- -- -- 7 7
Cash dividends....................... -- -- -- (100) -- (100)
----------- --- --- ---- -- -----
At December 31, 1999................. 125,953,464 95 761 265 7 1,128
=========== === === ==== == =====
</TABLE>
---------------
* Including net income/(loss) for the year.
In 1999, the total E100 million dividend was paid in cash.
F-134
<PAGE> 495
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2.10/ Minority Interests
Changes in minority interests can be analyzed as follows:
<TABLE>
<CAPTION>
CHANGE IN THE MINORITY INTERESTS
AT JANUARY 1, SCOPE OF IN 1999 OTHER AT DECEMBER 31,
1999 CONSOLIDATION NET INCOME* CHANGES 1999
------------- ------------- ------------------ ------- ---------------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C> <C> <C>
Antennes Tonna............... 12 -- (2) -- 10
Le Studio CANAL+............. (3) -- -- -- (3)
Groupe CANAL+ Horizons....... (2) 2 -- -- --
Ellipse Programme............ (2) -- -- -- (2)
CANALSATELLITE............... 3 -- (38) 11 (24)
CANAL+ DA.................... 52 -- 1 6 59
Ste Expl. Chaine Comedie..... (1) 1 -- -- --
CANAL+ Image................. 17 -- -- -- 17
Numericable.................. 12 -- (6) -- 6
Other companies.............. (1) -- (1) 1 (1)
--- --- --- --- ---
Total........................ 87 3 (46) 18 62
--- --- --- --- ---
TELE+**...................... (33) 40 (8) -- (1)
--- --- --- --- ---
Pro forma.................... 54 43 (54) 18 61
--- --- --- --- ---
</TABLE>
---------------
* This entry represents interests outside of the Company.
** The change in scope of consolidation for TELE+ is a result of the acquisition
of all the minority interests held and the transfer of 0.852% to RAI at the
end of December 1999.
2.11/ Reserves for Contingencies
Reserves for contingencies are calculated based on the assessment of risks
existing at the close of each period.
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Risks relating to decoders.................................. 14 8 8
Risks relating to digital transmission...................... 9 9 9
Provisions for changing the fleet of digital decoders....... 150
Investments in companies with negative equity............... 115 63 63
Risks relating to screening and broadcasting rights......... 67 51 51
CANAL+ Europe restructuring................................. 19 26 26
Other provisions for risks and disputes..................... 175 176 149
Companies accounted for by the equity method with negative
equity.................................................... 55 97 398
--- --- ---
Total............................................. 604 430 705
=== === ===
</TABLE>
In accordance with generally accepted accounting principles, the Group's
investment in companies accounted for by the equity method that have negative
shareholders' equity is recorded under reserves for contingencies. These
reserves totaled E55 million at December 31, 1999.
The provisions for contingencies went from E430 million at December 31,
1998 to E604 million at the end of December 1999, an increase of E174 million.
The increase stems from the provision for changing
F-135
<PAGE> 496
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the fleet of digital decoders (E150 million) and the increase in provisions for
interests in companies (Poland). Additionally, the reduction in interests
accounted for by the equity method comes from the recapitalization of companies
in which the net situation was negative (Canal Digital in Nordic countries and
CANAL+ in Poland).
2.12/ Borrowings
2.12.1. Analysis by category
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
(IN MILLIONS OF E)
<S> <C> <C> <C>
Spot market borrowings...................................... 826 446 446
Short-term bank borrowings for operations................... 578 387 *387
Bank borrowings and comparable items........................ 1,404 833 833
----- ----- -----
Bonds....................................................... 589 342 342
Leasing..................................................... 285 258 164
Advances to companies accounted for by the equity method or
non-consolidated.......................................... 33 65 60
Other....................................................... 490 432 36
----- ----- -----
Total borrowings............................................ 2,801 1,930 1,435
===== ===== =====
</TABLE>
---------------
* Bank borrowings in 1998 include E106 million in checks issued and not
yet collected.
The increase under "Short-term bank borrowings" stems from CANAL+'s
commitment on December 1, 1999 in a transaction lending the VIVENDI shares in
its portfolio. The loan amount is E245 million and matures on April 1, 2000.
The increase under "Bonds" mainly represents the 1999 TELE+ bond offering
for E350 million, which bears 5.625% annual interest and matures on July
29, 2004. Additionally, on March 1, 1999, CANAL+ introduced a zero-coupon bond
for E53 million redeemable on March 2, 2009, and indexed to its own share
price. The risk relating to indexing has been covered since issuance by a swap
transaction substituting the index effect for a variable interest rate (EURIBOR
[European Interbank Offered Rate] less 27 basis points).
Additionally, on April 1, 1997 CANAL+ issued E338 million worth of
3.5% bonds due April 1, 2002. The bonds are exchangeable for ITL 1,000 par value
shares in the Italian television company Mediaset SpA, on the basis of 341.74014
Mediaset shares per FRF 10,000 bond, in the event that certain events occur,
including transactions affecting Mediaset's capital. CANAL+ has the option of
making a cash payment to bondholders who present their bonds for exchange, in an
amount corresponding to the market price of the Mediaset shares. The bonds are
exchangeable up to March 18, 2002. They may be redeemed in advance, at CANAL+'s
initiative, at any time on or after April 1, 2001.
The balance of this bond amounts to E182 million after taking into
account redemptions already made.
On May 5, 1999, CANAL+ introduced a transaction securitizing its
receivables from its subscriber base for a four-year period, in order to
diversify and securitize its financial debt. The arrangement's distinctive
feature is the utilization of privileged interests in a partnership (E42
million) for and on behalf of a standard oversizing. In this manner, even while
carrying E305 million in financing, the transaction is economically
identical to the four-year, E263 million bond at the EURIBOR rate.
F-136
<PAGE> 497
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CANALSATELLITE also securitized receivables from its subscribers in a E103
million transaction on December 27, 1999. This transaction matures on September
30, 2000.
2.12.2. Analysis of borrowings by maturity
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Due within one year..................................... 1,700 1,104 931
2000.................................................... -- 272 18
2001.................................................... 62 87 19
2002.................................................... 233 21 21
2003.................................................... 304 -- --
Beyond.................................................. 502 446 446
Total due beyond one year............................... 1,101 826 504
----- ----- -----
Total................................................... 2,801 1,930 1,435
===== ===== =====
</TABLE>
At December 31, 1999, future minimum lease payments due under finance
leases concerning the headquarters building were as follows:
<TABLE>
<CAPTION>
TOTAL
------------
(IN MILLIONS
OF EUROS)
<S> <C>
2000........................................................ 7
2001........................................................ 8
2002........................................................ 9
2003........................................................ 9
2004 to 2008................................................ 38
--
Total....................................................... 71
==
</TABLE>
Upon expiry of the finance lease, the headquarters building will be
acquired for FRF 1.
At December 31, 1999, future minimum lease payments due under NC
Numericable Group finance leases were as follows:
<TABLE>
<CAPTION>
NC
TELE + NUMERICABLE TOTAL
------ ----------- -----
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
2000................................................... 40 10 50
2001................................................... 41 12 53
2002................................................... 28 15 43
2003................................................... 8 16 24
2004 to 2008........................................... -- 44 44
--- -- ---
Total.................................................. 117 97 214
=== == ===
</TABLE>
F-137
<PAGE> 498
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2.12.3. Analysis of borrowings by currency
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA STATED
----- --------- ------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
French franc.............................................. 1,538 1,364 1,364
Euro...................................................... 1,068 -- --
Millions of Italian lira.................................. 174 495 --
US dollar................................................. 5 13 13
Deutschmark............................................... -- 18 18
Pound sterling............................................ 15 23 23
Dutch gilder.............................................. -- 11 11
Other..................................................... 1 6 6
----- ----- -----
Total..................................................... 2,801 1,930 1,435
===== ===== =====
</TABLE>
2.12.4. Analysis of borrowings by interest rate
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Fixed rate.............................................. 549 357 357
Variable rate........................................... 2,000 1,396 909
Checks issued and not yet collected..................... 106 169 169
Other................................................... 146 8 --
----- ----- -----
Total interest-bearing debts............................ 2,801 1,930 1,435
----- ----- -----
Average fixed rate*..................................... 5.57% 3.63% 3.63%
Average variable rate................................... 3.76% 4.07% 3.43%
Average rate on December 31............................. 4.15% 3.98% 3.48%
----- ----- -----
</TABLE>
---------------
* The interest rate swap set up in 1997, covering part of the Group's bond debt,
was canceled in 1998 and the debt restated to fixed rate.
2.13/ Subscribers' Deposits and Prepayments
This item can be analyzed as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Prepaid subscriptions.................................... 18 28 28
Security deposits received............................... 405 370 350
--- --- ---
Total.................................................... 423 398 378
=== === ===
</TABLE>
F-138
<PAGE> 499
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2.14/ Trade Payables and Other Liabilities
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Trade payables.............................................. 853 637 527
Accrued taxes and payroll expenses.......................... 238 151 148
Due to suppliers of property................................ 105 89 89
Deferred taxes.............................................. 100 104 104
Other....................................................... 124 111 153
----- ----- -----
Total....................................................... 1,420 1,092 1,021
===== ===== =====
</TABLE>
"Trade payables and other liabilities" increased E328 million due to the
increase in taxes for 1999 compared to 1998 and due to new commitments for
sports (soccer) and movies.
This increased tax liability stems from the transformation into
corporations of non-profit making, fiscally transparent companies
(CANALSATELLITE and NC Numericable) that allowed for a decrease in taxes paid by
CANAL+ in 1998.
2.15/ Prepaid Expenses and Deferred Charges, Accrued Expenses and Deferred
Income
Under assets, this item includes on the one hand, E72 million in prepaid
expenses, and on the other hand, E30 million in deferred charges.
Under liabilities, this item includes E131 million in deferred income.
Deferred income primarily corresponds to sales of motion pictures for which the
related screening authorization had not been obtained at the year-end or the
related technical equipment had not been delivered to the customer.
III -- NOTES TO THE CONSOLIDATED INCOME STATEMENT
3.1/ Revenues
Revenues can be analyzed as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Subscriptions........................................... 2,613 2,253 1,921
----- ----- -----
CANAL+.................................................. 1,372 1,308 1,308
TELE+................................................... 453 333 --
CANALSATELLITE.......................................... 446 311 312
NC Numericable.......................................... 125 117 117
CANAL+ Nordic........................................... 88 68 68
CANAL+ Netherlands...................................... 67 57 57
CANAL+ Flanders......................................... 54 51 51
Other................................................... 8 8 8
----- ----- -----
Advertising and sponsoring.............................. 106 94 82
----- ----- -----
CANAL+.................................................. 80 76 76
TELE+................................................... 18 12 --
Other................................................... 8 6 6
----- ----- -----
Production and rights management........................ 365 327 327
----- ----- -----
</TABLE>
F-139
<PAGE> 500
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
SUBSIDIARIES DIVISION................................... 292 327 327
Ellipse Program......................................... 89 119 119
CANAL+ Image............................................ 56 85 85
CANAL+ DA............................................... 38 31 31
Le Studio CANAL+........................................ 90 66 66
CANAL+ Video............................................ 7 12 12
Other................................................... 12 14 14
SPORT +*................................................ 73 -- --
----- ----- -----
Other revenue........................................... 207 164 145
----- ----- -----
Antennes Tonna.......................................... 40 40 40
TELE+................................................... 36 20 --
CANAL+.................................................. 34 34 35
CANALSATELLITE.......................................... 26 15 15
CANAL+ Technology**..................................... 15 -- --
CANAL+ Horizons......................................... 14 13 13
CANAL Pro............................................... 8 12 12
Other................................................... 34 30 30
----- ----- -----
Total................................................... 3,291 2,838 2,475
===== ===== =====
</TABLE>
---------------
* Sport+ had revenues of E73 million, which come from sales of
international TV rights for the Italian soccer championship and the United
Kingdom's First League, among other sources.
** CANAL+'s Mediahighway was finalized in October 1999 with the creation of
CANAL+ Technology, which realized E15 million in third quarter revenue.
Revenue from France represented 71.7% of consolidated revenue in 1999,
compared to 76.1% in 1998 (pro forma revenue).
CONSOLIDATED REVENUES BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
1998
1999 PRO FORMA 1997
----- --------- -----
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
France................................................... 2,359 2,160 1,846
Italy.................................................... 510 371 9
Flemish Belgium.......................................... 61 59 37
Netherlands.............................................. 84 66 41
Nordic countries......................................... 100 72 43
Africa................................................... 20 17 17
Other.................................................... 157 93 79
----- ----- -----
3,291 2,838 2,072
===== ===== =====
</TABLE>
F-140
<PAGE> 501
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3.2/ Cost of Sales
For the pay-television channels, cost of sales includes:
- Variable subscription costs (copyrights, decoder, depreciation,
subscriber-base management costs).
- Subscriber acquisition costs (sales commissions, marketing campaigns);
- Variable advertising costs (copyrights and advertising tax); and
- Program costs (broadcasting of purchased or internally-produced
programs).
For movie and television production and distribution subsidiaries, cost of
sales includes:
- Distribution fees and
- Amortization and write-downs of screening and broadcasting rights.
3.3/ Selling, General and Administrative Expenses
Selling, general and administrative expenses include:
- Advertising and promotional expenses (billboard campaigns, marketing);
- Satellite transponder rentals;
- Payroll expenses (other than for employees assigned to program production
and the Call Center);
- General and administrative expenses (occupancy costs, overheads); and
- Amortization of headquarters expenses.
3.4/ Payroll Expenses
Payroll expenses totaled E355 million in 1999 versus E332 million in the
previous year's pro forma. The 7% increase was primarily attributable to the
addition of 231 permanent employees on the payroll of CANAL+ SA.
3.5/ Depreciation, Amortization and Provisions
Net depreciation, amortization and provision charges, included in "Costs of
sales" and "Selling, general and administrative expenses" can be analyzed as
follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA RECORDED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Cost of sales............................................ 374 370 346
Depreciation of decoders............................ 153 131 121
Amortization and write-downs of screening and
broadcasting rights............................... 197 216 216
Other allowances and reversals, net................. 24 23 9
Selling, general and administrative expenses............. 72 49 40
Amortization and allowances, net.................... 72 49 40
--- --- ---
Total.................................................... 446 419 386
=== === ===
</TABLE>
The amount of amortization and write-downs of screening and broadcasting
rights decreased 9% compared to 1998; this amount correlates to the 10% decline
in revenue for the Subsidiaries division.
F-141
<PAGE> 502
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3.6/ Operating Income
Consolidated operating income amounted to E(23) million in 1999, versus
E(96) million in 1998 pro forma.
3.7/ Net Interest (Expense)/Income
Net interest (expense)/income can be analyzed as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Income from short-term investments....................... 7 8 8
Income from investments in non-consolidated companies.... 34 31 32
Interest expense......................................... (82) (74) (40)
Other income (expense), net.............................. 1 (2) (3)
Total.................................................... (40) (38) (3)
</TABLE>
Operating income is a E40 million loss compared to a E38 million pro forma
loss, after accounting for income of E32 million realized from the conversion of
Mediaset bonds into shares. Operating income reflects E23 million Havas
dividends at December 31, 1999. Net indebtedness at the end of December 1999 was
E2,346 million versus E1,665 million at December 31, 1998.
3.8/ Results of Companies Accounted for by the Equity Method
3.8.1. Presentation
In order to present the consolidated financial statements simply, deferred
tax assets arising from the results of foreign companies accounted for by the
equity method are credited directly to the Group's equity in these companies
accounted for by the equity method.
The impact on "Results of Companies accounted for by the equity method" is
a gain of E16 million in 1999, versus a gain of E42 million in 1998.
3.8.2. Segment analysis of net income
The net income (losses) of companies accounted for by the equity method are
as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
PAY-TV CHANNELS
- France............................................... (1) (1) (1)
(NC Numericable)......................................... (1) (1) (1)
- International........................................ (53) (49) (109)
Sogecable (Spain)........................................ (12) (16) (16)
TELE+(Italy)............................................. -- -- (60)
Canal Digital (Nordic countries)......................... (12) (15) (15)
Vox (Germany)............................................ (2) (4) (4)
TKP (Poland)............................................. (25) (13) (13)
Other.................................................... (2) (2) (2)
</TABLE>
F-142
<PAGE> 503
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
THEME CHANNELS........................................... (7) (12) (12)
Multithematiques......................................... (6) (12) (12)
Other.................................................... (1) (1) 1
MOVIE AND TELEVISION PRODUCTION AND DISTRIBUTION......... (1) (3) (3)
OTHER.................................................... (8) 1 1
AOL...................................................... (9) -- --
Servette de Geneve....................................... (2) (2) (2)
Other.................................................... 3 3 3
--- --- ----
Total.................................................... (69) (64) (123)
=== === ====
</TABLE>
3.8.3. Segment analysis of revenues
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA RECORDED
----- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
PAY-TV CHANNELS
- International....................................... 1,123 866 1,236
Theme channels.......................................... 358 299 299
Movie and television production and distribution........ 3 15 15
Other................................................... 160 113 113
----- ----- -----
Total................................................... 1,644 1,293 1,663
===== ===== =====
</TABLE>
3.9/ Minority Interest
Minority interests breakdown as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(IN MILLIONS
OF EUROS)
<S> <C> <C>
Results from operations, after tax.......................... (18) (18)
Exceptional income/(loss), after tax........................ (35) (2)
Depreciation of goodwill.................................... (1) --
--- ---
Total....................................................... (54) (20)
=== ===
</TABLE>
Minority interest in exceptional income/(loss) corresponds to the provision
for changing decoders at CANALSATELLITE (34%)
F-143
<PAGE> 504
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3.10/ Income Tax
3.10.1. Analysis of the income tax charge
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Taxes due................................................ (79) (31) (31)
Deferred taxes........................................... 59 40 --
Effect of change in tax rate............................. (2) -- --
Current taxes............................................ (22) 9 (31)
Deferred taxes related to companies accounted for by the
equity method.......................................... 16 8 42
Tax on exceptional items................................. 76 5 24
--- --- ---
Total.................................................... 70 22 35
=== === ===
</TABLE>
The amount of deferred taxes reported in the exceptional provision that is
connected with the change in decoders amounts to E70 million.
3.10.2. Analysis of deferred taxes
The deferred tax asset of E372 million and the deferred tax liability of
E100 million carried in the balance sheet at December 31, 1999 correspond to
short-term timing differences and the tax effect (at 33.77% in 2000) of
consolidation adjustments.
Deferred tax assets recorded in the balance sheet at December 31, 1999 are
expected to be used in the following periods:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA RECORDED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Tax loss carry forward................................... 193 133 65
--- --- ---
One year................................................. 1 -- --
Two to five years........................................ 126 69 1
Six to ten years......................................... -- -- --
Evergreen................................................ 66 64 64
Timing Difference........................................ 179 98 98
--- --- ---
One year................................................. 51 51 51
Two to five years........................................ 128 47 47
Six to ten years......................................... -- -- --
Evergreen................................................ -- -- --
--- --- ---
Total.......................................... 372 231 163
=== === ===
</TABLE>
F-144
<PAGE> 505
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3.10.3. Reconciliation of theoretical and effective rates of tax
The difference between the theoretical tax rate and the effective rate of
tax paid on income from continuing operations can be analyzed as follows:
<TABLE>
<CAPTION>
(% OF INCOME FROM CONTINUING 1998 1998
OPERATIONS BEFORE TAX)* 1999 PRO FORMA RECORDED
---------------------------- ---- --------- --------
<S> <C> <C> <C>
Theoretical rate of tax.................................. (40)% (42)% 42%
Losses of subsidiaries................................... 90% 46% 53%
Permanent differences.................................... 9% (1)% (3)%
Timing differences....................................... -- -- --
Tax-exempt income........................................ (26)% (10)% (27)%
Items taxed at reduced rates............................. -- --
Effect of changes in tax rates........................... 3% -- --
--- --- ---
Effective rate of tax.................................... 36% (7)% 65%
--- --- ---
</TABLE>
---------------
* The negative amounts correspond to tax credits. The complete consolidation of
TELE+ in the 1998 financial statements brought about a E133 million pro forma
loss in continuing operations associated with a E9 million tax credit, or an
effective 7% rate of tax.
3.11/ Exceptional Items
Exceptional items can be analyzed as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
---- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Impact of changes in scope of consolidation............. 95 82 82
Provision set up for the renewal of the fleet of
decoders.............................................. (255) -- --
Additional 45% interest in TELE+........................ -- -- (60)
Gains/(losses) on disposal of non-consolidated
investments........................................... -- 45 45
Other................................................... (58) 15 7
---- --- ---
Net exceptional income/(expense)........................ (218) 142 74
---- --- ---
Minority interests...................................... 35 2 2
Net exceptional income/(expense) after minority
interests............................................. (183) 144 76
---- --- ---
</TABLE>
The main effects of the changes in the scope of consolidation in 1999 are
the E88 million gain from the introduction on the market of Sogecable and the E7
million gain from the reduction in the percentage held of Comedie.
In 1998, they included the dilution gain from the acquisition of
CANALSATELLITE (E41 million) and NC Numericable (E41 million).
The exceptional provision of E255 million (E220 million, group share) is
related to the accelerated rate of depreciation of the current generation of
digital set-top boxes.
The gains from the disposal of non-consolidated investments (E45 million in
1998) correspond in full to the gain on the sale of Havas shares.
"Other items" includes provisions for risks relating to certain
consolidated companies (SEGP+ and Poland).
F-145
<PAGE> 506
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3.12/ Employee Profit-Sharing
In the consolidated financial statements, the amounts allocated to the
employee profit-sharing reserve are included in general and administrative
expenses.
The amount allocated to the employee profit-sharing reserve in 1999 totaled
E2.9 million, versus E2.6 million in 1998.
IV -- COMMITMENTS AND CONTINGENCIES
4.1/ Subscriptions
The future liability in respect of subscriptions paid by standing order,
corresponding to the monthly subscription multiplied by the remaining number of
months of the subscription period, amounted to E1,709 million including tax at
December 31, 1999, including E1,022 million for CANAL+, E342 million for
CANALSATELLITE, and E345 million for TELE+.
These subscriptions had not been collected at the year-end.
4.2/ Financial Commitments
4.2.1. Commitments given
Financial commitments given can be analyzed as follows at December 31 of
each year:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
(IN MILLIONS OF EUROS)
<S> <C> <C> <C>
Movies.................................................. 1,221 1,411 917
Programs................................................ 987 719 164
Digital terminals....................................... 26 13 13
Sports.................................................. 3,416 2,589 1,057
Satellites.............................................. 885 1,105 698
Financial assets........................................ 394 313 239
----- ----- -----
Total................................................... 6,929 6,150 3,088
===== ===== =====
</TABLE>
Movie-related commitments primarily correspond to contracts signed
concerning the exclusive broadcast of future productions by leading U.S.
studios, including Warner Bros., Disney, Columbia Tristar, MCA Universal, 20th
Century Fox, and DreamWorks.
Program-related commitments primarily relate to catalogs acquired by CANAL+
DA from Phoenix/ Medavoy for E66 million, Phoenix/Sixday for E17 million,
Columbia for E31 million and Fox for E11 million.
Sports-related commitments mainly include the rights acquired to
rebroadcast French championship soccer until 2004; the rights to rebroadcast the
Champions' League until 2003; the national and international broadcasting rights
for Juventus of Turin, Inter of Milan, and Milan AC soccer matches for five
seasons; as well as the rights to broadcast Formula 1 races on a pay-per-view
basis until 2006.
Satellite-related commitments primarily correspond to the leasing of
broadcasting capacity on the Astra, Eutelsat and Intelsat satellites.
F-146
<PAGE> 507
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4.2.2. Commitments received
Commitments received amounted to E534 million, including E107 million in
connection with sales of film rights; E371 million related to sales of sports
broadcasting rights; E27 million in opened lines of credit; E9 million
concerning the "Fonds de Soutien a la Creation Audiovisuelle;" and E20 million
in contributions receivable in respect of delegated productions.
4.3/ Pension Commitments
The Group is directly liable to its employees for statutory length of
service awards payable to employees upon retirement.
The Group's commitments were the subject of an evaluation and totaled E9
million on December 31, 1999. The commitments are determined on the basis of
actuarial estimates, taking into account length of service and current salaries.
The Group has written an insurance contract intended to feed a collective
fund that corresponds to the total amount of its commitments.
The charge recorded for this purpose was E2 million in 1999.
The contract for end of career compensation concerns all categories of
personnel and benefits all the employees of the consolidated entity CANAL+.
4.4/ Guarantees Given and Received
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS OF
EUROS)
<S> <C> <C>
Guarantees given............................................ 217 212
Guarantees received......................................... -- --
--- ---
</TABLE>
All the above guarantees have been given to banks.
V -- SUPPLEMENTARY INFORMATION
5.1/ Employees
The average number of employees can be analyzed as follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
<S> <C> <C> <C>
Management.............................................. 1,969 1,923 1,900
Administrative employees................................ 2,601 2,512 1,851
Technical employees..................................... 65 65 65
----- ----- -----
Average number of permanent employees................... 4,635 4,500 3,816
----- ----- -----
Non-permanent employees................................. 2,281 1,893 1,750
----- ----- -----
</TABLE>
F-147
<PAGE> 508
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The overall number of permanent employees by business segment is as
follows:
<TABLE>
<CAPTION>
1998 1998
1999 PRO FORMA REPORTED
----- --------- --------
<S> <C> <C> <C>
Pay channels
- France.............................................. 2,510 2,361 2,361
- International....................................... 1,202 1,163 479
Theme channels.......................................... 149 117 117
Movie and television production and distribution........ 422 510 510
Other................................................... 352 349 349
----- ----- -----
Average number of permanent employees................... 4,635 4,500 3,816
</TABLE>
The increase in personnel for the French pay TV activity is primarily due
to the increase in personnel for CANAL+ of 231 persons (1,841 in 1999 versus
1,610 in 1998) and by the decrease in personnel for the NC Numericable Group by
118 persons (549 in 1999 versus 667 in 1998).
The average number of employees of TELE+ came to 741.
The decrease in personnel in the "Movie and television production and
distribution" activity is a result of the transfer of the Ellipse Cable unit to
Multithematiques in 1999.
5.2/ Management Compensation
In 1999, the members of the Board of Directors were paid attendance fees
totaling FRF 0.2 million, identical to the amount paid in 1998.
The compensation awarded to the eight corporate officers in 1999 amounted
to FRF 4.3 million, compared to 4.1 million in 1998.
The same directors benefited overall from the assignment of purchase
options on 155,500 shares under plans that became effective on June 25, 1998.
5.3/ Statement of Cash Flow
The elimination of gains or losses on sales of assets corresponds primarily
to the gain or loss connected with the conversion of bonds into Mediaset shares
(E35 million) and the sale of 5% of Sogecable following its offering on the
market (E88 million).
Acquisitions of intangible and tangible assets mainly concern purchases of
broadcasting rights (E235 million) and decoder purchases (E132 million).
The acquisition of a 14% interest in CANALSATELLITE, which is intended to
be sold back, is included under financial investments for E223 million.
The acquisition of a 10% interest in TELE+ is included in acquisitions of
investments for E126 million.
The total dividend was paid in cash, for E100 million.
Cash flows from financing activities include two repayments of obligations
under finance leases of E7 million each related to the cable networks the
headquarters building respectively, as well as the E371 million repayment of
bank borrowings by TELE+. New borrowings concern CANAL+ (E317 million),
CANALSATELLITE (E103 million), and TELE+ (E350 million debenture bond).
F-148
<PAGE> 509
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions that do not impact cash flow do not appear in the cash flow
table. It is primarily a matter of repaying the CANAL+ debenture bond following
its conversion into Mediaset shares (E156 million).
5.4/ Research and Development Costs
Research and development costs incurred by the Group in 1999 amounted to
E12 million versus E8 million in 1998 and related primarily to new digital and
image processing technologies.
Personnel assigned to research and development came to 122 employees in
1999 compared to 67 in 1998.
VI -- EXCEPTIONAL EVENTS AND DISPUTES
All exceptional events and disputes that are likely to have a material
impact on the results, financial position or assets and liabilities of the
Company or the Group have been provided for at the year-end in an amount
corresponding to the estimated risk incurred.
VII -- MAJOR EVENTS SINCE THE END OF THE YEAR
In January 2000, CANAL+ and Vivendi created Vivendi Net, which they share,
50/50. Vivendi Net gathers the internet assets of both groups. On January 30,
2000, Vivendi Net and Vodafone AirTouch announced a joint venture to develop the
first Multi-Access Portal (MAP) in Europe.
No other event that could have a material impact on the financial
statements of the company has occurred since the end of the year.
VIII -- CONSOLIDATED COMPANIES
<TABLE>
<CAPTION>
CONSOLIDA-
% TION
INTEREST METHOD
--------- ----------
<S> <C> <C>
PAY TELEVISION
France
CANAL+ (parent Company)
CANALSATELLITE.............................................. 69.87 FULL
Kiosque..................................................... 80.04 FULL
Satellite Service........................................... 99.99 FULL
GIE Numerique............................................... 87.20 FULL
NC Numericable Group (ex CGV)............................... 63.00 FULL
International CANAL+ Belgium................................ 42.46 EQUITY
CANAL+ Televisie (Flanders)................................. 100.00 FULL
CANAL+ Nederland (Netherlands).............................. 100.00 FULL
Sogecable (Spain)........................................... 19.74 EQUITY
TELE+....................................................... 99.15 FULL
CANAL+ Television (Nordic countries)........................ 100.00 FULL
Canal Digital Group (Nordic countries)...................... 50.00 EQUITY
TKP (Poland)................................................ 33.00 EQUITY
CANAL+ Horizons Group....................................... 78.29 FULL
Sedat (Tunisia)............................................. 36.12 EQUITY
Vox (Germany)............................................... 24.90 EQUITY
</TABLE>
F-149
<PAGE> 510
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDA-
% TION
INTEREST METHOD
--------- ----------
<S> <C> <C>
THEME CHANNELS
Multithematiques Group...................................... 30.17 EQUITY
Cine Classics Spain......................................... 65.08 EQUITY
TV Sport.................................................... 34.00 EQUITY
ESO......................................................... 33.00 EQUITY
MDO......................................................... 23.75 EQUITY
Spectacle................................................... 100.00 FULL
C:.......................................................... 80.00 FULL
i-television................................................ 100.00 FULL
Demain...................................................... 99.84 FULL
I LINE (Game One)........................................... 50.00 EQUITY
Ste Expl. Chaine Comedie.................................... 18.70 EQUITY
MOVIE AND TELEVISION PRODUCTION AND DISTRIBUTION
Subsidiaries division
CANAL+ Image Group.......................................... 97.12 FULL
CANAL+ DA................................................... 73.66 FULL
Le Studio CANAL+ Group...................................... 97.12 FULL
Ellipse Programme Group..................................... 97.11 FULL
Docstar..................................................... 97.12 FULL
CANAL+ Distribution......................................... 86.56 FULL
Deg Sales Co................................................ 100.00 FULL
Le Studio Ellipse........................................... 78.56 FULL
Ellipse Marine.............................................. 100.00 FULL
CANAL+ Video................................................ 97.12 FULL
Vulcano..................................................... 100.00 FULL
La Bande Son................................................ 97.12 FULL
Alya Animation.............................................. 97.11 FULL
Explore International....................................... 50.00 EQUITY
Gedeon Communication........................................ 51.02 FULL
C+P......................................................... 48.56 EQUITY
Other CANAL+ Multimedia..................................... 50.00 EQUITY
SEGP+....................................................... 100.00 FULL
Sport+...................................................... 100.00 FULL
NPA Production.............................................. 100.00 FULL
OTHER TECHNOLOGIES
AOL......................................................... 18.33 EQUITY
Canal Pro................................................... 100.00 FULL
CANAL+ Technology........................................... 100.00 FULL
Nagra+...................................................... 50.00 EQUITY
SECA........................................................ 50.00 EQUITY
</TABLE>
F-150
<PAGE> 511
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDA-
% TION
INTEREST METHOD
--------- ----------
<S> <C> <C>
OTHER
Aqua+....................................................... 99.88 FULL
Best of Europe.............................................. 99.97 FULL
Canal Club.................................................. 100.00 FULL
CANAL+ Editions............................................. 51.00 FULL
CANAL+ Europe............................................... 100.00 FULL
CANAL+ Finance.............................................. 100.00 FULL
CANAL+ Real Estate.......................................... 100.00 FULL
CANAL+ International Acquisitions........................... 100.00 FULL
CANAL+ International Holding................................ 100.00 FULL
CANAL+ Investments in Companies............................. 100.00 FULL
CANAL+ Telematique.......................................... 99.95 FULL
CANAL+ US................................................... 100.00 FULL
CANAL+ Deutschland.......................................... 100.00 FULL
CANAL+ Gmbh Co KG........................................... 100.00 FULL
Canal Numedia............................................... 100.00 FULL
Deficoncept................................................. 49.35 EQUITY
FilmNet Group Holdings...................................... 100.00 FULL
Financiere de Technologie................................... 50.00 EQUITY
Financiere de Videocommunication............................ 100.00 FULL
Financiere On Line.......................................... 33.33 EQUITY
Antennes Tonna Group........................................ 51.00 FULL
Kiosque Holding............................................. 80.00 FULL
MC France................................................... 34.00 EQUITY
NEM......................................................... 100.00 FULL
NetHold Finance............................................. 100.00 FULL
CANAL+ Italy BV............................................. 100.00 FULL
CANAL+ Benelux BV........................................... 100.00 FULL
CANAL+ Investments BV....................................... 100.00 FULL
Quirats+.................................................... 100.00 FULL
Servette de Geneve.......................................... 41.60 EQUITY
SESE........................................................ 99.80 FULL
Ste Expl. Services Audiovisuels............................. 100.00 FULL
SGTN........................................................ 49.88 EQUITY
Ste Holding Chaine Comedie.................................. 26.36 EQUITY
Studio Participation........................................ 40.00 EQUITY
Thematiques Regie........................................... 99.92 FULL
Time Wise................................................... 100.00 FULL
Williwaw.................................................... 99.56 FULL
PSG......................................................... 56.8 EQUITY
</TABLE>
F-151
<PAGE> 512
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in scope of consolidation primarily concerned:
- TELE+: CANAL+ had a 99.15% interest in TELE+ on December 31, 1999, after
the 10% buyback from Fininvest on July 27, 1999, followed by the 0.852%
transfer to RAI on December 16, 1999. Net income, group share,
corresponds to 90% of first half year result and to 100% of second half
year result (averaging 95% for the year).
- NC Numericable was 63% consolidated on December 31, 1999, versus 100% on
December 31, 1998. In January 1999, CANAL+'s interest in NC Numericable
Holding went from 100% to 63% following the E54 million capital increase
reserved for Exante. NC Numericable was transformed into a corporation on
January 1, 1999.
- The Comedie channel (18.7% investment) was 30.2% consolidated by the
equity method in 1998, following the transfer of shares to Pathe.
- AOL France, acquired at the end of December 1998, was 18.33% consolidated
by the equity method for fiscal 1999.
- SNC Ellipse Distribution and Little Box were created in January 1999.
These companies are held at 100% by Ellipse Programme.
- An exchange of investments in companies took place between Sofirad and
CANAL+ as follows: CANAL+'s buyback of Sofirad's 11.33% interest in
Financiere de Videocommunication brought CANAL+'s holding to 100%, and
the entry of Sofirad into CANAL+ Horizons caused Financiere's stake to
change from 80.76% to 78.29%.
- Mediahighway was contributed to CANAL+ Technology as of September 30,
1999.
IX -- CANAL+ SUMMARY OF CERTAIN DIFFERENCES BETWEEN FRENCH GAAP AND U.S. GAAP
The consolidated financial statements of CANAL+ have been prepared in
accordance with French GAAP, which differ in certain significant respects from
U.S. GAAP. Set forth below is a summary of the areas in which differences
between French GAAP and U.S. GAAP could significantly affect the group's results
of operations and financial position.
1. VALUATION DIFFERENCES
A) CONSOLIDATION
Under French GAAP, companies are consolidated when the parent company
demonstrates effective control over those companies.
Under US GAAP, control is normally defined as a voting control (over 50%),
although there may be facts and circumstances that permit consolidation in other
cases.
B) BUSINESS COMBINATIONS
Under French GAAP, business combinations are generally accounted for under
the purchase method of accounting. Assets acquired and liabilities assumed may
not always be systematically adjusted to their fair market value.
Under exceptional conditions, the residual goodwill can be written off
against shareholders' equity for business combinations entered into before
periods beginning on or after January 1, 2000. Such exceptional circumstances
arise when the consideration given to the seller includes stock issued by the
acquirer. In that case, the portion of the goodwill corresponding to the
proportion of the acquisition price paid in acquirer's shares is written off
against the paid-in surplus.
F-152
<PAGE> 513
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under U.S. GAAP, assets acquired and liabilities assumed are restated at
their fair market values at the time of combination. The difference between the
fair market values of the net assets and the consideration given represents
goodwill. Under U.S. GAAP, this goodwill cannot be written off against
shareholders' equity.
C) DEFERRED TAXATION
Under French GAAP, deferred tax assets and liabilities arise from timing
differences between taxable income and accounting income. Deferred tax assets
are recognised when it is probable that sufficient taxable profits will be
available against which the deferred tax assets can be utilised. In some
circumstances, prior to the implementation of new rules beginning on January 1,
2000, it was possible not to recognise a net deferred tax liability if the
payment of any tax was considered as a long-term event.
Under U.S. GAAP, deferred tax liabilities and assets record the tax effect
of almost all differences between the tax and book values of assets and
liabilities, including net operating loss carry-forwards. If it is more likely
than not that some or all of the deferred tax asset will not be realised, a
valuation allowance is established through a charge to income. A company may
look to probable future taxable income as well as tax planning strategies to
determine the realizability of deferred tax assets.
D) CONTINGENCIES
Under French GAAP, a material contingent loss should be recorded if it is
probable that the loss will be incurred, it is directly and mostly linked to a
current period event, and reasonable estimate of the loss can be made. A
contingent loss not recorded must be disclosed in the notes to the financial
statements unless the possibility of the loss being incurred is remote.
Under U.S. GAAP, loss contingencies should be recorded if (based on
information available prior to issuance of financial statements) it is probable
that an asset has been impaired or a liability has been incurred as of the
balance sheet date and the amount of the loss can be reasonably estimated. All
reasonably possible losses should be disclosed. General contingency reserves are
not permitted.
E) INTANGIBLE ASSETS
Under French GAAP, certain costs, such as start-up costs, are capitalized
and amortized over their useful lives.
Under U.S. GAAP, these costs are charged as expenses when incurred.
F) SATELLITE SPACE CAPACITY RENTAL AGREEMENTS
CANAL+ rents satellite space capacity according to lease agreements signed
for a period of 10 years and which include scheduled rent increases.
Under French GAAP, rental on an operating lease is charged to expense over
the lease term as it becomes payable.
Under U.S. GAAP, the effects of the scheduled rent increases are recognized
on a straight-line basis over the lease term.
F-153
<PAGE> 514
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
g) FILM DISTRIBUTION AND BROADCASTING
Revenue recognition
Under French GAAP, revenues deriving from outright sales are recognized
when i) the license fee and the cost of each films are known, ii) collectibility
of the fee is certain and iii) the film has been delivered or when the screening
certificate is obtained.
Under US GAAP, such revenues are recognized when, in addition to the above
mentioned criteria, the purchaser's contractual distribution rights begin.
SOFICA share purchase agreements
French tax regulations grant tax advantages to individual investments in
special film support vehicles called SOFICAs. Investors purchase shares in the
SOFICA with resale guaranteed at a level of 85% or 100% of the face value of the
shares. These funds are used to finance film production, in exchange for a
percentage of the rights to the films involved. Under French GAAP, at the
closing of each fiscal year, a provision is made if the market value of the
SOFICA shares as determined on the basis of the value of the rights held is less
than the minimum guaranteed purchase price. Under U.S. GAAP, such special film
support vehicles should be consolidated.
Licence agreements for program Material
A broadcaster accounts for a licence agreement for program material as a
purchase of a right.
Under French GAAP, the acquisition costs are fully amortized at first
showing.
Under U.S. GAAP, the acquisition costs are amortized based on the estimated
number of future showings.
h) FINANCIAL INSTRUMENTS
Investment securities
Under French GAAP, investments in debt and non-consolidated equity
securities are recorded at acquisition cost and an allowance is provided if
management deems that there has been an other-than-temporary decline in fair
value. Unrealized gains and temporary unrealized losses are not recognized.
Under US GAAP, investments in debt and equity securities are classified
into three categories and accounted for as follows: Debt securities that the
Company has the intention and ability to hold to maturity are carried at cost
and classified as "held-to-maturity". Debt and equity securities that are
acquired and held principally for the purpose of sale in the near term are
classified as "trading securities" and are reported at fair value, with
unrealized gains and losses included in earnings. All other investment
securities not otherwise classified as either "held-to-maturity" or "trading"
are classified as "available-for-sale" securities and reported at fair value,
with unrealized gains and losses excluded from earnings and reported in
shareholders' equity.
Treasury shares
Under French GAAP, shares of the Company's own stock owned by the Company
and its subsidiaries are recorded as marketable securities in the consolidated
financial statements if those shares are acquired to stabilize the market price
or in connection with stock options granted to directors and employees.
Under US GAAP, treasury shares are recorded as a reduction of shareholders'
equity. Profit and loss on the disposal of treasury shares is recognized as an
adjustment to shareholders' equity.
F-154
<PAGE> 515
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
i) DERIVATIVE FINANCIAL INSTRUMENTS
Under French GAAP, the criteria for hedge accounting for derivative
financial instruments does not require documentation of specific designation to
the hedged item, nor the documentation of ongoing effectiveness of the hedge
relationship. Derivative financial instruments that meet hedge criteria under
French GAAP are not recorded on the consolidated balance sheet. The impact of
the derivative financial instruments on the statement of income is recorded upon
settlement or the payment or receipt of cash.
Under US GAAP, derivative financial instruments for which the Company has
not specifically designated or has not assessed effectiveness do not meet hedge
accounting criteria. Such instruments are recorded on the consolidated balance
sheet at fair value and related changes in fair value are recognized in current
period net income.
j) STOCK-BASED COMPENSATION
Under French GAAP, common shares issued upon the exercise of options
granted to employees and directors are recorded as an increase to share capital
at the cumulative exercise price. CANAL+ shares sold to employees through
qualified employee stock purchase plans are reclassified from marketable
securities to share capital. The difference between the carrying value of the
treasury shares and the cumulative exercise price by the stock purchase plan is
recognized as a gain or loss in the period that the shares are sold. In
accordance with French GAAP, the Company has not recorded compensation expense
on stock-based plans with a discounted strike price up to 20% from the fair
value of the common shares at the date of grant.
Under US GAAP, APB Opinion No. 25 defines plans that grant or sell common
shares to employees as compensatory if such plans are not open to substantially
all employees and do not require the employee to make a reasonable investment in
the shares, usually defined as no less than 85% of the market value at the grant
date. If a plan is deemed to be compensatory, APB Opinion 25 requires that
compensation arising from such plans is to be measured based on the intrinsic
value of the shares granted or sold to employees. For fixed plans, the
compensation expense is calculated as the difference between the fair value at
the grant date and the employee strike price. Compensation expense for
compensatory stock-based plans is recognized in the period benefited.
k) PENSION PLANS
Under French GAAP, the Company records pension obligations, covering all
eligible employees, using the projected unit credit method.
Under US GAAP, the projected unit credit method is required to be applied
as of January 1, 1989. The transition obligation or fund excess determined as of
January 1, 1989 is amortized over the average remaining service period of the
population that was covered under the plan at that date.
Under French GAAP, postretirement benefits other than pensions are recorded
as expense when amounts are paid.
Under US GAAP, the Company must recognize an obligation for amounts to be
paid under postretirement plans, other than pensions. A postretirement
transition obligation may be determined as of January 1, 1995 and amortized over
the average remaining service period of employees covered by the plan. Current
period charges are based on estimated future payments to expected retirees.
l) DECODERS REPLACEMENT
Under French GAAP, a strategic decision to replace long-lived assets before
the end of their expected useful life is accounted for as a contingent
liability, for its estimated cost when this decision is made by
F-155
<PAGE> 516
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management. Under US GAAP, if this strategic decision is determined not to lead
to an impairment as defined by SFAS 121, the reduction of the useful life is
reflected prospectively as a change in estimate and generates an incremental
amortization expense during the newly established remaining period of useful
life.
French GAAP requires that material subsequent events that occur after the
current financial year end but prior to the issuance of the financial statements
be recorded in the current-year financial statements. Accordingly, the liability
associated with the replacement of the decoders has been recorded in 1999 and
included in the caption "Reserves." Under US GAAP, since the strategic decision
to write off decoders and adopt a plan of replacement was approved by an
appropriate level of management in February 2000, no accounting event is
recorded in the 1999 financial statements. Instead, the event should be
disclosed as a subsequent event.
The related 1999 US GAAP reconciling item consisted in the reversal of the
decoder replacement liability recorded under French GAAP, which would not have
been recorded under US GAAP. In years 2000 and 2001, the increased depreciation
expense due to the change in the estimated lives of the assets for US GAAP
purposes will result in reconciling items, the effect of which will ratably
offset the 1999 difference.
m) NON-MONETARY ASSETS RECEIVED IN AN EXCHANGE TRANSACTION
Under French GAAP, non-monetary assets received in an exchange transaction
are recorded at the historical carrying value of the non-monetary assets
surrendered. In 1999, CANAL+ received shares of Vivendi in exchange for its
shares of Pathe following the merger of Vivendi and Pathe.
Under US GAAP, non-monetary assets received in an exchange transaction are
recorded at the fair value of the non-monetary assets surrendered if the fair
value is determinable. As the assets exchanged are not considered to be similar
productive assets, a gain is recognized for the excess of the fair value of the
Pathe shares over their carrying value.
2. PRESENTATIONS DIFFERENCES
a) BALANCE SHEET PRESENTATION
Under French GAAP, the current/noncurrent (long-term/short-term)
distinction is not made on the face of the balance sheet; it is disclosed in the
notes to the consolidated financial statements.
Under U.S. GAAP, such classification is required on the face of the balance
sheet.
New films, and television programs are recorded as intangible assets under
French GAAP and inventory under U.S. GAAP.
b) STATEMENT OF COMPREHENSIVE INCOME
The consolidated financial statements in France include the balance sheet,
the profit and loss statements the statements of cash flow and notes. Under U.S.
GAAP, a statement of comprehensive income is also required and EBITDA is not
presented on the face of the financial statements.
c) NOTES TO THE FINANCIAL STATEMENTS
U.S. GAAP requires significantly more quantitative and narrative disclosure
in the notes to the consolidated financial statements than is required under
French GAAP.
The following is a summary reconciliation of shareholders' equity, as
reported in the consolidated balance sheet to shareholders' equity as adjusted
for the approximate effects of the application of U.S. GAAP for the periods
ended December 31, 1999 and 1998, and net income as reported in the consolidated
F-156
<PAGE> 517
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statement of income to net income as adjusted for the approximate effects of the
application of U.S. GAAP for the periods ended December 31, 1999 and 1998 (in
millions of Euros).
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
ALL AMOUNTS IN MILLIONS OF EUROS
<S> <C> <C>
SHAREHOLDERS' EQUITY AS REPORTED IN THE CONSOLIDATED BALANCE
SHEET..................................................... 1,127 1,545
Adjustments to conform to US GAAP:
Business combinations/Goodwill............................ 1,145 1,197
Intangible assets......................................... (17) (9)
Satellite space capacity leasing contracts................ (17) (18)
Reserves.................................................. 473 187
Loss contingencies & others............................ 184 185
Decoders............................................... 285 0
Soficas................................................ 4 2
Financial instruments..................................... 95 62
Pension plan and stock-based compensation................. 10 (2)
Deferred tax.............................................. (176) (102)
Film distribution and broadcasting........................ 3 3
Tax effect on the above adjustments....................... (144) (42)
US GAAP SHAREHOLDERS' EQUITY................................ 2,499 2,821
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- --------------
ALL AMOUNTS IN MILLIONS OF EUROS
<S> <C> <C>
NET INCOME AS REPORTED IN THE CONSOLIDATED STATEMENTS OF
INCOME.................................................... (336) (28)
Adjustments to conform to US GAAP:
Business combinations/Goodwill............................ (52) (58)
Intangible assets......................................... (8) (2)
Satellite space capacity leasing contracts................ 1 (3)
Reserves.................................................. 285 (39)
Loss contingencies & others............................ (2) (38)
Decoders............................................... 285 0
Soficas................................................ 2 (1)
Financial instruments..................................... 7 (3)
Pension plan and stock-based compensation................. 10 4
Deferred tax.............................................. (74) (47)
Film distribution and broadcasting........................ 0 (3)
Tax effect on the above adjustments....................... (86) 10
US GAAP NET INCOME.......................................... (253) (169)
</TABLE>
F-157
<PAGE> 518
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D) BASIC AND DILUTED EARNINGS PER SHARE
For US GAAP purposes, basic earnings per share is computed in the same
manner as earnings per share under French GAAP by dividing net income by the
weighted average number of shares outstanding.
Diluted earnings per share reflects the potential dilution that would occur
if all securities and other contracts to issue ordinary shares were exercised or
converted. Net income represents the earnings of the Company after minority
interests. The computation of diluted earnings per share is as follows (in E
Millions or millions of shares, except earnings per share):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income.................................................. (253) (169)
Income before extraordinary items -- diluted
Weighted average number of shares
outstanding -- basic...................................... 125,669,271 125,490,798
Dilutive effect of:
Shares issuable on exercise of dilutive options........... 1,015,626 1,223,638
Shares attributable to stock purchase plans............... -- --
Shares applicable to warrants............................. 647,767 78,406
Weighted average number of shares
outstanding -- diluted.................................... 127,332,664 126,792,842
Earnings per share:
Basic..................................................... (2.01) (1.35)
Diluted................................................... (2.01) (1.35)
</TABLE>
E) PRESENTATION OF THE BALANCE SHEET AND INCOME STATEMENT IN US GAAP FORMAT
For purposes of presenting a consolidated condensed balance sheet as of
December 31, 1999 and 1998 and consolidated condensed income statements for the
years ended December 31, 1999 and 1998 in a format consistent with US GAAP, the
Company has reflected the financial statement impact of those reconciling
differences between French GAAP and US GAAP presented in Note IX.
OPERATING INCOME
French GAAP defines exceptional items in a manner that differs from the
definition of extraordinary items under US GAAP. As a consequence, items
classified as exceptional for French GAAP purposes have been reclassified to the
appropriate income statement captions determined under US GAAP.
F-158
<PAGE> 519
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- --------------
ALL AMOUNTS IN MILLIONS OF EUROS
<S> <C> <C>
NET SALES................................................... 3,282 2,832
Cost of sales............................................... (2,468) (2,182)
Selling, general and administrative costs................... (778) (791)
OPERATING MARGIN............................................ 36 (141)
Goodwill amortization....................................... (69) (67)
Other operating expenses and revenues....................... (146) 28
OPERATING INCOME............................................ (179) (180)
Financial income............................................ (48) (50)
Other income................................................ 137 106
NET INCOME BEFORE TAXES, MINORITY INTEREST AND EQUITY
INTEREST.................................................. (90) (124)
Taxes....................................................... (112) (18)
NET INCOME BEFORE MINORITY INTEREST AND EQUITY INTEREST..... (202) (142)
Equity interest............................................. (70) (63)
Minority interest........................................... 19 36
NET INCOME.................................................. (253) (169)
</TABLE>
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- --------------
ALL AMOUNTS IN MILLIONS OF EUROS
<S> <C> <C>
Current assets.............................................. 2,535 1,768
Long term assets............................................ 5,141 4,878
TOTAL ASSETS................................................ 7,676 6,646
Current liabilities......................................... 3,746 2,765
Long term liabilities....................................... 1,337 1,007
Minority interests.......................................... 94 53
Shareholder's equity........................................ 2,499 2,821
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 7,676 6,646
</TABLE>
The balance sheet and income statement disclosed in US GAAP format in this
footnote integrate the consolidation of Telepiu.
F-159
<PAGE> 520
CANAL+
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G) COMPREHENSIVE INCOME
The concept of comprehensive income does not exist under French GAAP. In US
GAAP, SFAS 130, "Reporting comprehensive income," defines comprehensive income
to include, net of tax impact (in million of Euros):
-- unrealized gains and losses on investment securities classified as
"available for sale,"
-- foreign currency translation adjustments.
<TABLE>
<S> <C>
Net income for the year ended December 31, 1998............. (169.0)
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... 9.0
Unrealized gains and (losses) on investment securities.... 0.0
Other comprehensive income.................................. 9.0
COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 1998... (160.0)
Net income for the year ended December 31, 1999............. (253.0)
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... 0.0
Unrealized gains and (losses) on investment securities.... 23.4
Other comprehensive income.................................. 23.4
COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 1999... (229.6)
</TABLE>
F-160
<PAGE> 521
ANNEX A
VIVENDI S.A.
AND
CANAL PLUS S.A.
AND
SOFIEE S.A.
AND
3744531 CANADA INC.
AND
THE SEAGRAM COMPANY LTD.
MERGER AGREEMENT
DATED AS OF
JUNE 19, 2000
A-1
<PAGE> 522
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE 1
INTERPRETATION
Section 1.1. Definitions................................................. A-4
Section 1.2. Interpretation Not Affected by Headings, etc. .............. A-12
Section 1.3. Currency.................................................... A-12
Section 1.4. Number, etc. ............................................... A-12
Section 1.5. Date for Any Action......................................... A-12
Section 1.6. Entire Agreement............................................ A-12
Section 1.7. Schedules................................................... A-12
Section 1.8. Accounting Matters.......................................... A-12
Section 1.9. Knowledge................................................... A-12
ARTICLE 2
THE ARRANGEMENT
Section 2.1. Implementation Steps by Seagram............................. A-13
Section 2.2. Implementation Steps by the Vivendi Parties, Canal and
Sofiee.................................................... A-13
Section 2.3. Interim Order............................................... A-14
Section 2.4. Articles of Arrangement..................................... A-14
Section 2.5. Seagram Circular............................................ A-14
Section 2.6. Vivendi Circular............................................ A-15
Section 2.7. Canal Circular.............................................. A-15
Section 2.8. Securities Compliance....................................... A-15
Section 2.9. Preparation of Filings, etc. ............................... A-16
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of Seagram................... A-17
Section 3.2. Representations and Warranties of the Vivendi Parties, Canal
and Sofiee................................................ A-22
Section 3.3. Survival.................................................... A-29
ARTICLE 4
COVENANTS
Section 4.1. Retention of Goodwill....................................... A-29
Section 4.2. Consultation................................................ A-29
Section 4.3. Covenants of Seagram........................................ A-29
Section 4.4. Covenants of the Vivendi Parties, Sofiee and Canal.......... A-32
Section 4.5. Covenants Regarding Non-Solicitation of Seagram............. A-39
Section 4.6. Covenants Regarding Non-Solicitation of Vivendi............. A-40
Section 4.7. Covenants Regarding Non-Solicitation of Canal............... A-41
Section 4.8. Access to Information....................................... A-42
</TABLE>
A-2
<PAGE> 523
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Section 4.9. Indemnification............................................. A-43
Section 4.10. Safe Income................................................. A-43
ARTICLE 5
CONDITIONS
Section 5.1. Mutual Conditions Precedent................................. A-44
Section 5.2. Additional Conditions Precedent to the Obligations of the
Vivendi Parties, Sofiee and Canal......................... A-45
Section 5.3. Additional Conditions Precedent to the Obligations of
Seagram................................................... A-46
Section 5.4. Notice and Cure Provisions.................................. A-47
Section 5.5. Satisfaction of Conditions.................................. A-47
ARTICLE 6
AMENDMENT AND TERMINATION
Section 6.1. Amendment................................................... A-47
Section 6.2. Termination................................................. A-48
Section 6.3. Termination and Other Fees.................................. A-49
Section 6.4. Remedies.................................................... A-51
ARTICLE 7
GENERAL
Section 7.1. Notices..................................................... A-51
Section 7.2. Assignment.................................................. A-52
Section 7.3. Binding Effect.............................................. A-53
Section 7.4. Waiver and Modification..................................... A-53
Section 7.5. Further Assurances.......................................... A-53
Section 7.6. Expenses.................................................... A-53
Section 7.7. Press Releases.............................................. A-53
Section 7.8. Governing Laws.............................................. A-53
Section 7.9. Time of Essence............................................. A-53
Section 7.10. Counterparts................................................ A-53
</TABLE>
A-3
<PAGE> 524
MERGER AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 19th day of June, 2000. AMONG:
VIVENDI S.A.
a corporation existing under the laws of France (hereinafter referred to
as "Vivendi" as such term is modified in Section 1.1),
- and -
CANAL PLUS S.A.
a corporation existing under the laws of France (hereinafter referred to
as "Canal")
- and -
SOFIEE S.A.
a corporation existing under the laws of France (hereinafter referred to
as "Sofiee")
- and -
3744531 CANADA INC.,
a corporation existing under the laws of Canada (hereinafter referred to
as "Vivendi Exchangeco")
- and -
THE SEAGRAM COMPANY LTD.
a corporation existing under the laws of Canada (hereinafter referred to
as "Seagram")
THIS AGREEMENT WITNESSES THAT in consideration of the respective covenants
and agreements herein contained, the parties hereto covenant and agree as
follows:
ARTICLE 1
INTERPRETATION
Section 1.1. Definitions. In this Agreement, unless there is something in
the subject matter or context inconsistent therewith, the following terms shall
have the following meanings respectively:
"1933 Act" means the United States Securities Act of 1933, as amended;
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person;
"Affiliates Letter" means with respect to Rule 145 under the 1933 Act
a letter in form and substance reasonably satisfactory to Vivendi and
Seagram;
"Arrangement" means an arrangement under Section 192 of the CBCA on
the terms and subject to the conditions set out in the Plan of Arrangement,
subject to any amendments or variations thereto made in accordance with
Section 6.1 hereof, Section 6.1 of the Plan of Arrangement or made at the
direction of the Court in the Final Order;
"Arrangement Resolution" means the special resolution of the Seagram
shareholders, to be substantially in the form and content of Schedule B
annexed hereto;
"Articles of Arrangement" means the articles of arrangement of Seagram
in respect of the Arrangement that are required by the CBCA to be sent to
the Director after the Final Order is made;
"Board of Directors" means the Board of Directors of any specified
Person and any committees thereof;
A-4
<PAGE> 525
"Business Day" means any day on which commercial banks are generally
open for business in Toronto, Ontario, New York, New York and France other
than a Saturday, a Sunday or a day observed as a holiday in Toronto,
Ontario, in New York, New York or in France under applicable Laws;
"CBCA" means the Canada Business Corporations Act as now in effect and
as it may be amended from time to time prior to the Effective Date;
"Canadian Tax Act" means the Income Tax Act (Canada), as amended;
"Canal Acquisition Proposal" means any bona fide proposal or offer
with respect to (i) any merger, reorganization, business combination, share
exchange, liquidation, dissolution, recapitalization, or similar
transaction involving Canal or any Canal Material Subsidiary that if
consummated would result in any Person (or the shareholders of such Person)
owning securities representing 50% or more of the voting power of Canal (or
the surviving or ultimate parent entity in such transaction) or (ii) any
direct or indirect acquisition, purchase or sale of assets involving Canal
or any Canal Material Subsidiary representing 50% or more of the
consolidated assets (including shares of its subsidiaries) of Canal and its
consolidated subsidiaries, taken as a whole, or (iii) any direct or
indirect acquisition, purchase or sale of, or tender or exchange offer (or
shareholders recapitalization), or similar transaction involving Canal,
that if consummated would result in any Person (or the shareholders of such
Person) owning securities representing 50% or more of the voting power of
Canal (or the surviving or ultimate parent entity in such transaction), in
each case excluding the transactions contemplated by this Agreement and any
other proposal or offer made by Vivendi, Seagram or their respective
affiliates;
"Canal Circular" means, as the context requires, (i) the circular to
be sent to, or put at the disposal of, the Canal Shareholders, including
the notice of the Canal Meeting and all appendices thereto, containing
information relating to the Vivendi/Canal Transactions and/or (ii) the
prospectus included in the Form F-4 pursuant to which the Vivendi Shares to
be acquired by the Canal Shareholders pursuant to the Vivendi/Canal
Transactions will be registered under the 1933 Act;
"Canal Disclosure Letter" means that certain letter dated as of even
date herewith and delivered by Canal to Seagram and in a form reasonably
acceptable to Seagram;
"Canal Documents" has the meaning ascribed thereto in Section
3.2(2)(i);
"Canal IP" has the meaning ascribed thereto in Section 3.2(2)(l);
"Canal Material Subsidiary" means any subsidiary of Canal that is a
"Significant Subsidiary" as defined in Rule 1-02 of Regulation S-X of the
SEC;
"Canal Meeting" means the extraordinary meeting of Canal Shareholders,
including any adjournment or postponement thereof, to be called and held in
accordance with applicable Laws to consider the Canal Resolution;
"Canal Resolution" means the resolution of the Canal Shareholders to
approve the Vivendi/Canal Transactions to the extent applicable to Canal;
"Canal Shares" means the shares in the capital of Canal;
"Canal Shareholders" means the holders of Canal Shares;
"Canal Superior Proposal" means any bona fide written unsolicited
proposal made by a third party (other than Vivendi or its affiliates) which
if consummated would result in such third party (or the shareholders of
such third party) acquiring, directly or indirectly, securities
representing more than 50% of the voting power of the shares of Canal (or
the surviving or ultimate parent entity in such transaction) or all or
substantially all the assets of Canal and its subsidiaries, taken as a
whole, (i) on terms which the Canal Board of Directors in good faith
reasonably concludes (following receipt of advice of its financial advisors
and outside counsel) would, if consummated, be superior from a financial
point of view to the Canal Shareholders to the transactions contemplated by
this Agreement (including the terms of any proposal by Seagram to amend or
modify the terms of the transactions contemplated by this Agreement),
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taking into account all of the terms and conditions of such proposal and
such transactions and (ii) which is reasonably capable of being completed,
taking into account all financial, regulatory, legal and other aspects of
such proposal;
"CMF" means the Conseil des Marches Financiers;
"COB" means the Commission des Operations de Bourse;
"Code" means the United States Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder;
"Confidentiality Agreement" means the confidentiality letter agreement
dated June 4, 2000 between Vivendi and Seagram;
"Court" means the Superior Court of Justice (Ontario);
"Custodian" means the custodian to be chosen by Vivendi and Vivendi
Exchangeco, acting reasonably, to act as custodian under the Custody
Agreement and any successor appointed under the Custody Agreement;
"Custody Agreement" means the custody agreement to be made between
Vivendi, Vivendi Exchangeco and the Custodian, substantially in the form
and content of Schedule C annexed hereto, with such changes thereto as the
parties may agree;
"Director" means the Director appointed pursuant to Section 260 of the
CBCA;
"Dissent Rights" means the rights of dissent in respect of the
Arrangement described in Section 3.1 of the Plan of Arrangement;
"Effective Date" means the date shown on the certificate of
arrangement to be issued by the Director under the CBCA giving effect to
the Arrangement;
"Effective Time" has the meaning ascribed thereto in the Plan of
Arrangement;
"Environmental Laws" means all applicable Laws, including applicable
common law, relating to the protection of the environment and public health
and safety as affected by the environment or Hazardous Substances;
"Environmental Permits" has the meaning ascribed thereto in Section
3.1(h)(ii)(c);
"ERISA" has the meaning ascribed thereto in Section 3.1(j)(ii);
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended;
"Exchange Ratio" has the meaning ascribed thereto in the Plan of
Arrangement;
"Exchangeable Shares" means the non-voting exchangeable shares in the
capital of Vivendi Exchangeco, having substantially the rights, privileges,
restrictions and conditions set out in Appendix 1 to the Plan of
Arrangement;
"Exchange Trust Agreement" means an agreement to be made among
Vivendi, Vivendi Exchangeco, Vivendi Holdings, Seagram and the Trustee, in
connection with the Plan of Arrangement substantially in the form and
content of Schedule D annexed hereto, with such changes thereto as the
parties hereto, acting reasonably may agree;
"Final Order" means the final order of the Court approving the
Arrangement as such order may be amended by the Court at any time prior to
the Effective Date or, if appealed, then, unless such appeal is withdrawn
or denied, as affirmed or as amended on appeal;
"Form F-4" has the meaning ascribed thereto in Section 2.8(5);
"Form S-8" has the meaning ascribed thereto in Section 4.4(p)(iv);
"French GAAP" has the meaning ascribed thereto in Section 3.2(1)(f);
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"Governmental Entity" means any (a) multinational, federal,
provincial, state, regional, municipal, local or other government,
governmental or public department, central bank, court, tribunal, arbitral
body, commission, board, bureau or agency, domestic or foreign, (b) any
subdivision, agent, commission, board, or authority of any of the
foregoing, or (c) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of
any of the foregoing;
"Hazardous Substance" means any pollutant, contaminant, waste of any
nature, hazardous substance, hazardous material, toxic substance, dangerous
substance or dangerous good as defined or identified in, regulated by or
that could reasonably be expected to result in Liability under any
Environmental Law;
"Holders" means, when used with reference to the Seagram Common
Shares, the holders thereof shown from time to time in the register
maintained by or on behalf of Seagram in respect of such securities, when
used with reference to Seagram Options or Seagram SARs, means the holders
of Seagram Options or Seagram SARs (as applicable) shown from time to time
on the books of Seagram, and when used with reference to the Exchangeable
Shares, means the holders of Exchangeable Shares shown from time to time in
the register maintained by or on behalf of Vivendi Exchangeco in respect of
the Exchangeable Shares;
"Including" means including without limitation;
"Information" has the meaning ascribed thereto in Section 4.8(2);
"Interim Order" means the interim order of the Court, as the same may
be amended, in respect of the Arrangement, as contemplated by Section 2.3;
"Laws" means all statutes, regulations, statutory rules, orders, and
terms and conditions of any grant of approval, permission, authority or
license of any court, arbitral tribunal, Governmental Entity, statutory
body (including the OSC, the TSE, the PSE, the NYSE, NASDAQ, the SEC, the
CMF and the COB) or self-regulatory authority, and the term "applicable"
with respect to such Laws and in the context that refers to one or more
Persons, means that such Laws apply to such Person or Persons or its or
their business, undertaking, property or securities and emanate from a
Governmental Entity having jurisdiction over the Person or Persons or its
or their business, undertaking, property or securities;
"Material Adverse Change" or "Material Adverse Effect", when used in
connection with any party, means any change, effect, event or occurrence
(a) with respect to the financial condition, businesses or results of
operations of such party or those of its subsidiaries that is, or is
reasonably likely to be, materially adverse to such party and its
subsidiaries taken as a whole, other than any change, effect, event or
occurrence (i) relating to the economy or securities markets in general,
(ii) affecting the industries in which such party operates in general and
not specifically relating to (or having the effect of specifically relating
to or having a materially disproportionate effect (relative to most other
industry participants) on) such party and its subsidiaries, taken as a
whole, or (iii) relating to the announcement and performance of this
Agreement and the transactions contemplated by this Agreement and
compliance with the covenants set forth in this Agreement, or (b) that is
materially adverse to the ability of such party to consummate the
transactions contemplated by this Agreement;
"Measuring Period" has the meaning ascribed thereto in the Plan of
Arrangement;
"Material Fact" shall have the meaning ascribed thereto under the
Securities Act;
"NASDAQ" means The NASDAQ Stock Market;
"NYSE" means the New York Stock Exchange;
"Option Agreement" means the option agreement dated the date hereof
between Vivendi and Seagram;
"OSC" means the Ontario Securities Commission;
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"Outside Date" means, subject to Section 6.2(4), March 19, 2001 or
such later date as may be mutually agreed by the parties;
"PSE" means the Paris Bourse;
"Person" includes any individual, firm, partnership, limited
partnership, joint venture, venture capital fund, limited liability
company, unlimited liability company, association, trust, trustee,
executor, administrator, legal personal representative, estate, group, body
corporate, corporation, unincorporated association or organization,
Governmental Entity, syndicate or other entity, whether or not having legal
status, and any group (as defined in Section 13(d)(3) of the Exchange Act)
comprised of more than one Person;
"Plan of Arrangement" means the plan of arrangement substantially in
the form and content of Schedule F annexed hereto and any amendments or
variations thereto made in accordance with Section 6.1 hereof, Section 6.1
of the Plan of Arrangement or made at the direction of the Court in the
Final Order;
"Pre-Effective Date Period" shall mean the period from and including
the date hereof to and including the Effective Time;
"Publicly Disclosed by Seagram" means disclosed by Seagram in a public
filing made by it with the OSC, the TSE, the NYSE or the SEC from July 1,
1998 to the date hereof;
"Publicly Disclosed by Vivendi" means disclosed by Vivendi or Canal
(a) in a public filing made by Vivendi or Canal with the PSE, the COB, the
CMF, the NYSE, NASDAQ or the SEC or (b) in a registration statement
confidentially submitted to the SEC and made available to Seagram by
Vivendi prior to the date hereof, in each case from January 1, 1998 to the
date hereof;
"Regulatory Approvals" means those sanctions, rulings, consents,
orders, exemptions, waivers, permits and other approvals (including the
lapse, without objection, of a prescribed time under a statute or
regulation that states that a transaction may be implemented if a
prescribed time lapses following the giving of notice without an objection
being made) of Governmental Entities, regulatory agencies or self-
regulatory organizations, as set out in Schedule G hereto;
"Representatives" has the meaning ascribed thereto in Section 4.8(1);
"Seagram ACES" means 18,500,000 7.5% Adjustable Conversion Rate Equity
Security Units issued by Seagram and a subsidiary of Seagram;
"Seagram Acquisition Proposal" means any bona fide proposal or offer
with respect to (i) any merger, reorganization, consolidation,
amalgamation, arrangement, business combination, share exchange,
liquidation, dissolution, recapitalization, or similar transaction
involving Seagram or any Seagram Material Subsidiary or (ii) any direct or
indirect acquisition, purchase or sale of assets involving Seagram or any
Seagram Material Subsidiary representing 20% or more of the consolidated
assets (including shares of subsidiaries) of Seagram and its consolidated
subsidiaries, taken as a whole, or (iii) any direct or indirect
acquisition, purchase of or sale of, or tender or exchange offer (or
shareholders recapitalization) or similar transaction involving Seagram,
that if consummated would result in any Person (or shareholders of such
Person) owning securities representing 20% or more of the voting power of
Seagram (or the surviving or ultimate parent entity in such transaction),
in each case excluding the transactions contemplated by this Agreement and
any other proposal or offer made by Vivendi, Canal or their respective
affiliates;
"Seagram Circular" means, as the context requires, (i) the notice of
the Seagram Meeting and accompanying management information circular,
including all appendices thereto, to be sent to Seagram Shareholders in
connection with the Seagram Meeting and/or (ii) the prospectus included in
the Form F-4 pursuant to which the Vivendi Securities will be registered
under the 1933 Act;
"Seagram Common Shares" means the common shares in the capital of
Seagram;
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"Seagram Designees" means five designees of the Seagram Board of
Directors selected by Seagram to serve, as of the Effective Date, for an
initial four-year term, as members of the Board of Directors of Vivendi;
"Seagram Disclosure Letter" means that certain letter dated as of even
date herewith and delivered by Seagram to the Vivendi Parties and Canal and
in a form reasonably acceptable to the Vivendi Parties and Canal;
"Seagram Documents" has the meaning ascribed thereto in Section
3.1(k);
"Seagram Employees" has the meaning ascribed thereto in Section
3.1(j);
"Seagram Fee" has the meaning ascribed thereto in Section 6.3(1);
"Seagram IP" has the meaning ascribed thereto in Section 3.1(l);
"Seagram LYONs" means the zero coupon liquid yield option notes issued
by Seagram and a subsidiary of Seagram;
"Seagram Material Subsidiary" means any subsidiary of Seagram that is
a "Significant Subsidiary" as defined in Rule 1-02 of Regulation S-X of the
SEC;
"Seagram Meeting" means the special meeting of Seagram Shareholders,
including any adjournment or postponement thereof, to be called and held in
accordance with the Interim Order to consider the Arrangement;
"Seagram Options" means the stock options to purchase Seagram Common
Shares granted under the Seagram Stock Plans;
"Seagram Plans" has the meaning ascribed thereto in Section 3.1(j)(i);
"Seagram SARs" has the meaning ascribed thereto in Section 3.1(b);
"Seagram Shareholders" means the holders of Seagram Common Shares;
"Seagram Stock Plans" means the Seagram 1983 Stock Appreciation Right
and Stock Unit Plan, the Seagram Stock Plan for Non-Employee Directors, the
Seagram 1988 Stock Option Plan, the Seagram 1992 Stock Incentive Plan, and
the Seagram 1996 Stock Incentive Plan;
"Seagram Superior Proposal" means any bona fide written unsolicited
proposal made by a third party (other than Vivendi or its affiliates) which
if consummated would result in such third party (or the shareholders of
such third party) acquiring, directly or indirectly, securities
representing more than 50% of the voting power of the shares of Seagram (or
the surviving or ultimate parent entity in such transaction) or all or
substantially all the assets of Seagram and its subsidiaries, taken as a
whole, (i) on terms which the Seagram Board of Directors in good faith
reasonably concludes (following receipt of advice of its financial advisors
and outside counsel) would, if consummated, be superior from a financial
point of view to the Seagram Shareholders to the transactions contemplated
by this Agreement (including the terms of any proposal by Vivendi to amend
or modify the terms of the transactions contemplated by this Agreement),
taking into account all of the terms and conditions of such proposal and
such transactions and (ii) which is reasonably capable of being completed,
taking into account all financial, regulatory, legal and other aspects of
such proposal;
"SEC" means the United States Securities and Exchange Commission;
"Securities Act" means the Securities Act (Ontario) and the rules,
regulations and policies made thereunder, as now in effect and as they may
be amended from time to time prior to the Effective Date;
"Sofiee Meeting" means the extraordinary meeting of Sofiee
shareholders, including any adjournment or postponement thereof, to be
called and held in accordance with applicable Laws to consider the Sofiee
Resolution;
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"Sofiee Merger" means the merger of Vivendi with and into Sofiee as
part of the Vivendi/Canal Transactions;
"Sofiee Resolution" means the resolution of the holders of shares in
the capital of Sofiee to approve the Vivendi/Canal Transactions to the
extent applicable to Sofiee, including (i) the Sofiee Merger, (ii) the
election of the Seagram Designees, (iii) the adoption of the Vivendi
By-Laws and (iv) certain matters relating to the Arrangement;
"Subsidiary" means, with respect to a specified body corporate, any
body corporate of which more than 50% of the outstanding shares ordinarily
entitled to elect a majority of the board of directors thereof (whether or
not shares of any other class or classes shall or might be entitled to vote
upon the happening of any event or contingency) are at the time owned
directly or indirectly by such specified body corporate, and shall include
any body corporate, partnership, joint venture or other entity over which
it exercises direction or control or which is in a like relation to a
subsidiary;
"Support Agreement" means an agreement to be made among Vivendi,
Vivendi Holdings and Vivendi Exchangeco, substantially in the form and
content of Schedule H annexed hereto, with such changes thereto as the
parties hereto may agree;
"Tax" and "Taxes" have the respective meanings ascribed thereto in
Section 3.1(i)(iii);
"Tax Returns" means all returns, declarations, reports, information
returns and statements required to be filed with any taxing authority
relating to Taxes;
"Treasury Regulations" means the regulations promulgated under the
Code;
"Trustee" means the trustee to be chosen by Vivendi and Seagram,
acting reasonably, to act as trustee under the Exchange Trust Agreement,
and any successor trustee appointed under the Exchange Trust Agreement;
"TSE" means The Toronto Stock Exchange;
"U.S. GAAP" has the meaning ascribed thereto in Section 3.1(f);
"Vivendi" means prior to the completion of the Vivendi/Canal
Transactions, Vivendi and from and after the completion of the
Vivendi/Canal Transactions the surviving corporation resulting from the
Sofiee Merger;
"Vivendi ADRs" means the American depositary receipts of Vivendi, each
evidencing one Vivendi ADS;
"Vivendi ADSs" means the American depositary shares of Vivendi, each
representing one Vivendi Share;
"Vivendi Acquisition Proposal" means any bona fide proposal or offer
with respect to (i) any merger, reorganization, business combination, share
exchange, liquidation, dissolution, recapitalization, or similar
transaction involving Vivendi or any Vivendi Material Subsidiary that if
consummated would result in any Person (or the shareholders of such Person)
owning securities representing 50% or more of the voting power of Vivendi
(or the surviving or ultimate parent entity in such transaction) or (ii)
any direct or indirect acquisition, purchase or sale of assets involving
Vivendi or any Vivendi Material Subsidiary representing 50% or more of the
consolidated assets (including shares of its subsidiaries) of Vivendi and
its consolidated subsidiaries, taken as a whole, or (iii) any direct or
indirect acquisition, purchase or sale of, or tender or exchange offer (or
shareholders recapitalization), or similar transaction involving Vivendi,
that if consummated would result in any Person owning securities
representing 50% or more of the voting power of Vivendi (or the surviving
or ultimate parent entity in such transaction), in each case excluding the
transactions contemplated by this Agreement and any other proposal or offer
made by Canal, Seagram or their respective affiliates;
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"Vivendi By-Laws" means the by-laws of the surviving entity of the
Sofiee Merger, which by-laws shall be identical to the by-laws and statutes
of Vivendi as of the date of this Agreement, except that they shall reflect
those changes specified in the Vivendi Disclosure Letter;
"Vivendi/Canal Agreements" means the agreements specified in Schedule
I hereto and all other agreements necessary to effect the Sofiee Merger and
the other Vivendi/Canal Transactions;
"Vivendi/Canal Transactions" means the Sofiee Merger and the other
transactions set forth on Schedule I hereto;
"Vivendi Circular" means, as the context requires, (i) the circular to
be sent to, or put at the disposal of, the Vivendi Shareholders, including
the notice of the Vivendi Meeting and all appendices thereto, containing
information relating to the transactions contemplated herein and/or (ii)
the prospectus included in the Form F-4 pursuant to which the Vivendi
Shares to be issued to the Vivendi Shareholders pursuant to the Sofiee
Merger will be registered under the 1933 Act;
"Vivendi Disclosure Letter" means that certain letter dated as of even
date herewith and delivered by Vivendi to Seagram and in a form reasonably
acceptable to Seagram;
"Vivendi Documents" has the meaning ascribed thereto in Section
3.2(l)(i);
"Vivendi Fee" has the meaning ascribed thereto in Section 6.3(2);
"Vivendi Holdings" means 3045479 Nova Scotia Company, an unlimited
liability company existing under the laws of the Province of Nova Scotia
and wholly owned, directly or indirectly, by Vivendi through any number of
entities, each of which is a disregarded entity for U.S. Federal income tax
purposes;
"Vivendi IP" has the meaning ascribed thereto in Section 3.2(1)(l);
"Vivendi Material Subsidiary" means (i) Sofiee and (ii) any other
subsidiary of Vivendi that is a "Significant Subsidiary" as defined in Rule
1-02 of Regulation S-X of the SEC;
"Vivendi Meeting" means the extraordinary meeting of Vivendi
Shareholders, including any adjournment or postponement thereof, to be
called and held in accordance with applicable Laws to consider the Vivendi
Resolution;
"Vivendi Parties" means Vivendi and Vivendi Exchangeco;
"Vivendi Resolution" means the resolution of the Vivendi Shareholders
to approve the Vivendi/ Canal Transactions to the extent applicable to
Vivendi, including the Sofiee Merger, and certain matters relating to the
Arrangement;
"Vivendi Securities" means the Vivendi ADSs, the Vivendi ADRs, the
Vivendi Shares underlying the Vivendi ADSs, the Exchangeable Shares and the
Vivendi Voting Rights related thereto to be issued in connection with the
Arrangement and the Vivendi ADSs into which the Exchangeable Shares are
exchangeable;
"Vivendi Shares" means the shares in the capital of Vivendi;
"Vivendi Shareholders" means the holders of Vivendi Shares;
"Vivendi Superior Proposal" means any bona fide written unsolicited
proposal made by a third party (other than Canal or its affiliates) which
if consummated would result in such third party (or the shareholders of
such third party) acquiring, directly or indirectly, securities
representing more than 50% of the voting power of the shares of Vivendi (or
the surviving or ultimate parent entity in such transaction) or all or
substantially all the assets of Vivendi and its subsidiaries, taken as a
whole, (i) on terms which the Vivendi Board of Directors in good faith
reasonably concludes (following receipt of advice of its financial advisors
and outside counsel) would, if consummated, be superior from a financial
point of view to the Vivendi Shareholders to the transactions contemplated
by this Agreement (including the terms of any proposal by Seagram to amend
or modify the terms of the transactions contemplated by
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this Agreement), taking into account all of the terms and conditions of
such proposal and such transactions and (ii) which is reasonably capable of
being completed, taking into account all financial, regulatory, legal and
other aspects of such proposal; and
"Vivendi Voting Right" has the meaning ascribed thereto in the Plan of
Arrangement.
Section 1.2. Interpretation Not Affected by Headings, etc. The division
of this Agreement into Articles, Sections and other portions and the insertion
of headings are for convenience of reference only and shall not affect the
construction or interpretation hereof. Unless otherwise indicated, all
references to an "Article" or "Section" followed by a number and/or a letter
refer to the specified Article or Section of this Agreement. The terms "this
Agreement", "hereof", "herein" and "hereunder" and similar expressions refer to
this Agreement (including the Schedules hereto) and not to any particular
Article, Section or other portion hereof and include any agreement or instrument
supplementary or ancillary hereto. Unless the context otherwise requires, all
references to the "transactions contemplated by this Agreement" include the
Arrangement and the Vivendi/Canal Transactions.
Section 1.3. Currency. Unless otherwise specifically indicated, all sums
of money referred to in this Agreement are expressed in lawful money of the
United States.
Section 1.4. Number, etc. Unless the context otherwise requires, words
importing the singular shall include the plural and vice versa and words
importing any gender shall include all genders.
Section 1.5. Date for Any Action. In the event that any date on which any
action is required to be taken hereunder by any of the parties hereto is not a
Business Day, such action shall be required to be taken on the next succeeding
day which is a Business Day.
Section 1.6. Entire Agreement. This Agreement, the agreements and other
documents and agreements herein referred to and the Confidentiality Agreement
constitute the entire agreement between the parties hereto pertaining to the
terms of the Arrangement and supersede all other prior agreements,
understandings, negotiations and discussions, whether oral or written, between
the parties hereto with respect to the terms of the Arrangement and the
Vivendi/Canal Transactions.
Section 1.7. Schedules. The following Schedules are annexed to this
Agreement and are hereby incorporated by reference into this Agreement and form
part hereof:
Schedule A -- [intentionally omitted]
Schedule B -- Arrangement Resolution
Schedule C -- Custody Agreement
Schedule D -- Exchange Trust Agreement
Schedule E -- [intentionally omitted]
Schedule F -- Plan of Arrangement
Schedule G -- Regulatory Approvals
Schedule H -- Support Agreement
Schedule I -- Vivendi/Canal Transactions
Section 1.8. Accounting Matters. Unless otherwise stated, all accounting
terms used in this Agreement in respect of any party shall have the meanings
attributable thereto under generally accepted accounting principles applicable
to such party's published financial statements and all determinations of an
accounting nature in respect of any party required to be made shall be made in a
manner consistent with generally accepted accounting principles applicable to
such party's published financial statements and past practice.
Section 1.9. Knowledge. Each reference in this Agreement to "known" or
"knowledge" means, with respect to any party, the actual knowledge of such
party's executive officers after reasonable inquiry.
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ARTICLE 2
THE ARRANGEMENT
Section 2.1. Implementation Steps by Seagram. Seagram covenants in favour
of the Vivendi Parties, Sofiee and Canal that Seagram shall:
(a) as soon as reasonably practicable, apply in a manner acceptable to
the Vivendi Parties, acting reasonably, under Section 192 of the CBCA for
an order approving the Arrangement and for the Interim Order, and
thereafter proceed with and diligently seek the Interim Order;
(b) as soon as reasonably practicable, convene and hold the Seagram
Meeting for the purpose of considering the Arrangement Resolution;
provided, however, that Seagram shall be permitted to hold the Seagram
Meeting on such later date as the later of the Vivendi Meeting and the
Canal Meeting is held;
(c) except as required for quorum purposes, not adjourn (except as
required by Law or by valid shareholder action), postpone or cancel (or
propose for adjournment, postponement or cancellation) the Seagram Meeting
without the Vivendi Parties' prior written consent;
(d) subject to obtaining the approvals as are required by the Interim
Order, proceed with and diligently pursue the application to the Court for
the Final Order; and
(e) subject to obtaining the Final Order and the satisfaction or
waiver of the other conditions herein contained in favour of each party,
send to the Director, for endorsement and filing by the Director, the
Articles of Arrangement and such other documents as may be required in
connection therewith under the CBCA to give effect to the Arrangement.
Section 2.2. Implementation Steps by the Vivendi Parties, Canal and
Sofiee. (1) The Vivendi Parties covenant in favour of Seagram that the Vivendi
Parties shall:
(a) as soon as reasonably practicable, convene and hold the Vivendi
Meeting for the purpose of considering the Vivendi Resolution;
(b) except as required for quorum purposes, not adjourn (except as
required by Law), postpone or cancel (or propose for adjournment,
postponement or cancellation) the Vivendi Meeting without Seagram's prior
written consent; provided, however, that Vivendi shall be permitted to hold
the Vivendi Meeting on such later date as the date of the Seagram Meeting;
(c) use best efforts to prepare, complete and execute the
Vivendi/Canal Agreements in a manner consistent with Section 4.4(z), as
promptly as practicable, and use reasonable best efforts to satisfy each of
the conditions to closing set forth in the Vivendi/Canal Agreements as
promptly as practicable and diligently pursue and implement the
transactions contemplated thereby;
(d) incorporate and organize Vivendi Holdings no later than June 30,
2000;
(e) subject to obtaining the Final Order and the satisfaction or
waiver of the other conditions herein contained in its favour, Vivendi
shall (and shall cause Vivendi Holdings and Vivendi Exchangeco to) execute
and deliver the Support Agreement;
(f) subject to obtaining the Final Order and the satisfaction or
waiver of the other conditions herein contained in its favour, Vivendi
shall (and shall cause Vivendi Holdings to) execute and deliver the
Exchange Trust Agreement;
(g) subject to obtaining the Final Order and the satisfaction or
waiver of the other conditions herein contained in its favor, Vivendi shall
(and shall cause Vivendi Exchangeco to) execute and deliver the Custody
Agreement and issue the Vivendi Voting Rights in accordance with the
Custody Agreement; and
(h) use reasonable best efforts to implement each of the matters
contemplated by the Vivendi Resolution.
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(2) Canal covenants in favour of Seagram that Canal shall:
(a) as soon as reasonably practicable, convene and hold the Canal
Meeting for the purpose of considering the Canal Resolution;
(b) not adjourn (except as required by Law), postpone or cancel (or
propose for adjournment, postponement or cancellation) the Canal Meeting
without Seagram's prior written consent; provided, however, that Canal
shall be permitted to hold the Canal Meeting on such later date as the date
of the Seagram Meeting;
(c) use best efforts to prepare, complete and execute promptly the
Vivendi/Canal Agreements in a manner consistent with Section 4.4(z), and
use reasonable best efforts to satisfy each of the conditions to closing
set forth in the Vivendi/Canal Agreements as promptly as practicable and
diligently pursue and implement the transactions contemplated thereby; and
(d) use reasonable best efforts to implement each of the matters
contemplated by the Canal Resolution.
(3) Sofiee covenants in favour of Seagram that Sofiee shall:
(a) as soon as reasonably practicable, convene and hold the Sofiee
Meeting for the purpose of considering the Sofiee Resolution;
(b) not adjourn, postpone or cancel (or propose for adjournment,
postponement or cancellation) the Sofiee Meeting without Seagram's prior
written consent;
(c) use reasonable best efforts to satisfy each of the conditions to
closing set forth in the Vivendi/ Canal Agreements as promptly as
practicable and diligently pursue and implement the transactions
contemplated thereby; and
(d) use reasonable best efforts to implement each of the matters
contemplated by the Sofiee Resolution.
Section 2.3. Interim Order. The notice of motion for the application
referred to in Section 2.1(a) shall request that the Interim Order provide:
(a) for the class of Persons to whom notice is to be provided in
respect of the Arrangement and the Seagram Meeting and for the manner in
which such notice is to be provided;
(b) that the requisite approval for the Arrangement Resolution shall
be 66 2/3% of the votes cast on the Arrangement Resolution by Seagram
Shareholders present in person or by proxy at the Seagram Meeting (such
that each holder of Seagram Common Shares is entitled to one vote for each
Seagram Common Share held);
(c) that, in all other respects, the terms, restrictions and
conditions of the by-laws and articles of Seagram, including quorum
requirements and all other matters, shall apply in respect of the Seagram
Meeting; and
(d) for the grant of the Dissent Rights.
Section 2.4. Articles of Arrangement. The Articles of Arrangement shall,
with such other matters as are necessary to effect the Arrangement, implement
the Plan of Arrangement.
Section 2.5. Seagram Circular. As promptly as reasonably practicable
after the execution and delivery of this Agreement, Seagram shall complete the
Seagram Circular together with any other documents required by the Securities
Act, the 1933 Act or other applicable Laws in connection with the Arrangement,
and, as promptly as practicable after the execution and delivery of this
Agreement, Seagram shall, unless otherwise agreed by the parties and subject to
the contemporaneous mailing of the Vivendi Circular and the Canal Circular,
cause the Seagram Circular and other documentation required in connection with
the Seagram Meeting to be sent to each Seagram Shareholder and filed as required
by the Interim Order and applicable Laws.
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Section 2.6. Vivendi Circular. As promptly as reasonably practicable
after the execution and delivery of this Agreement, Vivendi shall complete the
Vivendi Circular together with any other documents required by the COB, the PSE,
the 1933 Act or other applicable Laws in connection with the Vivendi Meeting and
shall, or as otherwise agreed by the parties and subject to the contemporaneous
mailing of the Seagram Circular, cause the Vivendi Circular and other
documentation required in connection with the Vivendi Meeting to be sent to each
Vivendi Shareholder as required by applicable Laws.
Section 2.7. Canal Circular. As promptly as reasonably practicable after
the execution and delivery of this Agreement, Canal shall complete the Canal
Circular together with any other documents required by the COB, the PSE, the
1933 Act or other applicable Laws in connection with the Canal Meeting and
shall, or as otherwise agreed by the parties and subject to the contemporaneous
mailing of the Seagram Circular, cause the Canal Circular and other
documentation required in connection with the Canal Meeting to be sent to each
Canal Shareholder as required by applicable Laws.
Section 2.8. Securities Compliance. (1) Vivendi shall use its reasonable
best efforts to obtain all orders required from the applicable Canadian
securities regulatory authorities to permit the issuance and first resale of (a)
the Exchangeable Shares, the Vivendi Voting Rights and the Vivendi ADSs issued
pursuant to the Arrangement, and (b) the Vivendi ADSs provided from time to time
upon exchange of the Exchangeable Shares, in each case without further
qualification with or approval of or the filing of any prospectus, or the taking
of any proceeding with, or the obtaining of any further order, ruling or consent
from, any Governmental Entity or regulatory authority under any Canadian
federal, provincial or territorial securities or other Laws or pursuant to the
rules and regulations of any regulatory authority administering such Laws, or
the fulfillment of any other legal requirement in any such jurisdiction (other
than, with respect to such first resales, any restrictions on transfer by reason
of, among other things, a holder being a "control person" of Vivendi or Vivendi
Exchangeco for purposes of Canadian federal, provincial or territorial
securities Laws) (for greater certainty, in each case without affecting the need
to comply with applicable United States, French or other Laws).
(2) Each of Vivendi and Vivendi Exchangeco shall use its reasonable best
efforts to obtain the approval of the TSE for the listing of the Exchangeable
Shares, such listing to be effective prior to or as of the Effective Time.
(3) Vivendi and Canal shall use their respective best efforts to obtain the
approval of the COB and the PSE for the listing of the Vivendi Shares to be
issued in connection with the transactions contemplated by this Agreement, such
listing to be effective prior to or as of the Effective Time.
(4) Vivendi and Canal shall use their respective best efforts to obtain the
approval of the NYSE or NASDAQ, as applicable, for the listing of the Vivendi
ADRs and the Vivendi ADSs, such listing to be effective as of the time of
issuance of the Vivendi ADSs, whether pursuant to the Arrangement or to be
provided from time to time upon exchange of the Exchangeable Shares or the
exercise of the Seagram Converted Options.
(5) As promptly as reasonably practicable after the execution and delivery
of this Agreement, the Vivendi Parties shall file a registration statement on
Form F-4 (or other applicable form) (the "Form F-4"), in which (x) each of the
Canal Circular and the Vivendi Circular shall be included as a prospectus in
order to register under the 1933 Act the Vivendi Shares to be issued in
connection with the Vivendi/Canal Transactions and (y) the Seagram Circular
shall be included as a prospectus in order for Vivendi to register under the
1933 Act the Vivendi Securities, and shall use its reasonable best efforts to
cause the Form F-4 to become effective as soon as practicable after it is filed.
(6) Seagram and Vivendi shall take all such steps as may be required to
cause the transactions contemplated by Article 2 and any other dispositions of
Seagram equity securities and/or acquisitions of Vivendi equity securities
(including, in each case, derivative securities) in connection with this
Agreement or the transactions contemplated hereby by any individual who is a
director or officer of Seagram, to be exempt under Rule 16b-3 promulgated under
the Exchange Act.
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Section 2.9. Preparation of Filings, etc. (1) Vivendi, Canal and Seagram
shall use their respective reasonable best efforts to cooperate in the
preparation, seeking and obtaining of all circulars, filings, consents,
Regulatory Approvals and other approvals and other matters in connection with
this Agreement and the transactions contemplated by this Agreement. Each of
Vivendi, Canal and Seagram shall use its reasonable best efforts to have its
Circular cleared by the SEC and/or each other applicable Government Entity and
the Form F-4 declared effective by the SEC and to keep the Form F-4 effective as
long as is necessary to consummate the transactions contemplated hereby. Each of
Vivendi, Canal and Seagram shall, as promptly as practicable after receipt
thereof, provide the other parties copies of any written comments and advise the
other party of any oral comments with respect to its Circular or the Form F-4
received from the SEC or any other Governmental Entity. The parties shall
cooperate and provide the other with a reasonable opportunity to review and
comment on any amendment or supplement to the Circulars and the Form F-4 prior
to filing such with the SEC and/or each other applicable Government Entity, and
will provide each other with a copy of all such filings made. Each party will
advise the other parties, promptly after it receives notice thereof, of the time
when the Form F-4 has become effective, the issuance of any stop order, the
suspension of the qualification of any of the Vivendi Securities for offering or
sale in any jurisdiction, or any request by the SEC or any other Governmental
Entity for amendment of the Circulars or the Form F-4.
(2) Each of Vivendi, Canal and Seagram shall furnish to the other all such
information concerning it and its shareholders as may be required (and, in the
case of its shareholders, available to it) for the effectuation of the actions
described in Sections 2.5, 2.6, 2.7 and 2.8 and the foregoing provisions of this
Section 2.9, and each covenants that no information furnished by it (to its
knowledge in the case of information concerning its shareholders) in connection
with such actions or otherwise in connection with the consummation of the
transactions contemplated by this Agreement will contain any untrue statement of
a material fact or omit to state a material fact required to be stated in any
such document or necessary in order to make any information so furnished for use
in any such document not misleading in the light of the circumstances in which
it is furnished. Vivendi, Canal and Seagram shall use their respective
reasonable best efforts to cooperate in the preparation of the Seagram Circular,
the Canal Circular and the Vivendi Circular and shall cause the same to be
distributed to shareholders of Vivendi, Canal or Seagram, as applicable, and/or
filed with the relevant securities regulatory authorities and/or stock
exchanges.
(3) Vivendi, Canal and Seagram shall each promptly notify each other if at
any time before the Effective Time it becomes aware that the Seagram Circular,
Canal Circular or the Vivendi Circular, respectively, an application for an
order or any other document described in Section 2.8 contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading in light of the circumstances in which they are made, or that
otherwise requires an amendment or supplement to the Seagram Circular, the Canal
Circular or the Vivendi Circular or such application or other document. In any
such event, Vivendi, Canal and Seagram shall use their respective reasonable
best efforts to cooperate in the preparation of a supplement or amendment to the
Seagram Circular, the Canal Circular or the Vivendi Circular or such application
or other document, as required and as the case may be, and, if required, shall
cause the same to be distributed to shareholders of Vivendi, Canal or Seagram
and/or filed with the relevant securities regulatory authorities and/or stock
exchanges.
(4) Seagram shall ensure that the Seagram Circular complies with all
applicable Laws and, without limiting the generality of the foregoing, that the
Seagram Circular does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading in light of the circumstances in
which they are made (other than with respect to any information relating to and
provided by a Vivendi Party, Canal or any third party that is not an affiliate
of Seagram) and each of Vivendi and Canal shall provide all information
regarding it and the Vivendi Securities necessary to do so.
(5) Vivendi shall ensure that the Vivendi Circular and that the Form F-4
and Form S-8 comply with all applicable Laws and, without limiting the
generality of the foregoing, that the Vivendi Circular and such documents do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading in light of the circumstances in which they are made
(other than with respect to any information relating to and provided by
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Seagram or any third party that is not an affiliate of Vivendi), and Seagram
shall provide all information regarding it necessary to do so.
(6) Canal shall ensure that the Canal Circular complies with all applicable
Laws and, without limiting the generality of the foregoing, that the Canal
Circular and such documents do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements contained therein not misleading in light of the
circumstances in which they are made (other than with respect to any information
relating to and provided by Seagram or any third party that is not an affiliate
of Canal), and Seagram shall provide all information regarding it necessary to
do so.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of Seagram. Except as
Publicly Disclosed by Seagram or as set forth in the Seagram Disclosure Letter,
Seagram represents and warrants to and in favour of the Vivendi Parties and
Canal as follows and acknowledges that the Vivendi Parties and Canal are relying
upon such representations and warranties in connection with the matters
contemplated by this Agreement:
(a) Organization.
(i) Each of Seagram and the Seagram Material Subsidiaries has been
duly incorporated or formed under all applicable Laws, is validly
subsisting and has full corporate or legal power and authority to own its
properties and conduct its businesses as currently owned and conducted,
except, in the case of the Seagram Material Subsidiaries, where the failure
to be so incorporated or formed or subsisting or to have such power and
authority would not, individually or in the aggregate, have a Material
Adverse Effect on Seagram. All of the outstanding shares and other
ownership interests of the Seagram Material Subsidiaries which are held
directly or indirectly by Seagram are validly issued, fully paid and non-
assessable and all such shares and other ownership interests are owned
directly or indirectly by Seagram, free and clear of all material liens,
claims or encumbrances, or pursuant to restrictions on transfers contained
in articles or similar documents, and except as aforesaid there are no
outstanding options, rights, entitlements, understandings or commitments
(contingent or otherwise) regarding the right to acquire any such shares or
other ownership interests in any of the Seagram Material Subsidiaries.
(ii) Neither Seagram nor any Seagram Material Subsidiary has any
minority interest in any other corporation or entity which minority
interest is material in relation to the consolidated financial position of
Seagram.
(b) Capitalization. The authorized capital of Seagram consists of an
unlimited number of Seagram Common Shares and an unlimited number of Seagram
Preferred Shares, issuable in Series. As of May 31, 2000, there were 436,493,537
Seagram Common Shares and no Seagram Preferred Shares issued and outstanding. In
addition, as of May 31, 2000, options to acquire an aggregate of not more than
41,487,599 Seagram Common Shares were granted and outstanding under the Seagram
Stock Plans and obligations to issue up to 20,025,000 Seagram Common Shares in
respect of the Seagram ACES and 194,896 Seagram Common Shares in respect of the
Seagram LYONS were outstanding. Except as described in the preceding sentences
of this Section 3.1(b) or Section 3.1(a), there are no options, warrants,
securities, conversion privileges or other rights, agreements, arrangements or
commitments (pre-emptive, contingent or otherwise) obligating Seagram or any
Seagram Material Subsidiary to issue or sell any shares of capital stock of
Seagram or any of the Seagram Material Subsidiaries or securities or obligations
of any kind convertible into or exchangeable for any shares of Seagram or any
Seagram Material Subsidiary. As of May 31, 2000, there were issued and
outstanding 1,625,757 Seagram SARs. Except as set forth in the preceding
sentence, there are no outstanding stock appreciation rights or other rights
that are linked to the price of Seagram Common Shares or the book value, income
or any other attribute of Seagram or any of its subsidiaries ("Seagram SARs").
All outstanding Seagram Common Shares have been duly authorized and are validly
issued and outstanding as fully paid and non-assessable shares, free of
pre-emptive rights. Except as described in the preceding sentences of this
Section 3.1(b), there are no outstanding bonds, debentures or other evidences of
indebtedness of
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Seagram or any subsidiary having the right to vote (or that are convertible for
or exercisable into securities having the right to vote) with the holders of the
Seagram Common Shares on any matter. There are no outstanding contractual
obligations of Seagram or any of the Seagram Material Subsidiaries to
repurchase, redeem or otherwise acquire any of its outstanding securities or
with respect to the voting or disposition of any outstanding securities of any
of the Seagram Material Subsidiaries.
(c) Authority and No Violation.
(i) Seagram has the requisite corporate power and authority to enter
into this Agreement and the Option Agreement and to perform its obligations
hereunder and thereunder. The execution and delivery of this Agreement and
the Option Agreement by Seagram and the consummation by Seagram of the
transactions contemplated by this Agreement have been duly authorized by
its Board of Directors and no other corporate proceedings on its part are
necessary to authorize this Agreement and the Option Agreement or the
transactions contemplated hereby or thereby, other than:
(A) with respect to the Seagram Meeting, the Seagram Circular and
other matters relating solely thereto; and
(B) with respect to the completion of the Arrangement, the approval
of the Arrangement by the requisite votes cast by the Seagram
Shareholders as required by the Interim Order.
(ii) Each of this Agreement and the Option Agreement has been duly
executed and delivered by Seagram and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms,
subject to bankruptcy, insolvency and other applicable Laws affecting
creditors' rights generally, and to general principles of equity.
(iii) The Board of Directors of Seagram has (A) determined as of the
date hereof unanimously that the Arrangement is fair to the holders of the
Seagram Common Shares and is in the best interests of Seagram, (B) received
opinions from Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated to
the effect that, as of the date of this Agreement, the Exchange Ratio is
fair from a financial point of view to the Seagram Shareholders, and (C)
determined as of the date hereof to unanimously recommend that the Seagram
Shareholders vote in favour of the Arrangement. Seagram is not subject to a
shareholder rights plan or "poison pill" or similar plan.
(iv) The approval of this Agreement and the Option Agreement, the
execution and delivery by Seagram of this Agreement and the Option
Agreement and the performance by it of its obligations hereunder and
thereunder and the completion of the transactions contemplated hereby and
thereby, will not, subject to obtaining the Regulatory Approvals:
(A) result (with or without notice or the passage of time) in a
violation or breach of, require any consent to be obtained under or give
rise to any termination, purchase or sale rights or payment obligation
under any provision of:
(I) its or any Seagram Material Subsidiary's certificate of
incorporation, articles, by-laws or other charter documents;
(II) any Laws, judgment or decree (subject to obtaining the
Regulatory Approvals relating to Seagram), except to the extent that
the violation or breach of, or failure to obtain any consent under,
any Laws, judgment or decree would not, individually or in the
aggregate, have a Material Adverse Effect on Seagram; or
(III) except as would not, individually or in the aggregate,
have a Material Adverse Effect on Seagram, any contract, agreement,
license, franchise or permit to which Seagram or any Seagram Material
Subsidiary is party or by which it is bound or subject or is the
beneficiary;
(B) give rise to any right of termination or acceleration of
indebtedness of Seagram or any subsidiary, or cause any such
indebtedness to come due before its stated maturity, or cause any
available credit of Seagram or any subsidiary to cease to be available,
other than as would not, individually or in the aggregate, have a
Material Adverse Effect on Seagram;
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(C) except as would not, individually or in the aggregate, have a
Material Adverse Effect on Seagram, result in the imposition of any
encumbrance, charge or lien upon any of its assets or the assets of any
Seagram Material Subsidiary;
(D) except as would not, individually or in the aggregate, have a
Material Adverse Effect on Seagram, restrict, hinder, impair or limit
the ability of Seagram or any Seagram Material Subsidiary to carry on
the business of Seagram or any Seagram Material Subsidiary as and where
it is now being carried on; or
(E) result in any payment (including severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any
director, officer or employee of Seagram or any subsidiary or increase
any benefits otherwise payable under any Seagram Plan or result in the
acceleration of time of payment or vesting of any such benefits,
including the time of exercise of stock options.
No consent, approval, order or authorization of, or declaration or
filing with, any Governmental Entity is required to be obtained by
Seagram or its subsidiaries in connection with the execution and
delivery of this Agreement, the Option Agreement (other than the
approval of the TSE), the Exchange Trust Agreement and the Support
Agreement or the consummation by Seagram of the transactions
contemplated hereby or thereby other than (A) any approvals required by
the Interim Order, (B) the Final Order, (C) filings with the Director
under the CBCA, (D) the Regulatory Approvals relating to Seagram and (E)
any other consents, approvals, orders, authorizations, declarations or
filings of or with a Governmental Entity which have been set forth in
the Seagram Disclosure Letter, or which, if not obtained, would not,
individually or in the aggregate, have a Material Adverse Effect on
Seagram.
(d) No Defaults. Subject to obtaining the Regulatory Approvals relating to
Seagram, neither Seagram nor any of its subsidiaries is in default under, and
there exists no event, condition or occurrence which, after notice or lapse of
time or both, would constitute such a default under, any contract, agreement,
license or franchise to which it is a party which would, individually or in the
aggregate, have a Material Adverse Effect on Seagram.
(e) Absence of Certain Changes or Events. Since June 30, 1999 through to
the date hereof, each of Seagram and each Seagram Material Subsidiary has
conducted its business only in the ordinary course of business consistent with
past practice (except in connection with the transactions contemplated in this
Agreement) and there has not occurred a Material Adverse Change with respect to
Seagram (which has not been cured).
(f) Financial Statements; Contingent Liabilities. The audited consolidated
financial statements for Seagram as at and for each of the 12-month periods
ended on June 30, 1999, 1998 and 1997 and the unaudited consolidated financial
statements for the 3-month, 6-month and 9-month periods ended September 30,
1999, December 31, 1999 and March 31, 2000 have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP") (subject,
in the case of such unaudited financial statements, to the absence of notes and
to customary year-end adjustments that are not expected to be material in
amount); such financial statements present fairly, in all material respects, the
consolidated financial position and results of operations and cash flows of
Seagram and its subsidiaries as of the respective dates thereof and for the
respective periods covered thereby, subject, in the case of such unaudited
financial statements, to customary year-end adjustments that are not expected to
be material in amount. Except as Publicly Disclosed by Seagram (including on the
most recent consolidated balance sheet and the footnotes thereto included in the
Seagram Documents Publicly Disclosed by Seagram), Seagram and its subsidiaries
have not incurred any liabilities that are of a nature that would be required to
be disclosed on a balance sheet of Seagram and its subsidiaries or the footnotes
thereto prepared in conformity with U.S. GAAP, other than (i) liabilities
incurred in the ordinary course of business, (ii) liabilities incurred in
accordance with Section 4.3(a) hereof, (iii) liabilities for Taxes and (iv)
liabilities that, individually or in the aggregate, would not have a Material
Adverse Effect on Seagram.
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(g) Litigation, etc. As of the date of this Agreement, there is no claim,
action, proceeding or suit pending or, to the knowledge of Seagram, threatened
against Seagram or any Seagram Material Subsidiary before any court or
Governmental Entity that would, individually or in the aggregate, have a
Material Adverse Effect on Seagram. Neither Seagram nor any Seagram Material
Subsidiary, nor any of their respective assets and properties, is subject to any
outstanding judgment, order, writ, injunction or decree that would, individually
or in the aggregate, have a Material Adverse Effect on Seagram.
(h) Environmental. Except for any matters that would not, individually or
in the aggregate, have a Material Adverse Effect on Seagram:
(i) all operations of Seagram and the Seagram Material Subsidiaries
have been conducted, and are now, in compliance with all Environmental
Laws;
(ii) neither Seagram nor any Seagram Material Subsidiary is subject
to:
(A) any Environmental Law which, to the knowledge of Seagram,
requires or may reasonably be expected to require any material work,
repairs, construction, change in business practices or operations, or
expenditures;
(B) any written demand or written notice with respect to a breach
of or liability under any Environmental Laws applicable to Seagram or
any subsidiary; or
(C) any changes in the terms or conditions of any permits,
authorizations, certificates, registrations, approvals or consents
necessary under Environmental Laws for Seagram and its Material
Subsidiaries to own, lease or operate their properties or to conduct
their respective businesses as they are now being conducted
(collectively, "Environmental Permits") or any renewal, modification,
revocation, reissuance, alteration, transfer or amendment of such
Environmental Permits, or any review by, or approval of, any
Governmental Entity of such Environmental Permits that are required in
connection with the execution or delivery of this Agreement, the
consummation of the transactions contemplated hereby or the continuation
of business of Seagram or any subsidiaries following such consummation;
and
(iii) to the knowledge of Seagram, there is no reasonable basis for
any claim against Seagram or any of its current or former subsidiaries or
any of their respective predecessor entities, divisions, or any formerly
owned, leased, or operated properties or assets of the foregoing, under any
Environmental Laws or with respect to any Hazardous Substances.
(i) Tax Matters.
(i) Seagram and each of its subsidiaries have timely filed, or caused
to be timely filed, all Tax Returns required to be filed by them, and have
timely paid, or caused to be timely paid, all material amounts of Taxes due
and payable by them, except for any such failure to file or failure to pay
which would not, individually or in the aggregate, have a Material Adverse
Effect on Seagram.
(ii) Neither Seagram nor any of its subsidiaries has received any
written notification that any issues involving a material amount of Taxes
have been raised (and are currently pending) by the Canada Customs and
Revenue Agency, the United States Internal Revenue Service or any other
taxing authority, including, without limitation, any sales tax authority,
in connection with any of the Tax Returns filed or required to be filed,
which would, individually or in the aggregate, have a Material Adverse
Effect on Seagram. Neither Seagram nor any of its subsidiaries has taken
any action, or failed to take any action, or has knowledge of any fact,
agreement, plan or other circumstance that is reasonably likely to prevent
the Arrangement and the Vivendi/Canal Transactions from constituting a
transaction described in Section 351 of the Code.
(iii) "Tax" and "Taxes" means, with respect to any entity, all income
taxes (including any tax on or based upon net income, gross income, income
as specially defined, earnings, profits or selected items of income,
earnings or profits) and all capital taxes, gross receipts taxes,
environmental taxes, sales taxes, use taxes, ad valorem taxes, value added
taxes, transfer taxes, franchise taxes, license taxes, withholding
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taxes or other withholding obligations, payroll taxes, employment taxes,
Canada or Quebec Pension Plan premiums, excise, severance, social security
premiums, workers' compensation premiums, unemployment insurance or
compensation premiums, stamp taxes, occupation taxes, premium taxes,
property taxes, windfall profits taxes, alternative or add-on minimum
taxes, goods and services tax, customs duties or other taxes of any kind
whatsoever, together with any interest and any penalties or additional
amounts imposed by any taxing authority (domestic or foreign) on such
entity or for which such entity is responsible, and any interest,
penalties, additional taxes, additions to tax or other amounts imposed with
respect to the foregoing.
(iv) For purposes of this Section 3.1(i), the term "material amount of
Taxes" shall mean an amount of Taxes that is material to Seagram and its
subsidiaries taken as a whole.
(j) Pension, Employee Benefits and Employment.
(i) "Seagram Plan" shall mean each employee benefit, welfare,
supplemental unemployment benefit, bonus, pension, profit sharing, deferred
compensation, stock option, stock compensation, stock purchase, retirement,
hospitalization insurance, medical, dental, legal, disability, incentive
compensation, stock appreciation, restricted stock, phantom stock, thrift,
savings, cafeteria, paid time off, perquisite, fringe benefit, vacation,
severance, death benefit or other plan, program, policy or arrangement and
each collective bargaining agreement providing benefits to any current or
former directors, officers, employees or consultants of Seagram or any of
its subsidiaries ("Seagram Employees"), pursuant to which Seagram or any of
its subsidiaries has any current or future liabilities.
(ii) With respect to each Seagram Plan, no liability has been incurred
and there exists no condition or circumstances in connection with which
Seagram or any of its subsidiaries could be subject to any liability that
would, individually or in the aggregate, have a Material Adverse Effect on
Seagram, in each case under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), the Code, or any other applicable law, rule or
regulation.
(iii) As of the date of this Agreement, there is no labor dispute,
strike or work stoppage against Seagram or any of its subsidiaries pending
or, to the knowledge of Seagram, threatened which may interfere with the
business activities of Seagram or any of its subsidiaries, except where
such dispute, strike or work stoppage would not, individually or in the
aggregate, have a Material Adverse Effect on Seagram.
(k) Reports. Seagram has filed with the OSC, TSE, SEC and with the NYSE
true and complete copies of all material forms, reports, schedules, statements
and other documents required to be filed by it since July 1, 1998 (such forms,
reports, schedules, statements and other documents, including any financial
statements or other documents, including any schedules included therein, are
referred to as the "Seagram Documents"). The Seagram Documents at the time filed
(i) did not contain any misrepresentation of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (ii) complied in all material respects with the requirements of
applicable securities Laws. Seagram has not filed any material confidential
material change report with the OSC or any other securities authority or
regulator or any stock exchange or other self-regulatory authority which at the
date hereof remains confidential.
(l) Compliance with Laws. Since January 1, 1998, Seagram and the Seagram
Material Subsidiaries have complied with and are not in violation of any
applicable Laws, orders, judgments and decrees other than non-compliance or
violations which would not, individually or in the aggregate, have a Material
Adverse Effect on Seagram.
(m) Licences, etc. Seagram and each Seagram Material Subsidiary owns,
possesses, or has obtained and is in compliance with, all licences, permits,
certificates, orders, grants and other authorizations of or from any
Governmental Entity necessary to conduct its businesses as now conducted except
for such failure that would not, individually or in the aggregate, have a
Material Adverse Effect on Seagram.
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(n) Registration Rights. No holder of securities issued by Seagram has any
right to compel Seagram to register or otherwise qualify such securities for
public sale in Canada or the United States.
(o) Intellectual Property. None of Seagram nor any Seagram Material
Subsidiary has received written notice or is aware that its use of its material
registered trade-marks, service marks, copyrights, industrial designs, patents,
design patents and all applications therefor ("Seagram IP") infringes upon or
breaches the industrial or intellectual property rights of any other Person,
except with respect to any such infringements or breaches which would not,
individually or in the aggregate, have a Material Adverse Effect on Seagram.
Except as set forth in the Seagram Disclosure Letter, Seagram has not commenced
material legal proceedings relating to an infringement by any Person of the
Seagram IP. Seagram, to its knowledge, has or has rights to use all of the
intellectual property necessary to conduct the business of Seagram as currently
carried on except where the failure to do so would not, individually or in the
aggregate, have a Material Adverse Effect on Seagram.
(p) Non-Arm's Length Transactions. There are no contracts, commitments,
agreements, arrangements or other transactions between Seagram or any of its
subsidiaries, on the one hand, and any (i) officer or director of Seagram or any
of its subsidiaries, (ii) record or beneficial owner of five percent or more of
the voting securities of Seagram or (iii) affiliate of any such officer,
director or beneficial owner, on the other hand, except for contracts,
commitments, agreements, arrangements or other transactions that are either on
arm's length terms or, to the extent not on arm's length terms, would not,
individually or in the aggregate, have a Material Adverse Effect on Seagram.
Section 3.2. Representations and Warranties of the Vivendi Parties, Canal
and Sofiee. (1) Except as Publicly Disclosed by Vivendi or as set forth in the
Vivendi Disclosure Letter, each of the Vivendi Parties and Sofiee represent and
warrant to and in favour of Seagram as follows and acknowledge that Seagram is
relying upon such representations and warranties in connection with the matters
contemplated by this Agreement:
(a) Organization.
(i) Each of the Vivendi Parties and each of the Vivendi Material
Subsidiaries has been duly incorporated or formed under all applicable
Laws, is validly subsisting and has full corporate or legal power and
authority to own its properties and conduct its businesses as currently
owned and conducted, except, in the case of the Vivendi Material
Subsidiaries (other than Sofiee and Vivendi Exchangeco), where the failure
to be so incorporated or formed or subsisting or to have such power and
authority would not, individually or in the aggregate, have a Material
Adverse Effect on Vivendi. All of the outstanding shares and other
ownership interests of the Vivendi Material Subsidiaries which are held
directly or indirectly by Vivendi are owned directly or indirectly by
Vivendi, free and clear of all material liens, claims or encumbrances, or
pursuant to restrictions on transfers contained in articles or similar
documents.
(ii) All of the Vivendi Shares, Vivendi ADSs, Vivendi ADRs and the
Vivendi Voting Rights to be issued by Vivendi in connection with the
transactions contemplated by this Agreement, and all of the Exchangeable
Shares to be issued by Vivendi Exchangeco in connection with the
Arrangement and all Vivendi ADRs and Vivendi ADSs issuable upon exchange of
the Exchangeable Shares or exercise of Seagram Converted Options, will be,
when issued, duly authorized, validly issued, fully paid and non-
assessable. There shall be not less than 97,000,000 Vivendi Voting Rights
available for deposit with or for the account of the Custodian pursuant to
the Custody Agreement as of the Effective Time.
(b) Capitalization. The issued capital of Vivendi consists of 605,476,749
Vivendi Shares, Euro 5.50 nominal value each, as of April 28, 2000, which
excludes Vivendi Shares held in treasury by Vivendi or its subsidiaries. In
addition, as of April 28, 2000, options to acquire an aggregate of not more than
3,237,925 Vivendi Shares were granted and outstanding under Vivendi stock option
plans and obligations to issue up to 62,186,127 Vivendi Shares in respect of
convertible debt and other convertible instruments (and no other obligations to
issue capital stock of Vivendi existed as of such date). Neither Vivendi nor any
of its affiliates beneficially own any Seagram Shares.
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(c) Authority and No Violation.
(i) Each of the Vivendi Parties and Sofiee has the requisite corporate
power and authority to enter into this Agreement, the Option Agreement, the
Exchange Trust Agreement, the Support Agreement, the Custody Agreement and
the Vivendi/Canal Agreements and to perform its obligations hereunder and
thereunder, in each case to the extent it is a party thereto. The execution
and delivery of this Agreement, the Option Agreement, the Exchange Trust
Agreement, the Support Agreement, the Custody Agreement and the
Vivendi/Canal Agreements and the consummation by each of the Vivendi
Parties and Sofiee of the transactions contemplated by this Agreement have
been duly authorized by its Board of Directors and no other corporate
proceedings on its part are necessary to authorize this Agreement, the
Option Agreement, the Exchange Trust Agreement, the Support Agreement, the
Custody Agreement and the Vivendi/Canal Agreements or the transactions
contemplated hereby or thereby, other than:
(A) with respect to the Vivendi Meeting, the Vivendi Circular and
other matters relating solely thereto; and
(B) with respect to the Vivendi Resolution and the Sofiee
Resolution, the approval thereof by not less than two-thirds of the
votes cast by the applicable shareholders.
(ii) Each of this Agreement and the Option Agreement has been duly
executed and delivered by each of Vivendi and Sofiee, to the extent a party
thereto, and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, subject to bankruptcy,
insolvency and other applicable Laws affecting creditors' rights generally,
and to general principles of equity. Each of the Support Agreement, the
Custody Agreement, the Exchange Trust Agreement and the Vivendi/Canal
Agreements will be duly executed and delivered by each of the Vivendi
Parties (or its successor interest) and its subsidiaries, in each case to
the extent a party thereto and, when so executed and delivered, will
constitute their respective legal, valid and binding obligations,
enforceable against them in accordance with their respective terms, subject
to bankruptcy, insolvency and other applicable Laws affecting creditors'
rights generally, and to general principles of equity.
(iii) The Board of Directors of Vivendi has approved as of the date
hereof this Agreement and the transactions contemplated by this Agreement
(including the Vivendi/Canal Transactions). Vivendi is not subject to a
shareholder rights plan or "poison pill" or similar plan.
(iv) The approval of this Agreement, the Option Agreement, the
Exchange Trust Agreement, the Support Agreement, the Custody Agreement and
the Vivendi/Canal Agreements, the execution and delivery by the Vivendi
Parties, Sofiee and each of their respective subsidiaries, in each case, to
the extent a party thereto, of this Agreement, the Option Agreement, the
Exchange Trust Agreement, the Support Agreement, the Custody Agreement and
the Vivendi/Canal Agreements and the performance by each of them of their
respective obligations hereunder and thereunder and the completion of the
transactions contemplated hereby and thereby, will not, subject to
obtaining the Regulatory Approvals:
(A) result (with or without notice or the passage of time) in a
violation or breach of, require any consent to be obtained under or give
rise to any termination, purchase or sale rights or payment obligation
under any provision of:
(I) its or any Vivendi Material Subsidiary's certificate of
incorporation, articles, by-laws or other charter documents;
(II) any Laws, judgment or decree (subject to obtaining the
Regulatory Approvals relating to the Vivendi Parties), except to the
extent that the violation or breach of, or failure to obtain any
consent under, any Laws, judgment or decree would not, individually
or in the aggregate, have a Material Adverse Effect on Vivendi; or
(III) except as would not, individually or in the aggregate,
have a Material Adverse Effect on Vivendi, any contract, agreement,
license, franchise or permit to which Vivendi or any Vivendi Material
Subsidiary is party or by which it is bound or subject or is the
beneficiary;
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(B) give rise to any right of termination or acceleration of
indebtedness of any Vivendi Party or any subsidiary, or cause any such
indebtedness to come due before its stated maturity, or cause any
available credit of any Vivendi Party or any subsidiary to cease to be
available, other than as would not, individually or in the aggregate,
have a Material Adverse Effect on Vivendi;
(C) except as would not, individually or in the aggregate, have a
Material Adverse Effect on Vivendi, result in the imposition of any
encumbrance, charge or lien upon any of its assets or the assets of any
Vivendi Material Subsidiary; or
(D) except as would not, individually or in the aggregate, have a
Material Adverse Effect on Vivendi, restrict, hinder, impair or limit
the ability of Vivendi or any Vivendi Material Subsidiary to carry on
the business of Vivendi or any Vivendi Material Subsidiary as and where
it is now being carried on.
No consent, approval, order or authorization of, or declaration or
filing with, any Governmental Entity is required to be obtained by any
Vivendi Party, Sofiee or their respective subsidiaries in connection
with the execution and delivery of this Agreement, the Option Agreement
(other than the approval of the TSE), the Exchange Trust Agreement, the
Support Agreement, the Custody Agreement and the Vivendi/Canal
Agreements, in each case to the extent it is a party thereto, or the
consummation by any Vivendi Party or Sofiee of the transactions
contemplated hereby or thereby other than (A) the Regulatory Approvals
relating to the Vivendi Parties and Sofiee, (B) any filings required in
connection with the creation and issue of the Vivendi ADSs, (C) any
approval required in connection with the amendment to the articles of
Vivendi Exchangeco to create the Exchangeable Shares and (D) any other
consents, approvals, orders, authorizations, declarations or filings of
or with a Governmental Entity which have been set forth in the Vivendi
Disclosure Letter, or which, if not obtained, would not, individually or
in the aggregate, have a Material Adverse Effect on Vivendi.
(d) No Defaults. Subject to obtaining the Regulatory Approvals relating to
Vivendi, neither Vivendi nor any of its subsidiaries is in default under, and
there exists no event, condition or occurrence which, after notice or lapse of
time or both, would constitute such a default under, any contract, agreement,
license or franchise to which it is a party which would, individually or in the
aggregate, have a Material Adverse Effect on Vivendi.
(e) Absence of Certain Changes or Events. Since December 31, 1999 through
to the date hereof, each of Vivendi, Vivendi Exchangeco and each Vivendi
Material Subsidiary has conducted its business only in the ordinary course of
business consistent with past practice (except in connection with the
transactions contemplated in this Agreement) and there has not occurred a
Material Adverse Change with respect to Vivendi (which has not been cured).
(f) Financial Statements; Contingent Liabilities. The audited consolidated
financial statements for Vivendi as at and for each of the 12-month periods
ended on December 31, 1999, 1998 and 1997 have been prepared in accordance with
French generally accepted accounting principles ("French GAAP"); such financial
statements present fairly, in all material respects, the consolidated financial
position and results of operations and cash flows of Vivendi and its
subsidiaries as of the respective dates thereof and for the respective periods
covered thereby. Except as Publicly Disclosed by Vivendi (including on the most
recent consolidated balance sheet and the footnotes thereto included in the
Vivendi Documents Publicly Disclosed by Vivendi), Vivendi and its subsidiaries
have not incurred any liabilities that are of a nature that would be required to
be disclosed on a balance sheet of Vivendi and its subsidiaries or the footnotes
thereto prepared in conformity with French GAAP, other than (i) liabilities
incurred in the ordinary course of business, (ii) liabilities for Taxes and
(iii) liabilities that would not, individually or in the aggregate, have a
Material Adverse Effect on Vivendi.
(g) Litigation, etc. There is no claim, action, proceeding or suit pending
or, to the knowledge of Vivendi, threatened against Vivendi or any Vivendi
Material Subsidiary before any court or Governmental Entity that would,
individually or in the aggregate, have a Material Adverse Effect on Vivendi or
that would prevent or materially delay consummation of the transactions
contemplated by this Agreement or the
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Arrangement. Neither Vivendi nor any Vivendi Material Subsidiary, nor any of
their respective assets and properties, is subject to any outstanding judgment,
order, writ, injunction or decree that would, individually or in the aggregate,
have a Material Adverse Effect on Vivendi or that would prevent or materially
delay consummation of the transactions contemplated by this Agreement or the
Arrangement.
(h) Environmental. Except for any matters that would not, individually or
in the aggregate, have a Material Adverse Effect on Vivendi:
(i) all operations of Vivendi and the Vivendi Material Subsidiaries
have been conducted, and are now, in compliance with all Environmental
Laws; and
(ii) neither Vivendi nor any Vivendi Material Subsidiary is subject
to:
(A) any Environmental Law which, to the knowledge of Vivendi,
requires or may reasonably be expected to require any material work,
repairs, construction, change in business practices or operations, or
expenditures; or
(B) any written demand or written notice with respect to a breach
of or liability under any Environmental Laws applicable to Vivendi or
any subsidiary; and
(iii) to the knowledge of Vivendi, there is no reasonable basis for
any claim against Vivendi or any of its current or former subsidiaries or
any of their respective predecessor entities, divisions, or any formerly
owned, leased, or operated properties or assets of the foregoing, under any
Environmental Laws or with respect to any Hazardous Substances.
(i) Reports. Vivendi has filed with the PSE, the CMF and the COB true and
complete copies of all material forms, reports, schedules, statements and other
documents required to be filed by it since January 1, 1998 (such forms, reports,
schedules, statements and other documents, including any financial statements or
other documents, including any schedules included therein, are referred to as
the "Vivendi Documents"). The Vivendi Documents and any registration statements
confidentially submitted with the SEC prior to the date hereof that have been
made available to Seagram, at the time filed, (i) did not contain any
misrepresentation of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and (ii)
complied in all material respects with the requirements of applicable securities
Laws.
(j) Compliance with Laws. Since January 1, 1998, Vivendi and the Vivendi
Material Subsidiaries have complied with and are not in violation of any
applicable Laws, orders, judgments and decrees other than non-compliance or
violations which would not, individually or in the aggregate, have a Material
Adverse Effect on Vivendi.
(k) Licences, etc. Vivendi and each Vivendi Material Subsidiary owns,
possesses, or has obtained and is in compliance with, all licences, permits,
certificates, orders, grants and other authorizations of or from any
Governmental Entity necessary to conduct its businesses as now conducted except
for such failure that would not, individually or in the aggregate, have a
Material Adverse Effect on Vivendi.
(l) Intellectual Property. None of Vivendi nor any Vivendi Material
Subsidiary has received written notice or is aware that its use of its material
registered trademarks, service marks, copyrights, industrial designs, patents,
design patents and all applications therefor ("Vivendi IP") infringes upon or
breaches the industrial or intellectual property rights of any other Person,
except with respect to any such infringements or breaches which would not,
individually or in the aggregate, have a Material Adverse Effect on Vivendi.
Except as set forth in the Vivendi Disclosure Letter, Vivendi has not commenced
material legal proceedings relating to an infringement by any Person of the
Vivendi IP. Vivendi, to its knowledge, has or has rights to use all of the
intellectual property necessary to conduct the business of Vivendi as currently
carried on except where the failure to do so would not, individually or in the
aggregate, have a Material Adverse Effect on Vivendi.
(m) Tax Matters. Neither Vivendi nor any of its subsidiaries has taken any
action or failed to take any action, or has knowledge of any fact, agreement,
plan or other circumstance that is reasonably likely to prevent
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<PAGE> 546
the Arrangement and the Vivendi/Canal Transactions from constituting a
transaction described in Section 351 of the Code.
(2) Except as Publicly Disclosed by Vivendi or as set forth in the Canal
Disclosure Letter, Canal represents and warrants to and in favour of Seagram as
follows and acknowledges that Seagram is relying upon such representations and
warranties in connection with the matters contemplated by this Agreement:
(a) Organization. Each of Canal and the Canal Material Subsidiaries has
been duly incorporated or formed under all applicable Laws, is validly
subsisting and has full corporate or legal power and authority to own its
properties and conduct its businesses as currently owned and conducted, except,
in the case of the Canal Material Subsidiaries, where the failure to be so
incorporated or formed or subsisting or to have such power and authority would
not, individually or in the aggregate, have a Material Adverse Effect on Canal.
All of the outstanding shares and other ownership interests of the Canal
Material Subsidiaries which are held directly or indirectly by Canal are owned
directly or indirectly by Canal, free and clear of all material liens, claims or
encumbrances, or pursuant to restrictions on transfers contained in articles or
similar documents.
(b) Capitalization. The issued capital of Canal consists of 125,953,464
Canal Shares, Euro 0.75 nominal value each, as of the date hereof. There are
warrants, options or other rights to issue not more than 2,340,144 new Canal
Shares outstanding as of the date hereof (and no other obligations to issue
capital stock of Canal existed as of such date, except as provided in the
following sentence). In addition, there are options outstanding to acquire not
more than 2,034,400 Canal Shares, in each case subject to customary adjustments.
Neither Canal nor any of its affiliates beneficially own any (i) Seagram Shares
or (ii) except for a de minimus amount, Vivendi Shares.
(c) Authority and No Violation. (i) Canal has the requisite corporate
power and authority to enter into this Agreement and the Vivendi/Canal
Agreements to which it is a party and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement, the Option Agreement
and the Vivendi/Canal Agreements to which it is a party and the consummation by
Canal of the transactions contemplated by this Agreement have been duly
authorized by its Board of Directors and no other corporate proceedings on its
part are necessary to authorize this Agreement and the Vivendi/Canal Agreements
to which it is a party or the transactions contemplated hereby or thereby, other
than:
(A) with respect to the Canal Meeting, the Canal Circular and other
matters relating solely thereto; and
(B) with respect to the Canal Resolution, the approval thereof by not
less than two-thirds of the votes cast by the Canal Shareholders.
(ii) This Agreement has been duly executed and delivered by Canal and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency and other
applicable Laws affecting creditors' rights generally, and to general principles
of equity. Each of the Vivendi/Canal Agreements will be delivered by each of
Canal and its subsidiaries, in each case to the extent a party thereto and, when
so executed and delivered, will constitute their respective legal, valid and
binding obligations, enforceable against them in accordance with their
respective terms, subject to bankruptcy, insolvency and other applicable Laws
affecting creditors' rights generally, and to general principles of equity.
(iii) The Board of Directors of Canal has approved as of the date hereof
this Agreement and the transactions contemplated by this Agreement. Canal is not
subject to a shareholder rights plan or "poison pill" or similar plan.
(iv) The approval of this Agreement and the Vivendi/Canal Agreements, the
execution and delivery by Canal and each of its subsidiaries, in each case to
the extent a party thereto, of this Agreement, and the Vivendi/Canal Agreements
and the performance by each of them of their respective obligations hereunder
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<PAGE> 547
and thereunder and the completion of the transactions contemplated hereby and
thereby, will not, subject to obtaining the Regulatory Approvals:
(A) result (with or without notice or the passage of time) in a
violation or breach of, require any consent to be obtained under or give
rise to any termination, purchase or sale rights or payment obligation
under any provision of:
(I) its certificate of incorporation, articles, by-laws or other
charter documents;
(II) any Laws, judgment or decree (subject to obtaining the
Regulatory Approvals relating to Canal), except to the extent that the
violation or breach of, or failure to obtain any consent under, any
Laws, judgment or decree would not, individually or in the aggregate,
have a Material Adverse Effect on Canal; or
(III) except as would not, individually or in the aggregate, have a
Material Adverse Effect on Canal, any contract, agreement, license,
franchise or permit to which Canal or any Canal Material Subsidiary is
party or by which it is bound or subject or is the beneficiary;
(B) give rise to any right of termination or acceleration of
indebtedness of Canal or any subsidiary, or cause any such indebtedness to
come due before its stated maturity, or cause any available credit of Canal
or any subsidiary to cease to be available, other than as would not,
individually or in the aggregate, have a Material Adverse Effect on Canal;
(C) except as would not, individually or in the aggregate, have a
Material Adverse Effect on Canal, result in the imposition of any
encumbrance, charge or lien upon any of its assets or the assets of any
Canal Material Subsidiary; or
(D) except as would not, individually or in the aggregate, have a
Material Adverse Effect on Canal, restrict, hinder, impair or limit the
ability of Canal or any Canal Material Subsidiary to carry on the business
of Canal or any Canal Material Subsidiary as and where it is now being
carried on.
No consent, approval, order or authorization of, or declaration or filing
with, any Governmental Entity is required to be obtained by Canal or its
subsidiaries in connection with the execution and delivery of this
Agreement and the Vivendi/Canal Agreements, in each case to the extent it
is a party thereto, or the consummation by Canal of the transactions
contemplated hereby or thereby other than (A) the Regulatory Approvals
relating to Canal and (B) any other consents, approvals, orders,
authorizations, declarations or filings of or with a Governmental Entity
which have been set forth in the Canal Disclosure Letter, or which, if not
obtained, would not, individually or in the aggregate, have a Material
Adverse Effect on Canal.
(d) No Defaults. Subject to obtaining the Regulatory Approvals relating to
Canal, neither Canal nor any of its subsidiaries is in default under, and there
exists no event, condition or occurrence which, after notice or lapse of time or
both, would constitute such a default under, any contract, agreement, license or
franchise to which it is a party which would, individually or in the aggregate,
have a Material Adverse Effect on Canal.
(e) Absence of Certain Changes or Events. Since December 31, 1999 through
to the date hereof, each of Canal and each Canal Material Subsidiary has
conducted its business only in the ordinary and regular course of business
consistent with past practice (except in connection with the transactions
contemplated hereby) and there has not occurred a Material Adverse Change with
respect to Canal (which has not been cured).
(f) Financial Statements; Contingent Liabilities. The audited consolidated
financial statements for Canal as at and for each of the 12-month periods ended
on December 31, 1999, 1998 and 1997 have been prepared in accordance with French
GAAP; such financial statements present fairly, in all material respects, the
consolidated financial position and results of operations and cash flows of
Canal and its subsidiaries as of the respective dates thereof and for the
respective periods covered thereby. Except as Publicly Disclosed by Vivendi
(including on the most recent consolidated balance sheet and the footnotes
thereto included in the Canal Documents Publicly Disclosed by Vivendi), Canal
and its subsidiaries have not incurred any liabilities
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<PAGE> 548
that are of a nature that would be required to be disclosed on a balance sheet
of Canal and its subsidiaries or the footnotes thereto prepared in conformity
with French GAAP, other than (i) liabilities incurred in the ordinary course of
business, (ii) liabilities for Taxes and (iii) liabilities that would not,
individually or in the aggregate, have a Material Adverse Effect on Canal.
(g) Litigation, etc. There is no claim, action, proceeding or suit pending
or, to the knowledge of Canal, threatened against Canal or any Canal Material
Subsidiary before any court or Governmental Entity that would, individually or
in the aggregate, have a Material Adverse Effect on Canal or that would prevent
or materially delay consummation of the transactions contemplated by this
Agreement or the Arrangement. Neither Canal nor any Canal Material Subsidiary,
nor any of their respective assets and properties, is subject to any outstanding
judgment, order, writ, injunction or decree that would, individually or in the
aggregate, have a Material Adverse Effect on Canal or that would prevent or
materially delay consummation of the transactions contemplated by this Agreement
or the Arrangement.
(h) Environmental. Except for any matters that would not, individually or
in the aggregate, have a Material Adverse Effect on Canal:
(i) all operations of Canal and the Canal Material Subsidiaries have
been conducted, and are now, in compliance with all Environmental Laws; and
(ii) neither Canal nor any Canal Material Subsidiary is subject to:
(A) any Environmental Law which, to the knowledge of Canal,
requires or may reasonably be expected to require any material work,
repairs, construction, change in business practices or operations, or
expenditures; or
(B) any written demand or written notice with respect to a breach
of or liability under any Environmental Laws applicable to Canal or any
subsidiary; and
(iii) to the knowledge of Canal, there is no reasonable basis for any
claim against Canal or any of its current or former subsidiaries or any of
their respective predecessor entities, divisions, or any formerly owned,
leased, or operated properties or assets of the foregoing, under any
Environmental Laws or with respect to any Hazardous Substances.
(i) Reports. Canal has filed with the PSE, the CMF and the COB true and
complete copies of all material forms, reports, schedules, statements and other
documents required to be filed by it since January 1, 1998 (such forms, reports,
schedules, statements and other documents, including any financial statements or
other documents, including any schedules included therein, are referred to as
the "Canal Documents"). The Canal Documents at the time filed (i) did not
contain any misrepresentation of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
and (ii) complied in all material respects with the requirements of applicable
securities Laws.
(j) Compliance with Laws. Since January 1, 1998, Canal and the Canal
Material Subsidiaries have complied with and are not in violation of any
applicable Laws, orders, judgments and decrees other than non-compliance or
violations which would not, individually or in the aggregate, have a Material
Adverse Effect on Canal.
(k) Licences, etc. Canal and each Canal Material Subsidiary owns,
possesses, or has obtained and is in compliance with, all licences, permits,
certificates, orders, grants and other authorizations of or from any
Governmental Entity necessary to conduct its businesses as now conducted except
for such failure that would not, individually or in the aggregate, have a
Material Adverse Effect on Canal.
(l) Intellectual Property. None of Canal nor any Canal Material Subsidiary
has received written notice or is aware that its use of its material registered
trade-marks, service marks, copyrights, industrial designs, patents, design
patents and all applications therefor ("Canal IP") infringes upon or breaches
the industrial or intellectual property rights of any other Person, except with
respect to any such infringements or breaches which would not, individually or
in the aggregate, have a Material Adverse Effect on Canal. Except as set
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<PAGE> 549
forth in the Canal Disclosure Letter, Canal has not commenced material legal
proceedings relating to an infringement by any Person of the Canal IP. Canal, to
its knowledge, has or has rights to use all of the intellectual property
necessary to conduct the business of Canal as currently carried on except where
the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Canal.
Section 3.3. Survival. For greater certainty, the representations and
warranties of Seagram, Canal, the Vivendi Parties and Sofiee contained herein
shall survive the execution and delivery of this Agreement and shall terminate
at the Effective Time. Any investigation by a party hereto and its advisors
shall not mitigate, diminish or affect the representations and warranties of
another party to this Agreement.
ARTICLE 4
COVENANTS
Section 4.1. Retention of Goodwill. During the Pre-Effective Date Period,
each of Seagram, Vivendi and Canal will, subject to the fact that a transaction
involving its businesses is contemplated hereby, continue to carry on its
business in a manner consistent with prior practice, working to preserve the
attendant goodwill of such entities and to contribute to retention of that
goodwill to and after the Effective Date, but subject to the following
provisions of this Article 4. The following provisions of this Article 4 are
intended to be in furtherance of this general commitment. Nothing contained in
this Agreement shall give Vivendi or Canal, directly or indirectly, the right to
control or direct Seagram's operations and nothing contained in this Agreement
shall give Seagram, directly or indirectly, the right to control or direct
Vivendi's or Canal's operations during the Pre-Effective Date Period. During the
Pre-Effective Date Period, each of Vivendi, Canal and Seagram shall exercise,
consistent with, and subject to the limitations provided by, the terms and
conditions of this Agreement, complete control and supervision over its
operations.
Section 4.2. Consultation. Subject to applicable Law, any applicable
confidentiality agreements and the other provisions of this Agreement, during
the Pre-Effective Date Period, Seagram and its subsidiaries, on the one hand,
and Vivendi and Canal and their respective subsidiaries, on the other hand, will
consult on an ongoing basis with senior officers of the other party in order
that the representatives of the other party will become more familiar with the
philosophy and techniques of such company and its subsidiaries, as well as with
its business and financial affairs and in order to provide experience as a basis
for ongoing relationships following the Effective Date.
Section 4.3. Covenants of Seagram. (a) Seagram covenants and agrees that,
until the Effective Date or the earlier termination of this Agreement in
accordance with Article 6, except (i) with the consent of Vivendi on behalf of
the Vivendi Parties, Sofiee and Canal to any deviation therefrom, which consent
shall not be unreasonably withheld or delayed; (ii) with respect to any matters
disclosed in the Seagram Disclosure Letter; (iii) with respect to any matter
expressly contemplated by this Agreement or the Plan of Arrangement, including
the transactions involving the businesses of Seagram, Vivendi and Canal
contemplated hereby; or (iv) with respect to anything required by Laws, Seagram
will, and will cause its subsidiaries to:
(i) carry on its business in the ordinary course consistent with past
practice in all material respects and use its reasonable best efforts to
preserve intact its present business organization and preserve its
relationship with those having material business dealings with it to the
end that its goodwill and ongoing business shall not be impaired in any
material respect; provided, however, that no action by Seagram or its
subsidiaries with respect to matters specifically addressed by any other
provision of this Section 4.3(a) shall be deemed a breach of this Section
4.3(a)(i) unless such action would constitute a breach of one or more of
such other provisions;
(ii) not split, consolidate or reclassify any of the outstanding
shares of Seagram nor declare, set aside or pay any dividends on or make
any other distributions on or in respect of the outstanding shares of
Seagram other than declaration and payment of regular quarterly cash
dividends on the shares of Seagram in an amount not to exceed $0.165 per
share, and for any period ending on the Effective Date and commencing on
the record date for the prior dividend, a cash dividend in an amount not to
exceed a
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fraction, the numerator of which equals $0.165 per share multiplied by the
number of days comprising such period and the denominator of which is 90;
(iii) not amend the articles or by-laws of Seagram;
(iv) except to the extent otherwise provided in subsection (ix)
hereof, not set aside or issue, authorize or propose the sale, setting
aside or issuance of, or purchase or redeem or propose the purchase or
redemption of, or enter into any commitment, arrangement, undertaking or
agreement with respect to any of the foregoing in respect of, any shares in
Seagram's capital or of any Seagram Material Subsidiary thereof or any
class of securities convertible or exchangeable into, or rights, warrants,
calls or options to acquire, any such shares or other convertible or
exchangeable securities or bonds, debentures or other evidences of
indebtedness of Seagram or any subsidiary having the right to vote (or that
are convertible for or exercisable into securities having the right to
vote) with the holders of the Seagram Common Shares, except for (a)
transactions between two or more wholly-owned Seagram subsidiaries or
between a wholly-owned subsidiary of Seagram and Seagram, (b) the issuance
of Seagram Common Shares pursuant to fully vested and duly exercised
Seagram Options and upon the conversion of Seagram LYONs and Seagram ACESs
and (c) issuances pursuant to the Option Agreement;
(v) not, whether through its board of directors or otherwise,
accelerate the vesting of any unvested Seagram Options or accelerate the
release of, or the expiry date of any hold period relating to any Seagram
Common Shares, other than in connection with settling non-officer employee
terminations in the ordinary course of business consistent with past
practice;
(vi) not reorganize, amalgamate or merge Seagram or any of the Seagram
Material Subsidiaries with any other Person, except any Seagram Material
Subsidiary may merge with a wholly-owned subsidiary of Seagram;
(vii) not acquire or agree to acquire by amalgamating, merging or
consolidating with, purchasing a substantial equity interest in or a
substantial portion of the assets of or otherwise, any business or Person,
except acquisitions in existing or related lines of business of Seagram or
its subsidiaries the fair market value of the total consideration
(including the value of indebtedness acquired or assumed) for which does
not exceed the amount specified in the aggregate for such acquisitions in
Section 4.3(a)(vii) of the Seagram Disclosure Letter, none of which
acquisitions presents a material risk of making it materially more
difficult to obtain under applicable Laws any approval or authorization
required in connection with the transactions contemplated by this
Agreement;
(viii) other than (A) internal transfers between, or reorganizations
or consolidations involving, subsidiaries of Seagram or (B) dispositions
referred to in the Seagram Documents filed prior to the date hereof,
Seagram shall not, and shall not permit any of its subsidiaries, to sell,
lease or otherwise dispose of, or agree to sell, lease or otherwise dispose
of, any of its assets, if the fair market value of the total consideration
(including the value of any indebtedness acquired or assumed) therefor
exceeds the amount specified in the aggregate for all such dispositions in
Section 4.3(a)(viii) of the Seagram Disclosure Letter;
(ix) not:
(A) other than pursuant to existing Seagram Plans, in the case of
officers and directors of Seagram or any Seagram Material Subsidiary,
establish, adopt, enter into or modify in any material respect any
Seagram Plan generally applicable to the employees of Seagram or any
Seagram Material Subsidiaries, or grant any bonuses, salary increases,
stock options, pension or supplemental pension benefits, profit sharing,
retirement allowances, deferred compensation, incentive compensation,
severance or termination pay to or any other form of compensation or
with respect to any increase of benefits payable to, or make any loan or
other financial assistance to, any officers or directors of Seagram or
any Seagram Material Subsidiary, in each case other than in the ordinary
course of business and consistent with past practice (including upon or
in anticipation of any contract expiration); or
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<PAGE> 551
(B) other than in the ordinary course of business and consistent
with past practice or pursuant to existing Seagram Plans, in the case of
employees of Seagram who are not officers or directors, establish,
adopt, enter into or amend in any material respect any Seagram Plan
generally applicable to the employees of Seagram or any of its
subsidiaries, or grant any material bonuses, salary increases, pension
or supplemental pension benefits, profit sharing, retirement allowances,
deferred compensation, incentive compensation, severance or termination
pay or any other form of compensation or with respect to any material
increase of benefits payable, or make any material loans to such
employees;
(x) not guarantee the payment of any indebtedness for money borrowed
incur any indebtedness for money borrowed, issue or sell any debt
securities or warrants or other rights to acquire debt securities of
Seagram or any of its subsidiaries, guarantee any debt securities or enter
into any "keep well" or other agreement to maintain the financial statement
condition of another Person (other than a subsidiary) or enter into any
arrangement having the economic effect of any of the foregoing, except
short-term borrowings in the ordinary course of business consistent with
past practice;
(xi) not make any loans, advances or capital contributions to, or
investments in, any other Person, except for (A) in connection with
acquisitions permitted by Section 4.3(a)(vii), (B) loans or investments by
Seagram or a subsidiary of Seagram to or in Seagram or any subsidiary of
Seagram or, in the ordinary course of business consistent with past
practice, any other Person in which Seagram or any of its subsidiaries has
an existing equity interest, (C) artist and employee loans or advances made
in the ordinary course of business, or (D) in the ordinary course of
business consistent with past practice which are not, individually or in
the aggregate, material to Seagram and its subsidiaries taken as a whole
(provided that none of such transactions referred to in this clause (D)
presents a material risk of making it more difficult to obtain, under
applicable Laws, any approval or authorization required in connection with
the transactions contemplated by this Agreement);
(xii) other than in connection with acquisitions permitted by Section
4.3(a)(vii) or with investments permitted by Section 4.3(a)(xi) or as
provided in Seagram's capital expenditure plans made available to Vivendi
prior to the date of this Agreement, incur or commit to capital
expenditures prior to the Effective Date, other than in the ordinary course
consistent with past practice;
(xiii) not make any material changes to existing accounting practices
relating to Seagram or any subsidiary, except as required by Canadian or
U.S. Law, a Government Entity or by Canadian or U.S. generally accepted
accounting principles or make any Tax election that would have a Material
Adverse Effect on Seagram; and
(xiv) agree to take any actions described in Section 4.3(a)(i) through
4.3(a)(xiii);
(b) Except to the extent restricted by applicable Law, Seagram shall and
shall cause its subsidiaries to perform all obligations required or desirable to
be performed by Seagram or any of its subsidiaries under this Agreement, to
co-operate with Vivendi and Canal in connection therewith, and to do all such
other acts and things as may be necessary or desirable in order to consummate
and make effective, as soon as reasonably practicable, the transactions
contemplated by this Agreement and, without limiting the generality of the
foregoing, Seagram shall and where appropriate shall cause its subsidiaries to:
(i) use its reasonable best efforts to obtain the requisite approvals
of the Seagram Shareholders to the Arrangement, except to the extent that
the Board of Directors of Seagram has withdrawn, modified or qualified its
recommendation to shareholders in accordance with the terms of this
Agreement (provided that no such withdrawal, modification or qualification
will affect Seagram's obligation under Section 2.1(b));
(ii) apply for and use its reasonable best efforts to obtain all
Regulatory Approvals relating to Seagram or any of its subsidiaries and
other approvals, consents or waivers of Governmental Entities required or
desirable as soon as practicable in connection with the transactions
contemplated by this Agreement and, in doing so, to keep Vivendi and Canal
reasonably informed, subject to applicable Laws, as to the status of the
proceedings related to obtaining the Regulatory Approvals and other
approvals,
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<PAGE> 552
consents and waivers, including, but not limited to, (A) consulting with
Vivendi and Canal to the extent practicable in advance of any meeting or
conference with Governmental Entities or, in connection with any proceeding
by a private party, with any other Person, and to the extent permitted by
such applicable Governmental Entity or other Person, give Vivendi and Canal
the opportunity to attend and participate in such meetings and conferences,
in each case to the extent relating to the transactions contemplated by
this Agreement, (B) providing Vivendi and Canal with copies of all related
applications and notifications, in draft form, in order for Vivendi and
Canal to provide its reasonable comments, and (C) providing Vivendi and
Canal with copies of all material correspondence relating to the Regulatory
Approvals;
(iii) apply for and use its reasonable best efforts to obtain the
Interim Order and the Final Order;
(iv) defend all lawsuits or other legal, regulatory or other
proceedings to which it is a party challenging or affecting this Agreement
or the consummation of the transactions contemplated by this Agreement;
(v) use its reasonable best efforts to have lifted or rescinded any
injunction or restraining order or other order relating to Seagram, which
may materially adversely affect the ability of the parties to consummate
the transactions contemplated by this Agreement;
(vi) effect all necessary registrations, filings and submissions of
information required by Governmental Entities from Seagram or any of its
subsidiaries relating to the transactions contemplated by this Agreement,
including (A) an appropriate filing of a Notification and Report Form
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR Act"), with respect to the transactions contemplated by this
Agreement (which filing shall be made in any event within 10 Business Days
of the date hereof) and (B) appropriate filings with the European
Commission in accordance with applicable competition, merger control,
antitrust, investment or similar laws and any necessary filings under the
Investment Canada Act within the time periods specified thereunder, and, in
the case of both (A) and (B), to supply as promptly as practicable any
additional information and documentary material that may be requested
pursuant to such laws or by such authorities and to use reasonable best
efforts to cause the expiration or termination of the applicable waiting
periods under the HSR Act and the receipt of the requisite approvals under
such other laws or from such authorities as soon as practicable;
(vii) use its reasonable best efforts to obtain all necessary waivers,
consents and approvals required to be obtained by Seagram or any of its
subsidiaries in connection with the transactions contemplated by this
Agreement from other parties to any material loan agreements, leases or
other material contracts; and
(viii) use its reasonable best efforts to ensure that Seagram's
affiliates (for the purposes of Rule 145 under the 1933 Act) execute and
deliver to Vivendi, on or prior to the Effective Date, an Affiliate's
Letter;
(c) Seagram shall use its reasonable best efforts to carry out the terms of
the Interim Order and Final Order applicable to it and comply promptly with all
requirements which applicable Laws may impose on Seagram or its subsidiaries
with respect to the transactions contemplated by this Agreement; and
(d) Seagram shall not, and shall not permit any of its subsidiaries to,
take any action or fail to take any action that would reasonably be expected to
prevent the transactions contemplated by this Agreement from constituting a
transaction described in Section 351 of the Code.
Section 4.4. Covenants of the Vivendi Parties, Sofiee and Canal. Each of
the Vivendi Parties, Sofiee and Canal hereby covenants and agrees as to itself
and its subsidiaries:
(a) Except to the extent restricted by applicable Law, to perform all
obligations required or desirable to be performed by it or its subsidiaries
under this Agreement, to co-operate with Seagram in connection therewith,
and to do all such other acts and things as may be necessary or desirable
in order to consummate and make effective, as soon as reasonably
practicable, the transactions contemplated by this
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<PAGE> 553
Agreement and, without limiting the generality of the foregoing, each of
the Vivendi Parties, Sofiee and Canal shall and shall cause their
respective subsidiaries to:
(i) use its reasonable best efforts to obtain the requisite
approvals of the Vivendi Shareholders or the Canal Shareholders, as the
case may be, to the Vivendi Resolution or the Canal Resolution, as the
case may be, except to the extent that the Board of Directors of Vivendi
or Canal (as applicable) has withdrawn, modified or qualified its
recommendation to shareholders in accordance with the terms of this
Agreement (provided that no such withdrawal, modification or
qualification will affect Vivendi's or Canal's obligations, applicable,
under Section 2.2(1)(a) and Section 2.2(2)(a), as applicable);
(ii) apply for and use its reasonable best efforts to obtain all
Regulatory Approvals, or best efforts in the case of the Regulatory
Approvals listed in part B of Schedule G, relating to the Vivendi
Parties or Canal, as the case may be, or any of their respective
subsidiaries and other approvals, consents or waivers of Governmental
Entities required or desirable as soon as practicable in connection with
the transactions contemplated by this Agreement (including the
Vivendi/Canal Transactions) and, in doing so, to keep Seagram reasonably
informed, subject to applicable Laws, as to the status of the
proceedings related to obtaining the Regulatory Approvals and other
approvals, consents and waivers, including, but not limited to, (A)
consulting with Seagram the extent practicable in advance of any meeting
or conference with Governmental Entities or, in connection with any
proceeding by a private party, with any other Person, and to the extent
permitted by such applicable Governmental Entity or other Person, give
Seagram the opportunity to attend and participate in such meetings and
conferences, in each case to the extent relating to the transactions
contemplated by this Agreement, (B) providing Seagram with copies of all
related applications and notifications, in draft form, in order for
Seagram to provide its reasonable comments, (C) providing Seagram with
copies of all material correspondence relating to the Regulatory
Approvals and (D) cooperating with Seagram in making necessary
applications relating to any wholesale or retail beverage alcohol
licenses in connection with the transactions contemplated by this
Agreement;
(iii) defend all lawsuits or other legal, regulatory or other
proceedings to which it is a party challenging or affecting this
Agreement or the consummation of the transactions contemplated by this
Agreement;
(iv) use its reasonable best efforts to have lifted or rescinded
any injunction or restraining order or other order relating to the
Vivendi Parties or Canal, as the case may be, which may materially
adversely affect the ability of the parties to consummate the
transactions contemplated by this Agreement;
(v) effect all necessary registrations, filings and submissions of
information required by Governmental Entities from the Vivendi Parties,
Canal or any of their respective subsidiaries, as the case may be,
relating to the transactions contemplated by this Agreement, including
(A) an appropriate filing of a Notification and Report Form pursuant to
the HSR Act, with respect to the transactions contemplated by this
Agreement (which filing shall be made in any event within 10 Business
Days of the date hereof) and (B) appropriate filings with the European
Commission in accordance with applicable competition, merger control,
antitrust, investment or similar laws and any necessary filings under
the Investment Canada Act within the time periods specified thereunder,
and, in the case of both (A) and (B), to supply as promptly as
practicable any additional information and documentary material that may
be requested pursuant to such laws or by such authorities and to use
reasonable best efforts to cause the expiration or termination of the
applicable waiting periods under the HSR Act and the receipt of the
requisite approvals under such other laws or from such authorities as
soon as practicable;
(vi) use its reasonable best efforts to obtain all necessary
waivers, consents and approvals required to be obtained by Vivendi,
Canal or any of their respective subsidiaries, as the case may be, in
connection with the transactions contemplated by this Agreement from
other parties to any material loan agreements, leases or other material
contracts;
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<PAGE> 554
(vii) reserve for issuance, as required, Vivendi Shares in
connection with the transactions contemplated by this Agreement
(including upon exercise of options or convertible securities)
consistent with the provisions of the Support Agreement;
(viii) cause the articles of Vivendi Exchangeco to be amended to,
among other things, create the Exchangeable Shares, and otherwise to
reflect the transactions contemplated by this Agreement;
(ix) take all necessary actions, including in connection with the
Sofiee Merger, in order to be in a position to make available the
Vivendi Voting Rights as contemplated in the Plan of Arrangement and the
Custody Agreement;
(x) take all necessary actions for Vivendi, Vivendi Exchangeco or
Vivendi Holdings, as the case may be, to be in a position to deliver
Vivendi ADSs upon the exchange from time to time of the Exchangeable
Shares; and
(xi) increase, at Seagram's election, the Vivendi ADS Adjustment
Ratio (as defined in the Plan of Arrangement) as necessary to permit a
Vivendi Voting Right to be available in respect of each Exchangeable
Share and appropriate amendments to the economic equivalence provisions
in the Support Agreement and the Exchange Trust Agreement will be made
to ensure that the increased Vivendi ADS Adjustment Ratio is applied to
any required adjustments.
(b) to use its best efforts to (i) cause the Exchangeable Shares to be
listed on the TSE by the Effective Time and to maintain such listings for
so long as there are Exchangeable Shares outstanding (other than those
Exchangeable Shares held by Vivendi or any of its affiliates), and (ii)
ensure that Vivendi Exchangeco remains a "public corporation" within the
meaning of the Income Tax Act (Canada) for so long as there are
Exchangeable Shares outstanding (other than those Exchangeable Shares held
by Vivendi or any of its affiliates);
(c) to use its best efforts to cause the Vivendi ADSs and Vivendi ADRs
to be listed on the NYSE or NASDAQ by the Effective Time and be registered
under the Exchange Act prior to the Effective Date;
(d) to carry out the terms of the Interim Order and Final Order
applicable to it and use its reasonable best efforts to comply promptly
with all requirements which applicable Laws may impose on Vivendi, Canal or
their respective subsidiaries, as the case may be, with respect to the
transactions contemplated by this Agreement;
(e) to use its best efforts to cause the Vivendi Shares underlying the
Vivendi ADSs to be issued at the Effective Time to be listed on the PSE by
the Effective Time;
(f) to use its best efforts to cause (i) the Vivendi ADSs to be issued
from time to time upon the exchange of Exchangeable Shares to be listed on
the NYSE or NASDAQ at the time of issue, and (ii) the Vivendi Shares
underlying such Vivendi ADSs to be issued from time to time upon the
exchange of Exchangeable Shares and to be listed on the PSE at the time of
issue;
(g) until the Effective Date or the earlier termination of this
Agreement in accordance with Article 6, except (i) with the consent of
Seagram to any deviation therefrom, which consent shall not be unreasonably
withheld or delayed; (ii) with respect to any matters disclosed by Vivendi
in the Vivendi Disclosure Letter or Canal in the Canal Disclosure Letter;
or (iii) with respect to any matter expressly contemplated by this
Agreement or the Plan of Arrangement, including the transactions involving
the businesses of Seagram, Vivendi and Canal contemplated hereby, each of
Vivendi and Canal will, and will cause its subsidiaries to:
(i) not split, consolidate or reclassify any of the outstanding
Vivendi Shares, Vivendi ADRs or Vivendi ADSs or Canal Shares, as the
case may be, nor declare, set aside or pay any dividends on or make any
other distributions on or in respect of the outstanding Vivendi Shares
or Canal Shares, as the case may be, other than normal and customary
cash dividends on Vivendi Shares or Canal Shares, as the case may be;
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<PAGE> 555
(ii) not acquire or agree to acquire by amalgamating, merging or
consolidating with, purchasing a substantial equity interest in or a
substantial portion of the assets of or otherwise (other than the
Vivendi/Canal Transactions), any business or Person which acquisition or
other transaction (A) would reasonably be expected to prevent or
materially delay the transactions contemplated by this Agreement or (B)
is in the music, movie or United States television production or
distribution business for a total consideration acquisition price
(including the value of indebtedness acquired or assumed) greater than
Euro 500 million in a single transaction or series of related
transactions;
(iii) not amend the statutes or by-laws of Vivendi or Canal; or
(iv) not to amend, terminate (other than terminations that arise as
a result of termination of this Agreement), grant any waiver in respect
of or waive any condition under the Vivendi/Canal Agreements;
(h) to not take any action or fail to take any action that would
reasonably be expected to prevent the transactions contemplated by this
Agreement from constituting a transaction described in Section 351 of the
Code;
(i) Vivendi will (i) cast votes in respect of all the Canal Shares it
owns, and cause Sofiee and any other of its affiliates to cast votes in
respect of all the Canal Shares, it owns, (A) in favour of the Canal
Resolution, (B) against any action (including, for greater certainty, a
Canal Superior Proposal) that would impede, interfere with, or discourage
the transactions contemplated by this Agreement, and (C) against any action
that would result in any material breach by Canal of any representation,
warranty or covenant contained in this Agreement and (ii) take all steps
necessary, and cause Sofiee to take all steps necessary, to have Sofiee
approve the Canal Resolution;
(j) Vivendi will cast votes in respect of all the Sofiee Shares it
owns in favour of the Sofiee Resolution;
(k) Vivendi, Canal and their respective affiliates shall not, either
directly or through an agent, purchase or otherwise acquire, sell or
otherwise dispose of, or engage in any other transactions having the
economic effect of a purchase or sale in respect of, Vivendi Shares during
the period beginning on the tenth Business Day prior to the Measuring
Period and ending on the last Business Day after the Measuring Period;
(l) Vivendi will not, and it will cause Sofiee and its other
affiliates not to, between the date hereof and the Effective Time, (A)
sell, transfer, gift, assign, pledge, hypothecate, encumber or otherwise
dispose of any of the Canal Shares or shares of capital stock of Sofiee, or
enter into any agreement, arrangement or understanding in connection
therewith (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise), without having first obtained the
prior written consent of Seagram, or (B) grant any proxies or powers of
attorney, deposit any Canal Shares or shares of capital stock of Sofiee
into a voting trust or enter into a voting agreement, understanding or
arrangement with respect to such Canal Shares or shares of capital stock of
Sofiee;
(m) neither Vivendi nor Canal shall take any action which could
reasonably be expected to prevent the exchange by Canadian resident holders
of Seagram Common Shares for Exchangeable Shares from being treated as a
tax deferred transaction for purposes of the Canadian Tax Act to holders
who are otherwise eligible for such treatment;
(n) the Vivendi Securities to be issued in connection with the
Arrangement and the Vivendi ADSs to be provided upon the exchange from time
to time of the Exchangeable Shares and upon the exercise of the Seagram
Options will, in all cases, be duly and validly issued by Vivendi on their
respective dates of issue as fully paid and non-assessable securities;
(o) Vivendi and Canal shall take all actions required to treat Vivendi
Holdings and each direct or indirect parent of Vivendi Holdings (other than
Vivendi) as a disregarded entity under Section 301.7701-3 of the Treasury
Regulations and shall refrain from taking any actions that would prevent
any of such entities from being treated as a disregarded entity under
Section 301.7701-3 of the Treasury
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<PAGE> 556
Regulations. Vivendi Holdings and each of such other entities shall at all
times be wholly owned by Vivendi or by one of such other entities;
(p) with respect to Seagram Options and Seagram SARs:
(i) each Seagram Option granted prior to the Effective Time that
remains outstanding immediately prior to the Effective Time shall cease
to represent a right to acquire Seagram Common Shares and shall be
converted (each, as so converted, a "Seagram Converted Option"), at the
Effective Time, into an option to acquire, on the same terms and
conditions as were applicable under the Seagram Option (including,
without limitation, the practice of "rule of 65" retirement, applied on
a basis consistent with past practice, which allows an option holder who
is at least 50 years old to retire under the Seagram Stock Plans so long
as the sum of such holder's age and years of service is at least 65),
that number of Vivendi ADSs determined by multiplying the number of
Seagram Common Shares subject to such Seagram Option by the Exchange
Ratio, rounded up to the nearest whole Vivendi ADS, at a price per share
(rounded off to the nearest cent) equal to the per share exercise price
specified in such Seagram Option divided by the Exchange Ratio;
provided, however, that 50% of each holder's outstanding, unvested
Seagram Converted Options shall be immediately vested and exercisable at
the Effective Time (applied pro rata against each subsequent vesting
installment); provided, further, that the remainder of a holder's
outstanding, unvested Seagram Converted Options shall become immediately
vested and exercisable if, following the Effective Time, (A) such
holder's employment is terminated by Vivendi, Canal, Seagram or any of
their respective affiliates without Cause (as defined below) or (B) such
holder terminates his or her employment by reason of Vivendi, Canal,
Seagram or any of their respective affiliates requiring such holder to
relocate his or her primary place of employment by more than 35 miles.
For purposes of this Agreement, "Cause" shall mean (A) the holder's
conviction of, or plea of no contest to, a felony or (B) the holder's
willful malfeasance or willful misconduct in connection with his or her
duties to Seagram, or the holder's willful refusal to perform his or her
duties which, in each case, results in demonstrable harm to the
financial condition or business reputation of Vivendi, Canal, Seagram or
any of their respective affiliates;
(ii) each Seagram SAR granted prior to the Effective Time that
remains outstanding immediately prior to the Effective Time shall be
converted so that the number and kind of shares subject to such right
and the exercise price thereof (if any) shall be adjusted, at the
Effective Time, in the same manner as provided in Section 4.4(p)(i)
above for the conversion of Seagram Options;
(iii) as soon as practicable after the Effective Time, Vivendi
shall deliver or cause to be delivered to the holders of Seagram
Converted Options and Seagram SARs appropriate notices setting forth
such holders' rights pursuant to the respective Seagram Stock Plans and
agreements evidencing the grants of such Seagram Converted Options and
Seagram SARs and stating that such Seagram Converted Options and Seagram
SARs and agreements have been assumed by Vivendi or Seagram as Vivendi
shall determine and shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section 4.4(p)
after giving effect to the transactions hereunder and the terms of the
Seagram Stock Plans); and
(iv) prior to the Effective Time, Vivendi shall take all necessary
action to assume or have Seagram assume as of the Effective Time all
obligations undertaken by Vivendi under this Section 4.4(p) and to adopt
at the Effective Time the Seagram Stock Plans and each Seagram Converted
Option and Seagram SAR and to take all other actions called for by this
Section 4.4(p), including the reservation, issuance and listing by
Vivendi of a number of Vivendi ADSs at least equal to the number of
Vivendi ADSs that will be subject to Seagram Converted Options and
Seagram SARs; provided, however, that nothing in subsections (iii) and
(iv) hereof shall relieve Vivendi of its obligations to provide Vivendi
ADSs to satisfy all obligations hereunder, and Vivendi hereby guarantees
the performance of such obligations by Seagram in any event. No later
than the Effective Time, Vivendi shall file a registration statement on
Form S-8 (or any successor or, including if Form S-8 is not available,
other appropriate forms) ("Form S-8") with respect to the Vivendi ADSs
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<PAGE> 557
subject to such Seagram Converted Options and Seagram SARs and shall
maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such
options remain outstanding;
(q) with respect to any Seagram North American retiree medical and
life plan, neither Vivendi nor Canal shall, and they shall cause Seagram
not to, amend or terminate such plan following the Effective Time in any
manner which results in the reduction or elimination of the benefits
available thereunder or increases in costs, other than any copayment and
cost sharing increases (which may be continued in the same proportions to
Seagram-provided portions of cost) to any former Seagram Employee (and his
or her eligible dependents) who is receiving such benefits thereunder as of
the date hereof, or any active Seagram Employee (and his or her eligible
dependents) who would be eligible for such benefits if he or she retired on
the Effective Date (or who, as of the Effective Date, is within two years
of being able to retire and receive benefits thereunder);
(r) until the second anniversary of the Effective Date (or longer, if
required by Law), Vivendi and/or Canal shall, or shall cause Seagram or its
subsidiaries to, provide each Seagram Employee (who is employed on the
Effective Time and who continues his or her employment with Vivendi, Canal,
Seagram or any of their respective affiliates) with a base salary at least
equal to that provided to such Seagram Employee immediately prior to the
Effective Time, and overall employee benefits (but excluding for these
purposes any retention bonuses or plans that provide for equity or
equity-based compensation) that are no less favorable, in the aggregate,
than those provided immediately prior to the Effective Time to Seagram
Employees generally, except for any changes made to comply with applicable
Law or tax qualification nondiscrimination rules. Vivendi and/or Canal
shall, or shall cause Seagram to, maintain the severance related provisions
of existing Seagram Plans as currently administered and to provide the
current cash severance payments required thereunder, for at least two years
following the Effective Time, to the Seagram Employees, reduced by any
severance payments otherwise required under existing severance and
employment agreements or applicable Law (unless, with respect to the
severance benefit, no such reduction is permitted or provided for);
provided, however, that any Seagram Employee eligible to receive severance
under a Seagram Plan but for the transactions contemplated herein, shall be
deemed so eligible. Seagram Employees shall be credited for service with
Seagram and its current and former affiliates for all purposes under each
employee benefit plan, program or arrangement of Vivendi, Canal or their
respective affiliates in which such employees are eligible to participate
(unless such credit would result in a duplication of benefits). If Seagram
Employees become eligible to participate in a medical, dental or health
plan, program or arrangement of Vivendi, Canal or their respective
affiliates, such arrangement sponsor shall cause such arrangement to (i)
waive any preexisting condition limitations (to the extent such limitations
were inapplicable to a Seagram Employee immediately before such arrangement
was so made available to such Seagram Employee) and (ii) honor any
deductible and out-of-pocket expenses incurred by the Seagram Employees and
their dependents under similar Seagram Plans during the portion of the plan
year prior to such participation. Nothing in this Agreement shall restrict,
limit or interfere with the ability (after the Effective Time) of Seagram,
Vivendi, Canal or their respective affiliates to terminate, amend or
replace any particular agreement, plan or program, or terminate the
employment of any person, provided that the requirements of Sections 4.4(p)
through (w) are otherwise satisfied;
(s) Seagram shall be permitted to award a bonus, in respect of
Seagram's fiscal year 2000, to each Seagram Employee who currently
participates in a Seagram bonus plan, pursuant to the existing terms and
conditions of such plan on the date hereof. With respect to Seagram's
fiscal year 2001 and any stub period between the end of fiscal year 2001
and the beginning of calendar year 2002 ("Stub Period"), Seagram shall be
permitted to award a bonus to each Seagram Employee who participates in a
Seagram bonus plan, in an amount no less than 80% of such employee's target
bonus as of the Effective Time, or one half thereof in the case of the Stub
Period pursuant to the existing terms and conditions of such plan on the
date hereof, provided, however, if any such employee is terminated by
Vivendi, Canal, Seagram or any of their respective affiliates without
Cause, such employee will be entitled to receive an amount equal to 80% of
his or her target bonus as of the Effective Time, or one-half thereof in
the case of the Stub
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Period, prorated based on the number of days in fiscal year 2001 or the
Stub Period, as applicable, prior to such termination;
(t) Vivendi shall, or shall cause Seagram to, provide as a retention
pool the amount set forth on the Seagram Disclosure Letter, for the purpose
of retaining the services of selected key Seagram Employees through the
Effective Time and thereafter. Prior to the Effective Time, the CEO of
Seagram, in close cooperation with the CEO of Vivendi, shall select those
Seagram Employees who may receive awards from such pool, shall establish
any criteria for allocating such awards and shall determine the final
allocation of awards from such pool. Fifty percent of such awards shall be
paid in cash, in a lump sum, at the Effective Time, with the balance
payable in cash on the first anniversary of the Effective Time (provided
the recipient remains employed by Seagram, Vivendi, Canal or any of their
respective affiliates through such dates, or is terminated without Cause
prior to such dates);
(u) Seagram, Vivendi and Canal agree to cooperate reasonably during
the period prior to the Effective Time to ensure the continuity of the
workforce of Seagram and its subsidiaries and to preserve the human
resources of Seagram and its subsidiaries;
(v) effective as of the Effective Time, Vivendi expressly assumes the
obligations and liabilities under the termination protection agreements and
employment agreements set forth on the Seagram Disclosure Letter between
Seagram and various employees;
(w) Seagram shall enter into the employment agreement and other
arrangements contemplated by the Seagram Disclosure Letter, to be effective
as of the Effective Time, in accordance with the terms and conditions
disclosed in the Seagram Disclosure Letter, and such employment agreement
and other arrangements shall continue in effect from and after the
Effective Time;
(x) the parties to this Agreement agree that provision of charitable
contributions and community support serves a number of important goals.
Vivendi and its subsidiaries (including Seagram following the Effective
Time) currently intend to continue, after the Effective Time, to provide
charitable contributions and community support within each of the
jurisdictions in which Seagram conducts its business at levels comparable
to those Seagram and its subsidiaries have historically provided within
such jurisdictions;
(y) Vivendi shall take all necessary actions (including, in connection
with any proposed preemptive rights offering, make any necessary securities
laws filing) to ensure that all holders of Vivendi Shares or Vivendi
Securities, regardless of jurisdiction of residence, are entitled to all
the benefits (including the right to acquire Vivendi Securities pursuant to
preemptive rights) related to such Vivendi Shares or Vivendi Securities to
which holders of Vivendi Shares are entitled pursuant to French Law;
(z) Vivendi, Sofiee and Canal shall provide Seagram with a reasonable
opportunity to review and comment upon the agreements related to the
creation of the Vivendi ADSs and Vivendi ADRs and each of the Vivendi/Canal
Agreements, in each case prior to the execution and delivery of such
agreements, and such agreements shall be reasonably acceptable to Seagram.
Vivendi, Sofiee and Canal agree that the Vivendi/Canal Transactions shall
be effected by them in the manner and on the terms specified in Schedule I,
including application of the exchange ratio specified therein, and on such
other terms and agreements as are reasonably acceptable to Seagram;
(aa) At the request of Seagram, Vivendi shall enter into a
supplemental agreement pursuant to the Purchase Contract Agreement, dated
as of June 21, 1999, between Seagram and The Bank of New York whereby
Vivendi shall assume the obligations of Seagram under the Seagram ACES
(which supplemental agreement shall include appropriate provisions pursuant
to which holders of Seagram ACES shall thereafter be entitled to purchase
Vivendi ADSs in lieu of Seagram Common Shares); and
(bb) Vivendi, Sofiee and Vivendi Exchangeco shall increase, at
Seagram's election, the Vivendi ADS Adjustment Ratio (as defined in the
Plan of Arrangement) and decrease the Exchange Ratio applicable to
Exchangeable Elected Shares (as defined in the Plan of Arrangement) as
necessary to permit a Vivendi Voting Right to be available in respect of
each Exchangeable Share, and appropriate
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amendments to the economic equivalence provisions in the Support Agreement
and the Exchange Trust Agreement will be made in connection therewith to
ensure that the increased Vivendi ADS Adjustment Ratio is applied to any
required adjustments.
Section 4.5. Covenants Regarding Non-Solicitation of Seagram. (1) Seagram
shall not, directly or indirectly, through any officer or director of Seagram or
any of its subsidiaries, and shall use its reasonable best efforts to cause its
and its subsidiaries' employees, agents and representatives (including any
investment banker, lawyer or accountant) not to (i) solicit, initiate, knowingly
encourage or otherwise facilitate (including by way of furnishing information)
the initiation of any inquiries or proposals regarding a Seagram Acquisition
Proposal or (ii) participate in any discussions or negotiations regarding, or
provide any confidential information with respect to, any Seagram Acquisition
Proposal. None of Seagram or the Board of Directors of Seagram shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Vivendi or Canal the approval or recommendation of the Board of
Directors of Seagram or any committee thereof of the transactions contemplated
by this Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Seagram Acquisition Proposal or (iii) accept or enter into, or
propose publicly to accept or enter into, any letter of intent, agreement in
principle, merger agreement, acquisition agreement, option agreement or voting
agreement related to any Seagram Acquisition Proposal.
(2) Notwithstanding Section 4.5(1) and any other provision of this
Agreement, the Board of Directors of Seagram shall be permitted to (A) to the
extent applicable, comply with Rule 14a-9, Rule 14d-9 and Rule 14e-2 promulgated
under the Exchange Act or Section 99 of the Securities Act with regard to any
Seagram Acquisition Proposal, or make any other disclosure required by
applicable Law so long as any such disclosure rejects any Seagram Acquisition
Proposal and reaffirms its recommendation of the transactions contemplated by
this Agreement, or take any other action to the extent ordered or otherwise
mandated by any court of competent jurisdiction, (B) withdraw, modify or qualify
(or propose to withdraw, modify or qualify), in any manner adverse to Vivendi or
Canal, the approval or recommendation of the transactions contemplated by this
Agreement, or (C) engage in any discussions or negotiations with, or provide any
information to, any Person in response to a Seagram Acquisition Proposal by any
such Person, if and only to the extent that, in any such case referred to in
clause (B) or (C), (i) the Seagram Meeting shall not have occurred, (ii) (x) in
the case of clause (B) above, it has received an unsolicited written Seagram
Acquisition Proposal and its Board of Directors concludes in good faith that
such Seagram Acquisition Proposal constitutes a Seagram Superior Proposal and
(y) in the case of clause (C) above, its Board of Directors concludes in good
faith there is a reasonable likelihood that its Board of Directors, after taking
the steps described in clause (C) above, would determine that such Seagram
Acquisition Proposal could reasonably constitute a Seagram Superior Proposal,
(iii) in the case of clause (B) or (C) above, its Board of Directors, after
consultation with outside counsel, determines in good faith that the failure to
take such action would be inconsistent with its fiduciary duties under
applicable law, (iv) prior to providing any confidential information or data to
any Person in connection with a Seagram Acquisition Proposal by any such Person,
its Board of Directors receives from such Person an executed confidentiality
agreement having provisions that are customary in such agreements, as advised by
counsel, provided that if such confidentiality agreement contains provisions
that are less restrictive than the comparable provisions, or omits restrictive
provisions, contained in the Confidentiality Agreement, then the Confidentiality
Agreement will be deemed to be amended to contain only such less restrictive
provisions or to omit such restrictive provisions, as the case may be, and (v)
prior to providing any information or data to any Person or entering into
discussions or negotiations with any Person, Seagram notifies Vivendi promptly
of such inquiries, proposals or offers received by, any such information
requested from, or any such discussions or negotiations sought to be initiated
or continued with, any of its representatives indicating, in connection with
such notice, the name of such Person and the material terms and conditions of
such inquiries, proposals or offers, and thereafter keeps Vivendi informed with
respect to the status of such inquiries, proposals or offers (including any
change to the material terms thereof).
Notwithstanding anything to the contrary herein, upon taking any of the
actions permitted by clause (B) of Section 4.5(2), Seagram may, to the extent
permitted by applicable Law, convene and hold the Seagram Meeting as soon as
possible and earlier than any then scheduled date. Seagram shall, and shall
cause the officers, directors, representatives and agents of Seagram and its
subsidiaries to, cease immediately all current
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discussions and negotiations as of the date of this Agreement regarding any
proposal that constitutes, or could reasonably likely constitute, a Seagram
Acquisition Proposal, and shall promptly request the return or destruction of
all confidential information provided in connection therewith.
(3) Seagram shall use its reasonable best efforts to ensure that its
officers, directors and key employees and its subsidiaries and their officers,
directors and key employees and any financial advisors or other advisors or
representatives retained by it or its subsidiaries are aware of the provisions
of this Section 4.5.
(4) Nothing contained in this Section 4.5 shall limit in any way the
obligation of Seagram to convene and hold the Seagram Meeting in accordance with
Section 2.1 of this Agreement. Nothing in this Section 4.5 shall permit Seagram
to terminate this Agreement (except as specifically provided in Article 6
hereof). Seagram shall not submit to the vote of its shareholders any Seagram
Acquisition Proposal other than the transactions contemplated by this Agreement,
unless required by Section 137 (in the case of an annual meeting) or Section 143
of the CBCA, provided, however, Seagram will not call any shareholder meeting
pursuant to such provisions of the CBCA to consider a Seagram Acquisition
Proposal unless the Board of Directors of Seagram receive a written legal
opinion that the failure to do so would be in breach of its statutory duties and
provided, further, that before the Board of Directors of Seagram calls any such
meeting it will consult with Vivendi in order to ensure that the timing, calling
and holding of such meeting, to the extent permitted by Law, will not be
inconsistent with the completion of the transactions contemplated by this
Agreement.
Section 4.6. Covenants Regarding Non-Solicitation of Vivendi. (1) Vivendi
shall not, directly or indirectly, through any officer or director of Vivendi or
any of its subsidiaries, and shall use its reasonable best efforts to cause its
and its subsidiaries' employees, agents and representatives (including any
investment banker, lawyer or accountant) not to, (i) solicit, initiate,
knowingly encourage or otherwise facilitate (including by way of furnishing
information) the initiation of any inquiries or proposals regarding a Vivendi
Acquisition Proposal or (ii) participate in any discussions or negotiations
regarding, or provide any confidential information with respect to, any Vivendi
Acquisition Proposal. None of Vivendi or the Board of Directors of Vivendi shall
(i) withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Seagram the approval or recommendation of the Board of Directors of
Vivendi or any committee thereof of the transactions contemplated by this
Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Vivendi Acquisition Proposal or (iii) accept or enter into, or
propose publicly to accept or enter into, any letter of intent, agreement in
principle, merger agreement, acquisition agreement, option agreement or voting
agreement related to any Vivendi Acquisition Proposal.
(2) Notwithstanding Section 4.6(1) and any other provision of this
Agreement, the Board of Directors of Vivendi shall be permitted to (A) to the
extent applicable, comply with Rule 14a-9, Rule 14d-9 and Rule 14e-2 promulgated
under the Exchange Act or applicable French Law to the extent similar to such
U.S. regulations with regard to any Vivendi Acquisition Proposal, or make any
other disclosure required by applicable Law so long as any such disclosure
rejects any Vivendi Acquisition Proposal and reaffirms its recommendation of the
transactions contemplated by this Agreement, or take any other action to the
extent ordered or otherwise mandated by any court of competent jurisdiction, (B)
withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any
manner adverse to Seagram, the approval or recommendation of the transactions
contemplated by this Agreement, or (C) engage in any discussions or negotiations
with, or provide any information to, any Person in response to Vivendi
Acquisition Proposal by any such Person, if and only to the extent that, in any
such case referred to in clause (B) or (C), (i) the Vivendi Meeting shall not
have occurred, (ii) (x) in the case of clause (B) above, it has received an
unsolicited written Vivendi Acquisition Proposal and its Board of Directors
concludes in good faith that such Vivendi Acquisition Proposal constitutes a
Vivendi Superior Proposal and (y) in the case of clause (C) above, its Board of
Directors concludes in good faith there is a reasonable likelihood that its
Board of Directors, after taking the steps described in clause (C) above, would
determine that such Vivendi Acquisition Proposal could reasonably constitute a
Vivendi Superior Proposal, (iii) in the case of clause (B) or (C) above, its
Board of Directors, after consultation with outside counsel, determines in good
faith that the failure to take such action would be inconsistent with its
fiduciary duties under applicable law, (iv) prior to providing any confidential
information or data to any Person in connection with a Vivendi Acquisition
Proposal by any such Person, its
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Board of Directors receives from such Person an executed confidentiality
agreement having provisions that are customary in such agreements, as advised by
counsel, provided that if such confidentiality agreement contains provisions
that are less restrictive than the comparable provisions, or omits restrictive
provisions, contained in the Confidentiality Agreement, then the Confidentiality
Agreement will be deemed to be amended to contain only such less restrictive
provisions or to omit such restrictive provisions, as the case may be, and (v)
prior to providing any information or data to any Person or entering into
discussions or negotiations with any Person, Vivendi notifies Seagram promptly
of such inquiries, proposals or offers received by, any such information
requested from, or any such discussions or negotiations sought to be initiated
or continued with, any of its representatives indicating, in connection with
such notice, the name of such Person and the material terms and conditions of
such inquiries, proposals or offers, and thereafter keeps Seagram informed with
respect to the status of such inquiries, proposals or offers (including any
change to the material terms thereof).
Notwithstanding anything to the contrary herein, upon taking any of the
actions permitted by clause (B) of Section 4.6(2), Vivendi may, to the extent
permitted by applicable Law, convene and hold the Vivendi Meeting as soon as
possible and earlier than any then scheduled date. Vivendi shall, and shall
cause the officers, directors, representatives and agents of Vivendi and its
subsidiaries to, cease immediately all current discussions and negotiations as
of the date of this Agreement regarding any proposal that constitutes, or could
reasonably likely constitute, a Vivendi Acquisition Proposal, and shall promptly
request the return or destruction of all confidential information provided in
connection therewith.
(3) Vivendi shall use its reasonable best efforts to ensure that its
officers, directors and key employees and its subsidiaries and their officers,
directors and key employees and any financial advisors or other advisors or
representatives retained by it or its subsidiaries are aware of the provisions
of this Section 4.6.
(4) Nothing contained in this Section 4.6 shall limit in any way the
obligations of Vivendi to convene and hold the Vivendi Meeting in accordance
with Section 2.2 of this Agreement. Nothing in this Section 4.6 shall permit
Vivendi to terminate this Agreement (except as specifically provided in Article
6 hereof). Vivendi shall not submit to the vote of its shareholders any Vivendi
Acquisition Proposal other than the transactions contemplated by this Agreement.
Section 4.7. Covenants Regarding Non-Solicitation of Canal. (1) Canal
shall not, directly or indirectly, through any officer or director of Canal or
any of its subsidiaries, and shall use its reasonable best efforts to cause its
and its subsidiaries' employees, agents and representatives (including any
investment banker, lawyer or accountant) not to, (i) solicit, initiate,
knowingly encourage or otherwise facilitate (including by way of furnishing
information) the initiation of any inquiries or proposals regarding any Canal
Acquisition Proposal or (ii) participate in any discussions or negotiations
regarding, or provide any confidential information with respect to, any Canal
Acquisition Proposal. None of Canal or the Board of Directors of Canal shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Seagram the approval or recommendation of the Board of Directors of
Canal or any committee thereof of the transactions contemplated by this
Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Canal Acquisition Proposal or (iii) accept or enter into, or
propose publicly to accept or enter into, any letter of intent, agreement in
principle, merger agreement, acquisition agreement, option agreement or voting
agreement related to any Canal Acquisition Proposal.
(2) Notwithstanding Section 4.7(2) and any other provision of this
Agreement, the Board of Directors of Canal shall be permitted to (A) to the
extent applicable, comply with Rule 14a-9, Rule 14d-9 and Rule 14e-2 promulgated
under the Exchange Act or applicable French Law to the extent similar to such
U.S. regulations with regard to any Canal Acquisition Proposal, or make any
other disclosure required by applicable Law so long as any such disclosure
rejects any Canal Acquisition Proposal and reaffirms its recommendation of the
transactions contemplated by this Agreement, or take any other action to the
extent ordered or otherwise mandated by any court of competent jurisdiction, (B)
withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any
manner adverse to Seagram, the approval or recommendation of the transactions
contemplated by this Agreement, or (C) engage in any discussions or negotiations
with, or provide any information to, any Person in response to a Canal
Acquisition Proposal by any such Person, if and only to the extent that, in any
such case referred to in clause (B) or (C), (i) the Canal Meeting shall not have
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occurred, (ii) (x) in the case of clause (B) above, it has received an
unsolicited written Canal Acquisition Proposal and its Board of Directors
concludes in good faith that such Canal Acquisition Proposal constitutes a Canal
Superior Proposal and (y) in the case of clause (C) above, its Board of
Directors concludes in good faith that there is a reasonable likelihood that its
Board of Directors, after taking the steps described in clause (C) above, would
determine that such Canal Acquisition Proposal could reasonably constitute a
Canal Superior Proposal, (iii) in the case of clause (B) or (C) above, its Board
of Directors, after consultation with outside counsel, determines in good faith
that the failure to take such action would be inconsistent with its fiduciary
duties under applicable law, (iv) prior to providing any confidential
information or data to any Person in connection with a Canal Acquisition
Proposal by any such Person, its Board of Directors receives from such Person an
executed confidentiality agreement having provisions that are customary in such
agreements, as advised by counsel, provided that if such confidentiality
agreement contains provisions that are less restrictive than the comparable
provisions, or omits restrictive provisions, contained in the Confidentiality
Agreement, then the Confidentiality Agreement will be deemed to be amended to
contain only such less restrictive provisions or to omit such restrictive
provisions, as the case may be, and (v) prior to providing any information or
data to any Person or entering into discussions or negotiations with any Person,
Canal notifies Seagram promptly of such inquiries, proposals or offers received
by, any such information requested from, or any such discussions or negotiations
sought to be initiated or continued with, any of its representatives indicating,
in connection with such notice, the name of such Person and the material terms
and conditions of such inquiries, proposals or offers, and thereafter keeps
Seagram informed with respect to the status of such inquiries, proposals or
offers (including any change to the material terms thereof).
Notwithstanding anything to the contrary herein, upon taking any of the
actions permitted by clause (B) of Section 4.7(2), Canal may, to the extent
permitted by applicable Law, convene and hold the Canal Meeting as soon as
possible and earlier than any then scheduled date. Canal shall, and shall cause
the officers, directors, representatives and agents of Canal and its
subsidiaries to, cease immediately all current discussions and negotiations as
of the date of this Agreement regarding any proposal that constitutes, or could
reasonably likely constitute, a Canal Acquisition Proposal, and shall promptly
request the return or destruction of all confidential information provided in
connection therewith.
(3) Canal shall use its reasonable best efforts to ensure that its
officers, directors and key employees and its subsidiaries and their officers,
directors and key employees and any financial advisors or other advisors or
representatives retained by it or its subsidiaries are aware of the provisions
of this Section 4.7.
(4) Nothing contained in this Section 4.7 shall limit in any way the
obligations of Canal to convene and hold the Canal Meeting in accordance with
Section 2.2 of this Agreement. Nothing in this Section 4.7 shall permit Canal to
terminate this Agreement (except as specifically provided in Article 6 hereof).
Canal shall not submit to the vote of its shareholders any Canal Acquisition
Proposal other than the transactions contemplated by this Agreement.
Section 4.8. Access to Information. (1) Subject to Section 4.8(2) and
applicable Laws, upon reasonable notice, Seagram, on the one hand, and Vivendi
and Canal, on the other hand, shall (and shall cause each of its subsidiaries
to) afford the other party's officers, employees, counsel, accountants and other
authorized representatives and advisors ("Representatives") access, during
normal business hours from the date hereof and until the earlier of the
Effective Date or the termination of this Agreement, to its and its
subsidiaries' properties, books, contracts and records as well as to its
management personnel, and, during such period, Seagram, on the one hand, and
Vivendi and Canal, on the other hand, shall (and shall cause each of its
subsidiaries to) furnish promptly to the other party all information concerning
its and its subsidiaries' businesses, properties and personnel as such other
party may reasonably request, in each case subject to confidentiality
obligations and other protection of proprietary information. Subject to Section
4.8(2) and applicable Laws, upon reasonable notice, Seagram, on the one hand,
and Vivendi and Canal, on the other hand, shall afford the other party's
Representatives the opportunity, upon reasonable notice and during normal
business hours from the date hereof and until the earlier of the Effective Date
or termination of this Agreement, to speak to appropriate management personnel
as such other party may reasonably request, without materially interfering with
their other responsibilities. In addition, subject to applicable Law, during
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the Pre-Effective Date Period, the Chief Executive Officer of Seagram will be
provided with reasonable notice of meetings of Vivendi's and Canal's Board of
Directors and may attend any such meetings.
(2) Each of Vivendi, Canal and Seagram acknowledges that certain
information provided to it under Section 4.8(1) above will be non-public and/or
proprietary in nature (the "Information") and will be subject to the terms of
the Confidentiality Agreement and Section 4.8(1). For greater certainty, the
provisions of the Confidentiality Agreement shall survive the termination of
this Agreement, provided that the Confidentiality Agreement, shall apply to each
of the parties hereto and Section 4.8(1) shall terminate at the Effective Time
notwithstanding anything to the contrary contained therein.
Section 4.9. Indemnification. From and after the Effective Time, Vivendi
and Seagram jointly and severally shall (i) indemnify and hold harmless, and
provide advancement of expenses to, all past and present directors, officers and
employees of Seagram and its subsidiaries (in all of their capacities) (a) to
the same extent such persons are indemnified or have the right to advancement of
expenses as of the date of this Agreement by Seagram pursuant to Seagram's
articles of incorporation, bylaws and indemnification agreements, if any, in
existence on the date hereof with any directors, officers and employees of
Seagram and its subsidiaries and (b) without limitation to clause (a), to the
fullest extent permitted by Law, in each case for acts or omissions occurring at
or prior to the Effective Time (including for acts or omissions occurring in
connection with the approval of this Agreement and the consummation of the
transactions contemplated by this Agreement) and (ii) include and cause to be
maintained in effect in Seagram's (or any successor's) articles of incorporation
and bylaws after the Effective Time, provisions regarding elimination of
liability of directors, indemnification of officers, directors and employees and
advancement of expenses which are, in the aggregate, no less advantageous to the
intended beneficiaries than the corresponding provisions contained in the
current articles of incorporation and bylaws of Seagram as of the date of this
Agreement and (iii) cause to be maintained for a period of six years after the
Effective Time the current policies of directors' and officers' liability
insurance and fiduciary liability insurance maintained by Seagram (provided that
Vivendi and Seagram (or any successor) may substitute therefor one or more
policies of at least the same coverage and amounts containing terms and
conditions which are, in the aggregate, no less advantageous to the insured)
with respect to claims arising from facts or events that occurred on or before
the Effective Time; provided, however, that in no event shall Vivendi be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by Seagram for such insurance; and provided further that
if the annual premiums of such insurance coverage exceed such amount, Vivendi
shall be obligated to obtain a policy with the greatest coverage available for a
cost not exceeding such amount. The obligations of Vivendi and Seagram under
this Section 4.9 shall not be terminated or modified in such a manner as to
adversely affect any indemnitee to whom this Section 4.9 applies without the
consent of such affected indemnitee (it being expressly agreed that the
indemnitees to whom this Section 4.9 applies shall be third party beneficiaries
of this Section 4.9).
Section 4.10. Safe Income. Seagram shall arrange for a "safe income
tuck-in" transaction (the "Tuck-In") or another form of safe income access
transaction, to be offered to any Shareholder with respect to its shares of
Seagram provided that:
(a) only two forms of transaction will be permitted;
(b) such transaction is to be completed in accordance with applicable
Laws prior to the Effective Date, or on the Effective Date but prior to the
Effective Time so long as Vivendi, acting reasonably, agrees to such
timing;
(c) such transaction must be accomplished in a manner that
(i) provides for (A) the payment by each applicable Shareholder of
any material (or, if required by any regulatory authority, all) costs
and expenses incurred in connection with such transaction by Seagram and
Vivendi, Vivendi Holdings and Vivendi Exchangeco and any corporation
acquired by any of them, and (B) an indemnity in favor of Seagram and
Vivendi, Vivendi Holdings and Vivendi Exchangeco and any corporation
acquired by any of them by the Shareholder and any vendor (each, a
"Vendor") of Shares beneficially owned by such Shareholder from all
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claims, demands, proceedings, losses, damages, liabilities,
deficiencies, taxes (including, without limitation, federal or
provincial taxes on income, property, capital, sales, goods and
services, and excise duties, and any interest and penalties with respect
thereto, whether or not such taxes have been assessed or reassessed as
at the date of such transaction), costs and expenses (including, without
limitation, all legal and other professional fees and disbursements,
interest, penalties and amounts paid in settlement) (collectively,
"Liabilities") suffered or incurred by Seagram, Vivendi, Vivendi
Holdings and Vivendi Exchangeco or any corporation acquired by any of
them in such transaction (each, a "Subco") (and their directors,
officers, employees and agents), the whole to be computed on an
after-tax basis, as a result of or arising directly or indirectly out of
or in respect of or in connection with: (A) any breach by each such
Shareholder or Vendor of any representation, warranty, obligation or
covenant of the Shareholder or Vendor to Seagram; (B) any Liability
sustained, incurred, assumed or acquired by any Subco on or before, or
related to any matter occurring on or before, the completion of such
transaction; and (C) any Liability which would not have been sustained,
suffered or incurred by (or which would not have been asserted,
threatened, or be pending against) Seagram, Vivendi, Vivendi Exchangeco
and Vivendi Holdings but for the transaction including, without
limitation, all Liabilities which are assumed or incurred by any of
Subco or Seagram, Vivendi, Vivendi Exchangeco and Vivendi Holdings
directly or indirectly in respect of such transactions; and
(ii) does not entail any delay in completing the Arrangement, to
Seagram, Vivendi or their respective subsidiaries or shareholders; and
(d) the terms and conditions of such transaction must be satisfactory
to Vivendi and Seagram, acting reasonably, and must include representations
and warranties which are satisfactory to Vivendi, acting reasonably, and an
indemnity from each applicable Shareholder and any Vendor which is in form
and substance satisfactory to Vivendi, acting reasonably.
In the event that the terms and conditions of such transaction are not
satisfactory to Vivendi, acting reasonably, or the Quebec Securities
Commission or any other securities regulatory authority in Canada or a
court pursuant to section 204 of the Canada Business Corporations Act
refuses to grant any relief required in connection with any such
transaction, Vivendi will use its reasonable best efforts, for a period not
to exceed 15 Business Days, to assist Seagram in structuring such a
transaction in a manner satisfactory to Vivendi, acting reasonably.
In the event that the terms and conditions of such transaction are not
satisfactory to Vivendi, acting reasonably, and no alternative transaction
can be agreed upon as aforesaid where Vivendi has used its reasonable best
efforts as aforesaid, this shall not affect the completion of the
Arrangement or the other transactions contemplated by this Agreement.
ARTICLE 5
CONDITIONS
Section 5.1. Mutual Conditions Precedent. The respective obligations of
the parties hereto to complete the Arrangement shall be subject to the
satisfaction, on or before the Effective Date, of the following conditions
precedent, each of which may only be waived by the mutual consent of Vivendi on
behalf of the Vivendi Parties and Sofiee, Canal and Seagram:
(a) the Arrangement shall have been approved at the Seagram Meeting by
not less than two-thirds of the votes cast by the Seagram Shareholders who
are represented at the Seagram Meeting;
(b) the Arrangement shall have been approved at the Seagram Meeting in
accordance with any conditions in addition to those set out in Section
5.1(a) which may be imposed by the Interim Order;
(c) the Interim Order and the Final Order shall each have been
obtained in form and on terms satisfactory to each of Seagram, Vivendi and
Canal, acting reasonably, and shall not have been set aside or modified in
a manner unacceptable to such parties, acting reasonably, on appeal or
otherwise;
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(d) the Vivendi Resolution shall have been approved at the Vivendi
Meeting by not less than two-thirds of the votes cast by the Vivendi
Shareholders who are represented at the Vivendi Meeting, and the Canal
Resolution shall have been approved at the Canal Meeting by not less than
two-thirds of the votes cast by the Canal Shareholders who are represented
at the Canal Meeting;
(e) the Sofiee Merger and the other Vivendi/Canal Transactions shall
have been completed in accordance with the Vivendi/Canal Agreements, in
each case immediately prior to the closing of the Plan of Arrangement;
(f) there shall not be in force any final and non-appealable
injunction, order or decree issued by a court or other Governmental Entity
of competent jurisdiction restraining or enjoining the consummation of the
transactions contemplated by this Agreement;
(g) the Vivendi Shares to be issued in connection with the Arrangement
and such other Vivendi Shares to be reserved for issuance in connection
with the Arrangement (including those underlying the Vivendi ADSs to be
issued from time to time upon the exchange of Exchangeable Shares) shall
have been approved for listing on the PSE such listing to be effective as
of the Effective Time, subject to the filing of required documentation,
notice of issuance and/or other usual requirements, and the Vivendi ADRs
and the Vivendi ADSs to be issued under the Arrangement or to be issued
from time to time upon the exchange of Exchangeable Shares shall have been
approved for listing on the NYSE or NASDAQ, as applicable (subject only to
notification of issuance);
(h) the Vivendi ADRs and Vivendi ADSs shall have been registered under
the Exchange Act and approved for listing by the NYSE or NASDAQ, such
listing to be effective as of the Effective Time;
(i) the Exchangeable Shares shall have been conditionally approved for
listing on the TSE (subject only to the filing of required documentation),
such listing to be effective as of the Effective Time; and
(j) the Regulatory Approvals shall have been obtained or satisfied or,
if applicable, the related waiting period shall have expired; provided,
however, that a party shall not be entitled to rely on this closing
condition where the failure of such party or any of its affiliates to
fulfill its obligations pursuant to this Agreement has been the cause of or
shall have resulted in, the failure to obtain the foregoing.
Section 5.2. Additional Conditions Precedent to the Obligations of the
Vivendi Parties, Sofiee and Canal. (1) The obligations of the Vivendi Parties,
Sofiee and Canal to complete the Arrangement shall also be subject to the
satisfaction of each of the following conditions precedent (each of which is for
the Vivendi Parties', Sofiee's and Canal's exclusive benefit and may be waived
by Vivendi, on behalf of the Vivendi Parties, Sofiee or Canal, as the case may
be):
(a) Seagram shall have performed or complied in all material respects
with all agreements and covenants required to be performed by it under this
Agreement at or prior to the Effective Date, and Vivendi and Canal shall
have received a certificate of a senior executive officer and a senior
financial officer of Seagram to such effect;
(b) (i) the representations and warranties of Seagram set forth in
this Agreement that are qualified by Material Adverse Effect shall be true
and correct, (ii) the representations and warranties of Seagram not so
qualified (other than those contained in Section 3.1(b)) shall be true and
correct (except where the failure of any such representation and warranty
referred to in this clause (ii) to be true and correct, individually or in
the aggregate, has not had a Material Adverse Effect on Seagram), and (iii)
the representations and warranties of Seagram contained in Section 3.1(b)
shall be true and correct in all material respects, in each case as of the
date of this Agreement and as of the Effective Date as though made on and
as of the Effective Date (except in the case of representations and
warranties that speak as of another date, in which case only with reference
to such other date), and the Vivendi Parties, Sofiee and Canal shall have
received a certificate of a senior executive officer and a senior financial
officer of Seagram to such effect;
(c) between the date hereof and the Effective Date, there shall not
have occurred a Material Adverse Change to Seagram which has not been
cured; and
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(d) the holders of Seagram Common Shares representing in excess of
9.9% of the outstanding Seagram Common Shares shall not have exercised
dissent or similar rights in connection with the Arrangement.
(2) None of the Vivendi Parties, Sofiee and Canal may rely on the failure
to satisfy any of the above conditions precedent if the condition precedent
would have been satisfied but for a material default by any Vivendi Party,
Sofiee or Canal in complying with its obligations hereunder.
Section 5.3. Additional Conditions Precedent to the Obligations of
Seagram. (1) The obligations of Seagram to complete the Arrangement shall also
be subject to the satisfaction of each of the following conditions precedent
(each of which is for the exclusive benefit of Seagram and may only be waived by
Seagram):
(a) each of the Vivendi Parties, Sofiee and Canal shall have performed
or complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the
Effective Date, and Seagram shall have received a certificate of a senior
executive officer and a senior financial officer of each of Vivendi, in
respect of the Vivendi Parties, Sofiee and Canal to such effect;
(b) (i) the representations and warranties of the Vivendi Parties,
Sofiee and Canal set forth in this Agreement that are qualified by Material
Adverse Effect shall be true and correct, (ii) the representations and
warranties of the Vivendi Parties, Sofiee and Canal not so qualified (other
than those contained in Section 3.2(1)(a)(ii), 3.2(1)(b) and 3.2(2)(b))
shall be true and correct (except where the failure of any such
representation and warranty referred to in this clause (ii) to be true and
correct, individually or in the aggregate, has not had a Material Adverse
Effect on Vivendi or Canal), and (iii) the representations and warranties
of the Vivendi Parties, Sofiee and Canal contained in Section
3.2(1)(a)(ii), 3.2(1)(b) and 3.2(2)(b) shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of
the Effective Date as though made on and as of the Effective Date (except
in the case of representations and warranties that speak as of another
date, in which case only with reference to such other date), and Seagram
shall have received a certificate of a senior executive officer and a
senior financial officer of each of Vivendi in respect of the Vivendi
Parties, Sofiee and Canal to such effect;
(c) the Vivendi Voting Rights relating to the Exchangeable Shares
shall entitle the beneficiaries thereof to have one vote per such Vivendi
Voting Right on the same basis and in the same circumstances as one Vivendi
Share;
(d) the Board of Directors of each Vivendi Party, Sofiee and Canal
shall have adopted all necessary resolutions, and all other necessary
corporate action shall have been taken by the Vivendi Parties, Sofiee and
Canal to permit the consummation of the transactions contemplated by this
Agreement;
(e) between the date hereof and the Effective Date, there shall not
have occurred a Material Adverse Change to Vivendi or Canal which has not
been cured;
(f) the orders referred to in Section 2.8(1) shall have been obtained
and the Exchangeable Shares shall have been conditionally approved for
listing as of the Effective Time on the TSE;
(g) Seagram shall have received a written opinion, dated as of the
Effective Date, from (i) Simpson Thacher & Bartlett, counsel to Seagram, to
the effect that the transactions contemplated by this Agreement will be
treated for U.S. income tax purposes as constituting a transaction
described in Section 351 of the Code and that no gain or loss will be
recognized by U.S. shareholders of Seagram who exchange their shares of
Seagram for Vivendi ADSs (it being understood that the Vivendi Parties,
Sofiee, Canal and Seagram shall provide customary representations upon
which such tax counsel shall be entitled to rely in rendering such opinion)
and (ii) Osler, Hoskin & Harcourt LLP, counsel to Seagram, to the effect
that (A) Canadian resident holders of Seagram Common Shares who elect to
receive Exchangeable Shares pursuant to the Plan of Arrangement and who
make a valid election under subsection 85(1) or 85(2) of the Canadian Tax
Act will not generally recognize gain or loss for purposes of the Canadian
Tax
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Act and (B) the Exchangeable Shares will not, at the date of issue, be
"foreign property" for purposes of the Canadian Tax Act; and
(h) the Sofiee Resolution, including the election of the Seagram
Designees to the Board of Directors of the surviving entity of the Sofiee
Merger and the adoption of the Vivendi By-Laws, shall have been approved.
(2) Seagram may not rely on the failure to satisfy any of the above
conditions precedent if the condition precedent would have been satisfied but
for a material default by Seagram in complying with its obligations hereunder.
Section 5.4. Notice and Cure Provisions. (1) The Vivendi Parties, Sofiee
and Canal, on the one hand, and Seagram, on the other hand, will give prompt
notice to the other of the occurrence, or failure to occur, at any time from the
date hereof until the Effective Date, of any event or state of facts which
occurrence or failure would, or would be likely to:
(a) cause any of the representations or warranties of the other party
contained herein to be untrue or inaccurate such that the conditions set
forth in Section 5.2(b) or 5.3(b), as applicable, would not be satisfied as
of the Effective Date; or
(b) result in the failure to comply with or satisfy any covenant or
agreement to be complied with such that the conditions set forth in Section
5.2(a) or 5.3(a), as applicable, would not be satisfied as of the Effective
Date.
(2) None of the Vivendi Parties, Sofiee, Canal or Seagram may rely upon any
conditions precedent contained in Sections 5.1, 5.2 or 5.3, or exercise any
termination right arising therefrom (except by the Vivendi Parties or Canal in
respect of a breach of Sections 4.5 or by Seagram in respect of a breach of
Section 4.6 or 4.7) unless forthwith and in any event prior to the filing of the
Articles of Arrangement for acceptance by the Director, the Vivendi Parties,
Sofiee and Canal, on the one hand, or Seagram, on the other hand, as the case
may be, has delivered a written notice to the other specifying in reasonable
detail all breaches of covenants, representations and warranties or other
matters which the Vivendi Parties, Sofiee and Canal, on the one hand, and
Seagram, on the other hand, as the case may be, are asserting as the basis for
the non-fulfilment of the applicable condition precedent or the exercise of the
termination right, as the case may be. If any such notice is delivered, provided
that Seagram, on the one hand, or the Vivendi Parties, Sofiee and Canal, on the
other hand, as the case may be, are proceeding diligently to cure such matter,
if such matter is susceptible to being cured (for greater certainty, except by
way of disclosure in the case of representations and warranties), the other may
not terminate this Agreement as a result thereof until the earlier of the
Outside Date and the expiration of a period of 60 days from such notice. If such
notice has been delivered prior to the making of the application for the Final
Order or the filing of the Articles of Arrangement with the Director, such
application and such filing shall be postponed until the expiry of such period.
For greater certainty, in the event that such matter is cured within the time
period referred to herein without a Material Adverse Effect on the curing party,
this Agreement may not be terminated as a result of the cured breach.
Section 5.5. Satisfaction of Conditions. The conditions precedent set out
in Sections 5.1, 5.2 and 5.3 shall be conclusively deemed to have been
satisfied, waived or released when, with the agreement of Vivendi, Canal and
Seagram, a certificate of arrangement in respect of the Arrangement is issued by
the Director.
ARTICLE 6
AMENDMENT AND TERMINATION
Section 6.1. Amendment. This Agreement and the Plan of Arrangement may,
at any time and from time to time before or after the holding of the Seagram
Meeting, the Vivendi Meeting or the Canal Meeting but not later than the
Effective Date, be amended by mutual written agreement of Vivendi (on behalf of
the
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Vivendi Parties and Sofiee), Canal and Seagram, and any such amendment may,
subject to applicable Laws and the Interim Order, without limitation:
(a) change the time for performance of any of the obligations or acts
of the parties;
(b) waive any inaccuracies or modify any representation or warranty
contained herein or in any document delivered pursuant hereto;
(c) waive compliance with or modify any of the covenants herein
contained and waive or modify performance of any of the obligations of the
parties; and/or
(d) waive compliance with or modify any conditions precedent herein
contained;
provided, however, any such change, waiver or modification does not invalidate
any required security holder approval of the Arrangement.
Section 6.2. Termination. (1) This Agreement may be terminated by Vivendi
or Canal if Seagram shall be in material breach of any of its covenants or other
agreements contained in this Agreement, which breach (A) would give rise to the
failure of a condition set forth in Section 5.2(1)(a) and (B) has not been cured
in accordance with Section 5.4.
(2) This Agreement may be terminated by Seagram if the Vivendi Parties,
Sofiee or Canal shall be in material breach any of its covenants or other
agreements contained in this Agreement, which breach (A) would give rise to the
failure of a condition set forth in Section 5.3(1)(a) and (B) has not been cured
in accordance with Section 5.4.
(3) This Agreement may be terminated at any time prior to the Effective
Date, by action taken or authorized by the Board of Directors of the terminating
party or parties, and except as provided below, whether before or after approval
of the matters presented at the Vivendi Meeting, the Canal Meeting or the
Seagram Meeting:
(a) by the mutual agreement of Seagram and Vivendi (for greater
certainty, without further action on the part of the Seagram Shareholders,
Canal Shareholders or the Vivendi Shareholders if terminated after the
holding of the Seagram Meeting, Canal Meeting or the Vivendi Meeting, as
applicable);
(b) by either Seagram, Canal or Vivendi if any Governmental Entity
shall have passed any Law that makes consummation of the transactions
contemplated by this Agreement illegal or otherwise prohibited or if any
injunction, order or decree enjoining any Vivendi Party, Sofiee, Canal or
Seagram from consummating the transactions contemplated by this Agreement
is entered by a court of competent jurisdiction and such injunction, order
or decree shall become final and non-appealable, provided that the right to
terminate this Agreement pursuant to this Section 6.2(3)(b) shall not be
available to the party seeking to terminate if any action of such party or
its affiliates or the failure of such party or its affiliates to perform
any of its obligations under this Agreement required to be performed at or
prior to the Effective Time shall have resulted in such impediment to the
Closing having been imposed or having failed to be lifted;
(c) by Vivendi if (A) the Board of Directors of Seagram shall have
failed to recommend or shall have withdrawn, modified or changed in a
manner adverse to the Vivendi Parties or Canal its approval or
recommendation of this Agreement or the transactions contemplated by this
Agreement (it being understood and agreed that a communication by the Board
of Directors of Seagram to the Seagram Shareholders pursuant to Rule
14d-9(f)(3) of the Exchange Act, or any similar type of communication to
the Seagram Shareholders in connection with the making or amendment of a
tender offer or exchange offer, shall not be deemed to constitute a
withdrawal, modification or change of its recommendation of this Agreement
or the transactions contemplated by this Agreement) or (B) the Board of
Directors of Seagram shall have approved or recommended any Seagram
Acquisition Proposal;
(d) by Seagram if (A) the Board of Directors of Vivendi or Canal shall
have failed to recommend or shall have withdrawn, modified or changed in a
manner adverse to Seagram its approval or recommendation of this Agreement
or the transactions contemplated by this Agreement or (B) the
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Board of Directors of Vivendi or Canal shall have approved or recommended
any Vivendi Acquisition Proposal or any Canal Acquisition Proposal, as the
case may be;
(e) by Seagram or Vivendi if the Seagram Shareholder approval shall
not have been obtained by reason of the failure to obtain the vote required
by the Interim Order at the Seagram Meeting or any adjournment thereof at
which the vote was taken;
(f) by Vivendi, Canal or Seagram if the Vivendi Resolution shall not
have been obtained by reason of the failure to obtain the required vote at
the Vivendi Meeting or any adjournment thereof at which the vote was taken
or if the Canal Resolution shall not have been obtained by reason of the
failure to obtain the required vote at the Canal Meeting or any adjournment
thereof at which the vote was taken;
(g) by Seagram if the Vivendi/Canal Agreements are terminated; or
(h) by Seagram if a Vivendi Acquisition Proposal is consummated or a
Canal Acquisition Proposal is consummated in each case, prior to the
Effective Date.
(4) If the Effective Date does not occur on or prior to the Outside Date,
then, unless otherwise agreed in writing by the parties, either Vivendi, Canal
or Seagram may terminate this Agreement, provided that in the event that the
conditions set forth in Section 5.1(j) above shall not have been satisfied by
that date, either Vivendi, Canal or Seagram may unilaterally extend the Outside
Date until June 19, 2001 upon written notice to the other by March 12, 2001, in
which case the Outside Date shall be deemed for all purposes to be June 19,
2001, provided that the right to terminate this Agreement pursuant to this
Section 6.2(4) shall not be available to the party seeking to terminate if any
action of such party or its affiliates or the failure of such party or its
affiliates to perform any of its obligations under this Agreement required to be
performed at or prior to the Effective Time shall have resulted in the
conditions contained in Sections 5.1 and Section 5.2 or 5.3 (as applicable) not
having been satisfied prior to the Outside Date.
(5) If this Agreement is terminated in accordance with the foregoing
provisions of this Section 6.2, no party shall have any further liability
hereunder except as provided in Section 6.3 and as otherwise contemplated
hereby, and provided that neither the termination of this Agreement nor anything
contained in this Section 6.2(5) shall relieve any party from any liability for
any willful and material breach by it of this Agreement.
Section 6.3. Termination and Other Fees. (1) If:
(a) Vivendi shall terminate this Agreement pursuant to Section
6.2(3)(c) or pursuant to Section 6.2(1) as a result of a breach by Seagram
of Section 4.5; or
(b) either Seagram or Vivendi shall terminate this Agreement pursuant
to Section 6.2(3)(e) and (x) a Seagram Acquisition Proposal shall have been
publicly announced or otherwise communicated to the senior management,
Board of Directors or shareholders of Seagram after the date of this
Agreement and prior to the Seagram Meeting and (y) Seagram enters into a
definitive agreement with respect to a Seagram Acquisition Proposal, or a
Seagram Acquisition Proposal is otherwise consummated (for purposes of this
Section 6.3(1)(b)(y), the term "Seagram Acquisition Proposal" shall have
the meaning assigned to such term in Section 1.1, except that references to
"20%" therein shall be deemed to be references to "40%"), after the date
hereof and prior to the expiration of 12 months following termination of
this Agreement;
then in any such case Seagram shall pay to Vivendi $800 million (the "Seagram
Fee") less any amount paid pursuant to Section 6.3(1)(c) below in immediately
available funds to an account designated by Vivendi. Such payment shall be due
(A) in the case of a termination specified in clause (a), within one Business
Day after written notice of termination by Vivendi or (B) in the case of a
termination specified in clause (b), on the date of execution of such agreement
or, if earlier, consummation of such transaction. Seagram shall not be obligated
to make more than one payment pursuant to the foregoing provisions of this
Section 6.3(1).
(c) either Seagram or Vivendi shall terminate this Agreement pursuant
to Section 6.2(3)(e) and Seagram is not obligated to pay the Seagram Fee at
the time of termination, Seagram shall reimburse
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Vivendi for all of its out-of-pocket documented expenses (including without
limitation all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its affiliates)
incurred by a party or on its behalf in connection with or related to the
authorization, preparation, negotiation, execution and performance of this
Agreement and the transactions contemplated hereby, including without
limitation the preparation, printing, filing and mailing of its Circular
and the solicitation of its shareholder approval and all other matters
related to the transactions contemplated hereby (collectively, "Expenses")
in immediately available funds to an account designated by Vivendi up to a
maximum reimbursement of $25 million. Such reimbursement shall be due
within one Business Day after this Agreement is terminated.
(2) If:
(a) Seagram shall terminate this Agreement pursuant to Section
6.2(3)(d) or pursuant to Section 6.2(2) as a result of a breach by Vivendi
of Section 4.6 or a breach by Canal of Section 4.7;
(b) either Seagram or Vivendi shall terminate this Agreement pursuant
to Section 6.2(3)(f) and (x) a Vivendi Acquisition Proposal shall have been
publicly announced or otherwise communicated to the senior management,
Board of Directors or shareholders of Vivendi after the date of this
Agreement and prior to the Vivendi Meeting and (y) Vivendi enters into a
definitive agreement with respect to such Vivendi Acquisition Proposal (or
a Vivendi Acquisition Proposal with the Person or an affiliate thereof
making such Vivendi Acquisition Proposal or any other Person who shall have
made a Vivendi Acquisition Proposal within 90 days of such Person's Vivendi
Acquisition Proposal (any such other Person, a "Vivendi Alternative
Person")) or such Vivendi Acquisition Proposal (or a Vivendi Acquisition
Proposal with the Person making such Vivendi Acquisition Proposal or an
affiliate thereof or with a Vivendi Alternative Person or any affiliate
thereof) is otherwise consummated, after the date hereof and prior to the
expiration of 12 months following termination of this Agreement;
(c) either Seagram or Vivendi shall terminate this Agreement pursuant
to Section 6.2(3)(f) and (x) a Canal Acquisition Proposal shall have been
publicly announced or otherwise communicated to the senior management,
Board of Directors or shareholders of Canal by any Person after the date of
this Agreement and prior to the Canal Meeting and (y) Canal enters into a
definitive agreement with respect to such Canal Acquisition Proposal (or a
Canal Acquisition Proposal with the Person or an affiliate thereof making
such Canal Acquisition Proposal or any other Person who shall have made a
Canal Acquisition Proposal within 90 days of such Person's Canal
Acquisition Proposal (any such other Person, a "Canal Alternative Person"))
or such Canal Acquisition Proposal (or a Canal Acquisition Proposal with
the Person making such Canal Acquisition Proposal or an affiliate thereof
or with a Canal Alternative Person or an affiliate thereof) is otherwise
consummated, after the date hereof and prior to the expiration of 12 months
following termination of this Agreement; or
(d) (i) Seagram shall terminate this Agreement pursuant to Section
6.2(2) as a result of a breach by a Vivendi Party, Sofiee or Canal of
Section 4.4(a)(ii) or (ix) or Section 4.4(c) or (ii) Seagram, Vivendi or
Canal shall terminate this Agreement pursuant to Section 6.2(4) and, at the
time of such termination, the condition set forth in Section 5.1(h) or
Section 5.3(c) shall not have been satisfied or the Regulatory Approvals
listed in Part B of Schedule G shall not have been obtained;
then in the case of a termination specified in clauses (a), (b) or (c) Vivendi
shall pay to Seagram $800 million (the "Vivendi Fee") less any amount paid
pursuant to Section 6.3(2)(e) below or in the case of a termination specified in
clause (d) $50 million. Such payment shall be due (A) in the case of a
termination specified in clause (a) or clause (d), within one Business Day after
written notice of termination by Seagram or (B) in the case of a termination
specified in clause (b) or clause (c), on the date of execution of such
agreement or, if earlier, consummation of such transaction. Vivendi shall not be
obligated to make more than one payment pursuant to the foregoing provisions of
this Section 6.3(2).
(e) either Seagram, Vivendi or Canal shall terminate this Agreement
pursuant to Section 6.2(3)(f) and Vivendi is not obligated to pay the
Vivendi Fee at the time of termination, Vivendi shall reimburse Seagram for
all of its Expenses in immediately available funds to an account designated
by Seagram up to
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a maximum reimbursement of $25 million. Such reimbursement shall be due
within one Business Day after this Agreement is terminated.
Section 6.4. Remedies. The parties hereto acknowledge and agree that an
award of money damages would be inadequate for any breach of this Agreement by
any party or its representatives and any such breach would cause the
non-breaching party irreparable harm. Accordingly, the parties hereto agree
that, in the event of any breach or threatened breach of this Agreement by one
of the parties, the non-breaching party will also be entitled, without the
requirement of posting a bond or other security, to equitable relief, including
injunctive relief and specific performance. Such remedies will not be the
exclusive remedies for any breach of this Agreement but will be in addition to
all other remedies available at law or equity to each of the parties (subject to
Section 6.2(5) above).
ARTICLE 7
GENERAL
Section 7.1. Notices. All notices and other communications which may or
are required to be given pursuant to any provision of this Agreement shall be
given or made in writing and shall be deemed to be validly given and received
(i) on the date of delivery, if delivered personally or (ii) upon confirmation
of transmission by the sender's fax machine, if delivered by facsimile, in each
case addressed to the particular party at:
(a) If to a Vivendi Party, at:
Vivendi S.A.
42, avenue de Friedland
75380 Paris Cedex 08
France
Attention: Guillaume Hannezo
Telecopier No.: 33-1-71-71-14-14
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Attention: Faiza J. Saeed
Telecopier No.: (212) 474-3700
Bredin Prat
130, rue du Faubourg Saint-Honore
75008 Paris
France
Attention: Jean-Francois Prat
Telecopier No.: 31-1-42-89-10-73
Blake, Cassels & Graydon LLP
Box 25, Commerce Court West
199 Bay Street, 28th Floor
Toronto, Ontario
Canada M5L 1A9
Attention: Alan Bell
Telecopier No.: (416) 863-2653
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<PAGE> 572
(b) If to Seagram at:
The Seagram Company Ltd.
c/o Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, NY 10152
Attention: Brian C. Mulligan
Telecopier No.: (212) 572-8980
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: John G. Finley
Brian M. Stadler
Telecopier No.: (212) 455-2502
Gide Loyrette Nouel
6, Cours Albert 1er
75008 Paris
France
Attention: Youssef Djehane
Telecopier No.: 33-1-43-59-37-79
Osler Hoskin & Harcourt
1 First Canadian Place
P.O. Box 50
Toronto, Ontario
Canada M5X 1B8
Attention: Clay Horner
Telecopier No.: (416) 862-6666
(c) If to Canal at:
Canal Plus S.A.
85/89 Quai Andre-Citroen
75711 Paris Cedex 15
France
Attention: Pierre Lescure
Marc-Andre Feffer
Telecopier No.: 33-1-40-60-70-50
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
41, Avenue de Friedland
75008 Paris
France
Attention: Laurent Cohen-Tanugi
Telecopier No.: 01-45-63-66-37
or at such other address of which any party may, from time to time, advise the
other parties by notice in writing given in accordance with the foregoing. The
date of receipt of any such notice shall be deemed to be the date of delivery or
telecopying thereof.
Section 7.2. Assignment. No party hereto may assign its rights or
obligations under this Agreement or the Arrangement.
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Section 7.3. Binding Effect. This Agreement and the Arrangement shall be
binding upon and shall enure to the benefit of the parties hereto and their
respective successors and permitted assigns and no third party shall have any
rights hereunder.
Section 7.4. Waiver and Modification. Seagram, on the one hand, and
Vivendi on its behalf and on behalf of the Vivendi Parties, Sofiee and Canal, on
the other hand, may waive or consent to the modification of, in whole or in
part, any inaccuracy of any representation or warranty made to them hereunder or
in any document to be delivered pursuant hereto and may waive or consent to the
modification of any of the covenants herein contained for their respective
benefit or waive or consent to the modification of any of the obligations of the
other parties hereto. Any waiver or consent to the modification of any of the
provisions of this Agreement, to be effective, must be in writing executed by
the party granting such waiver or consent.
Section 7.5. Further Assurances. Each party hereto shall, from time to
time, and at all times hereafter, at the request of the other parties hereto,
but without further consideration, do all such further acts and execute and
deliver all such further documents and instruments as shall be reasonably
required in order to fully perform and carry out the terms and intent hereof.
Section 7.6. Expenses. (1) Subject to Section 6.3, the parties agree that
all out-of-pocket expenses of the parties relating to the Arrangement and the
transactions contemplated hereby, including legal fees, accounting fees,
financial advisory fees, regulatory filing fees, stock exchange fees, all
disbursements of advisors and printing and mailing costs, shall be paid by the
party incurring such expenses.
(2) Seagram represents and warrants to Vivendi that, except for amounts to
be paid to those financial advisers referred to in Section 3.1(c)(iii) by
Seagram, no broker, finder or investment banker is or will be entitled to any
brokerage, finder's or other fee or commission from Seagram or any subsidiary of
Seagram in connection with the transactions contemplated hereby or by the
Arrangement.
Section 7.7. Press Releases. Vivendi, Canal and Seagram agree to consult
with each other as to the general nature of any news releases or public
statements with respect to this Agreement or the Arrangement, and to use their
respective reasonable best efforts not to issue any news releases or public
statements inconsistent with the results of such consultations. Subject to
applicable Laws, each party shall use its reasonable best efforts to enable the
other parties to review and comment on all such news releases prior to the
release thereof. The parties agree to issue jointly the news release in the
agreed form with respect to this Arrangement as soon as practicable following
the execution of this Agreement. Vivendi, Canal and Seagram also agree to
consult with each other in preparing and making any filings and communications
in connection with any Regulatory Approvals or other regulatory approvals and in
seeking any third party consents under leases, joint ventures or other
agreements.
Section 7.8. Governing Laws. This Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario and the laws of
Canada applicable therein and shall be treated in all respects as an Ontario
contract. Each party hereby irrevocably attorns to the jurisdiction of the
courts of the Province of Ontario in respect of all matters arising under or in
relation to this Agreement.
Section 7.9. Time of Essence. Time shall be of the essence in this
Agreement.
Section 7.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF the parties hereto have executed this Merger Agreement
as of the date first written above.
VIVENDI S.A.
By: /s/ JEAN-MARIE MESSIER
------------------------------------
Name: Jean-Marie Messier
Title: Chairman & Chief Executive
Officer
3744531 CANADA INC.
By: /s/ JEAN-MARIE MESSIER
------------------------------------
Name: Jean-Marie Messier
Title: Authorized Signing Officer
CANAL PLUS S.A.
By: /s/ PIERRE LESCURE
------------------------------------
Name: Pierre Lescure
Title: Chief Executive Officer
SOFIEE S.A.
By: /s/ JEAN-MARIE MESSIER
------------------------------------
Name: Jean-Marie Messier
Title: Authorized Signing Officer
THE SEAGRAM COMPANY LTD.
By: /s/ EDGAR BRONFMAN, JR.
------------------------------------
Name: Edgar Bronfman, Jr.
Title: President & Chief Executive
Officer
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SCHEDULE G
REGULATORY APPROVALS
PART A -- CANADA
- expiration or earlier termination of the waiting period under Part IX of
the Competition Act (Canada) and receipt of an advance ruling certificate
("ARC") pursuant to the Competition Act (Canada) or, in the alternative
to an ARC, a no action letter from the Commissioner of Competition
- determination by the Minister of Industry and the Minister of Canadian
Heritage under the Investment Canada Act and applicable policies that the
Arrangement is of "net benefit to Canada" for purposes of such Act on
terms and conditions satisfactory to Vivendi, acting reasonably
- exemption orders from the provincial securities regulators from the
registration and prospectus requirements with respect to the Exchangeable
Share structure, including nue propriete and safe income transactions and
exemption from the court under Section 204 of the CBCA for safe income
transactions
- conditional approval for the listing of the Exchangeable Shares on The
Toronto Stock Exchange
PART B -- FRANCE
- approval of the COB to the publication of the Vivendi Circular and of the
COB and PSE to the listing of the additional Vivendi Shares to be issued
on the Effective Date and related matters
- the filing of a registration statement issued in connection with the
transactions related to the Arrangement with the COB and the approval
(visa) of such registration statement by the COB
PART C -- UNITED STATES
- expiration or earlier termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976
- effectiveness of the registration statement on Form F-4, in which each of
the Seagram Circular, the Canal Circular and the Vivendi Circular will be
included as a prospectus, regarding the Vivendi Securities related
thereto
- compliance with the applicable requirements of U.S. state blue sky laws
- any other compliance with any applicable requirements of the U.S.
Securities Act of 1933 and the U.S. Securities Exchange Act of 1934, each
as amended
- approval of the NYSE or NASDAQ for the listing of the Vivendi ADSs, to be
issued on the Effective Date and to be provided from time to time upon
exchange of the Exchangeable Shares or the exercise of the Seagram
Options (subject to notice of issuance)
PART D -- EU/GENERAL
- confirmation by way of a decision from the Commission of the European
Union under Regulation 4064/89 (with or without the initiation of
proceedings under Article 6(1)(c) thereof) that the Sofiee Merger and the
transactions contemplated by this Agreement and any matters arising
therefrom are compatible with the common market
- compliance with other laws regulating competition, antitrust, investment
or exchange controls (as appropriate) on terms and conditions
satisfactory to Vivendi and Canal, acting reasonably, or Vivendi and
Canal obtaining confirmation on terms satisfactory to it that the
transactions referred to in this Agreement or any matter relating thereto
will not be referred to such authorities
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SCHEDULE I
VIVENDI/CANAL TRANSACTIONS
The Vivendi Parties, Sofiee and Canal agree that they shall implement the
Vivendi/Canal Transactions as follows:
- General. The Vivendi/Canal Transactions shall be implemented in a manner
consistent with the steps described on the following pages, subject to any
modifications to the terms of the following bullet points and any material
modifications to the terms of the attached charts to which each of Seagram,
Vivendi and Canal reasonably agree in writing, provided that in no event shall
the Vivendi/Canal Transactions be implemented in a manner that will prevent
the exchange of Seagram Shares for Vivendi ADSs from constituting a
transaction described under Section 351 of the Code. Upon implementation of
these steps, Vivendi/Sofiee will directly or indirectly hold 100% of Canal's
current French and international (including the U.S.) non-regulated business
(as described below) and 49% of Canal's current French regulated business (as
described below).
- Separation of Canal's Business. The Vivendi/Canal Transactions shall result
in a separation of Canal's existing business (the "Existing Business") into
two entities (the "Separation"), one of which (Canal) will operate the French
and international (including the U.S.) non-regulated business (the
"Non-Regulated Business") and another of which will operate the French
regulated business. Annex I to this Schedule I describes the contracts and
other assets to be retained by the entity that will hold the regulated
business (the "Regulated Business"). It is intended that the Regulated
Business will not constitute a material portion of the value of the Existing
Business.
- Regulated Business. The Regulated Business will be limited in scope in
accordance with the following parameters (and the Vivendi/Canal Agreements will
contain appropriate provisions to implement such parameters):
(i) As of the Effective Time, the sole source of revenue (other than
exceptions that are de minimis in the aggregate) of the Regulated Business will
be fee income receivable from the Non-Regulated Business pursuant to the
Vivendi/Canal Agreements ("Fee Income");
(ii) All rights relating to the ownership of existing brands of the
Existing Business shall be transferred to the Non-Regulated Business in
connection with the Separation (including the Canal+ brand but excluding any
brands relating solely to the Regulated Business), and all customer
relationships of the Existing Business as of immediately prior to the
consummation of the Separation shall be transferred to the Non-Regulated
Business in connection with the Separation;
(iii) Immediately after giving effect to the Separation, the pro forma
EBIT of the Regulated Business for the year ending on the date of consummation
of the Separation is intended to be approximately Euro 50.0 million (and in any
event shall be no less than Euro 47.0 million and no greater than Euro 53.0
million);
(iv) Following consummation of the Separation, it is not anticipated
that the Regulated Business will in the future derive revenues from sources
other than the Fee Income, other than exceptions that are de minimis in the
aggregate; and
(v) As of the consummation of the Separation, the annual projected EBIT
of the Regulated Business (based upon reasonable assumptions of Vivendi and
Canal) is intended to be approximately Euro 50.0 million (and in any event shall
be no less than Euro 47.0 million and no greater than Euro 53.0 million), plus
2.5% per year for each year beginning with the second year following
consummation of the Separation.
- Liabilities. The liabilities of the Existing Business shall be separated in a
manner reasonably acceptable to all parties in conformity with the separation
of assets and operations described above (with any liabilities of the Existing
Business relating in any material respect to both the Regulated and
Non-Regulated Businesses being split between such businesses on an allocable
basis reasonably acceptable to all parties) and applicable Law.
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- Control. Following consummation of the Separation, Vivendi shall retain
actual control of the Regulated Business to the maximum extent permitted under
applicable French Law (including the maximum permissible board representation),
and in any event Vivendi's control of the Regulated Business shall be at least
equal to the level of its current actual control of Canal.
- Sale of Library. In the event that the Regulated Business determines in the
future to sell its library of rights (the "Library"), the Non-Regulated
Business will have the option to acquire the Library for a purchase price equal
to the amount of Fee Income paid to the Regulated Business by the Non-Regulated
Business for the one year period ending on the date of consummation of such
sale of the Library.
- Other Terms and Conditions. The conditions to the consummation of the
Vivendi/Canal Transactions shall be limited solely to the receipt of the
shareholder approvals and Regulatory Approvals set forth in Sections 5.1(d) and
5.1(j), respectively, of this Agreement, including the other conditions
specified in the attached chart, and to the extent not otherwise specifically
provided for in this Agreement, the terms of the Vivendi/Canal Transactions
shall otherwise be reasonably acceptable to Seagram (and the Vivendi Parties,
Sofiee and Canal agree to implement each of the Vivendi/Canal Transactions on
terms reasonably acceptable to Seagram).
- Exchange Ratios. The Vivendi Shareholders will receive in Step 2 one share of
Sofiee for each share of Vivendi that they hold (the "Sofiee Exchange Ratio").
The Canal shareholders will receive in Step 62 shares of Vivendi/Sofiee for
each share of Canal they hold (the "Canal Exchange Ratio").
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ANNEX B
FORM OF PLAN OF ARRANGEMENT
UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT
ARTICLE 1
INTERPRETATION
1.1 Definitions. In this Plan of Arrangement, unless there is something
in the subject matter or context inconsistent therewith, the following terms
shall have the respective meanings set out below and grammatical variations of
such terms shall have corresponding meanings:
"Adjustment Fraction" means (i) if the Aggregate Number of
Exchangeable Shares exceeds the Maximum Number of Exchangeable Shares, the
fraction the numerator of which is the Maximum Number of Exchangeable
Shares and the denominator of which is the Aggregate Number of Exchangeable
Shares or (ii) if the Aggregate Number of Exchangeable Shares is equal to
or less than the Maximum Number of Exchangeable Shares, one;
"Affiliate" has the meaning ascribed thereto in the Securities Act;
"Aggregate Number of Exchangeable Shares" means the greatest whole
number of Exchangeable Shares equal to the product of the number of
Exchangeable Elected Shares and the Exchange Ratio;
"Arrangement" means an arrangement under section 192 of the CBCA on
the terms and subject to the conditions set out in this Plan of
Arrangement, subject to any amendments or variations thereto made in
accordance with section 6.1 of the Merger Agreement or Article 6 or made at
the direction of the Court;
"Arrangement Resolution" means the special resolution of the Seagram
Shareholders, to be substantially in the form and content of Schedule B
annexed to the Merger Agreement;
"Articles of Arrangement" means the articles of arrangement of Seagram
in respect of the Arrangement that are required by the CBCA to be sent to
the Director after the Final Order is made;
"Average Market Price" means the amount (rounded to the nearest one
hundredth of a cent) equal to the average of the Daily Market Price for
each trading day during the Measuring Period, with each such Daily Market
Price converted into U.S. dollars at the noon buying rate in New York City
on the applicable trading day for cable transfers in euros as certified for
customs purposes by the Federal Reserve Bank of New York;
"Business Day" means any day on which commercial banks are generally
open for business in Toronto, Ontario, New York City, New York and France,
other than a Saturday, a Sunday or a day observed as a holiday in Toronto,
Ontario, in New York City, New York or in France under applicable laws;
"Canadian Resident" means a resident of Canada for purposes of the ITA
and includes a partnership any member of which is a resident of Canada for
purposes of the ITA;
"CBCA" means the Canada Business Corporations Act, as now in effect
and as it may be amended from time to time prior to the Effective Date;
"Certificate" means the certificate of arrangement giving effect to
the Arrangement, issued pursuant to subsection 192(7) of the CBCA after the
Articles of Arrangement have been filed;
"Court" means the Superior Court of Justice (Ontario);
"Current Market Price" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
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<PAGE> 579
"Custody Agreement" means the custody agreement to be made among
Vivendi, Vivendi Universal Exchangeco and the Custodian in connection with
this Plan of Arrangement substantially in the form and content of Schedule
C annexed to the Merger Agreement, with such changes thereto as the parties
to the Merger Agreement, acting reasonably, may agree;
"Custodian" means the Person acting from time to time as custodian
under the Custody Agreement;
"Daily Market Price" means, for any trading day during the Measuring
Period, the amount equal to the per share closing price of Vivendi Shares
on the PSE, as published by the SBF-Bourse de Paris for such trading day;
"Depositary" means -- at its offices set out in the Letter of
Transmittal and Election Form;
"Director" means the Director appointed pursuant to section 260 of the
CBCA;
"Dissent Rights" has the meaning ascribed thereto in section 3.1;
"Dissenting Shareholder" means a holder of Seagram Common Shares who
dissents in respect of the Arrangement in strict compliance with the
Dissent Rights;
"Dividend Amount" means an amount equal to all declared and unpaid
dividends on an Exchangeable Share held by a holder on any dividend record
date which occurred prior to the date of purchase of such share by Vivendi
Universal Holdings from such holder;
"Effective Date" means the date shown on the Certificate;
"Effective Time" means 12:01 a.m. (Toronto time) on the Effective
Date;
"Election Deadline" means 5:00 p.m. (Toronto time) at the place of
deposit on the date which is three Business Days prior to the Seagram
Meeting Date;
"Exchange Ratio" means the number (rounded to the nearest one
ten-thousandth) determined by dividing (i) U.S.$77.35 by (ii) the Average
Market Price; provided, however, that if the Average Market Price is equal
to or greater than U.S.$124.3369, the Exchange Ratio shall be .6221, and if
the Average Market Price is equal to or less than U.S.$96.6875, the
Exchange Ratio shall be .8000;
"Exchangeable Elected Shares" means any Seagram Common Share (other
than a Seagram Common Share held by Vivendi or any affiliate thereof) that
the holder thereof shall have elected in accordance with section 2.3, in a
duly completed Letter of Transmittal and Election Form deposited with the
Depositary no later than the Election Deadline, to transfer to Vivendi
Universal Exchangeco under the Arrangement for a fraction of an
Exchangeable Share equal to the product of the Exchange Ratio and the
Adjustment Fraction and certain ancillary rights;
"Exchangeable Shares" means the non-voting exchangeable shares in the
capital of Vivendi Universal Exchangeco, having the rights, privileges,
restrictions and conditions set out in the Exchangeable Share Provisions;
"Exchangeable Share Provisions" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares, which
rights, privileges, restrictions and conditions shall be substantially as
set out in Appendix 1 hereto;
"Exchange Trust Agreement" means the exchange trust agreement to be
made among Vivendi, Vivendi Universal Exchangeco and the Trustee in
connection with this Plan of Arrangement substantially in the form and
content of Schedule D annexed to the Merger Agreement, as amended pursuant
to the terms of the Exchange Trust Agreement;
"Final Order" means the final order of the Court approving the
Arrangement as such order may be amended by the Court at any time prior to
the Effective Date or, if appealed, then, unless such appeal is withdrawn
or denied, as affirmed or amended on appeal;
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"Governmental Entity" means any (a) multinational, federal,
provincial, state, regional, municipal, local or other government,
governmental or public department, central bank, court, tribunal, arbitral
body, commission, board, bureau or agency, domestic or foreign, (b) any
subdivision, agent, commission, board, or authority of any of the foregoing
or (c) any quasi-governmental or private body exercising any regulatory,
expropriation or taxing authority under or for the account of any of the
foregoing;
"Holders" means (a) when used with reference to the Seagram Common
Shares, the holders of such shares shown from time to time in the register
maintained by or on behalf of Seagram in respect thereof and (b) when used
with reference to Seagram Options and Seagram SARs means the holders
thereof from time to time;
"Interim Order" means the interim order of the Court, as the same may
be amended, in respect of the Arrangement, as contemplated by section 2.3
of the Merger Agreement;
"ITA" means the Income Tax Act (Canada), as amended;
"Letter of Transmittal and Election Form" means the letter of
transmittal and election form for use by holders of Seagram Common Shares,
in the form accompanying the Seagram Circular;
"Liquidation Amount" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
"Liquidation Call Purchase Price" has the meaning ascribed thereto in
section 5.1(a);
"Liquidation Call Right" has the meaning ascribed thereto in section
5.1(a);
"Liquidation Date" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
"Market Price" means the amount equal to average closing sale prices
of Vivendi Shares on the PSE, as published by SBF -- Paris Bourse SA,
during the Measuring Period, converted into U.S. dollars at the noon buying
rate in New York City on each trading day during the Measuring Period for
cable transfers in euros as certified for customs purposes by the Federal
Reserve Bank of New York;
"Maximum Number of Exchangeable Shares" means 97,000,000 Exchangeable
Shares;
"Measuring Period" means the 20 consecutive trading days on the PSE
ending on the third complete trading day prior to the Effective Date;
"Merger Agreement" means the merger agreement made as of June 19, 2000
among Vivendi (by a predecessor corporation), Seagram and the other parties
thereto, as amended, supplemented and/or restated in accordance therewith
prior to the Effective Date, providing for, among other things, the
Arrangement;
"Person" includes any individual, firm, partnership, limited
partnership, joint venture, venture capital fund, limited liability
company, unlimited liability company, association, trust, trustee,
executor, administrator, legal personal representative, estate, group, body
corporate, corporation, unincorporated association or organization,
Governmental Entity, syndicate or other entity, whether or not having legal
status;
"PSE" means the Paris Bourse;
"Redemption Call Purchase Price" has the meaning ascribed thereto in
section 5.2(a);
"Redemption Call Right" has the meaning ascribed thereto in section
5.2(a);
"Redemption Date" has the meaning ascribed thereto in the Exchangeable
Share Provisions;
"Redemption Price" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
"Replacement Option" has the meaning ascribed thereto in section
2.2(d);
"Replacement SAR" has the meaning ascribed thereto in section 2.2(e);
"Seagram" means The Seagram Company Ltd., a corporation existing under
the CBCA;
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"Seagram Circular" means the notice of the Seagram Meeting and
accompanying management proxy circular, including all appendices thereto,
to be sent to Seagram Shareholders in connection with the Seagram Meeting;
"Seagram Common Shares" means the outstanding common shares in the
capital of Seagram;
"Seagram Meeting" means the special meeting of Seagram Shareholders,
including any adjournment or postponement thereof, to be called and held in
accordance with the Interim Order to consider the Arrangement;
"Seagram Meeting Date" means the date of the Seagram Meeting;
"Seagram Options" means the stock options to purchase Seagram Common
Shares granted under the Seagram Stock Plans;
"Seagram SARs" means any stock appreciation rights issued under any
Seagram Stock Plan;
"Seagram Shareholders" means the holders of Seagram Common Shares;
"Seagram Stock Plans" means the Seagram 1983 Stock Appreciation Right
and Stock Unit Plan, the Seagram Stock Plan for Non-Employee Directors, the
Seagram 1988 Stock Option Plan, the Seagram 1992 Stock Incentive Plan and
the Seagram 1996 Stock Incentive Plan, in each case as amended to the date
of the Merger Agreement;
"Securities Act" means the Securities Act (Ontario) and the rules,
regulations and policies made thereunder, as amended;
"Transfer Agent" has the meaning ascribed thereto in the Exchangeable
Share Provisions;
"Transfer Agreement" means the transfer agreement to be made between
Vivendi and the Custodian pursuant to which Vivendi will transfer the
Vivendi Voting Rights to the Custodian;
"Trustee" means the trustee chosen by Vivendi and Seagram, acting
reasonably, to act as trustee under the Exchange Trust Agreement, being a
corporation organized and existing under the laws of Canada and authorized
to carry on the business of a trust company in all the provinces of Canada,
and any successor trustee appointed under the Exchange Trust Agreement;
"Vivendi" has the meaning ascribed thereto in the Merger Agreement;
"Vivendi ADRs" means the American depositary receipts of Vivendi, each
evidencing one Vivendi ADS;
"Vivendi ADS Adjustment Ratio" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
"Vivendi ADS Consideration" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
"Vivendi ADSs" means the American depositary shares of Vivendi, each
representing one Vivendi Share;
"Vivendi Universal Exchangeco" means Vivendi Universal Exchangeco
Inc., a corporation existing under the CBCA and being a subsidiary of
Vivendi Holdings;
"Vivendi Universal Holdings" means Vivendi Universal Holdings Company,
an unlimited liability company existing under the laws of the Province of
Nova Scotia and wholly owned, directly or indirectly, by Vivendi through
any number of entities, each of which is a disregarded entity for U.S.
federal income tax purposes;
"Vivendi Shares" means the ordinary shares in the capital of Vivendi,
nominal value Euro 5.50; and
"Vivendi Voting Right" means an "action en nue propriete" under French
law, which, among other things, represents one vote on the same basis and
in the same circumstances as one Vivendi Share.
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1.2 Interpretation not Affected by Headings, etc. The division of this
Plan of Arrangement into Articles, Sections and other portions and the insertion
of headings are for convenience of reference only and shall not affect the
interpretation of this Plan of Arrangement. Unless otherwise indicated, all
references to an "Article" or "Section" followed by a number and/or a letter
refer to the specified Article or Section of this Plan of Arrangement. The terms
"this Plan of Arrangement", "hereof", "herein" and "hereunder" and similar
expressions refer to this Plan of Arrangement (including the Appendices hereto)
and not to any particular Article, Section or other portion hereof and include
any agreement or instrument supplementary or ancillary hereto.
1.3 Number, etc. Unless the context otherwise requires, words importing
the singular shall include the plural and vice versa and words importing any
gender include all genders.
1.4 Date for any Action. In the event that any date on which any action
is required to be taken hereunder by any Person is not a Business Day, such
action shall be required to be taken on the next succeeding day which is a
Business Day.
ARTICLE 2
ARRANGEMENT
2.1 Binding Effect. This Plan of Arrangement will become effective at,
and be binding at and after, the Effective Time on (i) Seagram, (ii) Vivendi,
(iii) Vivendi Universal Holdings, (iv) Vivendi Universal Exchangeco, (v) all
holders and all beneficial owners of Seagram Common Shares, (vi) all holders of
Seagram Options, Replacement Options, Seagram SARs and Replacement SARs and
(vii) all holders and all beneficial owners of Exchangeable Shares from time to
time.
2.2 Arrangement. Commencing at the Effective Time, the following shall
occur and shall be deemed to occur in the following order (except that the
transfer of shares pursuant to section 2.2(b) and the entering into of the
Exchange Trust Agreement pursuant to section 2.2(c) shall occur and shall be
deemed to occur simultaneously) without any further act or formality:
(a) each Seagram Common Share, other than (i) the Exchangeable Elected
Shares, (ii) Seagram Common Shares held by Dissenting Shareholders who are
ultimately entitled to be paid the fair value of the Seagram Common Shares
held by them and (iii) Seagram Common Shares held by Vivendi or any
affiliate thereof which shall not be exchanged under this Arrangement and
shall remain outstanding as Seagram Common Shares held by Vivendi or any
affiliate thereof, will be transferred by the holder thereof, without any
act or formality on its part, to Vivendi Universal Holdings in exchange for
that number of fully paid and non-assessable Vivendi ADSs equal to the
Exchange Ratio (subject to section 4.4), and the name of each such holder
will be removed from the register of holders of Seagram Common Shares and
added to the register of holders of Vivendi ADSs and Vivendi Universal
Holdings will be recorded as the registered holder of such Seagram Common
Shares and will be deemed to be the legal and beneficial owner thereof;
(b) each Exchangeable Elected Share will be transferred by the holder
thereof, without any act or formality on its part, to Vivendi Universal
Exchangeco in exchange for (i) that number of fully paid and non-assessable
Exchangeable Shares equal to the product of the Exchange Ratio and the
Adjustment Fraction (subject to section 4.4), and the name of each such
holder will be removed from the register of holders of Seagram Common
Shares and added to the register of holders of Exchangeable Shares and
Vivendi Universal Exchangeco will be recorded as the registered holder of
such Seagram Common Shares and will be deemed to be the legal and
beneficial owner thereof and (ii) that number of fully paid and
non-assessable Vivendi Voting Rights equal to the number of Exchangeable
Shares issued pursuant to the foregoing clause (i), which Vivendi Voting
Rights Vivendi shall transfer to the Custodian in accordance with the terms
of the Transfer Agreement (which Transfer Agreement is being entered into
concurrently with the transfer of the Exchangeable Elected Shares and the
exchange described in this section 2.2(b)) for and on behalf of the holders
of the Exchangeable Shares issued pursuant to the
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foregoing clause (i), and, coincident with such transfer to the Custodian,
Vivendi, Vivendi Universal Exchangeco and the Custodian shall enter into
the Custody Agreement;
(c) coincident with the transfer of Exchangeable Elected Shares to
Vivendi Universal Exchangeco, Vivendi, Vivendi Universal Exchangeco and the
Trustee will enter into the Exchange Trust Agreement and all rights of
holders of Exchangeable Shares under the Exchange Trust Agreement shall be
received by them as part of the property receivable by them under section
2.2(b) in exchange for the Exchangeable Elected Shares so transferred;
(d) each Seagram Option outstanding at the Effective Time will be
exchanged for an option from Vivendi or Seagram (with, in the case of an
option from Seagram for holders other than holders subject to tax under the
ITA, a guarantee of performance by Vivendi, including all obligations of
Seagram to deliver Vivendi ADSs thereunder), as Vivendi may determine, (a
"Replacement Option") to purchase the number of Vivendi ADSs equal to the
product of the Exchange Ratio multiplied by the number of Seagram Common
Shares that may be purchased as if such Seagram Option were exercisable and
exercised immediately prior to the Effective Time. Such Replacement Option
shall provide for an exercise price per Vivendi ADS equal to the exercise
price per Seagram Common Share of such Seagram Option immediately prior to
the Effective Time divided by the Exchange Ratio (rounded up to the nearest
cent in the case of holders subject to tax under the ITA and rounded off to
the nearest cent for all other holders). If the foregoing calculation
results in the total Replacement Options of any particular holder thereof
being exercisable for a fraction of a Vivendi ADS, then the number of
Vivendi ADSs subject to such holder's total Replacement Options shall be
(i) rounded down to the next whole number of Vivendi ADSs and the total
exercise price for such Replacement Options will be reduced by the exercise
price of the fractional Vivendi ADS in the case of holders subject to tax
under the ITA and (ii) rounded up to the nearest whole Vivendi ADS for all
other holders. Subject to the foregoing provisions of this section 2.2(d)
and section 4.4(p) of the Merger Agreement and the changes contemplated
thereby, the term to expiry, conditions to and manner of exercising,
vesting schedule and all other terms and conditions of such Replacement
Option will be the same as the terms and conditions of such Seagram Option
and any document or agreement previously evidencing such Seagram Option
shall, until changed in accordance with such Replacement Option, evidence
and be deemed to evidence such Replacement Option; and
(e) each Seagram SAR outstanding at the Effective Time will be
exchanged for a stock appreciation right from Vivendi or Seagram (with, in
the case of a stock appreciation right from Seagram for holders other than
holders subject to tax under the ITA, a guarantee of performance by
Vivendi, including all obligations of Seagram to deliver cash or Vivendi
ADSs, as appropriate, thereunder), as Vivendi may determine, (a
"Replacement SAR") in respect of the number of Vivendi ADSs equal to the
product of the Exchange Ratio multiplied by the number of Seagram Common
Shares that were the subject of the Seagram SAR immediately prior to the
Effective Time. Such Replacement SAR shall provide for an exercise price
(if any) per Vivendi ADS equal to the exercise price per Seagram Common
Share of such Seagram SAR immediately prior to the Effective Time divided
by the Exchange Ratio (rounded up to the nearest cent in the case of
holders subject to tax under the ITA and rounded off to the nearest cent
for all other holders). If the foregoing calculation results in the total
Replacement SARs of any particular holder thereof being exercisable for a
fraction of a Vivendi ADS, then the number of Vivendi ADSs subject to such
holder's Replacement SAR shall be (i) rounded down to the next whole number
of Vivendi ADSs and the total exercise price for such Replacement SARs will
be reduced by the exercise price of the fractional Vivendi ADS in the case
of holders subject to tax under the ITA and (ii) rounded up to the nearest
whole Vivendi ADS for all other holders. Subject to the foregoing
provisions of this section 2.2(e) and section 4.4(p) of the Merger
Agreement, the term to expiry, conditions to and manner of exercising,
vesting schedule and all other terms and conditions of such Replacement SAR
will be the same as the terms and conditions of such Seagram SAR and any
document or agreement previously evidencing such Seagram SAR shall, until
changed in accordance with such Replacement SAR evidence and be deemed to
evidence such Replacement SAR.
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2.3 Elections. (a) Each Person who, at or prior to the Election Deadline,
is a holder of record of Seagram Common Shares and who is either a Canadian
Resident that holds such shares on its own behalf or who holds such shares on
behalf of a Person who is a Canadian Resident will be entitled, with respect to
all or a portion of such shares, to make or deliver an election at or prior to
the Election Deadline to receive Exchangeable Shares or Vivendi ADSs, or a
combination thereof, in exchange for such holder's Seagram Common Shares on the
basis set forth herein and in the Letter of Transmittal and Election Form.
(b) Each beneficial owner of Seagram Common Shares who is a Canadian
Resident, other than any such owner who is exempt from tax under the ITA or is a
partnership all of the members of which who are Canadian Residents are also
exempt from tax under the ITA, and who has validly elected, or for whom the
holder of record has validly elected on such owner's behalf to receive
Exchangeable Shares shall be entitled to make an income tax election pursuant to
subsection 85(1) of the ITA or, if such beneficial owner is a partnership,
subsection 85(2) of the ITA (and in each case, where applicable, the analogous
provisions of provincial income tax law) with respect to the transfer of its
Seagram Common Shares to Vivendi Universal Exchangeco by providing two signed
copies of the necessary prescribed election forms to the Depositary within 90
days following the Effective Date, duly completed with the details of the number
of Seagram Common Shares transferred and the applicable agreed amounts for the
purposes of such elections. Thereafter, subject to the election forms being
correct and complete and complying with the provisions of the ITA (or applicable
provincial income tax law), the forms will be signed by Vivendi Universal
Exchangeco and returned to such beneficial owner of Seagram Common Shares within
30 days after the receipt thereof by the Depositary for filing with the Canada
Customs and Revenue Agency (or the applicable provincial taxing authority).
Vivendi Universal Exchangeco will not be responsible for the proper completion
of any election form and, except for Vivendi Universal Exchangeco's obligation
to return duly completed election forms which are received by the Depositary
within 90 days of the Effective Date, within 30 days after the receipt thereof
by the Depositary, Vivendi Universal Exchangeco will not be responsible for any
taxes, interest or penalties resulting from the failure by a beneficial owner of
Seagram Common Shares to properly complete or file the election forms in the
form and manner and within the time prescribed by the ITA (or any applicable
provincial legislation). In its sole discretion, Vivendi Universal Exchangeco
may choose to sign and return an election form received more than 90 days
following the Effective Date, but Vivendi Universal Exchangeco will have no
obligation to do so.
2.4 Adjustments to Exchange Ratio. The Exchange Ratio and the Maximum
Number of Exchangeable Shares shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Vivendi ADSs, Vivendi Shares or
Seagram Common Shares, other than stock dividends paid in lieu of ordinary
course dividends), consolidation, reorganization, recapitalization or other like
change with respect to Vivendi ADSs, Vivendi Shares or Seagram Common Shares
occurring after the date of the Merger Agreement and prior to the Effective
Time; provided, however, that no such adjustment to the Exchange Ratio or the
Maximum Number of Exchangeable Shares shall be made in connection with the
Vivendi/Canal Transactions (as defined in the Merger Agreement).
ARTICLE 3
RIGHTS OF DISSENT
3.1 Rights of Dissent. Holders of Seagram Common Shares may exercise
rights of dissent with respect to such shares pursuant to and in the manner set
forth in section 190 of the CBCA and this section 3.1 (the "Dissent Rights") in
connection with the Arrangement; provided that, notwithstanding subsection
190(5) of the CBCA, the written objection to the Arrangement Resolution referred
to in subsection 190(5) of the CBCA must be received by Seagram not later than
5:00 p.m. (Toronto time) on the Business Day preceding the Seagram Meeting.
Holders of Seagram Common Shares who duly exercise such rights of dissent and
who:
(a) are ultimately determined to be entitled to be paid fair value for
their Seagram Common Shares, shall be deemed to have transferred such
Seagram Common Shares as of the Effective Time, without any further act or
formality and free and clear of all liens, claims and encumbrances, to
Seagram and such shares shall be cancelled as of the Effective Time; or
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(b) are ultimately determined not to be entitled, for any reason, to
be paid fair value for their Seagram Common Shares, shall be deemed to have
participated in the Arrangement on the same basis as a non-dissenting
holder of Seagram Common Shares who did not make a valid election to
receive Exchangeable Shares and shall receive Vivendi ADSs on the basis
determined in accordance with section 2.2;
but in no case shall Vivendi, Vivendi Universal Exchangeco, Vivendi Universal
Holdings, Seagram, the Depositary or any other Person be required to recognize
such Dissenting Shareholders as holders of Seagram Common Shares after the
Effective Time and the names of such Dissenting Shareholders shall be deleted
from the register of holders of Seagram Common Shares at the Effective Time.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 Issuance of Certificates Representing Exchangeable Shares. At or
promptly after the Effective Time, Vivendi Universal Exchangeco shall deposit
with the Depositary, for the benefit of the holders of Exchangeable Elected
Shares, certificates representing that number of whole Exchangeable Shares to be
delivered pursuant to section 2.2(b). Upon surrender (on or prior to the
Election Deadline) to the Depositary of a certificate which immediately prior to
the Effective Time represented Seagram Common Shares that, under the
Arrangement, were exchanged for Exchangeable Shares, together with a duly
completed Letter of Transmittal and Election Form and such additional documents,
instruments and payments as the Depositary may reasonably require, the holder of
such surrendered certificate shall be entitled to receive in exchange therefor,
and the Depositary shall deliver to such holder, a certificate representing that
number (rounded down to the nearest whole number) of Exchangeable Shares which
such holder has the right to receive (together with any cash in lieu of
fractional Exchangeable Shares pursuant to section 4.4), less any amounts
withheld pursuant to section 4.7, and the certificate so surrendered shall
forthwith be cancelled. In the event of a transfer of ownership of Seagram
Common Shares that is not registered in the transfer records of Seagram, a
certificate representing the proper number of Exchangeable Shares may, subject
to section 2.2, be issued to the transferee if the certificate representing such
Seagram Common Shares is presented to the Depositary, on or prior to the
Election Deadline, accompanied by a duly completed Letter of Transmittal and
Election Form and all documents required to evidence and effect such transfer.
4.2 Exchange of Certificates for Vivendi ADSs. At or promptly after the
Effective Time, Vivendi Universal Holdings shall deposit with the Depositary,
for the benefit of the holders of Seagram Common Shares who will receive Vivendi
ADSs in connection with the Arrangement, Vivendi ADRs representing that number
of whole Vivendi ADSs to be received by holders of Seagram Common Shares
pursuant to section 2.2(a). Upon surrender to the Depositary of a certificate
which immediately prior to the Effective Time represented outstanding Seagram
Common Shares that, under the Arrangement, were transferred to Vivendi Universal
Holdings in exchange for Vivendi ADSs pursuant to section 2.2(a), together with
a duly completed Letter of Transmittal and Election Form and such additional
documents, instruments and payments as the Depositary may reasonably require,
the holder of such surrendered certificate shall be entitled to receive in
exchange therefor, and the Depositary shall deliver to such holder, Vivendi ADRs
representing that number (rounded down to the nearest whole number) of Vivendi
ADSs which such holder has the right to receive (together with any dividends or
distributions with respect to the Vivendi ADSs pursuant to section 4.3 and any
cash in lieu of fractional Vivendi ADSs pursuant to section 4.4), less any
amounts withheld pursuant to section 4.7, and the certificate so surrendered
shall forthwith be cancelled. In the event of a transfer of ownership of Seagram
Common Shares which is not registered in the transfer records of Seagram,
Vivendi ADRs representing the proper number of Vivendi ADSs may, subject to
section 2.2, be issued to the transferee if the certificate representing such
Seagram Common Shares is presented to the Depositary, accompanied by all
documents required to evidence and effect such transfer. Until surrendered as
contemplated by this section 4.2, each certificate which immediately prior to
the Effective Time represented one or more outstanding Seagram Common Shares
that, under the Arrangement, were transferred to Vivendi Universal Holdings in
return for Vivendi ADSs pursuant to section 2.2(a) shall be deemed at all times
after
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<PAGE> 586
the Effective Time to represent only the right to receive upon such surrender
(i) Vivendi ADRs representing the Vivendi ADSs as contemplated by this section
4.2, (ii) a cash payment in lieu of any fractional Vivendi ADSs as contemplated
by section 4.4 and (iii) any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to the Vivendi ADSs
as contemplated by section 4.3, in each case less any amounts withheld pursuant
to section 4.7.
4.3 Distributions with Respect to Unsurrendered Certificates. No
dividends or other distributions declared or made with respect to the Vivendi
ADSs with a record date after the Effective Time, shall be paid to the holder of
any unsurrendered certificate which immediately prior to the Effective Time
represented outstanding Seagram Common Shares, and no cash payment in lieu of
fractional Vivendi ADSs shall be paid to any such holder pursuant to section
4.4, unless and until the holder of such certificate shall surrender such
certificate in accordance with section 4.2. Subject to applicable law, at the
time of such surrender of any such certificate (or, in the case of clause (z)
below, at the appropriate payment date), there shall be paid to the holder of
the certificates representing Seagram Common Shares, without interest, (x) the
amount of any cash payable in lieu of a fractional Vivendi ADS to which such
holder is entitled pursuant to section 4.4, (y) the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to the Vivendi ADSs to which such holder is entitled pursuant hereto and
(z) only to the extent not paid under clause (y), on the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such Vivendi ADSs.
4.4 No Fractional Shares.
(a) No certificates representing fractional Exchangeable Shares or
fractional Vivendi ADSs shall be issued upon the surrender for exchange of
certificates pursuant to section 4.1 or 4.2 and no dividend, stock split or
other change in the capital structure of Vivendi Universal Exchangeco or Vivendi
shall relate to any such fractional security and such fractional securities
shall not entitle the owner thereof to exercise any rights as a securityholder
of Vivendi Universal Exchangeco or Vivendi. In lieu of any such fractional
Exchangeable Shares each Person otherwise entitled to a fractional interest in
an Exchangeable Share will be entitled to receive a cash payment equal to such
Person's pro rata portion (based on such Person's fractional interest in an
Exchangeable Share) of the net proceeds after expenses received by the
Depositary upon the sale of whole shares representing an accumulation of all
fractional interests in Exchangeable Shares to which all such Persons would
otherwise be entitled. The Depositary will sell such Exchangeable Shares by
private sale (including by way of sale through the facilities of any stock
exchange upon which the Exchangeable Shares are then listed) as soon as
reasonably practicable following the Effective Date. Subject to section 4.3, the
aggregate net proceeds after expenses of such sale will be distributed by the
Depositary, pro rata in relation to the respective fractions, among the Persons
otherwise entitled to receive fractional interests in Exchangeable Shares. In
lieu of any such fractional Vivendi ADSs each Person otherwise entitled to a
fractional interest in a Vivendi ADS will be entitled to receive a cash payment
equal to such Person's pro rata portion (based on such Person's fractional
interest in a Vivendi ADS) of the net proceeds after expenses received by the
Depositary upon the sale of whole Vivendi ADSs representing an accumulation of
all fractional interests in Vivendi ADSs to which all such Persons would
otherwise be entitled. The Depositary will sell such Vivendi ADSs by private
sale (including by way of sale through the facilities of any stock exchange upon
which the Vivendi ADSs are then listed) as soon as reasonably practicable
following the Effective Date. Subject to section 4.3, the aggregate net proceeds
after expenses of such sale will be distributed by the Depositary, pro rata in
relation to the respective fractions, among the Persons otherwise entitled to
receive fractional interests in Vivendi ADSs.
(b) A holder of an Exchangeable Share shall not be entitled to any fraction
of a Vivendi ADS upon the exercise by Vivendi Universal Holdings of the
Liquidation Call Right or the Redemption Call Right and no certificates
representing any such fractional interest shall be issued and such holder
otherwise entitled to a fractional interest will receive for such fractional
interest from Vivendi Universal Holdings on the designated payment date to the
extent not paid by Vivendi Universal Exchangeco a cash payment equal to such
fractional interest multiplied by the Current Market Price.
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4.5 Lost Certificates. In the event any certificate which immediately
prior to the Effective Time represented one or more outstanding Seagram Common
Shares that were exchanged pursuant to section 2.2 shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such certificate to be lost, stolen or destroyed, the Depositary will
issue in exchange for such lost, stolen or destroyed certificate any cash
pursuant to section 4.4 and/or one or more certificates representing one or more
Exchangeable Shares or one or more Vivendi ADSs (and any dividends or
distributions with respect thereto) deliverable in accordance with section 2.2
and such holder's Letter of Transmittal and Election Form. When authorizing such
payment in exchange for any lost, stolen or destroyed certificate, the Person to
whom certificates representing Exchangeable Shares or Vivendi ADSs are to be
issued shall, as a condition precedent to the issuance thereof, give a bond
satisfactory to Vivendi Universal Exchangeco, Vivendi (and their respective
transfer agents) and the Depositary in such sum as Vivendi Universal Exchangeco,
Vivendi or the Depositary may direct or otherwise indemnify Vivendi Universal
Exchangeco, Vivendi and the Depositary in a manner satisfactory to Vivendi
Universal Exchangeco, Vivendi and the Depositary against any claim that may be
made against Vivendi Universal Exchangeco, Vivendi or the Depositary with
respect to the certificate alleged to have been lost, stolen or destroyed.
4.6 Extinction of Rights. Any certificate which immediately prior to the
Effective Time represented outstanding Seagram Common Shares that were exchanged
pursuant to section 2.2(a) that is not deposited with all other instruments
required by section 4.2 on or prior to the fifth anniversary of the Effective
Date shall cease to represent a claim or interest of any kind or nature as a
securityholder of Vivendi Universal Holdings or Vivendi. On such date, Vivendi
ADSs (and any cash in lieu of fractional interests in Vivendi ADSs, as provided
in section 4.4) to which the former holder of the certificate referred to in the
preceding sentence was ultimately entitled shall be deemed to have been
surrendered for no consideration to Vivendi, together with all entitlements to
dividends and distributions in respect thereof held for such former holder. None
of Vivendi, Vivendi Universal Holdings or the Depositary shall be liable to any
person in respect of any Vivendi ADSs or cash for fractional interests (or
dividends or distributions in respect thereof) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
4.7 Withholding Rights. Vivendi, Vivendi Universal Holdings, Vivendi
Universal Exchangeco, Seagram and the Depositary shall be entitled to deduct and
withhold from any dividend or consideration otherwise payable to any holder of
Seagram Common Shares, Vivendi ADSs or Exchangeable Shares such amounts as
Vivendi, Vivendi Universal Holdings, Vivendi Universal Exchangeco, Seagram or
the Depositary determines, acting reasonably, are required or permitted pursuant
to section 116 of the ITA or any successor provision thereto to be deducted and
withheld with respect to such payment under the ITA, the United States Internal
Revenue Code of 1986, the tax laws of France or any provision of federal,
provincial, territorial, state, local or foreign tax law, in each case, as
amended. To the extent that amounts are so withheld, such withheld amounts shall
be treated for all purposes hereof as having been paid to the holder of the
securities in respect of which such deduction and withholding was made, provided
that such withheld amounts are actually remitted to the appropriate taxing
authority. To the extent that the amount so required or permitted to be deducted
or withheld from any payment to a holder exceeds the cash portion of the
consideration otherwise payable to the holder, Vivendi, Vivendi Universal
Holdings, Vivendi Universal Exchangeco and the Depositary are hereby authorized
to sell or otherwise dispose of such portion of the consideration as is
necessary to provide sufficient funds to Vivendi, Vivendi Universal Holdings,
Vivendi Universal Exchangeco or the Depositary, as the case may be, to enable it
to comply with such deduction or withholding requirement and Vivendi, Vivendi
Universal Holdings, Vivendi Universal Exchangeco or the Depositary shall notify
the holder thereof and remit any unapplied balance of the net proceeds of such
sale.
ARTICLE 5
CERTAIN RIGHTS OF VIVENDI UNIVERSAL HOLDINGS TO ACQUIRE
EXCHANGEABLE SHARES
5.1 Vivendi Universal Holdings Liquidation Call Right. In addition to
Vivendi Universal Holdings' rights contained in the Exchangeable Share
Provisions, including, without limitation, the Retraction Call
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Right (as defined in the Exchangeable Share Provisions), Vivendi Universal
Holdings shall have the following rights in respect of the Exchangeable Shares:
(a) Vivendi Universal Holdings shall have the overriding right (the
"Liquidation Call Right"), in the event of and notwithstanding the proposed
liquidation, dissolution or winding-up of Vivendi Universal Exchangeco or
any other distribution of the assets of Vivendi Universal Exchangeco among
its shareholders for the purpose of winding up its affairs, pursuant to
Article 5 of the Exchangeable Share Provisions, to purchase from all but
not less than all of the holders of Exchangeable Shares (other than any
holder of Exchangeable Shares which is Vivendi or an affiliate of Vivendi)
on the Liquidation Date all but not less than all of the Exchangeable
Shares held by each such holder upon payment by Vivendi Universal Holdings
to each such holder of an amount per Exchangeable Share (the "Liquidation
Call Purchase Price") equal to the sum of (i) the Current Market Price of a
Vivendi ADS (multiplied by the then current Vivendi ADS Adjustment Ratio)
on the last Business Day prior to the Liquidation Date, which shall be
satisfied in full by Vivendi Universal Holdings delivering or causing to be
delivered to such holder the Vivendi ADS Consideration, plus (ii) any
Dividend Amount. In the event of the exercise of the Liquidation Call Right
by Vivendi Universal Holdings, each holder shall be obligated to sell all
the Exchangeable Shares held by the holder to Vivendi Universal Holdings on
the Liquidation Date upon payment by Vivendi Universal Holdings to the
holder of the Liquidation Call Purchase Price for each such Exchangeable
Share and Vivendi Universal Exchangeco shall have no obligation to pay any
Liquidation Amount to any holder of such Exchangeable Shares so purchased
by Vivendi Universal Holdings.
(b) To exercise the Liquidation Call Right, Vivendi Universal Holdings
must notify the Transfer Agent, as agent for the holders of Exchangeable
Shares, and Vivendi Universal Exchangeco of Vivendi Universal Holdings'
intention to exercise such right, at least 30 days before the Liquidation
Date in the case of a voluntary liquidation, dissolution or winding-up of
Vivendi Universal Exchangeco or any other voluntary distribution of the
assets of Vivendi Universal Exchangeco among its shareholders for the
purpose of winding up its affairs, and at least five Business Days before
the Liquidation Date in the case of an involuntary liquidation, dissolution
or winding-up of Vivendi Universal Exchangeco or any other involuntary
distribution of the assets of Vivendi Universal Exchangeco among its
shareholders for the purpose of winding up its affairs. The Transfer Agent
will notify the holders of Exchangeable Shares as to whether or not Vivendi
Universal Holdings has exercised the Liquidation Call Right forthwith after
the earlier of (i) receipt of notice by the Transfer Agent from Vivendi
Universal Holdings of its intention to exercise such right and (ii) the
expiry of the period during which such right may be exercised by Vivendi
Universal Holdings. If Vivendi Universal Holdings exercises the Liquidation
Call Right, then on the Liquidation Date Vivendi Universal Holdings will
purchase and the holders will sell all of the Exchangeable Shares then
outstanding for a price per Exchangeable Share equal to the Liquidation
Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Liquidation Call Right, Vivendi Universal Holdings
shall deposit with the Transfer Agent, on or before the Liquidation Date,
the aggregate number of Vivendi ADSs deliverable by Vivendi Universal
Holdings upon exercise of such right and a cheque or cheques of Vivendi
Universal Holdings payable at par at any branch of the bankers of Vivendi
Universal Holdings representing the aggregate Dividend Amount, if any, in
payment of the total Liquidation Call Purchase Price, less any amounts
withheld pursuant to section 4.7. Provided that Vivendi Universal Holdings
has complied with the immediately preceding sentence, on and after the
Liquidation Date the rights of each holder of Exchangeable Shares will be
limited to receiving, without interest, such holder's proportionate part of
the total Liquidation Call Purchase Price payable by Vivendi Universal
Holdings upon presentation and surrender by the holder of certificates
representing the Exchangeable Shares held by such holder and the holder
shall on and after the Liquidation Date be considered and deemed for all
purposes to be the holder of the Vivendi ADSs to which it is entitled. Upon
surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares
under the governing corporate statute and the by-laws of Vivendi
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<PAGE> 589
Universal Exchangeco and such additional documents, instruments and
payments as the Transfer Agent may reasonably require, the holder of such
surrendered certificate or certificates shall be entitled to receive in
exchange therefor, and the Transfer Agent on behalf of Vivendi Universal
Holdings shall deliver to such holder, the Vivendi ADSs (which securities
shall be fully paid and non-assessable and shall be free and clear of any
lien, claim or encumbrance) to which the holder is entitled and a cheque or
cheques of Vivendi Universal Holdings payable at par at any branch of the
bankers of Vivendi Universal Holdings in payment of the remaining portion,
if any, of the total Liquidation Call Purchase Price, less any amounts
withheld pursuant to section 4.7. If Vivendi Universal Holdings does not
exercise the Liquidation Call Right in the manner described above, on the
Liquidation Date the holders of the Exchangeable Shares will be entitled to
receive in exchange therefor the Liquidation Amount payable by Vivendi
Universal Exchangeco in connection with the liquidation, dissolution or
winding-up of Vivendi Universal Exchangeco or any other distribution of the
assets of Vivendi Universal Exchangeco among its shareholders for the
purpose of winding up its affairs pursuant to Article 5 of the Exchangeable
Share Provisions.
5.2 Vivendi Holdings Redemption Call Right. In addition to Vivendi
Universal Holdings' rights contained in the Exchangeable Share Provisions,
including, without limitation, the Retraction Call Right (as defined in the
Exchangeable Share Provisions), Vivendi Universal Holdings shall have the
following rights in respect of the Exchangeable Shares:
(a) Vivendi Universal Holdings shall have the overriding right (the
"Redemption Call Right"), notwithstanding the proposed redemption of the
Exchangeable Shares by Vivendi Universal Exchangeco pursuant to Article 7
of the Exchangeable Share Provisions, to purchase from all but not less
than all of the holders of Exchangeable Shares (other than any holder of
Exchangeable Shares which is Vivendi or an affiliate of Vivendi) on the
Redemption Date all but not less than all of the Exchangeable Shares held
by each such holder upon payment by Vivendi Universal Holdings to each such
holder of an amount per Exchangeable Share (the "Redemption Call Purchase
Price") equal to the sum of (i) the Current Market Price of a Vivendi ADS
(multiplied by the then current Vivendi ADS Adjustment Ratio) on the last
Business Day prior to the Redemption Date, which shall be satisfied in full
by Vivendi Universal Holdings delivering or causing to be delivered to such
holder the Vivendi ADS Consideration, plus (ii) any Dividend Amount. In the
event of the exercise of the Redemption Call Right by Vivendi Universal
Holdings, each holder shall be obligated to sell all the Exchangeable
Shares held by the holder to Vivendi Universal Holdings on the Redemption
Date upon payment by Vivendi Universal Holdings to the holder of the
Redemption Call Purchase Price for each such Exchangeable Share, and
Vivendi Universal Exchangeco shall have no obligation to redeem, or to pay
any Dividend Amount to any holder in respect of, such Exchangeable Shares
so purchased by Vivendi Universal Holdings.
(b) To exercise the Redemption Call Right, Vivendi Universal Holdings
must notify the Transfer Agent, as agent for the holders of Exchangeable
Shares, and Vivendi Universal Exchangeco of Vivendi Universal Holdings'
intention to exercise such right at least 30 days before the Redemption
Date, except in the case of a redemption occurring as a result of an
Exchangeable Share Voting Event or an Exempt Exchangeable Share Voting
Event (each as defined in the Exchangeable Share Provisions), in which case
Vivendi Universal Holdings shall so notify the Transfer Agent and Vivendi
Universal Exchangeco on or before the Redemption Date. The Transfer Agent
will notify the holders of the Exchangeable Shares as to whether or not
Vivendi Universal Holdings has exercised the Redemption Call Right
forthwith after the earlier of (i) receipt of notice by the Transfer Agent
from Vivendi Universal Holdings of its intention to exercise such right and
(ii) the expiry of the period during which such right may be exercised by
Vivendi Universal Holdings. If Vivendi Universal Holdings exercises the
Redemption Call Right, then on the Redemption Date Vivendi Universal
Holdings will purchase and the holders will sell all of the Exchangeable
Shares then outstanding for a price per Exchangeable Share equal to the
Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Redemption Call Right, Vivendi Universal Holdings
shall deposit with the Transfer Agent, on or before the Redemption Date,
the aggregate number of Vivendi ADSs deliverable by Vivendi Universal
Holdings
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upon exercise of such right and a cheque or cheques of Vivendi Universal
Holdings payable at par at any branch of the bankers of Vivendi Universal
Holdings representing the aggregate Dividend Amount, if any, in payment of
the total Redemption Call Purchase Price, less any amounts withheld
pursuant to section 4.7. Provided that Vivendi Universal Holdings has
complied with the immediately preceding sentence, on and after the
Redemption Date the rights of each holder of Exchangeable Shares will be
limited to receiving, without interest, such holder's proportionate part of
the total Redemption Call Purchase Price payable by Vivendi Universal
Holdings upon presentation and surrender by the holder of certificates
representing the Exchangeable Shares held by such holder and the holder
shall on and after the Redemption Date be considered and deemed for all
purposes to be the holder of the Vivendi ADSs to which it is entitled. Upon
surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares
under the governing corporate statute and the by-laws of Vivendi Universal
Exchangeco and such additional documents, instruments and payments as the
Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of Vivendi Universal Holdings
shall deliver to such holder, the Vivendi ADSs to which the holder is
entitled and a cheque or cheques of Vivendi Universal Holdings payable at
par at any branch of the bankers of Vivendi Universal Holdings in payment
of the remaining portion, if any, of the total Redemption Call Purchase
Price, less any amounts withheld pursuant to section 4.7. If Vivendi
Universal Holdings does not exercise the Redemption Call Right in the
manner described above, on the Redemption Date the holders of the
Exchangeable Shares will be entitled to receive in exchange therefor the
Redemption Price plus accrued and unpaid dividends payable by Vivendi
Universal Exchangeco in connection with the redemption of the Exchangeable
Shares pursuant to Article 7 of the Exchangeable Share Provisions.
ARTICLE 6
AMENDMENTS
6.1 Amendments to Plan of Arrangement. (a) Seagram reserves the right to
amend, modify and/or supplement this Plan of Arrangement at any time and from
time to time prior to the Effective Date, provided that each such amendment,
modification and/or supplement must be (i) set out in writing, (ii) approved by
Vivendi, (iii) filed with the Court and, if made following the Seagram Meeting,
approved by the Court and (iv) communicated to the Seagram Shareholders if and
as required by the Court.
(b) Any amendment, modification or supplement to this Plan of Arrangement
may be proposed by Seagram at any time prior to the Seagram Meeting (provided
that Vivendi shall have consented thereto) with or without any other prior
notice or communication and if so proposed and accepted by the Persons voting at
the Seagram Meeting (other than as may be required under the Interim Order)
shall become part of this Plan of Arrangement for all purposes.
(c) Any amendment, modification or supplement to this Plan of Arrangement
that is approved by the Court following the Seagram Meeting shall be effective
only if (i) it is consented to by each of Seagram and Vivendi and (ii) if
required by the Court, it is consented to by the Seagram Shareholders voting in
the manner directed by the Court.
(d) Any amendment, modification or supplement to this Plan of Arrangement
may be made following the Effective Date unilaterally by Vivendi, provided that
it concerns a matter which, in the reasonable opinion of Vivendi, is of an
administrative nature required to better give effect to the implementation of
this Plan of Arrangement and is not adverse to the financial or economic
interests of any holder of Exchangeable Shares, Vivendi ADSs, Replacement
Options or Replacement SARs.
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ARTICLE 7
FURTHER ASSURANCES
7.1 Notwithstanding that the transactions and events set out herein shall
occur and be deemed to occur in the order set out in this Plan of Arrangement
without any further act or formality, each of the parties to the Merger
Agreement shall make, do and execute, or cause to be made, done and executed,
all such further acts, deeds, agreements, transfers, assurances, instruments or
documents as may reasonably be required by any of them in order further to
document or evidence any of the transactions or events set out herein.
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APPENDIX 1
TO THE PLAN OF ARRANGEMENT
PROVISIONS ATTACHING TO THE
EXCHANGEABLE SHARES OF
VIVENDI UNIVERSAL EXCHANGECO INC.
The Exchangeable Shares shall have the following rights, privileges,
restrictions and conditions:
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these share provisions:
"Adjustment Fraction" has the meaning set forth in the Plan of
Arrangement;
"Affiliate" has the meaning ascribed thereto in the Securities Act;
"Arrangement" means an arrangement under section 192 of the CBCA on
the terms and subject to the conditions set out in the Plan of Arrangement;
"Board of Directors" means the board of directors of the Corporation;
"Business Day" means any day on which commercial banks are generally
open for business in Toronto, Ontario, New York City, New York and France,
other than a Saturday, a Sunday or a day observed as a holiday in Toronto,
Ontario, in New York City, New York or in France under applicable laws;
"CBCA" means the Canada Business Corporations Act, as amended;
"Canadian Dollar Equivalent" means in respect of an amount expressed
in a currency other than Canadian dollars (the "Foreign Currency Amount")
at any date the product obtained by multiplying:
(a) the Foreign Currency Amount; by
(b) the noon spot exchange rate on such date for such foreign currency
expressed in Canadian dollars as reported by the Bank of Canada or, in the
event such spot exchange rate is no available, such spot exchange rate on
such date for such foreign currency expressed in Canadian dollars as may be
deemed by the Board of Directors to be appropriate for such purpose;
"Common Shares" means the common shares in the capital of the
Corporation;
"Corporation" means Vivendi Universal Exchangeco Inc., a corporation
existing under the CBCA;
"Current Market Price" means, in respect of a Vivendi ADS on any date,
the Canadian Dollar Equivalent of the average of the closing prices (if
available) of Vivendi ADSs on the NYSE or NASDAQ during a period of 20
consecutive trading days ending on the third trading day before such date,
as provided by Reuters for the symbol "o", or, if the Vivendi ADSs are not
then listed on the NYSE or NASDAQ, the Canadian Dollar Equivalent of the
average of the closing prices (if available) of Vivendi Shares on the
principal exchange on which Vivendi Shares are then listed; provided,
however, that if in the opinion of the Board of Directors the public
distribution or trading activity of Vivendi ADSs or Vivendi Shares, as the
case may be, during such period does not create a market which reflects the
fair market value of a Vivendi ADS, then the Current Market Price of a
Vivendi ADS shall be determined by the Board of Directors, in good faith
and in its sole discretion, and provided further that any such selection,
opinion or determination by the Board of Directors shall be conclusive and
binding;
"Custodian" means the Person acting from time to time as custodian
under the Custody Agreement;
"Custody Agreement" means the custody agreement to be made among
Vivendi, the Corporation and the Custodian in connection with the Plan of
Arrangement substantially in the form and content of
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Schedule C annexed to the Merger Agreement, as amended pursuant to the
terms of the Custody Agreement;
"Director" means the Director appointed pursuant to section 260 of the
CBCA;
"Dividend Amount" means an amount equal to all declared and unpaid
dividends on an Exchangeable Share held by a holder on any dividend record
date which occurred prior to the date of purchase of such share by Vivendi
Universal Holdings from such holder;
"Effective Date" means the date shown on the certificate of
arrangement to be issued by the Director under the CBCA giving effect to
the Arrangement;
"Exchangeable Shares" means the non-voting exchangeable shares in the
capital of the Corporation, having the rights, privileges, restrictions and
conditions set forth herein;
"Exchangeable Share Voting Event" means any matter other than an
Exempt Exchangeable Share Voting Event in respect of which holders of
Exchangeable Shares are entitled to vote as shareholders of the Corporation
and in respect of which the Board of Directors of the Corporation has
received and included in the proxy materials sent to holders of
Exchangeable Shares in respect of the meeting to consider such matter an
opinion of an internationally recognized investment bank confirming that
after giving effect to such matter the economic equivalence of the
Exchangeable Shares and the Vivendi ADSs is maintained for the holders of
Exchangeable Shares (other than Vivendi and its affiliates);
"Exchange Trust Agreement" means the exchange trust agreement to be
made among Vivendi, the Corporation and the Trustee in connection with the
Plan of Arrangement substantially in the form and content of Schedule D
annexed to the Merger Agreement, as amended pursuant to the terms of the
Exchange Trust Agreement;
"Exempt Exchangeable Share Voting Event" means any matter in respect
of which holders of Exchangeable Shares are entitled to vote as
shareholders of the Corporation in order to approve any change to, or in
the rights of the holders of, the Exchangeable Shares, where such change
would be required to maintain the economic equivalence of the Exchangeable
Shares and the Vivendi ADSs and the Board of Directors of the Corporation
has received and included in the proxy materials sent to holders of
Exchangeable Shares in respect of the meeting to consider such matter an
opinion of an internationally recognized investment bank confirming such
economic equivalence after giving effect to such change;
"Governmental Entity" means any (a) multinational, federal,
provincial, state, regional, municipal, local or other government,
governmental or public department, central bank, court, tribunal, arbitral
body, commission, board, bureau or agency, domestic or foreign, (b) any
subdivision, agent, commission, board, or authority of any of the foregoing
or (c) any quasi-governmental or private body exercising any regulatory,
expropriation or taxing authority under or for the account of any of the
foregoing;
"Holders" means, when used with reference to the Exchangeable Shares,
the holders of Exchangeable Shares shown from time to time in the register
maintained by or on behalf of the Corporation in respect of the
Exchangeable Shares;
"Liquidation Amount" has the meaning ascribed thereto in section 5.1;
"Liquidation Call Right" has the meaning ascribed thereto in the Plan
of Arrangement;
"Liquidation Date" has the meaning ascribed thereto in section 5.1;
"Merger Agreement" means the merger agreement made as of June 19, 2000
among Vivendi (by a predecessor corporation), Seagram and the other parties
thereto, as amended, supplemented and/or restated in accordance therewith
prior to the Effective Date, providing for, among other things, the
Arrangement;
"NASDAQ" means The NASDAQ Stock Market and any successor exchange or
market;
"NYSE" means the New York Stock Exchange, Inc. and any successor
exchange or market;
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"Person" includes any individual, firm, partnership, limited
partnership, joint venture, venture capital fund, limited liability
company, unlimited liability company, association, trust, trustee,
executor, administrator, legal personal representative, estate, group, body
corporate, corporation, unincorporated association or organization,
Governmental Entity, syndicate or other entity, whether or not having legal
status;
"Plan of Arrangement" means the plan of arrangement relating to the
arrangement of Seagram under section 192 of the CBCA substantially in the
form and content of Schedule F annexed to the Merger Agreement and any
amendments or variations thereto made in accordance with section 6.1 of the
Merger Agreement or Article 6 of the Plan of Arrangement or made at the
direction of the Court;
"Purchase Price" has the meaning ascribed thereto in section 6.3;
"Redemption Call Purchase Price" has the meaning ascribed thereto in
the Plan of Arrangement;
"Redemption Call Right" has the meaning ascribed thereto in the Plan
of Arrangement;
"Redemption Date" means the date, if any, established by the Board of
Directors for the redemption by the Corporation of all but not less than
all of the outstanding Exchangeable Shares pursuant to Article 7, which
date shall be no earlier than the THIRTIETH anniversary of the date which
is fourteen days prior to the Effective Date, unless:
(a) there are fewer than [5% OF ACTUAL NUMBER OF EXCHANGEABLE
SHARES TO BE ISSUED AS DETERMINED AS AT THE ELECTION DEADLINE AS DEFINED
IN THE PLAN OF ARRANGEMENT] Exchangeable Shares outstanding (other than
Exchangeable Shares held by Vivendi and its affiliates, and as such
number of shares may be adjusted as deemed appropriate by the Board of
Directors to give effect to any subdivision or consolidation of or stock
dividend on the Exchangeable Shares, any issue or distribution of rights
to acquire Exchangeable Shares or securities exchangeable for or
convertible into Exchangeable Shares, any issue or distribution of other
securities or rights or evidences of indebtedness or assets, or any
other capital reorganization or other transaction affecting the
Exchangeable Shares), in which case the Board of Directors may
accelerate such redemption date to such date prior to the thirtieth
anniversary of the date which is fourteen days prior to the Effective
Date as it may determine, upon at least 60 days' prior written notice to
the holders of the Exchangeable Shares and the Trustee;
(b) an Exchangeable Share Voting Event is proposed and (i) the
Board of Directors has determined, in good faith and in its sole
discretion, that it is not reasonably practicable to accomplish the
business purpose intended by the Exchangeable Share Voting Event, which
business purpose must be bona fide and not for the primary purpose of
causing the occurrence of a Redemption Date, in any other commercially
reasonable manner that does not result in an Exchangeable Share Voting
Event, and (ii) the holders of the Exchangeable Shares fail to take the
necessary action at a meeting or other vote of holders of Exchangeable
Shares to approve or disapprove, as applicable, the Exchangeable Share
Voting Event, in which case the redemption date shall be the Business
Day following the day on which the holders of the Exchangeable Shares
failed to take such action;
(c) an Exempt Exchangeable Share Voting Event is proposed and the
holders of the Exchangeable Shares fail to take the necessary action at
a meeting or other vote of holders of Exchangeable Shares to approve or
disapprove, as applicable, the Exempt Exchangeable Share Voting Event,
in which case the redemption date shall be the Business Day following
the day on which the holders of the Exchangeable Shares failed to take
such action;
provided, however, that the accidental failure or omission to give any
notice of redemption under clauses (a), (b) or (c) above to any of the
holders of Exchangeable Shares shall not affect the validity of any such
redemption;
"Redemption Price" has the meaning ascribed thereto in section 7.1;
"Retracted Shares" has the meaning ascribed thereto in section 6.1(a);
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"Retraction Call Right" has the meaning ascribed thereto in section
6.1(c);
"Retraction Date" has the meaning ascribed thereto in section 6.1(b);
"Retraction Price" has the meaning ascribed thereto in section 6.1;
"Retraction Request" has the meaning ascribed thereto in section 6.1;
"Seagram" means The Seagram Company Ltd., a corporation existing under
the CBCA;
"Securities Act" means the Securities Act (Ontario) and the rules,
regulations and policies made thereunder, as amended;
"Support Agreement" means the support agreement to be made among
Vivendi, Vivendi Universal Holdings and the Corporation in connection with
the Plan of Arrangement substantially in the form and content of Schedule H
annexed to the Merger Agreement, as amended pursuant to the terms of the
Support Agreement;
"Transfer Agent" means CIBC Mellon Trust Company or such other Person
as may from time to time be appointed by the Corporation as the registrar
and transfer agent for the Exchangeable Shares;
"Trustee" means the trustee under the Exchange Trust Agreement, being
a corporation organized and existing under the laws of Canada and
authorized to carry on the business of a trust company in all the provinces
of Canada, and any successor trustee appointed under the Exchange Trust
Agreement;
"Vivendi" has the meaning ascribed thereto in the Merger Agreement;
"Vivendi ADS Adjustment Ratio" means the product of (i) one, subject
to adjustment pursuant to section 11.3 and (ii) the reciprocal of the
Adjustment Fraction;
"Vivendi ADS Consideration" means, from time to time, the number of
Vivendi ADSs resulting from multiplying one Vivendi ADS by the then current
Vivendi ADS Adjustment Ratio;
"Vivendi ADS Dividend Declaration Date" means the date on which
dividends or distributions are declared on the Vivendi ADSs;
"Vivendi ADSs" means the American depositary shares of Vivendi, each
representing one Vivendi Share on the Effective Date;
"Vivendi Universal Holdings" means Vivendi Universal Holdings Company,
an unlimited liability company existing under the laws of the Province of
Nova Scotia and wholly owned, directly or indirectly, by Vivendi through
any number of entities, each of which is a disregarded entity for U.S.
federal income tax purposes;
"Vivendi Universal Holdings Call Notice" has the meaning ascribed
thereto in section 6.3;
"Vivendi Preemptive Right" means any right arising from time to time
in favour of a holder of a Vivendi Voting Right to acquire from Vivendi
additional Vivendi Voting Rights;
"Vivendi Shares" means the ordinary shares in the capital of Vivendi
nominal value Euro 5.50; and
"Vivendi Voting Right" means an "action en nue propriete" under French
law, which, among other things, represents one vote on the same basis and
in the same circumstances as one Vivendi Share.
1.2 The division of these share provisions into Articles, Sections
and other portions and the insertion of headings are for convenience of
reference only and shall not affect the interpretation of this Plan of
Arrangement. Unless otherwise indicated, all references to an "Article" or
"section" followed by a number and/or a letter refer to the specified
Article or section of these share provisions. The terms "hereof", "herein"
and "hereunder" and similar expressions refer to these share provisions and
not to any particular Article, Section or other portion hereof and include
any agreement or instrument supplementary or ancillary hereto.
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1.3 Unless the context otherwise requires, words importing the
singular shall include the plural and vice versa and words importing any
gender include all genders.
1.4 In the event that any date on which any action is required to be
taken hereunder by any Person is not a Business Day, such action shall be
required to be taken on the next succeeding day which is a Business Day.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall be entitled to a preference over the
Common Shares and any other shares ranking junior to the Exchangeable Shares,
with respect to the payment of dividends and the distribution of assets in the
event of the liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of the
Corporation, among its shareholders for the purpose of winding up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each Vivendi ADS
Dividend Declaration Date, declare a dividend or other distribution on each
Exchangeable Share:
(a) in the case of a cash dividend or distribution declared on the
Vivendi ADSs, in an amount in cash equal to, and in the currency of, the
cash dividend or distribution paid on each Vivendi ADS multiplied by the
then current Vivendi ADS Adjustment Ratio or the Canadian Dollar Equivalent
thereof on the Vivendi ADS Dividend Declaration Date;
(b) in the case of a stock dividend or other distribution declared on
the Vivendi ADSs to be paid in Vivendi ADSs,
(i) if the one to one ratio between Vivendi Voting Rights and the
Exchangeable Shares can be maintained because the Custodian will receive
additional Vivendi Voting Rights for and on behalf of the holders of the
Exchangeable Shares, (A) by the issue or transfer by the Corporation of
such number of Exchangeable Shares for each Exchangeable Share as is equal
to the number of Vivendi ADSs to be paid on each Vivendi ADSs as a result
of such stock dividend or other distribution plus (B) if the then current
Vivendi ADS Adjustment Ratio is greater than one, such additional cash,
securities or other consideration, if any, which together with the
Exchangeable Shares issued or transferred in accordance with clause (A)
will effect a corresponding and contemporaneous and economically equivalent
(as determined by the Board of Directors in accordance with Section 3.5)
dividend or other distribution; or
(ii) if the one to one ratio between Vivendi Voting Rights and the
Exchangeable Shares cannot be maintained because the Custodian will not
receive Vivendi Voting Rights for and on behalf of the holders of the
Exchangeable Shares, in cash, securities or other consideration to effect a
corresponding, contemporaneous and economically equivalent (as determined
by the Board of Directors in accordance with Section 3.5) dividend or other
distribution after giving effect to the then current Vivendi ADS Adjustment
Ratio; provided that no Exchangeable Shares, cash, securities or other
consideration will be issued or transferred under clauses (i) or (ii) of
this section 3.1(b) to the extent that in lieu of such stock dividend or
other distribution the Corporation elects to effect a corresponding (which
maintains the one to one ratio between Vivendi Voting Rights and the
Exchangeable Shares) and contemporaneous and economically equivalent (as
determined by the Board of Directors in accordance with section 3.5)
subdivision of the outstanding Exchangeable Shares; or
(c) in the case of a dividend or other distribution declared on the
Vivendi ADSs in property other than cash or Vivendi ADSs, in such type and
amount of property for each Exchangeable Share as is
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economically equivalent to (to be determined by the Board of Directors as
contemplated by section 3.5) the type and amount of property declared as a
dividend or other distribution on each Vivendi ADS multiplied by the then
current Vivendi ADS Adjustment Ratio, unless, in the case of an issuance by
Vivendi of preferential subscription rights to holders of Vivendi ADSs
entitling them to subscribe for additional Vivendi ADSs at less than the
Current Market Price, an adjustment is made to the Vivendi ADS Adjustment
Ratio pursuant to section 11.3.
Such dividends or other distributions shall be paid out of money, assets or
property of the Corporation properly applicable to the payment of dividends, out
of authorized but unissued shares of the Corporation or through the subdivision
of outstanding Exchangeable Shares, as applicable. The holders of Exchangeable
Shares shall not be entitled to any dividends or other distributions other than
or in excess of the dividends or other distributions referred to in this section
3.1.
3.2 Cheques of the Corporation payable at par at any branch of the bankers
of the Corporation shall be issued in respect of any cash dividends or other
distributions contemplated by section 3.1(a) and the sending of such a cheque to
each holder of an Exchangeable Share shall satisfy the cash dividend or other
distribution represented thereby unless the cheque is not paid on presentation.
Certificates registered in the name of the holder shall be issued or transferred
in respect of any stock dividends or other distributions contemplated by section
3.1(b) and the sending of such a certificate to each holder of an Exchangeable
Share shall satisfy the stock dividend or other distribution represented
thereby. Such other type and amount of property in respect of any dividends or
other distributions contemplated by sections 3.1(b) or (c) shall be issued,
distributed or transferred by the Corporation in such manner as it shall
determine and the issuance, distribution or transfer thereof by the Corporation
to each holder of an Exchangeable Share shall satisfy the dividend or other
distribution represented thereby. No holder of an Exchangeable Share shall be
entitled to recover by action or other legal process against the Corporation any
dividend or other distribution that is represented by a cheque that has not been
duly presented to the Corporation's bankers for payment or that otherwise
remains unclaimed for a period of six years from the date on which such dividend
or other distribution was payable.
3.3 The record date for the determination of the holders of Exchangeable
Shares entitled to receive payment of, and the payment date for, any dividend or
other distribution declared on the Exchangeable Shares under section 3.1 shall
be the same dates as the record date and payment date, respectively, for the
corresponding dividend or other distribution declared on the Vivendi ADSs.
3.4 If on any payment date for any dividends or other distributions
declared on the Exchangeable Shares under section 3.1 the dividends or other
distributions are not paid in full on all of the Exchangeable Shares then
outstanding, any such dividends or other distributions that remain unpaid shall
be paid on a subsequent date or dates determined by the Board of Directors on
which the Corporation shall have sufficient moneys, assets or property properly
applicable to the payment of such dividends or other distributions.
3.5 The Board of Directors shall determine, in good faith and in its sole
discretion, economic equivalence for the purposes of sections 3.1(b) and (c),
and each such determination shall be conclusive and binding on the Corporation
and its shareholders. In making each such determination, the following factors
shall, without excluding other factors determined by the Board of Directors to
be relevant, be considered by the Board of Directors:
(a) in the case of any stock dividend or other distribution payable in
Vivendi ADSs, the number of Vivendi ADSs issued as a result of such stock
dividend or other distribution in proportion to the number of Vivendi ADSs
previously outstanding;
(b) in the case of the issuance or distribution of any rights, options
or warrants to subscribe for or purchase Vivendi ADSs (or securities
exchangeable for or convertible into or carrying rights to acquire Vivendi
ADSs), the relationship between the exercise price of each such right,
option or warrant, the number of such rights, options or warrants to be
issued or distributed in respect of each Vivendi ADS and the Current Market
Price of a Vivendi ADS;
(c) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of Vivendi
of any class other than Vivendi ADSs, any rights, options or
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warrants other than those referred to in section 3.5(b), any evidences of
indebtedness of Vivendi or any assets of Vivendi), the relationship between
the fair market value (as determined by the Board of Directors in the
manner above contemplated) of such property to be issued or distributed
with respect to each outstanding Vivendi ADS and the Current Market Price
of a Vivendi ADS;
(d) in the case of any subdivision, redivision or change of the then
outstanding Vivendi ADSs into a greater number of Vivendi ADSs or the
reduction, combination, consolidation or change of the then outstanding
Vivendi ADSs into a lesser number of Vivendi ADSs or any amalgamation,
merger, reorganization or other transaction affecting Vivendi ADSs, the
effect thereof upon the then outstanding Vivendi ADSs;
(e) in all such cases, the general taxation consequences of the
relevant event to owners of Exchangeable Shares to the extent that such
consequences may differ from the taxation consequences to such holders
determined as if they had held Vivendi ADSs at the relevant time as a
result of differing tax treatment under the laws of Canada, the United
States and France (except for any differing consequences arising as a
result of differing marginal taxation rates and without regard to the
individual circumstances of owners of Exchangeable Shares);
(f) the then current Vivendi ADS Adjustment Ratio; and
(g) the economic effects of changes in the Vivendi ADS Adjustment
Ratio on a subsequent stock dividend of Exchangeable Shares paid on
Exchangeable Shares.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Exchangeable Shares is outstanding, the
Corporation shall not at any time without, but may at any time with, the
approval of the holders of the Exchangeable Shares given as specified in section
10.2:
(a) pay any dividends on the Common Shares or any other shares ranking
junior to the Exchangeable Shares, other than stock dividends payable in
Common Shares or any such other shares ranking junior to the Exchangeable
Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect of
Common Shares or any other shares ranking junior to the Exchangeable
Shares;
(c) redeem or purchase any other shares of the Corporation ranking
equally with the Exchangeable Shares with respect to the payment of
dividends or the distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the assets of the Corporation
among its shareholders for the purpose of winding up its affairs; or
(d) issue any Exchangeable Shares or any other shares of the
Corporation ranking equally with, or superior to, the Exchangeable Shares
other than by way of stock dividends to the holders of such Exchangeable
Shares or pursuant to the exercise of Seagram ACES (each as defined in the
Merger Agreement).
The restrictions in this section 4.1 shall not apply if all dividends on
the outstanding Exchangeable Shares corresponding to dividends declared on and
paid on Vivendi ADSs prior to the date of any such event referred to in this
section 4.1 shall have been declared and paid on the Exchangeable Shares.
4.2 Except upon a surrender of a Vivendi Voting Right to Vivendi Universal
as provided in the Custody Agreement, any transfer of an Exchangeable Share
shall be deemed also to constitute a transfer of the holder's interest in any
accompanying Vivendi Voting Right. A holder shall also be deemed to have
acknowledged and agreed that if it commences any formal proceeding before a
court or regulatory body having jurisdiction in the matter alleging any rights
to any economic entitlement as a result of its interest in any Vivendi Voting
Rights accompanying such holder's Exchangeable Shares then all the Exchangeable
Shares held by it shall be
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automatically redeemed and the provisions of Article 7 hereof shall apply
mutatis mutandis provided that in such case the Redemption Date means the first
date on which such proceedings are commenced.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Exchangeable Share held by such holder on
the effective date (the "Liquidation Date") of such liquidation, dissolution,
winding-up or other distribution, before any distribution of any part of the
assets of the Corporation among the holders of the Common Shares or any other
shares ranking junior to the Exchangeable Shares, an amount per share (the
"Liquidation Amount") equal to the sum of (i) the Current Market Price of a
Vivendi ADS (multiplied by the then current Vivendi ADS Adjustment Ratio) on the
last Business Day prior to the Liquidation Date, which shall be satisfied in
full by the Corporation causing to be delivered to such holder the Vivendi ADS
Consideration, plus (ii) an amount equal to all declared and unpaid dividends on
each such Exchangeable Share held by such holder on any dividend record date
which occurred prior to the Liquidation Date.
5.2 On or promptly after the Liquidation Date, and provided that the
Liquidation Call Right has not been exercised by Vivendi Universal Holdings, the
Corporation shall pay or cause to be paid to the holders of the Exchangeable
Shares the Liquidation Amount for each such Exchangeable Share upon presentation
and surrender of the certificates representing such Exchangeable Shares,
together with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the CBCA and the by-laws of the
Corporation and such additional documents, instruments and payments as the
Transfer Agent and the Corporation may reasonably require, at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of the Exchangeable
Shares. Payment of the total Liquidation Amount for such Exchangeable Shares
shall be made by delivery to each holder, at the address of the holder recorded
in the register of shareholders of the Corporation for the Exchangeable Shares
or by holding for pick-up by the holder at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of Exchangeable Shares, on behalf of the
Corporation of Vivendi ADSs (which securities shall be fully paid and
non-assessable and shall be free and clear of any lien, claim or encumbrance)
and a cheque of the Corporation payable at par at any branch of the bankers of
the Corporation in respect of the remaining portion, if any, of the total
Liquidation Amount (in each case less any amounts withheld on account of tax
required to be deducted and withheld therefrom). On and after the Liquidation
Date, the holders of the Exchangeable Shares shall cease to be holders of such
Exchangeable Shares and shall not be entitled to exercise any of the rights of
holders in respect thereof, other than the right to receive their proportionate
part of the total Liquidation Amount, unless payment of the total Liquidation
Amount for such Exchangeable Shares shall not be made upon presentation and
surrender of share certificates in accordance with the foregoing provisions, in
which case the rights of the holders shall remain unaffected until the total
Liquidation Amount has been paid in the manner hereinbefore provided. The
Corporation shall have the right at any time promptly after the Liquidation Date
to deposit or cause to be deposited the total Liquidation Amount in respect of
the Exchangeable Shares represented by certificates that have not at the
Liquidation Date been surrendered by the holders thereof in a custodial account
with any chartered bank or trust Corporation in Canada. Upon such deposit being
made, the rights of the holders of such Exchangeable Shares after such deposit
shall be limited to receiving, without interest, their proportionate part of the
total Liquidation Amount so deposited for such Exchangeable Shares and all
dividends and other distributions with respect to the Vivendi ADSs to which such
holders are entitled with a record date on or after the Liquidation Date and
before the time at which such holders become the holders of such Vivendi ADSs
provided that a corresponding amount has not been received by such holders on
their Exchangeable Shares (in each case less any amount withheld on account of
tax required to be deducted and withheld therefrom) against presentation and
surrender of the certificates for such Exchangeable Shares held by them,
respectively, in accordance with the foregoing provisions. Upon such payment or
deposit of the total
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<PAGE> 600
Liquidation Amount, the holders of the Exchangeable Shares shall thereafter be
considered and deemed for all purposes to be holders of the Vivendi ADSs
delivered to them or the custodian on their behalf.
5.3 After the Corporation has satisfied its obligations to pay the holders
of the Exchangeable Shares the Liquidation Amount per Exchangeable Share
pursuant to section 5.1, such holders shall not be entitled to share in any
further distribution of the assets of the Corporation.
ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Exchangeable Shares shall be entitled at any time, subject
to the exercise by Vivendi Universal Holdings of the Retraction Call Right and
otherwise upon compliance with the provisions of this Article 6, to require the
Corporation to redeem any or all of the Exchangeable Shares registered in the
name of such holder for an amount per share equal to the sum of (i) the Current
Market Price of a Vivendi ADS (multiplied by the then current Vivendi ADS
Adjustment Ratio) on the last Business Day prior to the Retraction Date (the
"Retraction Price"), which shall be satisfied in full by the Corporation causing
to be delivered to such holder the Vivendi ADS Consideration for each
Exchangeable Share presented and surrendered by the holder, together with, (ii)
on the designated payment date therefor, the full amount of all declared and
unpaid dividends on any such Exchangeable Share held by such holder on any
dividend record date which occurred prior to the Retraction Date. To effect such
redemption, the holder shall present and surrender at the registered office of
the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation by notice to the holders of Exchangeable Shares the certificate
or certificates representing the Exchangeable Shares which the holder desires to
have the Corporation redeem, together with such other documents and instruments
as may be required to effect a transfer of Exchangeable Shares under the CBCA
and the by-laws of the Corporation and such additional documents, instruments
and payments as the Transfer Agent and the Corporation may reasonably require,
and together with a duly executed statement (the "Retraction Request") in the
form of Schedule A hereto:
(a) specifying that the holder desires to have all or any number
specified therein of the Exchangeable Shares represented by such
certificate or certificates (the "Retracted Shares") redeemed by the
Corporation;
(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Shares (the "Retraction Date"), provided
that (i) the Retraction Date shall be not less than 10 Business Days nor
more than 15 Business Days after the date on which the Retraction Request
is received by the Corporation and (ii) in the event that no such Business
Day is specified by the holder in the Retraction Request, the Retraction
Date shall be deemed to be the 15th Business Day after the date on which
the Retraction Request is received by the Corporation and provided further
that if the Retraction Date resulting from the foregoing is not a Tuesday
or Friday then the Retraction Date shall be the nearest following Tuesday
or Friday (or, if such Tuesday or Friday is not a Business Day, the
Business Day preceding such Tuesday or Friday); and
(c) acknowledging the overriding right (the "Retraction Call Right")
of Vivendi Universal Holdings to purchase all but not less than all the
Retracted Shares directly from the holder and that the Retraction Request
shall be deemed to be a revocable offer by the holder to sell the Retracted
Shares to Vivendi Universal Holdings in accordance with the Retraction Call
Right on the terms and conditions set out in section 6.3.
6.2 Subject to the exercise by Vivendi Universal Holdings of the
Retraction Call Right, upon receipt by the Corporation or the Transfer Agent in
the manner specified in section 6.1 of a certificate or certificates
representing the number of Retracted Shares, together with a Retraction Request,
and provided that the Retraction Request is not revoked by the holder in the
manner specified in section 6.7, the Corporation shall redeem the Retracted
Shares effective at the close of business on the Retraction Date and shall
deliver or cause to be delivered to such holder the Vivendi ADSs (which
securities shall be fully paid and non-assessable and shall be free and clear of
any lien, claim or encumbrance) to which such holder is entitled as a result of
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<PAGE> 601
such Retraction Request and, on the designated payment date therefor, a cheque
of the Corporation payable at par at any branch of the bankers of the
Corporation in respect of any dividends on the Retracted Shares for which the
record date was prior to the Retraction Date and the payment date was after the
Retraction Date (in each case less any amounts withheld on account of tax
required to be deducted and withheld therefrom). If only a part of the
Exchangeable Shares represented by any certificate is redeemed (or purchased by
Vivendi Holdings pursuant to the Retraction Call Right), a new certificate for
the balance of such Exchangeable Shares shall be issued to the holder at the
expense of the Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the
Corporation shall immediately notify Vivendi Universal Holdings thereof and
shall provide to Vivendi Universal Holdings a copy of the Retraction Request. In
order to exercise the Retraction Call Right, Vivendi Universal Holdings must
notify the Corporation of its determination to do so (the "Vivendi Universal
Holdings Call Notice") within five Business Days of notification to Vivendi
Universal Holdings by the Corporation of the receipt by the Corporation of the
Retraction Request. If Vivendi Universal Holdings does not so notify the
Corporation within such five Business Day period, the Corporation will notify
the holder as soon as possible thereafter that Vivendi Universal Holdings will
not exercise the Retraction Call Right. If Vivendi Universal Holdings delivers
the Vivendi Universal Holdings Call Notice within such five Business Day period,
and provided that the Retraction Request is not revoked by the holder in the
manner specified in section 6.7, the Retraction Request shall thereupon be
considered only to be an offer by the holder to sell the Retracted Shares to
Vivendi Universal Holdings in accordance with the Retraction Call Right. In such
event, the Corporation shall not redeem the Retracted Shares and Vivendi
Universal Holdings shall purchase from such holder and such holder shall sell to
Vivendi Holdings on the Retraction Date the Retracted Shares for a purchase
price (the "Purchase Price") per share equal to the sum of (i) the Retraction
Price per share, plus (ii) on the designated payment date therefor, to the
extent not paid by the Corporation on or before the designated payment date
therefor, any Dividend Amount. To the extent that Vivendi Universal Holdings
pays the Dividend Amount in respect of the Retracted Shares, the Corporation
shall no longer be obligated to pay any declared and unpaid dividends on such
Retracted Shares. Provided that Vivendi Universal Holdings has complied with
section 6.4, the closing of the purchase and sale of the Retracted Shares
pursuant to the Retraction Call Right shall be deemed to have occurred as at the
close of business on the Retraction Date and, for greater certainty, no
redemption by the Corporation of such Retracted Shares shall take place on the
Retraction Date. In the event that Vivendi Universal Holdings does not deliver a
Vivendi Universal Holdings Call Notice within such five Business Day period, and
provided that the Retraction Request is not revoked by the holder in the manner
specified in section 6.7, the Corporation shall redeem the Retracted Shares on
the Retraction Date and in the manner otherwise contemplated in this Article 6.
6.4 The Corporation or Vivendi Universal Holdings, as the case may be,
shall deliver or cause the Transfer Agent to deliver to the relevant holder, at
the address of the holder recorded in the register of shareholders of the
Corporation for the Exchangeable Shares or at the address specified in the
holder's Retraction Request or by holding for pick-up by the holder at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation by notice to the holders of Exchangeable
Shares, the Vivendi ADSs (which securities shall be fully paid and
non-assessable and shall be free and clear of any lien, claim or encumbrance)
registered in the name of the holder or in such other name as the holder may
request, and, if applicable and on or before the payment date therefor, a cheque
payable at par at any branch of the bankers of the Corporation or Vivendi
Universal Holdings, as applicable, in an amount equal to declared and unpaid
dividends or the aggregate Dividend Amount, as the case may be, in payment of
the total Retraction Price or the total Purchase Price, as the case may be, in
each case, less any amounts withheld on account of tax required to be deducted
and withheld therefrom, and such delivery of such Vivendi ADSs and cheques on
behalf of the Corporation or by Vivendi Universal Holdings, as the case may be,
or by the Transfer Agent shall be deemed to be payment of and shall satisfy and
discharge all liability for the total Retraction Price or total Purchase Price,
as the case may be, to the extent that the same is represented by such share
certificates and cheques (plus any tax deducted and withheld therefrom and
remitted to the proper tax authority).
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<PAGE> 602
6.5 On and after the close of business on the Retraction Date, the holder
of the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive his proportionate part of the total
Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the total Retraction Price or the total Purchase Price,
as the case may be, shall not be made as provided in section 6.4, in which case
the rights of such holder shall remain unaffected until the total Retraction
Price or the total Purchase Price, as the case may be, has been paid in the
manner hereinbefore provided. On and after the close of business on the
Retraction Date, provided that presentation and surrender of certificates and
payment of the total Retraction Price or the total Purchase Price, as the case
may be, has been made in accordance with the foregoing provisions, the holder of
the Retracted Shares so redeemed by the Corporation or purchased by Vivendi
Universal Holdings shall thereafter be considered and deemed for all purposes to
be a holder of the Vivendi ADSs delivered to it.
6.6 Notwithstanding any other provision of this Article 6, the Corporation
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to solvency requirements or other provisions of applicable law. If
the Corporation believes, after due enquiry, that on any Retraction Date it
would not be permitted by any of such provisions to redeem the Retracted Shares
tendered for redemption on such date, and provided that Vivendi Universal
Holdings shall not have exercised the Retraction Call Right with respect to the
Retracted Shares, the Corporation shall only be obligated to redeem Retracted
Shares specified by a holder in a Retraction Request to the extent of the
maximum number that may be so redeemed (rounded down to a whole number of
shares) as would not be contrary to such provisions and shall notify the holder
and the Trustee at least two Business Days prior to the Retraction Date as to
the number of Retracted Shares which will not be redeemed by the Corporation. In
any case in which the redemption by the Corporation of Retracted Shares would be
contrary to solvency requirements or other provisions of applicable law, the
Corporation shall redeem Retracted Shares in accordance with section 6.2 on a
pro rata basis in proportion to the total number of Exchangeable Shares tendered
for retraction and shall issue to each holder of Retracted Shares a new
certificate, at the expense of the Corporation, representing the Retracted
Shares not redeemed by the Corporation pursuant to section 6.2. Provided that
the Retraction Request is not revoked by the holder in the manner specified in
section 6.7 and that Vivendi Universal Holdings has not exercised the Retraction
Call Right with respect to the Retracted Shares, the holder of any such
Retracted Shares not redeemed by the Corporation pursuant to section 6.2 as a
result of solvency requirements or other provisions of applicable law shall be
deemed by giving the Retraction Request to constitute notice by the holder to
the Trustee instructing the Trustee to require Vivendi to purchase such
Retracted Shares from such holder on the Retraction Date or as soon as
practicable thereafter on payment by Vivendi to such holder of the Purchase
Price for each such Retracted Share, all as more specifically provided in the
Exchange Trust Agreement.
6.7 A holder of Retracted Shares may, by notice in writing given by the
holder to the Corporation before the close of business on the Business Day
immediately preceding the Retraction Date, withdraw its Retraction Request, in
which event such Retraction Request shall be null and void and, for greater
certainty, the revocable offer constituted by the Retraction Request to sell the
Retracted Shares to Vivendi Universal Holdings shall be deemed to have been
revoked.
ARTICLE 7
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
7.1 Subject to applicable law, and provided Vivendi Universal Holdings has
not exercised the Redemption Call Right, the Corporation shall on the Redemption
Date redeem all but not less than all of the then outstanding Exchangeable
Shares (other than the Exchangeable Shares held by Vivendi or an affiliate of
Vivendi) for an amount per share equal to the sum of (i) the Current Market
Price of a Vivendi ADS (multiplied by the then current Vivendi ADS Adjustment
Ratio) on the last Business Day prior to the Redemption Date (the "Redemption
Price"), which shall be satisfied in full by the Corporation causing to be
delivered to each holder of Exchangeable Shares the Vivendi ADS Consideration
for each Exchangeable
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<PAGE> 603
Share held by such holder, together with (ii) the full amount of all declared
and unpaid dividends on each such Exchangeable Share held by such holder on any
dividend record date which occurred prior to the Redemption Date.
7.2 In any case of a redemption of Exchangeable Shares under this Article
7, the Corporation shall, at least 30 days before the Redemption Date (other
than a Redemption Date established in connection with an Exchangeable Share
Voting Event or an Exempt Exchangeable Share Voting Event), send or cause to be
sent to each holder of Exchangeable Shares a notice in writing of the redemption
by the Corporation or the purchase by Vivendi Universal Holdings under the
Redemption Call Right, as the case may be, of the Exchangeable Shares held by
such holder. In the case of a Redemption Date established in connection with an
Exchangeable Share Voting Event and an Exempt Exchangeable Share Voting Event,
the written notice of redemption by the Corporation or the purchase by Vivendi
Universal Holdings under the Redemption Call Right will be sent on or before the
Redemption Date, on as many days prior written notice as may be determined by
the Board of Directors of the Corporation to be reasonably practicable in the
circumstances. In any such case, such notice shall set out the formula for
determining the Redemption Price or the Redemption Call Purchase Price, as the
case may be, the Redemption Date and, if applicable, particulars of the
Redemption Call Right.
7.3 On or promptly after the Redemption Date and subject to the exercise
by Vivendi Universal Holdings of the Redemption Call Right, the Corporation
shall cause to be delivered to the holders of the Exchangeable Shares to be
redeemed the Redemption Price for each such Exchangeable Share, together with
the full amount of all declared and unpaid dividends on each such Exchangeable
Share held by such holder on any dividend record date which occurred prior to
the Redemption Date, upon presentation and surrender at the registered office of
the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation in such notice of the certificates representing such
Exchangeable Shares, together with such other documents and instruments as may
be required to effect a transfer of Exchangeable Shares under the CBCA and the
by-laws of the Corporation and such additional documents, instruments and
payments as the Transfer Agent and the Corporation may reasonably require.
Payment of the total Redemption Price for such Exchangeable Shares, together
with payment of such dividends, shall be made by delivery to each holder, at the
address of the holder recorded in the register of shareholders of the
Corporation or by holding for pick-up by the holder at the registered office of
the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation in such notice, on behalf of the Corporation of Vivendi ADSs
(which securities shall be fully paid and non-assessable and shall be free and
clear of any lien, claim or encumbrance) and, if applicable, a cheque of the
Corporation payable at par at any branch of the bankers of the Corporation in
payment of any such dividends, in each case, less any amounts withheld on
account of tax required to be deducted and withheld therefrom. On and after the
Redemption Date, the holders of the Exchangeable Shares called for redemption
shall cease to be holders of such Exchangeable Shares and shall not be entitled
to exercise any of the rights of holders in respect thereof, other than the
right to receive their proportionate part of the total Redemption Price and any
such dividends, unless payment of the total Redemption Price and any such
dividends for such Exchangeable Shares shall not be made upon presentation and
surrender of certificates in accordance with the foregoing provisions, in which
case the rights of the holders shall remain unaffected until the total
Redemption Price and any such dividends have been paid in the manner
hereinbefore provided. The Corporation shall have the right at any time after
the sending of notice of its intention to redeem the Exchangeable Shares as
aforesaid to deposit or cause to be deposited the total Redemption Price for and
the full amount of such dividends on (except as otherwise provided in this
section 7.3) the Exchangeable Shares so called for redemption, or of such of the
said Exchangeable Shares represented by certificates that have not at the date
of such deposit been surrendered by the holders thereof in connection with such
redemption, in a custodial account with any chartered bank or trust company in
Canada named in such notice, less any amounts withheld on account of tax
required to be deducted and withheld therefrom. Upon the later of such deposit
being made and the Redemption Date, the Exchangeable Shares in respect whereof
such deposit shall have been made shall be redeemed and the rights of the
holders thereof after such deposit or Redemption Date, as the case may be, shall
be limited to receiving their proportionate part of the total Redemption Price
and such dividends for such Exchangeable Shares so deposited and all dividends
and other distributions with respect to the Vivendi ADSs to which such holders
are entitled with a
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<PAGE> 604
record date on or after the Redemption Date and before the time at which such
holders become the holders of such Vivendi ADSs provided that a corresponding
amount has not been received by such holders on their Exchangeable Shares (in
each case less any amounts withheld on account of tax required to be deducted
and withheld therefrom) without interest, against presentation and surrender of
the certificates for such Exchangeable Shares held by them, respectively, in
accordance with the foregoing provisions. Upon such payment or deposit of the
total Redemption Price and the full amount of such dividends, the holders of the
Exchangeable Shares shall thereafter be considered and deemed for all purposes
to be holders of the Vivendi ADSs delivered to them or the custodian on their
behalf.
ARTICLE 8
PURCHASE FOR CANCELLATION
8.1 Subject to applicable law, the Corporation may at any time and from
time to time purchase for cancellation all or any part of the Exchangeable
Shares and shall be entitled to pay and satisfy the purchase price through the
issuance of Common Shares or any other shares ranking junior to the Exchangeable
Shares or otherwise as the Corporation may determine.
8.2 Subject to applicable law, the Corporation may at any time and from
time to time purchase for cancellation all or any part of the outstanding
Exchangeable Shares at any price by tender to all the holders of Exchangeable
Shares then outstanding or through the facilities of any stock exchange on which
the Exchangeable Shares are listed or quoted at any price per share. If in
response to an invitation for tenders under the provisions of this section 8.2,
more Exchangeable Shares are tendered at a price or prices acceptable to the
Corporation than the Corporation is prepared to purchase, the Exchangeable
Shares to be purchased by the Corporation shall be purchased as nearly as may be
pro rata according to the number of shares tendered by each holder who submits a
tender to the Corporation, provided that when shares are tendered at different
prices, the pro rating shall be effected (disregarding fractions) only with
respect to the shares tendered at the price at which more shares were tendered
than the Corporation is prepared to purchase after the Corporation has purchased
all the shares tendered at lower prices. If only part of the Exchangeable Shares
represented by any certificate shall be purchased, a new certificate for the
balance of such shares be issued at the expense of the Corporation.
ARTICLE 9
VOTING RIGHTS
9.1 Except as required by applicable law and by Article 10, the holders of
the Exchangeable Shares shall not be entitled as such to receive notice of or to
attend any meeting of the shareholders of the Corporation or to vote at any such
meeting.
ARTICLE 10
AMENDMENT AND APPROVAL
10.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but only with the
approval of the holders of the Exchangeable Shares given as hereinafter
specified.
10.2 Any approval given by the holders of the Exchangeable Shares to add
to, change or remove any right, privilege, restriction or condition attaching to
the Exchangeable Shares or any other matter requiring the approval or consent of
the holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of at
least 20% of the outstanding Exchangeable Shares at that time are present or
represented by proxy; provided that if at any such
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meeting the holders of at least 20% of the outstanding Exchangeable Shares at
that time are not present or represented by proxy within one-half hour after the
time appointed for such meeting, then such meeting shall be adjourned and be
reconvened on such date as is not less than five days thereafter and at such
time and place as may be designated by the Chairman of such meeting. At such
reconvened meeting the holders of Exchangeable Shares present or represented by
proxy thereat may transact the business for which the meeting was originally
called and a resolution passed thereat by the affirmative vote of not less than
two-thirds of the votes cast on such resolution at such meeting shall constitute
the approval or consent of the holders of the Exchangeable Shares.
ARTICLE 11
RECIPROCAL CHANGES, ETC. IN RESPECT OF VIVENDI ADSS
11.1 Each holder of an Exchangeable Share acknowledges that the Support
Agreement provides, in part, that Vivendi will not without the prior approval of
the Corporation and the prior approval of the holders of the Exchangeable Shares
given in accordance with section 10.2:
(a) issue or distribute Vivendi ADSs (or securities exchangeable for
or convertible into or carrying rights to acquire Vivendi ADSs) to the
holders of all or substantially all of the then outstanding Vivendi ADSs by
way of stock dividend or other distribution, other than an issue of Vivendi
ADSs (or securities exchangeable for or convertible into or carrying rights
to acquire Vivendi ADSs) to holders of Vivendi ADSs who exercise an option
to receive dividends in Vivendi ADSs (or securities exchangeable for or
convertible into or carrying rights to acquire Vivendi ADSs) in lieu of
receiving cash dividends;
(b) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding Vivendi ADSs entitling
them to subscribe for or to purchase Vivendi ADSs (or securities
exchangeable for or convertible into or carrying rights to acquire Vivendi
ADSs); or
(c) issue or distribute to the holders of all or substantially all of
the then outstanding Vivendi ADSs:
(i) securities of Vivendi of any class other than Vivendi ADSs
(other than securities convertible into or exchangeable for or carrying
rights to acquire Vivendi ADSs);
(ii) rights, options or warrants other than those referred to in
section 11.1(b);
(iii) evidences of indebtedness of Vivendi; or
(iv) assets of Vivendi,
unless the economic equivalent of such Vivendi ADSs (or securities exchangeable
for or convertible into or carrying rights to acquire Vivendi ADSs), rights,
options, warrants, securities, shares, evidences of indebtedness or other assets
is (A) issued or distributed or otherwise provided simultaneously to, or (B)
effected pursuant to section 11.3 for, holders of the Exchangeable Shares after
giving effect to these share provisions; provided that, for greater certainty,
the above restrictions shall not apply to any securities issued or distributed
by Vivendi in order to give effect to and to consummate the transactions
contemplated by, and in accordance with, the Merger Agreement.
11.2 Each holder of an Exchangeable Share acknowledges that the Support
Agreement further provides, in part, that Vivendi will not without the prior
approval of the Corporation and the prior approval of the holders of the
Exchangeable Shares given in accordance with section 10.2:
(a) subdivide, redivide or change the then outstanding Vivendi ADSs
into a greater number of Vivendi ADSs (except as contemplated in the Merger
Agreement);
(b) reduce, combine, consolidate or change the then outstanding
Vivendi ADSs into a lesser number of Vivendi ADSs; or
(c) reclassify or otherwise change the Vivendi ADSs or effect an
amalgamation, merger, reorganization or other transaction affecting the
Vivendi ADSs,
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<PAGE> 606
unless the same or an economically equivalent change shall simultaneously be
made to, or in, the rights of the holders of the Exchangeable Shares; provided,
however, that, for greater certainty, the above restrictions shall not apply to
any securities issued or distributed by Vivendi in order to give effect to and
to consummate the transactions contemplated by and in accordance with the Merger
Agreement. The Support Agreement further provides, in part, that the aforesaid
provisions of the Support Agreement shall not be changed without the approval of
the holders of the Exchangeable Shares given in accordance with section 10.2.
11.3 (a) Nothing in this Article 11 nor in the Support Agreement shall
prohibit Vivendi from entering into a transaction or effecting an action that
results in the issuance by Vivendi to holders of Vivendi ADSs of a preferential
subscription right entitling them to subscribe for additional Vivendi ADSs; (b)
Subject to any economic equivalence determination under Section 3.5 and these
share provisions if and whenever at any time after the Effective Time Vivendi
issues such a preferential subscription right that permits the purchase of
Vivendi ADSs at less than the Current Market Price, then the directors of the
Corporation may adjust the Vivendi ADS Adjustment Ratio in accordance with the
following formula:
R1=R/((O+(C/M))/A)
where:
<TABLE>
<S> <C> <C>
R1 = the adjusted Vivendi ADS Adjustment Ratio
R = the Vivendi ADS Adjustment Ratio in effect immediately prior
to the event giving rise to such adjustment
O = the number of Vivendi Shares outstanding immediately prior
to the event giving rise to such adjustment
C = the aggregate consideration received by Vivendi in
connection with the event giving rise to such adjustment
M = the Current Market Price immediately prior to the record
date or if not applicable the effective date of the event
giving rise to such adjustment
A = the number of Vivendi Shares outstanding immediately after
the event giving rise to such adjustment
</TABLE>
All such adjustments shall be cumulative and made successively whenever an event
referred to in this section 11.3 shall occur.
ARTICLE 12
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT AND CUSTODY AGREEMENT
12.1 The Corporation will take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by Vivendi, Vivendi Universal Holdings and the
Corporation with all provisions of the Support Agreement and the Custody
Agreement applicable to Vivendi, Vivendi Universal Holdings and the Corporation,
respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall be
necessary or advisable to enforce to the fullest extent possible for the direct
benefit of the Corporation all rights and benefits in favour of the Corporation
under or pursuant to such agreement.
12.2 The Corporation shall not propose, agree to or otherwise give effect
to any amendment to, or waiver or forgiveness of its rights or obligations
under, the Support Agreement without the approval of the holders of the
Exchangeable Shares given in accordance with section 10.2 other than such
amendments, waivers and/or forgiveness as may be necessary or advisable for the
purposes of:
(a) adding to the covenants of the other parties to such agreement for
the protection of the Corporation or the holders of the Exchangeable Shares
thereunder;
(b) making such provisions or modifications not inconsistent with such
agreement as may be necessary or desirable with respect to matters or
questions arising thereunder which, in the good faith opinion of the Board
of Directors, it may be expedient to make, provided that the Board of
Directors shall
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<PAGE> 607
be of the good faith opinion, after consultation with counsel, that such
provisions and modifications will not be prejudicial to the interests of
the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement which, on
the advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error contained therein, provided
that the Board of Directors shall be of the good faith opinion, after
consultation with counsel, that such changes or corrections will not be
prejudicial to the interests of the holders of the Exchangeable Shares.
ARTICLE 13
LEGEND; CALL RIGHTS; WITHHOLDING RIGHTS
13.1 The certificates evidencing the Exchangeable Shares shall contain or
have affixed thereto a legend in form and on terms approved by the Board of
Directors, with respect to the Support Agreement, the Custody Agreement, the
provisions of the Plan of Arrangement relating to the Liquidation Call Right,
the Redemption Call Right, and the Retraction Call Right, and the Exchange Trust
Agreement (including the provisions with respect to the exchange right and
automatic exchange thereunder).
13.2 Each holder of an Exchangeable Share, whether of record or
beneficial, by virtue of becoming and being such a holder shall be deemed to
acknowledge each of the Liquidation Call Right, the Retraction Call Right and
the Redemption Call Right, in each case, in favour of Vivendi Universal
Holdings, and the overriding nature thereof in connection with the liquidation,
dissolution or winding-up of the Corporation or any other distribution of the
assets of the Corporation among its shareholders for the purpose of winding up
its affairs or the retraction or redemption of Exchangeable Shares, as the case
may be, and to be bound thereby in favour of Vivendi Universal Holdings as
therein provided.
13.3 The Corporation, Vivendi Universal Holdings, Vivendi and the Transfer
Agent shall be entitled to deduct and withhold from any dividend or
consideration otherwise payable to any holder of Exchangeable Shares such
amounts as the Corporation, Vivendi Universal Holdings, Vivendi or the Transfer
Agent determines, acting reasonably, are required or permitted pursuant to the
provisions of section 116 of the Income Tax Act (Canada) or any successor
provision thereto to be deducted and withheld with respect to such payment under
the Income Tax Act (Canada), the United States Internal Revenue Code of 1986,
the tax laws of France or any provision of federal, provincial, territorial,
state, local or foreign tax law, in each case, as amended. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes
hereof as having been paid to the holder of the Exchangeable Shares in respect
of which such deduction and withholding was made, provided that such withheld
amounts are actually remitted to the appropriate taxing authority. To the extent
that the amount so required or permitted to be deducted or withheld from any
payment to a holder exceeds the cash portion of the consideration otherwise
payable to the holder, the Corporation, Vivendi Universal Holdings, Vivendi and
the Transfer Agent are hereby authorized to sell or otherwise dispose of such
portion of the consideration as is necessary to provide sufficient funds to the
Corporation, Vivendi Universal Holdings, Vivendi or the Transfer Agent, as the
case may be, to enable it to comply with such deduction or withholding
requirement and the Corporation, Vivendi Universal Holdings, Vivendi or the
Transfer Agent shall notify the holder thereof and remit any unapplied balance
of the net proceeds of such sale.
ARTICLE 14
NOTICES
14.1 Any notice, request or other communication to be given to the
Corporation by a holder of Exchangeable Shares shall be in writing and shall be
valid and effective if given by mail (postage prepaid) or by telecopy or by
delivery to the registered office of the Corporation and addressed to the
attention of the Secretary of the Corporation. Any such notice, request or other
communication, if given by mail, telecopy or delivery, shall only be deemed to
have been given and received upon actual receipt thereof by the Corporation.
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<PAGE> 608
14.2 Any presentation and surrender by a holder of Exchangeable Shares to
the Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding-up of the
Corporation or the retraction or redemption of Exchangeable Shares shall be made
by registered mail (postage prepaid) or by delivery to the registered office of
the Corporation or to such office of the Transfer Agent as may be specified by
the Corporation, in each case, addressed to the attention of the Secretary of
the Corporation. Any such presentation and surrender of certificates shall only
be deemed to have been made and to be effective upon actual receipt thereof by
the Corporation or the Transfer Agent, as the case may be. Any such presentation
and surrender of certificates made by registered mail shall be at the sole risk
of the holder mailing the same.
14.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the register of shareholders of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed to have been
given and received on the third Business Day following the date of mailing and,
if given by delivery, shall be deemed to have been given and received on the
date of delivery. Accidental failure or omission to give any notice, request or
other communication to one or more holders of Exchangeable Shares shall not
invalidate or otherwise alter or affect any action or proceeding to be taken by
the Corporation pursuant thereto.
ARTICLE 15
DISCLOSURE OF INTERESTS IN EXCHANGEABLE SHARES
15.1 The Corporation shall be entitled to require any holder of an
Exchangeable Share or any Person who the Corporation knows or has reasonable
cause to believe holds any interest whatsoever in an Exchangeable Share to
confirm that fact or to give such details as to whom has an interest in such
Exchangeable Share as would be required (if the Exchangeable Shares were a class
of "equity shares" of Seagram) under section 101 of the Securities Act or as
would be required under similar United States or French laws if the Exchangeable
Shares were Vivendi ADSs or Vivendi Shares.
ARTICLE 16
NO FRACTIONAL SHARES
16.1 A holder of an Exchangeable Share shall not be entitled to any
fraction of a Vivendi ADS upon the exchange or purchase of such holder's
Exchangeable Shares pursuant to Articles 5, 6 and 7 and no certificates
representing any such fractional interest shall be issued and such holder
otherwise entitled to a fractional interest will receive for such fractional
interest from the Corporation or Vivendi Universal Holdings as the case may be
on the designated payment date a cash payment equal to such fractional interest
multiplied by the Current Market Price.
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SCHEDULE A
RETRACTION REQUEST
[TO BE PRINTED ON EXCHANGEABLE SHARE CERTIFICATES]
To: Vivendi Universal Exchangeco Inc. ("Vivendi Universal Exchangeco") and
Vivendi Universal Holdings Company ("Vivendi Universal Holdings")
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the Exchangeable Shares of Vivendi Universal
Exchangeco represented by this certificate and all capitalized words and
expressions used in this notice that are defined in the Share Provisions have
the meanings ascribed to such words and expressions in such Share Provisions.
The undersigned hereby notifies Vivendi Universal Exchangeco that, subject
to the Retraction Call Right referred to below, the undersigned desires to have
Vivendi Universal Exchangeco redeem in accordance with Article 6 of the Share
Provisions:
[ ] all share(s) represented by this certificate; or
[ ] share(s) only represented by this certificate.
The undersigned hereby notifies Vivendi Universal Exchangeco that the
Retraction Date shall be .
NOTE: The Retraction Date must be a Business Day and must not be less than 10
Business Days nor more than 15 Business Days after the date upon which
this notice is received by Vivendi Universal Exchangeco. If no such
Business Day is specified above, the Retraction Date shall be deemed to be
the 15th Business Day after the date on which this notice is received by
Vivendi Universal Exchangeco. If the Retraction Date resulting from the
foregoing is not a Tuesday or Friday, then the Retraction Date shall be
the nearest following Tuesday or Friday (or if such Tuesday or Friday is
not a Business Day, the Business Day preceding such Tuesday or Friday).
The undersigned acknowledges the overriding Retraction Call Right of
Vivendi Universal Holdings to purchase all but not less than all the Retracted
Shares from the undersigned and that this notice is and shall be deemed to be a
revocable offer by the undersigned to sell the Retracted Shares to Vivendi
Universal Holdings in accordance with the Retraction Call Right on the
Retraction Date for the Purchase Price and on the other terms and conditions set
out in section 6.3 of the Share Provisions. This Retraction Request, and this
offer to sell the Retracted Shares to Vivendi Universal Holdings, may be revoked
and withdrawn by the undersigned only by notice in writing given to Vivendi
Universal Exchangeco at any time before the close of business on the Business
Day immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law, Vivendi Universal Exchangeco is unable to redeem all Retracted
Shares and provided that Vivendi Universal Holdings shall not have exercised the
Retraction Call Right with respect to the Retracted Shares, the undersigned will
be deemed to have exercised the Exchange Right (as defined in the Exchange Trust
Agreement) so as to require Vivendi to purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to Vivendi Universal
Holdings and Vivendi Universal Exchangeco that the undersigned:
[ ] is
(select one)
[ ] is not
a non-resident of Canada for purposes of the Income Tax Act (Canada). THE
UNDERSIGNED ACKNOWLEDGES THAT, IN THE ABSENCE OF AN INDICATION THAT THE
UNDERSIGNED IS NOT A NON-RESIDENT OF CANADA, WITHHOLDING ON ACCOUNT OF CANADIAN
TAX
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<PAGE> 610
MAY BE MADE FROM AMOUNTS PAYABLE TO THE UNDERSIGNED ON THE REDEMPTION OR
PURCHASE OF THE RETRACTED SHARES.
The undersigned, hereby represents and warrants to Vivendi Universal
Holdings and Vivendi Universal Exchangeco that the undersigned has good title
to, and owns, the share(s) represented by this certificate to be acquired by
Vivendi Universal Holdings or Vivendi Universal Exchangeco, as the case may be,
free and clear of all liens, claims and encumbrances.
<TABLE>
<S> <C> <C>
---------- ------------------------- -----------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
</TABLE>
[ ] Please check box if the certificates for Vivendi ADSs and any cheque(s)
resulting from the retraction or purchase of the Retracted Shares are to be
held for pick-up by the shareholder from the Transfer Agent, failing which
such certificates and any cheque(s) will be mailed to the last address of
the shareholder as it appears on the register.
NOTE: This panel must be completed and this certificate, together with such
additional documents and payments as the Transfer Agent may require, must
be deposited with the Transfer Agent. The securities and any cheque(s)
resulting from the retraction or purchase of the Retracted Shares will be
issued and registered in, and made payable to, respectively, the name of
the shareholder as it appears on the register of Vivendi Universal
Exchangeco and the certificates for Vivendi ADSs and any cheque(s)
resulting from such retraction or purchase will be delivered to such
shareholder as indicated above, unless the form appearing immediately
below is duly completed.
Date:
------------------------------
Name of Person in Whose Name Securities or Cheque(s)
Are to be Registered, Issued or Delivered (please print):
--------------------------------------------------------------------------------
Street Address or P.O. Box:
--------------------------------------------------------------------------------
Signature of Shareholder:
--------------------------------------------------------------------------------
City, Province and Postal Code:
-------------------------------------------------------------------------------
Signature Guaranteed by:
--------------------------------------------------------------------------------
NOTE: If this Retraction Request is for less than all of the shares
represented by this certificate, a certificate representing the
remaining share(s) of Vivendi Universal Exchangeco represented by
this certificate will be issued and registered in the name of the
shareholder as it appears, on the register of Vivendi Universal
Exchangeco, unless the Share Transfer Power on the share certificate
is duly completed in respect of such share(s).
B-33
<PAGE> 611
ANNEX C
FORM OF SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the day of , 2000.
AMONG:
VIVENDI S.A.,
a corporation existing under the laws of France (hereinafter referred to
as "Vivendi", as such term is modified in section 1.1 of the Merger
Agreement),
- and -
VIVENDI UNIVERSAL HOLDINGS COMPANY,
an unlimited liability company existing under the laws of Nova Scotia
(hereinafter referred to as "Vivendi Universal Holdings"),
- and -
VIVENDI UNIVERSAL EXCHANGECO INC.,
a corporation existing under the laws of Canada
(hereinafter referred to as "Vivendi Universal Exchangeco"),
WHEREAS in connection with a merger agreement (the "Merger Agreement") made
as of June 19, 2000 among Vivendi (by a predecessor corporation), Seagram and
the other parties thereto, Vivendi Universal Exchangeco is to issue exchangeable
shares (the "Exchangeable Shares") to certain holders of securities of Seagram
under the plan of arrangement (the "Arrangement") contemplated by the Merger
Agreement;
AND WHEREAS under the Merger Agreement Vivendi, Vivendi Universal Holdings
and Vivendi Universal Exchangeco are required to execute a support agreement
substantially in the form of this Agreement;
NOW THEREFORE in consideration of the foregoing and the mutual agreements
contained herein and for other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1. Defined Terms. Each term denoted herein by initial capital letters
and not otherwise defined herein shall have the meaning ascribed thereto in the
rights, privileges, restrictions and conditions (collectively, the "Share
Provisions") attaching to the Exchangeable Shares attached as Appendix 1 to the
Plan of Arrangement as set out in the Articles of Arrangement of Seagram, unless
the context requires otherwise.
1.2. Interpretation Not Affected by Headings. The division of this
Agreement into Articles, sections and other portions and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement. Unless otherwise indicated,
all references to an "Article" or "section" followed by a number and/or a letter
refer to the specified Article or section of this Agreement. The terms "this
Agreement", "hereof", "herein" and "hereunder" and similar expressions refer to
this Agreement and not to any particular Article, section or other portion
hereof and include any agreement or instrument supplementary or ancillary
hereto.
1.3. Number, Gender. Words importing the singular number only shall
include the plural and vice versa. Words importing any gender shall include all
genders.
1.4. Date for Any Action. If any date on which any action is required to
be taken under this Agreement is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day. For the purposes of
this Agreement, a "Business Day" means any day on which commercial banks are
generally open for business in Toronto, Ontario, New York City, New York and
France, other than a Saturday, a Sunday or a day observed as a holiday in
Toronto, Ontario, New York City, New York or France under applicable laws.
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<PAGE> 612
ARTICLE 2
COVENANTS OF VIVENDI
2.1. Covenants Regarding Exchangeable Shares. So long as any Exchangeable
Shares not owned by Vivendi or its affiliates are outstanding, Vivendi will:
(a) not take any action that will result in the declaration or payment
of any dividend or other distribution on the Vivendi ADSs unless (i)
Vivendi Universal Exchangeco shall simultaneously declare or pay, as the
case may be, a dividend or other distribution economically equivalent
thereto (as provided for in the Share Provisions) on the Exchangeable
Shares and Vivendi Universal Exchangeco shall have sufficient money or
other assets or authorized but unissued securities available to enable the
due declaration and the due and punctual payment, in accordance with
applicable law, of any such dividend or other distribution on the
Exchangeable Shares, or (ii) if the dividend or other distribution is a
stock dividend or distribution of stock, in lieu of such dividend Vivendi
Universal Exchangeco effects a corresponding and contemporaneous and
economically equivalent (as determined in accordance with section 2.7(d))
subdivision of the outstanding Exchangeable Shares and Vivendi Universal
Exchangeco shall have sufficient authorized but unissued securities
available to enable the subdivision;
(b) advise Vivendi Universal Exchangeco sufficiently in advance of the
declaration by Vivendi of any dividend or other distribution on Vivendi
ADSs and take all such other actions as are reasonably necessary, in
co-operation with Vivendi Universal Exchangeco, to ensure that (i) the
respective declaration date, record date and payment date for a dividend or
other distribution on the Exchangeable Shares shall be the same as the
declaration date, record date and payment date for such dividend or other
distribution on the Vivendi ADSs, or (ii) the record date, if any, and
effective date for the subdivision referred to in section 2.1(a) shall be
the same as the record date and payment date for such dividend or other
distribution on the Vivendi ADSs;
(c) ensure that the record date for any dividend or other distribution
declared on the Vivendi ADSs is not less than 10 Business Days after the
declaration date of such dividend or other distribution;
(d) take all such actions and do all such things as are reasonably
necessary or desirable to enable and permit Vivendi Universal Exchangeco,
in accordance with applicable law, to pay and otherwise perform its
obligations with respect to the satisfaction of the Liquidation Amount, the
Retraction Price or the Redemption Price in respect of each issued and
outstanding Exchangeable Share (other than Exchangeable Shares owned by
Vivendi or its affiliates) upon the liquidation, dissolution or winding-up
of Vivendi Universal Exchangeco or any other distribution of the assets of
Vivendi Universal Exchangeco among its shareholders for the purpose of
winding up its affairs, the delivery of a Retraction Request by a holder of
Exchangeable Shares or a redemption of Exchangeable Shares by Vivendi
Universal Exchangeco, as the case may be, including without limitation all
such actions and all such things as are necessary or desirable to enable
and permit Vivendi Universal Exchangeco to cause to be delivered Vivendi
ADSs to the holders of Exchangeable Shares in accordance with the
provisions of Article 5, 6 or 7, as the case may be, of the Share
Provisions and cash in respect of declared and unpaid dividends;
(e) take all such actions and do all such things as are reasonably
necessary or desirable to enable and permit Vivendi Universal Holdings, in
accordance with applicable law, pay or otherwise to perform its obligations
arising upon the exercise of the Liquidation Call Right, the Retraction
Call Right or the Redemption Call Right, including without limitation all
such actions and all such things as are necessary or desirable to enable
and permit Vivendi Universal Holdings to deliver or to cause to be
delivered Vivendi ADSs to the holders of Exchangeable Shares in accordance
with the provisions of the Liquidation Call Right, the Retraction Call
Right or the Redemption Call Right, as the case may be, and cash in respect
of declared and unpaid dividends; and
(f) not (and will ensure that Vivendi Universal Holdings or any of its
affiliates does not) exercise its vote as a shareholder to initiate the
voluntary liquidation, dissolution or winding-up of Vivendi Universal
Exchangeco or any other distribution of the assets of Vivendi Universal
Exchangeco among its shareholders for the purpose of winding up its affairs
nor take any action or omit to take any action (and
C-2
<PAGE> 613
Vivendi will not permit Vivendi Universal Holdings or any of its affiliates
to take any action or omit to take any action) that is designed to result
in the liquidation, dissolution or winding up of Vivendi Universal
Exchangeco or any other distribution of the assets of Vivendi Universal
Exchangeco among its shareholders for the purpose of winding-up its
affairs.
2.2. Segregation of Funds. Vivendi will cause Vivendi Universal
Exchangeco to deposit a sufficient amount of funds in a separate account of
Vivendi Universal Exchangeco and segregate a sufficient amount of such other
assets and property as is necessary to enable Vivendi Universal Exchangeco to
pay dividends or other distributions when due and to pay or otherwise satisfy
its respective obligations under Article 5, 6 or 7 of the Share Provisions, as
applicable.
2.3. Vivendi ADSs. Vivendi hereby represents, warrants and covenants in
favour of Vivendi Universal Exchangeco and Vivendi Universal Holdings that
Vivendi has issued and/or reserved for issuance free from preemptive and other
rights such number of Vivendi ADSs (or securities redeemable into such number of
Vivendi ADSs), or if the Vivendi ADSs are reclassified or changed into other
securities as contemplated by section 2.7, it will issue and/or reserve for
issuance such number of other securities (or securities convertible into such
number of other securities), as is equal to the product of (i) the number of
Exchangeable Shares issued and outstanding from time to time and (ii) the
Vivendi ADS Adjustment Ratio so as to enable and permit Vivendi Universal
Holdings to meet its obligations under each of the Liquidation Call Right, the
Retraction Call Right and the Redemption Call Right, with respect to the
transfer and delivery of Vivendi ADSs and to enable and permit Vivendi Universal
Exchangeco to meet its respective obligations hereunder, under the Exchange
Trust Agreement and under the Share Provisions.
2.4. Notification of Certain Events. In order to assist Vivendi to comply
with its obligations hereunder and to permit Vivendi Universal Holdings to
exercise the Liquidation Call Right, the Retraction Call Right and the
Redemption Call Right, Vivendi Universal Exchangeco will notify Vivendi and
Vivendi Universal Holdings of each of the following events at the time set forth
below:
(a) in the event of any determination by the Board of Directors of
Vivendi Universal Exchangeco to institute voluntary liquidation,
dissolution or winding-up proceedings with respect to Vivendi Universal
Exchangeco or to effect any other distribution of the assets of Vivendi
Universal Exchangeco among its shareholders for the purpose of winding up
its affairs, at least 60 days before the proposed effective date of such
liquidation, dissolution, winding-up or other distribution;
(b) promptly, upon the earlier of receipt by Vivendi Universal
Exchangeco of notice of and Vivendi Universal Exchangeco otherwise becoming
aware of any threatened or instituted claim, suit, petition or other
proceedings with respect to the involuntary liquidation, dissolution or
winding-up of Vivendi Universal Exchangeco or to effect any other
distribution of the assets of Vivendi Universal Exchangeco among its
shareholders for the purpose of winding up its affairs;
(c) immediately, upon receipt by Vivendi Universal Exchangeco of a
Retraction Request;
(d) on the same date on which notice of redemption is given to holders
of Exchangeable Shares, upon the determination of a Redemption Date in
accordance with the Share Provisions; and
(e) as soon as practicable upon the issuance by Vivendi Universal
Exchangeco of any Exchangeable Shares or rights to acquire Exchangeable
Shares (other than the issuance of Exchangeable Shares and rights to
acquire Exchangeable Shares in exchange for outstanding Seagram Common
Shares under the Arrangement).
2.5. Delivery of Vivendi ADSs to Vivendi Universal Exchangeco and Vivendi
Universal Holdings. In furtherance of its obligations under sections 2.1(d) and
(e), upon notice from Vivendi Universal Exchangeco or Vivendi Universal Holdings
of any event that requires Vivendi Universal Exchangeco or Vivendi Universal
Holdings to cause to be delivered Vivendi ADSs to any holder of Exchangeable
Shares, Vivendi shall forthwith issue and deliver or cause to be delivered to
Vivendi Universal Exchangeco or Vivendi Universal Holdings (unless Vivendi
Universal Exchangeco or Vivendi Universal Holdings already has sufficient
Vivendi ADSs) the requisite number of Vivendi ADSs to be received by and issued
to, or to the order of, the former
C-3
<PAGE> 614
holder of the surrendered Exchangeable Shares, as Vivendi Universal Exchangeco
or Vivendi Universal Holdings shall direct. All such Vivendi ADSs shall be duly
authorized and validly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim or encumbrance.
2.6. Qualification of Vivendi ADSs. If any Vivendi ADSs (or other
securities into which Vivendi ADSs may be reclassified or changed as
contemplated by section 2.7) to be issued and delivered hereunder require
registration or qualification with or approval of or the filing of any document,
including any prospectus or similar document or the taking of any proceeding
with or the obtaining of any order, ruling or consent from any governmental or
regulatory authority under any French, Canadian or United States federal,
provincial, state, territorial securities or other law or regulation or under
the rules and regulations of any securities or other regulatory authority or the
fulfillment of any other French, United States or Canadian legal requirement
before such securities (or such other securities) may be issued and delivered to
the holder of surrendered Exchangeable Shares or in order that such securities
(or such other securities) may be freely traded thereafter (other than any
restrictions of general application on transfer by reason of a holder being a
"control person" of Vivendi for purposes of Canadian provincial or territorial
securities laws or an "affiliate" of Vivendi for purposes of United States
federal or state securities law or the equivalent thereof under applicable
French laws or stock exchange or regulatory requirements), Vivendi will in good
faith expeditiously take all such actions and do all such things as are
necessary or desirable to cause such Vivendi ADSs (or such other securities) to
be and remain duly registered, qualified or approved under French, United States
and/or Canadian laws, as the case may be. Vivendi will in good faith
expeditiously take all such actions and do all such things as are reasonably
necessary or desirable to cause all Vivendi ADSs (or such other shares or
securities) to be delivered hereunder to be listed, quoted or posted for trading
on all stock exchanges and quotation systems on which outstanding Vivendi ADSs
(or such other shares or securities) have been listed by Vivendi and remain
listed and are quoted or posted for trading at such time.
2.7. Economic Equivalence. So long as any Exchangeable Shares not owned
by Vivendi or its affiliates are outstanding:
(a) Vivendi will not without prior approval of Vivendi Universal
Exchangeco and the prior approval of the holders of the Exchangeable Shares
given in accordance with section 10.2 of the Share Provisions:
(i) issue or distribute Vivendi ADSs (or securities exchangeable
for or convertible into or carrying rights to acquire Vivendi ADSs) to
the holders of all or substantially all of the then outstanding Vivendi
ADSs by way of stock dividend or other distribution, other than an issue
of Vivendi ADSs (or securities exchangeable for or convertible into or
carrying rights to acquire Vivendi ADSs) to holders of Vivendi ADSs who
exercise an option to receive dividends in Vivendi ADSs (or securities
exchangeable for or convertible into or carrying rights to acquire
Vivendi ADSs) not issued at a discount and without financial preference
to the corresponding cash dividend in lieu of receiving cash dividends;
(ii) issue or distribute rights, options or warrants to the holders
of all or substantially all of the then outstanding Vivendi ADSs
entitling them to subscribe for or to purchase Vivendi ADSs (or
securities exchangeable for or convertible into or carrying rights to
acquire Vivendi ADSs); or
(iii) issue or distribute to the holders of all or substantially
all of the then outstanding Vivendi ADSs (A) securities of Vivendi of
any class other than Vivendi ADSs (other than securities convertible
into or exchangeable for or carrying rights to acquire Vivendi ADSs),
(B) rights, options or warrants other than those referred to in section
2.7(a)(ii), (C) evidences of indebtedness of Vivendi or (D) assets of
Vivendi,
unless the economic equivalent of such Vivendi ADSs (or securities
exchangeable for or convertible into or carrying rights to acquire Vivendi
ADSs) rights, options, warrants, securities, shares, evidences of
indebtedness or other assets is (A) issued or distributed or otherwise
provided simultaneously to, or (B) effected pursuant to section 11.3 of the
Share Provisions for, holders of the Exchangeable Shares after giving
effect to the Share Provisions; provided that, for greater certainty, the
above restrictions shall
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<PAGE> 615
not apply to any securities issued or distributed by Vivendi in order to
give effect to and to consummate the transactions contemplated by, and in
accordance with, the Merger Agreement.
(b) Vivendi will not without the prior approval of Vivendi Universal
Exchangeco and the prior approval of the holders of the Exchangeable Shares
given in accordance with section 10.2 of the Share Provisions:
(i) subdivide, redivide or change the then outstanding Vivendi ADSs
into a greater number of Vivendi ADSs (except as contemplated in the
Merger Agreement); or
(ii) reduce, combine, consolidate or change the then outstanding
Vivendi ADSs into a lesser number of Vivendi ADSs; or
(iii) reclassify or otherwise change the Vivendi ADSs or effect an
amalgamation, merger, reorganization or other transaction affecting
Vivendi ADSs,
unless an economically equivalent change shall simultaneously be made to,
or in the rights of the holders of, the Exchangeable Shares; provided,
however, that, for greater certainty, the above restrictions shall not
apply to any securities issued or distributed by Vivendi in order to give
effect to and to consummate the transactions contemplated by, and in
accordance with, the Merger Agreement.
(c) Vivendi will ensure that the record date for any event referred to
in section 2.7(a) or 2.7(b), or (if no record date is applicable for such
event) the effective date for any such event, is not less than five
Business Days after the date on which such event is declared or announced
by Vivendi (with contemporaneous notification thereof by Vivendi to Vivendi
Universal Exchangeco).
(d) The Board of Directors of Vivendi Universal Exchangeco shall
determine, in good faith and in its sole discretion, economic equivalence
for the purposes of any event referred to in section 2.7(a) or 2.7(b) and
each such determination shall be conclusive and binding on Vivendi and the
holders of Exchangeable Shares. In making each such determination, the
following factors shall, without excluding other factors determined by the
Board of Directors of Vivendi Universal Exchangeco to be relevant, be
considered by the Board of Directors of Vivendi Universal Exchangeco:
(i) in the case of any stock dividend or other distribution payable
in Vivendi ADSs, the number of Vivendi ADSs issued as a result of such
stock dividend or other distribution in proportion to the number of
Vivendi ADSs previously outstanding;
(ii) in the case of the issuance or distribution of any rights,
options or warrants to subscribe for or purchase Vivendi ADSs (or
securities exchangeable for or convertible into or carrying rights to
acquire Vivendi ADSs), the relationship between the exercise price of
each such right, option or warrant, the number of such rights, options
or warrants to be issued or distributed in respect of each Vivendi ADS
and the Current Market Price of a Vivendi ADS;
(iii) in the case of the issuance or distribution of any other form
of property (including without limitation any shares or securities of
Vivendi of any class other than Vivendi ADSs, any rights, options or
warrants other than those referred to in section 2.7(d)(ii), any
evidences of indebtedness of Vivendi or any assets of Vivendi), the
relationship between the fair market value (as determined by the Board
of Directors of Vivendi Universal Exchangeco in the manner above
contemplated) of such property to be issued or distributed with respect
to each outstanding Vivendi ADS and the Current Market Price of a
Vivendi ADS;
(iv) in the case of any subdivision, redivision or change of the
then outstanding Vivendi ADSs into a greater number of Vivendi ADSs or
the reduction, combination, consolidation or change of the then
outstanding Vivendi ADSs into a lesser number of Vivendi ADSs or any
amalgamation, merger, reorganization or other transaction affecting
Vivendi ADSs, the effect thereof upon the then outstanding Vivendi ADSs;
and
(v) in all such cases, the general taxation consequences of the
relevant event to owners of Exchangeable Shares to the extent that such
consequences may differ from the taxation conse-
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quences to such holders determined as if they had held Vivendi ADSs at
the relevant time as a result of differing tax treatment under the laws
of Canada, the United States and France (except for any differing
consequences arising as a result of differing marginal taxation rates
and without regard to the individual circumstances of owners of
Exchangeable Shares);
(vi) to take into account the then current Vivendi ADS Adjustment
Ratio (except in respect of a cash dividend referred to in section
3.1(a) of the Share Provisions or a dividend or other distribution in
property other than cash or Vivendi ADSs referred to in section 3.1(c)
of the Share Provisions); and
(vii) the economic effects of changes in the Vivendi ADS Adjustment
Ratio on a subsequent stock dividend of Exchangeable Shares paid on
Exchangeable Shares.
(e) Vivendi Universal Exchangeco agrees that, to the extent required,
upon due notice from Vivendi, Vivendi Universal Exchangeco will use its
best efforts to take or cause to be taken such steps as may be necessary
for the purposes of ensuring that appropriate dividends are paid or other
distributions are made by Vivendi Universal Exchangeco, or subdivisions,
redivisions or changes are made to the Exchangeable Shares, in order to
implement the required economic equivalent with respect to the Vivendi ADSs
and Exchangeable Shares as provided for in this section 2.7.
(f) Vivendi agrees that its board of directors will not propose to
Vivendi's shareholders the liquidation of Vivendi such that an amount may
become payable in respect of the Vivendi Voting Rights.
2.8. Tender Offers. For so long as Exchangeable Shares remain outstanding
(not including Exchangeable Shares held by Vivendi and its affiliates):
(a) No tender offer, share exchange offer, take-over bid or similar
transaction with respect to Vivendi ADSs or Vivendi Shares (an "Offer")
will be proposed or recommended by Vivendi or the Board of Directors of
Vivendi or otherwise effected with the consent or approval of the Board of
Directors of Vivendi unless the holders of Exchangeable Shares (other than
Vivendi and its affiliates) participate in such Offer to the same extent
and on an economically equivalent basis as the holders of Vivendi ADSs,
without discrimination. Without limiting the generality of the foregoing,
neither Vivendi nor the Board of Directors of Vivendi will approve or
recommend any Offer or take any action in furtherance of an Offer unless
the holders of Exchangeable Shares may participate in such Offer without
being required to retract Exchangeable Shares as against Vivendi Universal
Exchangeco.
(b) No issuer bid or similar transaction for outstanding Vivendi ADSs
or Vivendi Shares shall be proposed or recommended by Vivendi or the Board
of Directors of Vivendi or otherwise effected with the consent or the
approval of the Board of Directors of Vivendi unless a substantially
contemporaneous take-over bid (the "Bid") is made by Vivendi Universal
Holdings for an equivalent percentage of the outstanding Exchangeable
Shares (other than those held by Vivendi and its affiliates) on the same or
economically equivalent terms. Without limiting the generality of the
foregoing, neither Vivendi nor the Board of Directors of Vivendi will
approve or recommend any Bid or take any action in furtherance of a Bid
unless the holders of Exchangeable Shares may participate in such Bid
without being required to retract Exchangeable Shares as against Vivendi
Universal Exchangeco.
2.9. Ownership of Outstanding Shares. Vivendi covenants and agrees in
favour of Vivendi Universal Exchangeco that, without the prior approval of
Vivendi Universal Exchangeco and the prior approval of the holders of the
Exchangeable Shares given in accordance with section 10.2 of the Share
Provisions, as long as any outstanding Exchangeable Shares are owned by any
Person other than Vivendi or any of its affiliates, Vivendi will be and remain
the direct and/or indirect beneficial owner of all issued and outstanding voting
shares in the capital of Vivendi Universal Exchangeco and Vivendi Universal
Holdings.
2.10. Vivendi and Affiliates not to Vote Exchangeable Shares. Vivendi
covenants and agrees that it will appoint and cause to be appointed proxyholders
with respect to all Exchangeable Shares held by it and its affiliates for the
sole purpose of attending each meeting of holders of Exchangeable Shares in
order to be counted as part of the quorum for each such meeting. Vivendi further
covenants and agrees that it will not, and
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will cause its affiliates not to, exercise any voting rights which may be
exercisable by holders of Exchangeable Shares from time to time under the Share
Provisions or under the provisions of the CBCA (or any successor or other
corporate statute by which Vivendi Universal Exchangeco may in the future be
governed) with respect to any Exchangeable Shares held by it or by its
affiliates in respect of any matter considered at any meeting of holders of
Exchangeable Shares.
2.11. Ordinary Market Purchases. For greater certainty, nothing contained
in this Agreement, including without limitation the obligations of Vivendi
contained in section 2.8, shall limit the ability of Vivendi or its affiliates
to make a "Rule 10b-18 Purchase" of Vivendi ADSs or Vivendi Shares under Rule
10b-18 of the United States Securities Exchange Act of 1934, as amended or to
make ordinary market purchases of Vivendi ADSs or Vivendi Shares in accordance
with applicable laws and regulatory or stock exchange requirements.
2.12. Stock Exchange Listing. Vivendi covenants and agrees in favour of
Vivendi Universal Exchangeco that, as long as any outstanding Exchangeable
Shares are owned by any Person other than Vivendi or any of its affiliates,
Vivendi will use its reasonable best efforts to maintain a listing for such
Exchangeable Shares on a Canadian stock exchange which is a prescribed stock
exchange within the meaning of the Income Tax Act (Canada) and to ensure that
Vivendi Universal Exchangeco remains a "public corporation" within the meaning
of the Income Tax Act (Canada) and maintains a "substantial Canadian presence"
within the meaning of the Income Tax Act (Canada) as in effect on the date of
this Agreement.
2.13. Delivery of Vivendi ADSs and Cash to Seagram. In the event that
Vivendi determines pursuant to section 2.2 of the Plan of Arrangement that a
Replacement Option or Replacement SAR (each as defined in the Plan of
Arrangement) is to be an obligation of Seagram, upon notice from Seagram of any
event that requires Seagram to deliver or cause to be delivered Vivendi ADSs or
cash to any holder of a Replacement Option or Replacement SAR, Vivendi shall
forthwith issue and deliver or cause to be delivered to Seagram (unless Seagram
already has sufficient Vivendi ADSs or cash, as applicable) the requisite number
of Vivendi ADSs or amount of cash to be received by and issued to, or to the
order of, the former holder of the exercised Replacement Option or Replacement
SAR, as Seagram shall direct. All such Vivendi ADSs shall be duly authorized and
validly issued as fully paid and non-assessable and shall be free and clear of
any lien, claim or encumbrance. For the purposes of this section 2.13, Vivendi
Universal Holdings shall hold the benefit of such provisions for Seagram and
shall take all actions necessary to enforce same and the other parties hereto
agree not to dispute the right of Vivendi Universal Holdings to so enforce.
ARTICLE 3
VIVENDI SUCCESSORS
3.1. Certain Requirements in Respect of Combination, Etc. Vivendi shall
not consummate any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, property and assets or
Vivendi Shares would become the property of any other Person or, in the case of
a merger, of the continuing corporation resulting therefrom unless, but may do
so if:
(a) such other Person or continuing corporation (the "Vivendi
Successor") by operation of law, becomes, without more, bound by the terms
and provisions of this Agreement or, if not so bound, executes, before or
contemporaneously with the consummation of such transaction, an agreement
supplemental hereto and such other instruments (if any) as are reasonably
necessary or advisable to evidence the assumption by the Vivendi Successor
of liability for all moneys payable and property deliverable hereunder and
the covenant of such Vivendi Successor to pay and deliver or cause to be
delivered the same and its agreement to observe and perform all the
covenants and obligations of Vivendi under this Agreement;
(b) in the event that Vivendi ADSs are reclassified or otherwise
changed as part of such transaction, the same or an economically equivalent
change is simultaneously made to, or in the rights of the holders of, the
Exchangeable Shares; and
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<PAGE> 618
(c) such transaction shall be upon such terms and conditions as
substantially to preserve and not to impair in any material respect any of
the rights, duties, powers and authorities of the other parties hereunder
or the holders of the Exchangeable Shares.
3.2. Vesting of Powers in Successor. Whenever the conditions of section
3.1 have been duly observed and performed, the parties, if required by section
3.1, shall execute and deliver the supplemental agreement provided for in
section 3.1(a) and thereupon the Vivendi Successor shall possess and from time
to time may exercise each and every right and power of Vivendi under this
Agreement in the name of Vivendi or otherwise and any act or proceeding by any
provision of this Agreement required to be done or performed by the Board of
Directors of Vivendi or any officers of Vivendi may be done and performed with
like force and effect by the directors or officers of such Vivendi Successor.
3.3. Wholly-Owned Subsidiaries. Nothing herein shall be construed as
preventing (i) the amalgamation or merger of any wholly-owned direct or indirect
subsidiary of Vivendi (other than Vivendi Universal Exchangeco or Vivendi
Universal Holdings) with or into Vivendi, (ii) the winding-up, liquidation or
dissolution of any wholly-owned direct or indirect subsidiary of Vivendi (other
than Vivendi Universal Exchangeco or Vivendi Universal Holdings if all of the
assets of such subsidiary are transferred to Vivendi or another wholly-owned
direct or indirect subsidiary of Vivendi, or (iii) any other distribution of the
assets of any wholly-owned direct or indirect subsidiary of Vivendi (other than
Vivendi Universal Exchangeco or Vivendi Universal Holdings) among the
shareholders of such subsidiary for the purpose of winding up its affairs, and
any such transactions are expressly permitted by this Article 3.
ARTICLE 4
GENERAL
4.1. Term. This Agreement shall come into force and be effective as of
the date hereof and shall terminate and be of no further force and effect at
such time as no Exchangeable Shares (or securities or rights convertible into or
exchangeable for or carrying rights to acquire Exchangeable Shares) are held by
any Person other than Vivendi and any of its affiliates.
4.2. Changes in Capital of Vivendi and Vivendi Universal Exchangeco. At
all times after the occurrence of any event contemplated under sections 2.7 and
2.8 or otherwise, as a result of which either Vivendi ADSs or the Exchangeable
Shares or both are in any way changed, this Agreement shall forthwith be amended
and modified as necessary in order that it shall apply with full force and
effect, mutatis mutandis, to all new securities into which Vivendi ADSs or the
Exchangeable Shares or both are so changed and the parties hereto shall execute
and deliver an agreement in writing evidencing such necessary amendments and
modifications.
4.3. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
4.4. Amendments, Modifications. Subject to sections 4.2, 4.3 and 4.5,
this Agreement may not be amended or modified except by an agreement in writing
executed by Vivendi Universal Exchangeco, Vivendi Universal Holdings and Vivendi
and approved by the holders of the Exchangeable Shares in accordance with
section 10.2 of the Share Provisions.
(a) No amendment or modification or waiver of any of the provisions of
this Agreement otherwise permitted hereunder shall be effective unless made
in writing and signed by all of the parties hereto.
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<PAGE> 619
4.5. Ministerial Amendments. Notwithstanding the provisions of section
4.4, the parties to this Agreement may in writing at any time and from time to
time, without the approval of the holders of the Exchangeable Shares, amend or
modify this Agreement for the purposes of:
(a) adding to the covenants of any or all parties if the Board of
Directors of each of Vivendi Universal Exchangeco, Vivendi Universal
Holdings and Vivendi shall be of the good faith opinion that such additions
will not be prejudicial to the rights or interests of the holders of the
Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with this
Agreement as may be necessary or desirable with respect to matters or
questions which, in the good faith opinion of the Board of Directors of
each of Vivendi Universal Exchangeco, Vivendi Universal Holdings and
Vivendi, it may be expedient to make, provided that each such Board of
Directors shall be of the good faith opinion that such amendments or
modifications will not be prejudicial to the rights or interests of the
holders of the Exchangeable Shares; or
(c) making such changes or corrections which, on the advice of counsel
to Vivendi Universal Exchangeco, Vivendi Universal Holdings and Vivendi,
are required for the purpose of curing or correcting any ambiguity or
defect or inconsistent provision or clerical omission or mistake or
manifest error, provided that the Boards of Directors of each of Vivendi
Universal Exchangeco, Vivendi Universal Holdings and Vivendi shall be of
the good faith opinion that such changes or corrections will not be
prejudicial to the rights or interests of the holders of the Exchangeable
Shares.
4.6. Meeting to Consider Amendments. Vivendi Universal Exchangeco, at the
request of Vivendi, shall call a meeting or meetings of the holders of the
Exchangeable Shares for the purpose of considering any proposed amendment or
modification requiring approval under section 4.4. Any such meeting or meetings
shall be called and held in accordance with the by-laws of Vivendi Universal
Exchangeco, the Share Provisions and all applicable laws.
4.7. Enurement. This Agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and assigns.
4.8. Notices to Parties. All notices and other communications between the
parties to this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or by confirmed telecopy to the parties at the
following addresses (or at such other address for any such party as shall be
specified in like notice):
Vivendi S.A.
[ ]
Paris, France
Attention:
Telecopier No.: 011 331
with a copy (which shall not constitute notice) to:
Bredin Prat
130, rue du Faubourg Saint-Honore
75008 Paris
Attention:
Telecopier No.: 01-43-59-70-01/01-45-63-14-07
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Plaza
New York, NY 10019-7475
Attention: Faiza Saeed, Esq.
Telecopier No.: (212) 474-3700
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<PAGE> 620
Blake, Cassels & Graydon LLP
Box 25, Commerce Court West
199 Bay Street
Toronto, Ontario
M5L 1A9
Attention: Mr. Alan Bell
Telecopier No.: (416) 863-2653
Any notice or other communication given personally shall be deemed to have
been given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof
unless such day is not a Business Day in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
4.9. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
4.10. Jurisdiction. This Agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
4.11. Attornment. Each of the parties hereto agrees that any action or
proceeding arising out of or relating to this Agreement may be instituted in the
courts of Ontario, waives any objection which it may have now or hereafter to
the venue of any such action or proceeding, irrevocably submits to the
jurisdiction of the said courts in any such action or proceeding, agrees to be
bound by any judgment of the said courts and not to seek, and hereby waives, any
review of the merits of any such judgment by the courts of any other
jurisdiction and Vivendi and Vivendi Universal Holdings hereby appoint Vivendi
Universal Exchangeco at its registered office in the Province of Ontario as
attorney for service of process.
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<PAGE> 621
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
VIVENDI
By:
------------------------------------
Name:
Title:
VIVENDI UNIVERSAL HOLDINGS COMPANY
By:
------------------------------------
Name:
Title:
VIVENDI UNIVERSAL EXCHANGECO INC.
By:
------------------------------------
Name:
Title:
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<PAGE> 622
ANNEX D
OPTION AGREEMENT
OPTION AGREEMENT dated this 19th day of June, 2000.
B E T W E E N:
VIVENDI S.A.,
a corporation existing under the laws of France
(hereinafter referred to as "VIVENDI"),
-and -
THE SEAGRAM COMPANY LTD.,
a corporation existing under the laws of Canada
(hereinafter referred to as "SEAGRAM"),
WHEREAS Vivendi, Seagram and the other parties thereto have entered into a
Merger Agreement dated as of the date hereof (the "MERGER AGREEMENT") which
provides, upon the terms and subject to the conditions set forth therein, for
the completion of an arrangement (the "ARRANGEMENT") involving Seagram and its
securityholders;
AND WHEREAS, unless the context otherwise requires, words and phrases used
herein with initial capital letters and not otherwise defined herein shall have
the meanings assigned to such words and phrases in the Merger Agreement;
AND WHEREAS as a condition to Vivendi entering into the Merger Agreement,
Vivendi has required that Seagram agree, and in order to induce Vivendi to enter
into the Merger Agreement, Seagram has agreed, to grant Vivendi an option to
purchase, in accordance with the terms and conditions of this Agreement, up to
86,862,212 newly issued Seagram Common Shares, provided that in no event will
the number of shares for which this option is exercisable exceed 19.9% of the
issued and outstanding Seagram Common Shares;
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and in the Merger Agreement, the parties hereto agree as follows:
ARTICLE 1
THE OPTION
Section 1.1 Grant of Option.
Subject to the terms and conditions set forth herein, Seagram hereby grants
to Vivendi, subject to acceptance of the notice in respect of such option under
Section 19.06 of the General Bylaws of the Toronto Stock Exchange, an
irrevocable option (the "OPTION") to purchase up to 86,862,212 newly issued
Seagram Common Shares (the "OPTION SHARES") (provided that in no event will the
number of shares for which this option is exercisable exceed 19.9% of the number
of issued and outstanding Seagram Common Shares at the time of exercise without
giving effect to any shares subject to or issued pursuant to the Option) in the
manner set forth below at a purchase price (the "PURCHASE PRICE") per Option
Share equal to U.S. $77.35 per Option Share. The number of Common Shares
purchasable upon exercise of the Option and the Purchase Price are subject to
adjustment as set forth in this Agreement. Subject to the parenthetical proviso
in the first sentence hereof, in the event that any additional Common Shares are
either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement and other than pursuant to an
event described in Section 1.5 hereof) or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding after the date of this Agreement, the number
of Common Shares subject to the Option shall be increased or decreased, as
appropriate, so that, after such issuance, such number, together with any
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<PAGE> 623
Common Shares previously issued pursuant to this Agreement, equals 19.9% of the
number of Common Shares then issued and outstanding without giving effect to any
shares subject to or issued pursuant to the Option.
Section 1.2 Exercise of Option.
(1) The Option may be exercised by Vivendi, in whole or in part, at any
time or from time to time after the occurrence of an Exercise Event (as
defined below) and prior to the Termination Date (as defined below).
(2) An "EXERCISE EVENT" shall occur for purposes of this Agreement on the
date on which Vivendi becomes unconditionally entitled to receive the
Seagram Fee pursuant to Section 6.3(1) of the Merger Agreement.
(3) The "TERMINATION DATE" shall occur for purposes of this Agreement upon
the first to occur of any of the following:
(a) the Effective Time;
(b) the date on which the Option shall have been exercised in full; or
(c) the date of termination of the Merger Agreement, unless, in the
case of this clause (c), Vivendi has the right to receive the Seagram Fee
either upon, or following such termination upon the occurrence of certain
events, in which case the Option will not terminate until the later of (x)
30 Business Days following the time the Seagram Fee becomes unconditionally
payable and (y) the expiration of the period in which Vivendi has such
potential right to receive the Seagram Fee.
Notwithstanding the termination of the Option, Vivendi shall be
entitled to purchase those Option Shares with respect to which it shall
have exercised the Option by delivery of an Exercise Notice (as defined
below) prior to the Termination Date (subject to the other limitations set
forth herein), and the termination of the Option will not affect any rights
hereunder which by their terms do not terminate or expire prior to or at
the Termination Date.
(4) Subject to Section 5.1 hereof, in the event Vivendi is entitled to and
wishes to exercise the Option, Vivendi shall send a written notice (an
"EXERCISE NOTICE") to Seagram specifying the total number of Option
Shares that Vivendi wishes to purchase, the denominations of the
certificate or certificates evidencing such Option Shares which Vivendi
wishes to receive, the date (subject to the earlier of the satisfaction
or waiver of the conditions set forth in Section 1.3) (the "CLOSING
DATE") which shall be a Business Day not later than the tenth Business
Day and not earlier than the second Business Day after delivery of such
notice, and the place in New York City for the closing (the "CLOSING")
of such purchase; provided, however, that the Closing shall be held
only if (i) such purchase would not otherwise violate or cause the
violation of, any applicable material law, statute, ordinance, rule or
regulation (collectively, "LAWS"), and (ii) no material judgment,
order, writ, injunction, ruling or decree of any Governmental Entity
(collectively, "ORDERS") shall have been promulgated, enacted, entered
into, or enforced by any Governmental Entity which prohibits delivery
of the Option Shares, whether temporary, preliminary or permanent;
provided, however, that the parties hereto shall use their reasonable
best efforts to (x) promptly make and process all necessary filings and
applications and obtain all consents, approvals, Orders,
authorizations, registrations and declarations or expiration or
termination of any required waiting periods (collectively, "APPROVALS")
and to comply with any such applicable Laws and (y) have any such Order
vacated or reversed. In the event the Closing is delayed pursuant to
clause (i) or (ii) of the immediately preceding sentence, the Closing
shall be within ten Business Days following the cessation of such
restriction, violation, Law or Order or the receipt of any necessary
Approval, as the case may be (so long as the Exercise Notice was
delivered prior to the Expiration Date); provided, further, that,
notwithstanding any prior Exercise Notice, Vivendi shall be entitled to
rescind such Exercise Notice and shall not be obligated to purchase any
Option Shares in connection with such exercise upon written notice to
such effect to Seagram. In the event (i) Vivendi receives official
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<PAGE> 624
notice that an Approval required for the purchase of any Option Shares
will not be issued or granted or (ii) such Approval has not been issued
or granted within six months of the date of the Exercise Notice,
Vivendi shall have the right to exercise its rights pursuant to Section
1.2(5) with respect to the Option Shares for which such Approval will
not be issued or granted or has not been issued or granted.
(5) Subject to Section 5.1 hereof, if at any time the Option is then
exercisable pursuant to the terms of Section 1.2(l) hereof and notwithstanding
whether the condition set forth in Section 1.3(l) shall have been fulfilled,
Vivendi may elect, in lieu of exercising the Option to purchase Option Shares as
provided in Section 1.2(4) hereof, to send a written notice to Seagram (a "CASH
EXERCISE NOTICE") specifying a date not later than the tenth Business Day and
not earlier than the second Business Day following the date such notice is
given, on which date Seagram shall pay to Vivendi an amount in cash equal to the
Spread (as defined below) multiplied by such number of Option Shares as Vivendi
shall specify in the Cash Exercise Notice. As used herein, "SPREAD" shall mean
the excess, if any, over the Purchase Price of the higher of (the "APPLICABLE
PRICE"): (x) if applicable, the highest price per share (the "COMPETING PURCHASE
PRICE") for Seagram Common Shares offered (and not subsequently withdrawn) or
paid to Seagram shareholders in any Seagram Acquisition Proposal announced,
proposed, offered or made after the date hereof and prior to the date of the
Cash Exercise Notice; or (y) the simple average of the closing prices (the
"CLOSING PRICE"), if any, of the Seagram Common Shares on the NYSE during the 20
trading days immediately prior to the date of the Cash Exercise Notice. If the
Competing Purchase Price includes any property other than cash, the Competing
Purchase Price shall be the sum of: (i) the fixed cash amount, if any, included
in the Competing Purchase Price; and (ii) the fair market value of such other
property. If such other property includes securities listed on an existing
public trading market, the fair market value of such securities shall be deemed
to be equal to the average of the closing prices (or the average of the closing
bid and asked prices if closing prices are unavailable) for such securities in
their principal public trading market on the five trading days ending five days
prior to the date of the Cash Exercise Notice. If such other property includes
something other than cash or securities listed on an existing public trading
market and, as of the payment date for the Spread, agreement on the value of
such other property has not been reached, the Competing Purchase Price shall be
deemed to be the amount of any cash included in the Competing Purchase Price
plus the fair market value of such other property as determined by an
internationally recognized investment banking firm selected by Seagram and
reasonably acceptable to Vivendi (the "VALUATION PROCEDURE"). For this purpose,
the parties shall use their reasonable best efforts to cause any determination
of the fair market value of such other property to be made within two Business
Days after the date of delivery of the Cash Exercise Notice. Upon exercise of
its right to receive the Spread pursuant to this Section 1.2(5), the obligations
of Seagram to deliver Option Shares pursuant to Section 1.1 shall be terminated
with respect to such number of Option Shares for which Vivendi shall have
elected to be paid the Spread pursuant to the Cash Exercise Notice.
To the extent that, upon or following the giving by Vivendi to Seagram of
an Exercise Notice, Seagram is prohibited by Law or Order from delivering to
Vivendi a certificate or certificates representing the number of Common Shares
purchased by Vivendi, Seagram shall immediately so notify Vivendi in writing,
and thereafter deliver or cause to be delivered, from time to time, to Vivendi
the portion of the Option Shares that Seagram is no longer prohibited from
delivering, within five business days after the date on which it is no longer so
prohibited; provided, however, that upon notification by Seagram in writing of
such prohibition, Vivendi may, upon any time after receipt of such notification
from Seagram, revoke in writing its Exercise Notice, whether in whole or to the
extent of the prohibition, whereupon, in the latter case, Seagram shall promptly
(i) deliver to Vivendi that portion of the Option Shares that Seagram is not
prohibited from delivering pursuant to the time periods set forth in Section
1.2(4); and (ii) deliver to Vivendi, as appropriate, with respect to the Option,
a new Option Agreement evidencing the right of Vivendi to purchase that number
of Common Shares for which the surrendered Option Agreement was exercisable at
the time of giving the written notice of exercise referred to in Section 1.2(4).
Notwithstanding anything to the contrary in this Agreement, the period for
exercise of rights related to the Option set forth in Sections 1.2(1), 1.2(2)
and 1.2(3) shall be extended, at the request of Vivendi, for a period not to
exceed (180) days from the date that
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<PAGE> 625
the Option would have terminated pursuant to Sections 1.2(1), 1.2(2) and 1.2(3)
hereof or such shorter period necessary to permit the delivery of all the Option
Shares subject to the exercise notice.
Section 1.3 Conditions to Closing.
The obligation of Seagram to deliver Option Shares upon any exercise of the
Option is subject to the following conditions:
(1) The Option Shares shall have been approved for listing on the NYSE
(subject to notification of issuance) and the TSE (subject to satisfaction
of customary conditions); provided, however, that Seagram and Vivendi agree
that Seagram shall not be obligated to register the Option Shares under the
1933 Act or otherwise qualify the Option Shares for resale in the United
States or Canada other than on the terms and subject to the conditions set
forth in Section 3.2; and
(2) The conditions to a Closing set forth in the first proviso
contained in Section 1.2(4) hereof shall have been satisfied.
The obligation of Seagram to pay the Spread under Section 1.2(5) shall only
be subject to the conditions to a Closing set forth in the first proviso
contained in Section 1.2(4) hereof having been satisfied.
Section 1.4 Closings.
(1) In the event of a Closing pursuant to Section 1.2(4), Seagram shall
deliver to Vivendi a certificate or certificates evidencing the applicable
number of Option Shares (in the denominations specified therein), and Vivendi
shall purchase each such Option Share from Seagram at the Purchase Price.
(2) If the Option should be exercised in part only, a new Option evidencing
the rights of Vivendi thereof to purchase the balance of the shares purchasable
hereunder shall be delivered by Seagram, and Vivendi shall deliver to Seagram
this Agreement and a letter agreeing that Vivendi will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Agreement.
(3) In the event of a Closing pursuant to Section 1.2(5), Seagram shall
deliver to Vivendi cash in the amount determined pursuant to Section 1.2(5),
which payment shall be made by wire transfer of immediately available funds to a
bank account designated by Vivendi; provided, however, that failure or refusal
of Vivendi to designate such a bank account shall not relieve Seagram of its
obligations to make such payment.
(4) In the event of a Closing pursuant to Section 1.2(4), payment of the
Purchase Price shall be made by wire transfer of immediately available funds to
a bank account designated by Seagram; provided, however, that failure or refusal
of Seagram to designate such a bank account shall not preclude Vivendi from
exercising the Option.
(5) Seagram shall pay all expenses and any and all federal, provincial,
state and local transfer taxes and other similar charges that may be payable in
connection with the preparation, issue and delivery of share certificates under
this section in the name of Vivendi.
(6) Certificates for Common Shares delivered at a Closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate may be
subject to certain provisions of a stock option agreement between the
registered holder hereof and The Seagram Company Ltd. and to resale
restrictions arising under the U.S. Securities Act of 1933, as amended, the
Securities Act (Ontario) and other Canadian securities legislation. A copy
of such agreement is on file at the principal office of The Seagram Company
Ltd. and will be provided to the holder hereof without charge upon receipt
by The Seagram Company Ltd. of a written request therefor."
It is understood and agreed that: (i) the respective references to the
resale restrictions of the 1933 Act, the Securities Act and other Canadian
securities legislation in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Vivendi shall have delivered
to Seagram a copy of an opinion or opinions of counsel, in form and substance
reasonably satisfactory to Seagram, to the effect that such legend is not
required for the purposes of the 1933 Act, the Securities Act or any other
Canadian
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<PAGE> 626
securities legislation; (ii) the reference to the provisions to the Agreement in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as
required by law.
Section 1.5 Adjustments Upon Share Issuances, Changes in Capitalization,
Etc.
(1) The number of Common Shares purchasable upon the exercise of the Option
and the Option Price shall be subject to adjustment from time to time as
provided in this Section 1.5 (other than in connection with an event for which
adjustment is made pursuant to Section 1.1 of this Agreement). In the event of
any change in the number of outstanding Seagram Common Shares by reason of a
stock dividend, split-up, spin-off, recapitalization, combination, exchange of
shares or similar transaction or any other extraordinary change in the corporate
or capital structure of Seagram which would have the effect of diluting or
otherwise diminishing Vivendi's rights hereunder, the type and number of shares
or securities to be issued by Seagram upon exercise of the Option and the
Purchase Price shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction, so that Vivendi shall receive
upon exercise of the Option the number and class of shares and/or other
securities and/or property that Vivendi would have received in respect of
Seagram Common Shares if the Option had been exercised immediately prior to such
event, or the record date therefor, as applicable, and elected, to the fullest
extent it would have been permitted to elect, to receive such securities or
other property.
For greater certainty, following any such transaction, Vivendi shall
continue to be entitled (if otherwise entitled hereunder) to give a Cash
Exercise Notice and be paid the Spread, determined in light of the Purchase
Price, adjusted as aforesaid.
(2) In the event that Seagram shall enter into an agreement (other than the
Merger Agreement): (i) to consolidate with, amalgamate or merge, whether by plan
of arrangement or otherwise, into any person, other than Canal, Vivendi or any
of their respective affiliates, and shall not be the continuing or surviving
corporation of such consolidation, amalgamation or merger; (ii) to permit any
person, other than Canal, Vivendi or any of their respective affiliates, to
merge into Seagram and Seagram shall be the continuing or surviving corporation,
but, in connection with such merger, the then outstanding Seagram Common Shares
shall be changed into or exchanged for shares or other securities of Seagram or
any other person or cash or any other property or the then outstanding Seagram
Common Shares shall after such merger represent less than 50% of the outstanding
shares and share equivalents of the surviving corporation; or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Canal, Vivendi or any of their respective affiliates, then, and in each
such case, proper provision shall be made in the agreements governing such
transaction and the Option shall be adjusted so that, unless earlier exercised
by Vivendi, Vivendi shall receive upon exercise of the Option, the percentage
and class of shares and/or other securities and/or cash and/or property that
Vivendi would have received in respect of Seagram Common Shares if the Option
had been exercised immediately prior to such transaction, or the record date
therefor, as applicable, and elected, to the fullest extent it would have been
permitted to elect, to receive such securities, cash or other property, and the
Purchase Price shall be adjusted appropriately. For greater certainty, following
any such transaction, Vivendi shall continue to be entitled (if otherwise
entitled hereunder) to give a Cash Exercise Notice and be paid the Spread,
determined in light of the Purchase Price, adjusted as aforesaid.
(3) The provisions of this Agreement, including, without limitation,
Sections 1.1, 1.2, 1.4 and 3.2, shall apply with appropriate adjustments to any
securities for which the Option becomes exercisable pursuant to this Section
1.5.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SEAGRAM
Seagram hereby represents and warrants to Vivendi as follows:
Section 2.1 Authority Relative to This Agreement.
Seagram has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Seagram and the consummation by Seagram of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Seagram are
necessary to authorize this Agreement or to consummate such transactions. This
Agreement has been duly executed and delivered by Seagram and, assuming the due
authorization, execution and delivery by Vivendi, constitutes the legal, valid
and binding obligation of Seagram, enforceable against Seagram in accordance
with its terms.
Section 2.2 Authority to Issue Shares.
Seagram has taken all necessary corporate action to authorize and reserve
and permit it to issue, and at all times from the date hereof through the
Termination Date shall have reserved, all the Option Shares issuable pursuant to
this Agreement, and Seagram shall take all necessary corporate action to
authorize and reserve and permit it to issue all additional Seagram Common
Shares or other securities which may be issued pursuant to this Agreement, all
of which, upon their issuance and delivery in accordance with the terms of this
Agreement, shall be duly authorized, validly issued, fully paid and
non-assessable, shall be delivered free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements, charges
and other encumbrances of any nature whatsoever (other than as provided in this
Agreement) and shall not be subject to any pre-emptive rights.
Section 2.3 No Conflicts.
The execution and delivery of this Agreement does not, and the consummation
of the transactions contemplated hereby will not, conflict with, or result in
any breach pursuant to any provision of the constituent documents of Seagram or
any subsidiary of Seagram or result in any breach of any material loan or credit
agreement, note, mortgage, indenture, lease, pension plan or other agreement or
obligation of Seagram or any subsidiary of Seagram or their respective
properties or assets.
Section 2.4 No Avoidance.
Seagram will not, by amendment to its articles or by-laws or through
reorganization, consolidation, amalgamation, plan of arrangement, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Seagram.
ARTICLE 3
COVENANTS OF SEAGRAM
Section 3.1 Listing; Other Action.
(1) As promptly as practicable following an Exercise Event, Seagram shall
use all reasonable best efforts to cause the Option Shares to be approved for
listing on the NYSE and the TSE, subject to notice of issuance, and shall
provide prompt notice to the TSE of the issuance of each Option Share.
(2) Seagram shall use all reasonable best efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable law, regulation or policy to
consummate and make effective the transactions contemplated hereunder,
including, without limitation, using all reasonable best efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of any government or regulatory authority; provided however, that Seagram
shall not be obligated to
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<PAGE> 628
register the Option Shares under the 1933 Act or otherwise qualify the Option
Shares for resale in the United States or Canada other than on the terms and
subject to the conditions set forth in Section 3.2.
Section 3.2 Qualification
(1) In the event that Vivendi shall desire to sell any of the Option Shares
within one year after their receipt by Vivendi and requests in writing to
Seagram that Seagram register such Option Shares under the 1933 Act or qualify
such Option Shares for resale under applicable Canadian securities laws, unless
in the opinion of counsel to Seagram (which opinion shall be reasonably
satisfactory to Vivendi and its counsel) such registration under the 1933 Act or
qualification under applicable Canadian securities laws is not required in order
to lawfully sell and distribute such Option Shares in the manner contemplated by
Vivendi, Seagram shall cooperate with Vivendi and any underwriters in
registering or qualifying of such Option Shares for resale, including, without
limitation, promptly filing a registration statement and/or prospectus which
complies with the requirements of applicable U.S. federal and state securities
laws and/or Canadian federal, provincial and territorial securities laws, as the
case may be, and entering into and complying with an underwriting agreement with
such underwriters upon such terms and conditions as are customarily contained in
underwriting agreements with respect to secondary distributions; provided,
however, that Seagram shall not be required to file more than two registration
statements which are declared effective and/or prospectuses hereunder and shall
be entitled to delay the filing or effectiveness of any registration statement
and/or prospectus for up to 120 days in any 12-month period if the offering
would, in the judgment of the Board of Directors of Seagram, require premature
disclosure of any material corporate development or otherwise materially
interfere with or materially adversely affect any pending or proposed offering
of securities of Seagram, acquisition or divestiture or any other material
transaction involving Seagram or any of its subsidiaries. Vivendi agrees to use
its reasonable best efforts to cause, and to use its reasonable best efforts to
cause any underwriters of any sale or other disposition to cause, any sale or
other disposition pursuant to such registration statement and/or prospectus to
be effected on a widely distributed basis so that upon consummation thereof no
purchaser or transferee will own beneficially more than 3% of the
then-outstanding voting power of Seagram.
(2) If Option Shares are registered or qualified pursuant to the provisions
of this Section 3.2, Seagram agrees (i) to furnish copies of the registration
statement and/or prospectus relating to the Option Shares covered thereby in
such numbers as Vivendi may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 120 days a prospectus covering the
Option Shares meeting the requirements of such securities laws, and to furnish
Vivendi with such numbers of copies of the registration statement and
prospectus, as amended or supplemented, as may reasonably be requested. Seagram
shall bear the cost of the registration or qualification, including but not
limited to, all registration and filing fees, printing expenses, and fees and
disbursements of counsel and accountants for Seagram, and Vivendi shall pay the
fees and disbursements of its counsel and the underwriting fees and commissions
applicable to the Option Shares sold by Vivendi. Seagram shall indemnify and
hold harmless Vivendi, its affiliates and their respective officers and
directors from and against any and all losses, claims, damages, liabilities and
expenses arising out of or based upon any statements contained in or omissions
or alleged omissions from, each registration statement or prospectus (or any
amendment thereto) filed pursuant to this paragraph; provided, however, that
this provision shall not apply to any loss, liability, claim, damage or expense
to the extent it arises out of any untrue statement or omission made in reliance
upon and in conformity with written information furnished to Seagram by Vivendi,
its affiliates and its officers and other representatives expressly for use in
any registration statement or prospectus (or any amendment thereto) filed
pursuant to this paragraph. Seagram shall also indemnify and hold harmless each
underwriter and each person who controls any underwriter against any and all
losses, claims, damages, liabilities and expenses arising out of or based upon
any statements contained in or omissions or alleged omissions from, each
registration statement or prospectus (or any amendment thereto) filed pursuant
to this paragraph; provided, however, that this provision shall not apply to any
loss, liability, claim, damage or expense to the extent it arises out of any
untrue statement or omission made in reliance upon and in conformity with
written information furnished to Seagram by the underwriters expressly for use
in any registration statement or prospectus (or any amendment thereto) filed
pursuant to this Section 3.2.
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ARTICLE 4
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF VIVENDI
Section 4.1 Offering Restrictions.
Until such time as Vivendi has requested that Seagram take such action as
may be required by Section 3.2 to register the Option Shares for resale under
the 1933 Act, Vivendi agrees to comply with the requirements of Regulation S
promulgated under the 1933 Act, including but not limited to the following:
(1) Vivendi shall not make any offer or sale of the Option Shares to a
U.S. person or for the account or benefit of a U.S. person (within the
meaning of Regulation S under the 1933 Act) during the 40 day period
following issuance of the Option Shares;
(2) All offering materials and documents used in connection with any
offer or sale of the Option Shares during the 40 day period following
issuance of the Option Shares shall include statements on the cover or
inside cover page and in the underwriting or distribution section of any
prospectus or offering circular and in any advertisement to the effect that
the Option Shares have not been registered under the 1933 Act and may not
be offered or sold in the United States or to U.S. persons unless the
Option Shares are so registered or an exemption from the registration
requirements is available; and
(3) Vivendi shall send written confirmation to any purchaser of the
Option Shares during the 40 day period following the issuance of the Option
Shares that the purchaser is subject to the foregoing restrictions on
offers and sales of the Option Shares.
Section 4.2 No Public Distribution.
Vivendi hereby represents and warrants to Seagram that the Option is not
being, and any Common Shares or other securities acquired by Vivendi upon
exercise of the Option will not be, acquired with a view to the public
distribution thereof and will not be transferred or otherwise disposed of except
in a transaction registered or exempt from registration under both the
Securities Act and the 1933 Act and otherwise in compliance with applicable Law.
Section 4.3 Other Restrictions.
(a) The Option Shares may not be sold, assigned, transferred, or otherwise
disposed of by Vivendi or any of its Affiliates except (i) in an underwritten
public offering as provided in Section 3.2, (ii) to any purchaser who would not,
to the knowledge of Vivendi after reasonable due inquiry, immediately following
such sale, assignment, transfer or disposal, Beneficially Own (as defined in
Rule 13d-3 under the Exchange Act) more than 3% of the then-outstanding voting
power of Seagram or (iii) pursuant to a bona fide third party tender offer or
exchange offer (A) that has been approved or recommended by a majority of the
members of the Board of Directors of Seagram (which majority shall include a
majority of directors who were directors as of the date hereof) or (B) if in the
good faith judgment of Vivendi there is a reasonable possibility it would be, as
a result of not tendering or exchanging, relegated to different consideration
than would be available to those shareholders who did tender or exchange, taking
into account any provisions thereof with respect to proration and any proposed
second step or back-end transaction, provided in the case of this clause (B)
that all conditions to such tender or exchange offer (other than the minimum
tender or exchange condition) could reasonably be expected to be satisfied or
waived at the scheduled expiration date and the minimum tender or exchange
condition could reasonably be expected to be satisfied or waived at the
scheduled expiration date for such offer even if Vivendi did not tender.
(b) In connection with any vote or action by written consent of the
shareholders of the Company relating to any matter, unless the Company otherwise
consents in writing, Vivendi shall vote or act by written consent with respect
to (and shall cause each of its Affiliates that Beneficially Own Voting Shares
to vote or act by written consent with respect to) any Option Shares
Beneficially Owned by it, at Vivendi's option, either proportionately on the
same basis as the other holders of Seagram Common Shares so vote or as
recommended by the Board of Directors of Seagram; provided, however, that
Vivendi shall be entitled to vote
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its shares in its discretion (and not in such proportion or as so recommended)
with respect to any transaction submitted to holders of Seagram Common Shares
pursuant to which Option Shares Beneficially Owned by Vivendi or any of its
Affiliates will not be entitled to receive (or will not be permitted to elect to
receive on an equitable basis with the Seagram Common Shares held by all other
shareholders), in such transaction, the same consideration as Seagram Common
Shares held by all other shareholders of Seagram.
ARTICLE 5
CERTAIN LIMITATIONS
Section 5.1 Maximum Total Proceeds.
(a) Notwithstanding any other provision of this Agreement or the Merger
Agreement, in no event shall Vivendi's Total Proceeds (as hereinafter defined)
at any time exceed US$800 million and, if it otherwise would exceed such amount,
Vivendi, at its sole election, shall either: (i) reduce the number of Option
Shares subject to this Option; (ii) deliver to Seagram for cancellation Option
Shares previously purchased by Vivendi hereunder; (iii) pay cash to Seagram; or
(iv) any combination thereof, so that Vivendi's Total Proceeds shall not exceed
US$800 million after taking into account the foregoing actions. As used herein,
the term "Total Proceeds" shall mean the aggregate amount (before taxes) of the
following: (i) the amount received by Vivendi pursuant to a cash exercise
pursuant to Section 1.2(5); (ii) (x) the net cash amounts, or fair value of any
securities or property (determined pursuant to the Valuation Procedure),
received or receivable by Vivendi pursuant to the then agreed or consummated
sale of Option Shares purchased or acquired pursuant to this Agreement (or any
other securities or property into which such Option Shares are converted or
exchanged in any manner whatsoever) to any unaffiliated party less (y) Vivendi's
Purchase Price for such shares; and (iii) any amounts received by Vivendi
pursuant to Section 6.3(l) of the Merger Agreement.
(b) Notwithstanding any other provision of this Agreement or the Merger
Agreement, in no event may the Option be exercised for a number of Option Shares
as would, as of the date of such exercise, result in Notional Total Proceeds (as
defined below) which would exceed US$800 million; provided, however, that
nothing in this sentence shall restrict any exercise of the Option on any
subsequent date (if otherwise permitted by the terms of this Agreement). As used
herein, the term "NOTIONAL TOTAL PROCEEDS" with respect to any number of Option
Shares as to which Vivendi may propose to exercise the Option shall be the Total
Proceeds determined as of the date of such proposal assuming that the Option was
exercised on such date for such number of Option Shares and assuming that such
Option Shares, together with all other Option Shares held by Vivendi and its
affiliates (as defined in the Merger Agreement) as of such date, were sold for
cash at the closing market price (less customary brokerage commissions) for
Seagram Common Shares on the preceding trading day on the NYSE (or on any other
nationally recognized exchange or trading system on which Seagram Common Shares
are then principally listed or traded, if not then listed on the NYSE).
ARTICLE 6
TERMINATION OF AGREEMENT
Section 6.1 Termination.
This Agreement, other than the rights and obligations of Vivendi and
Seagram under Section 3.2, Article 4 and Section 5.1, shall terminate on the
Termination Date.
ARTICLE 7
MISCELLANEOUS
Section 7.1 Amendment.
This Agreement may not be amended except by an instrument in writing signed
by each of the parties hereto.
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Section 7.2 Waiver.
Either party hereto may (a) extend the time for or waive compliance with
the performance of any obligation or other act of the other party hereto or (b)
waive any inaccuracy in the representations and warranties contained herein or
in any document delivered pursuant hereto. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party to be bound
thereby.
Section 7.3 Notices.
All notices, requests, claims, demands and other communications hereunder
shall be in writing and shall be deemed duly given and received (i) on the date
of delivery, if delivered in person, (ii) upon confirmation of transmission by
the sender's fax machine, if delivered by facsimile on a Business Day (or
otherwise on the next Business Day), or (iii) on the first Business Day
following the date of dispatch, if delivered by a nationally recognized next day
courier service, to the respective parties at their addresses and fax numbers
(as applicable) as specified in the Merger Agreement.
Section 7.4 Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner to the fullest
extent permitted by applicable law in order that the transactions contemplated
hereby may be consummated as originally contemplated to the fullest extent
possible.
Section 7.5 Assignment; Binding Effect; Benefit.
Except as expressly provided herein, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned (by operation of
law or otherwise) without the prior written consent of any of the parties
hereto. Notwithstanding the foregoing, Vivendi may assign this Agreement and any
of the rights, interests or obligations hereunder to any wholly-owned subsidiary
of Vivendi without the consent of Seagram. Subject to the first and second
sentence of this section, this Agreement shall be binding upon and shall enure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
Section 7.6 Withholding Rights.
Seagram shall be entitled to deduct and withhold from any amount otherwise
payable or deliverable to Vivendi under this Agreement, including the issuance
of Seagram Common Shares pursuant to the exercise of the Option, such amounts as
Seagram is required to deduct and withhold with respect to such payment or
delivery under any provision of federal, provincial, territorial, state, local
or foreign tax law. To the extent that amounts are withheld, such withheld
amounts shall be treated for all purposes as having been paid or delivered to
Vivendi provided that such withheld amounts are actually remitted to the
appropriate taxing authority. To the extent that the amount so required to be
deducted or withheld exceeds the cash portion of the amount otherwise payable or
deliverable to Vivendi, Seagram is hereby authorized to sell or otherwise
dispose of such portion of the consideration as is necessary to provide
sufficient funds to Seagram to enable it to comply with such deduction or
withholding requirement and Seagram shall notify Vivendi thereof and remit to
Vivendi any unapplied balance of the net proceeds of such sale.
Section 7.7 Specific Performance.
The parties hereto agree that irreparable damage would occur in the event
any provision of this Agreement were not performed in accordance with the terms
hereof and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or in equity.
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<PAGE> 632
Section 7.8 Payment of Costs
Except as otherwise expressly provided herein, each of the parties hereto
shall bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
Section 7.9 Governing Law.
This Agreement shall be governed by, and construed in accordance, with the
laws of the Province of Ontario and the federal laws of Canada applicable
therein. All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined exclusively in the courts of the
Province of Ontario.
Section 7.10 Headings.
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 7.11 Entire Agreement.
This Agreement and the Merger Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings between the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
VIVENDI S.A.
By: /s/ JEAN-MARIE MESSIER
------------------------------------
Name: Jean-Marie Messier
Title: Chairman & Chief Executive
Officer
THE SEAGRAM COMPANY LTD.
By: /s/ EDGAR BRONFMAN, JR.
------------------------------------
Name: Edgar Bronfman, Jr.
Title: President & Chief Executive
Officer
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<PAGE> 633
ANNEX E
SHAREHOLDER VOTING AGREEMENT
June 19, 2000
TO: VIVENDI S.A.
Dear Sirs:
RE: PLAN OF ARRANGEMENT INVOLVING SEAGRAM
In consideration of Vivendi S.A. ("Vivendi") entering into a merger
agreement dated the date hereof with, and agreeing to participate in the plan of
arrangement involving, The Seagram Company Ltd. ("Seagram") (the "Transaction"),
this letter agreement sets out the terms on which each shareholder of Seagram
executing this letter agreement referred to herein (each, a "Shareholder" and
collectively, the "Shareholders") undertakes to take certain actions and do
certain things in respect of the Transaction.
The terms of the Transaction are summarized in the Merger Agreement dated
June 19, 2000, among Vivendi, Seagram and the other parties thereto (the "Merger
Agreement"), and capitalized terms used herein and not otherwise defined shall
have the meanings set forth in the Merger Agreement.
1. Each Shareholder hereby represents and warrants to you (and acknowledges
that each of you is relying upon such representations and warranties) as
follows:
(a) The common shares in the capital of Seagram (the "Shares") set
forth on Annex I include all Shares held of record, owned by, or for which
such Shareholder has or shares any voting power or power of disposition,
provided that any such common shares shall cease to be "Shares" from and
after such time as such common shares are transferred to the extent
permitted by Section 2. Except as described in the Schedule 13D, as amended
to the date hereof, of the Shareholders with respect to Seagram's common
shares, such Shareholder is the record and beneficial owner, has sole
voting power, sole power of disposition and sole power to agree to all of
the matters set forth in this Agreement with respect to the Shares set
forth on Annex I attributable to such Shareholder. Such Shareholder has
good title to the Shares, free and clear of all liens, pledges, mortgages
and encumbrances (other than pursuant to loan agreements which shall either
be terminated or appropriately modified). As to any Shares that such
Shareholder indicates it does not have such sole powers, such Shareholder
shall use its reasonable best efforts to cause all of its obligations under
this Agreement to be complied with by any person having such powers. Other
than the Shares set forth on Annex I, no common shares or securities of
Seagram are beneficially owned or controlled directly or indirectly by such
Shareholder (other than as may be issued upon exercise of employee stock
options).
(b) Such Shareholder has the legal capacity (including, if such
Shareholder is a corporation, due corporate authorization) to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by such
Shareholder, and, assuming the due authorization, execution and delivery by
Vivendi, this Agreement constitutes the legal, valid and binding obligation
of such Shareholder, enforceable in accordance with its terms. If such
Shareholder is married, and the Shares of such Shareholder constitute
community property or otherwise need spousal or other approval for this
Agreement to be legal, valid and binding, this Agreement has been duly
authorized, executed and delivered by, and constitutes the legal, valid and
binding obligation of, such Shareholder's spouse, enforceable in accordance
with its terms.
(c) Neither the execution and delivery of this Agreement by such
Shareholder, the consummation by such Shareholder of the transactions
contemplated hereby nor the compliance by such Shareholder with any of the
provisions hereof shall (i) result in any breach of, or constitute a
default (or an event which with notice or lapse of time or both would
become a default) (or give rise to any third party right of
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<PAGE> 634
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, contract, license, agreement, lease, permit or other
instrument or obligation to which such Shareholder is a party or by which
such Shareholder or any of its properties or assets (including the Shares
and the Options) may be bound (other than pursuant to loan agreements which
shall either be terminated or appropriately modified), (ii) require on the
part of such Shareholder any filing with, or permit, authorization, consent
or approval of, any Governmental Entity (except filings under U.S. and
Canadian securities laws) or (iii) violate any order, writ, injunction,
decree, judgment or Law applicable to such Shareholder or any of its
properties or assets, excluding from the foregoing such violations,
breaches, defaults or failures to make any filing or to obtain any permit,
authorization, consent or approval which would not, individually or in the
aggregate, impair the ability of such Shareholder to consummate the
transactions contemplated hereby.
(d) There is no private or governmental action, suit, proceeding,
claim, arbitration or investigation pending before any Governmental Entity,
or, to the knowledge of such Shareholder, threatened against such
Shareholder or any of its properties or any of its officers or directors,
in the case of a corporate entity (in their capacities as such) that,
individually or in the aggregate, could impair such Shareholder's ability
to consummate the transactions contemplated by this Agreement. There is no
judgment, decree or order against such Shareholder or, to the knowledge of
such Shareholder, any of its directors or officers, in the case of a
corporate entity (in their capacities as such) that could prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement, or that could impair such Shareholder's ability to consummate
the transactions contemplated by this Agreement.
2. Each Shareholder hereby represents and warrants to you and covenants
with you that between the date of this Agreement and the earlier of (i) the date
of termination of the Merger Agreement in accordance with its terms and (ii) the
Effective Date of the Transaction (such earlier date being the "Expiry Date"),
such Shareholder shall not, except as contemplated by Section 15 hereof, (A)
sell, transfer, gift, assign, pledge, hypothecate, encumber or otherwise dispose
(any such event, a "Transfer") of any of the Shares, options to acquire common
shares of Seagram held by such Shareholder as of the date hereof or any common
shares of Seagram arising from the exercise of the Options ("Options") or
otherwise acquired after the date hereof by such Shareholder (the "Additional
Shares"), or enter into any agreement, arrangement or understanding in
connection therewith (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise), without having first obtained
the prior written consent of Vivendi, in each case other than (i) Permitted
Family Transfers (as defined below), and (ii) any Shareholder may dispose of any
Shares, Options or Additional Shares by transferring them to a Permitted
Transferee (as defined in the Shareholder Governance Agreement dated the date
hereof, among Vivendi, the Shareholders and the other parties thereto (the
"Shareholders Governance Agreement")) so long as such Permitted Transferee
agrees in writing with Vivendi to be bound by the terms and conditions of this
Agreement as if such Permitted Transferee were a Shareholder and notice and a
copy of such agreement is concurrently provided to Vivendi, or (B) grant any
proxies or powers of attorney (other than those contemplated by this Agreement),
deposit any Shares, Options or Additional Shares (collectively, the "Owned
Securities") into a voting trust or enter into a voting agreement, understanding
or arrangement with respect to such Owned Securities. A Shareholder shall
provide notice (including the aggregate Current Market Value of all such
Transfers) to Vivendi upon the making of any Permitted Family Transfer.
"Permitted Family Transfers" means Transfers of Shares having a Current Market
Value (as defined in the Shareholder Governance Agreement) of no more than
$100,000,000 in the aggregate (determined for any Transfer on the applicable
transfer date).
3. Each Shareholder hereby undertakes from time to time, until the Expiry
Date:
(a) to vote (or cause to be voted) all the Shares and the Additional
Shares at any meeting of the shareholders of Seagram, and in any action by
written consent of the shareholders of Seagram (i) in favour of the
approval, consent, ratification and adoption of the Transaction (and any
actions required in furtherance thereof), (ii) against any merger agreement
or merger, reorganization, consolidation, amalgamation, arrangement,
business combination, share exchange, liquidation, dissolution,
recapitalization, or similar transaction involving Seagram (including, for
greater certainty, a Seagram Acquisition Proposal or a Seagram Superior
Proposal) (other than the Merger Agreement, the Transaction and any
E-2
<PAGE> 635
other agreement or transaction involving Vivendi or its Affiliates) and
(iii) against any action that would impede, interfere with, or discourage
the Transaction and against any action that would result in any breach of
any representation, warranty or covenant by Seagram in the Merger
Agreement. Upon the request or direction of Vivendi, each Shareholder shall
promptly execute and deliver a proxy in respect of any such resolution, and
shall have the Owned Securities counted or not counted as part of a quorum
in connection with any Seagram shareholders meeting relating to matters set
forth in this Section 3(a). If for any reason such proxy is invalid or not
effective or is not delivered promptly after request is made, each
Shareholder hereby unconditionally and irrevocably appoints Vivendi as
attorney in fact for and on its behalf to act in respect of any such
resolution in connection with any meeting of Seagram shareholders.
Notwithstanding the foregoing, any proxy granted hereunder shall terminate
on the Expiry Date.
(b) such Shareholder shall not without the prior written consent of
Vivendi requisition or join in the requisition of any meeting of the
shareholders of Seagram for the purpose of considering any resolution;
(c) for greater certainty, in connection with any matter referred to
in Section 3(a)(ii) or 3(a)(iii), such Shareholder shall consult with
Vivendi prior to exercising any voting rights attached to the Shares or the
Additional Shares and shall exercise or procure the exercise of such voting
rights as Vivendi shall instruct, including, without limitation, the
delivery to Vivendi, upon its request or direction, of a proxy in respect
of any such resolution; and
(d) such Shareholder shall use its best efforts not to default, or
take or omit to take any action which could reasonably be expected to cause
a default, under those loans or other arrangements to which such
Shareholder is subject that are described in Schedule 1(a) hereto, if any,
or as otherwise permitted hereunder, by consent or otherwise.
4. Each Shareholder (except in his or her capacity as a director or officer
of Seagram and only to the extent permitted by the Merger Agreement) agrees
that, until the Expiry Date, such Shareholder will not, directly or indirectly,
negotiate with, solicit, initiate or encourage submission of proposals or offers
from, or provide information to, any other person, entity or group relating to a
Seagram Acquisition Proposal.
5. Each Shareholder hereby irrevocably agrees:
(a) to details of this Agreement being set out in any information
circular produced by Seagram, Canal or Vivendi in connection with the
Transaction; and
(b) to this Agreement being available for inspection until the Expiry
Date.
6. Any date, time or period referred to in this Agreement shall be of the
essence except to the extent to which Vivendi and the Shareholders agree in
writing to vary any date, time or period, in which event the varied date, time
or period shall be of the essence.
7. Each Shareholder agrees that monetary damages would not be an adequate
remedy for any loss incurred by reason of a breach of this Agreement by any of
them and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
8. Each party hereto agrees and confirms that:
(a) any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of
an amendment, by each affected Shareholder and Vivendi or in the case of a
waiver, by the party against whom the waiver is to be effective; and
(b) no failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise.
9. This Agreement and the Shareholder Governance Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings
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<PAGE> 636
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by the parties hereto.
10. Vivendi represents and warrants to each Shareholder that the provisions
of this Agreement constitute legal, valid and binding obligations of Vivendi,
enforceable against it in accordance with its terms.
11. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed duly given and received (i) on
the date of delivery, if delivered in person, (ii) upon confirmation of
transmission by the sender's fax machine, if delivered by facsimile on a
Business Day (or otherwise on the next Business Day), or (iii) on the first
Business Day following the date of dispatch, if delivered by a nationally
recognized next day courier service, to the respective parties at their
addresses and fax numbers (as applicable) as specified in the Shareholder
Governance Agreement.
12. If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of this Agreement is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent possible.
13. The provisions of this Agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and permitted
assigns, provided that no party may assign, delegate or otherwise transfer any
of its rights, interests or obligations under this Agreement without the prior
written consent of the other parties hereto, except that Vivendi may assign,
delegate or otherwise transfer any of its rights, interests or obligations under
this Agreement to a wholly owned subsidiary of Vivendi (including Sofiee)
without reducing its own obligations hereunder without the consent of any
Shareholder, and any Shareholder may Transfer Shares, Options or Additional
Shares to Permitted Transferees in accordance with clause (A) of Section 2
hereof without the consent of the other parties hereto. Each of Vivendi and each
Shareholder agrees that any action or proceeding arising out of or relating to
this Agreement shall be exclusively instituted in the courts of Ontario, waives
any objection which it may have now or hereafter to the venue of any such action
or proceeding, irrevocably submits to the jurisdiction of the said courts in any
such action or proceeding, agrees to be bound by any judgment of the said courts
and not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of another jurisdiction. Vivendi and each Shareholder
hereby respectively appoints Blake, Cassels & Graydon LLP and Goodman Phillips &
Vineberg at their respective offices in Toronto, Ontario as attorney for service
of process for any action or proceeding arising out of or relating to this
Agreement.
14. This Agreement is governed by the laws of the Province of Ontario and
the federal laws of Canada applicable therein.
15. Vivendi shall permit Seagram to arrange for a "safe income tuck-in"
transaction (the "Tuck-In") or another form of safe income access transaction,
with one or more Shareholders, provided that:
(a) only two forms of transaction will be required;
(b) such transaction is to be completed in accordance with applicable
Laws prior to the Effective Date or on the Effective Date but prior to the
Effective Time so long as that Vivendi, acting reasonably, agrees to such
timing;
(c) such transaction must be accomplished in a manner that
(i) provides for (A) the payment by each applicable Shareholder of
any material (or, if required by any regulatory authority, all) costs
and expenses incurred in connection with such transaction by Seagram and
Vivendi, Vivendi Holdings and Vivendi Exchangeco and any corporation
acquired by any of them, and (B) an indemnity in favor of Seagram and
Vivendi, Vivendi Holdings and Vivendi Exchangeco and any corporation
acquired by any of them by the Shareholder and any vendor (each, a
"Vendor") of Shares beneficially owned by such Shareholder from all
E-4
<PAGE> 637
claims, demands, proceedings, losses, damages, liabilities,
deficiencies, taxes (including, without limitation, federal or
provincial taxes on income, property, capital, sales, goods and
services, and excise duties, and any interest and penalties with respect
thereto, whether or not such taxes have been assessed or reassessed as
at the date of such transaction), costs and expenses (including, without
limitation, all legal and other professional fees and disbursements,
interest, penalties and amounts paid in settlement) (collectively,
"Liabilities") suffered or incurred by Seagram, Vivendi, Vivendi
Holdings and Vivendi Exchangeco or any corporation acquired by any of
them in such transaction (each, a "Subco") (and their directors,
officers, employees and agents), the whole to be computed on an
after-tax basis, as a result of or arising directly or indirectly out of
or in respect of or in connection with: (A) any breach by each such
Shareholder or Vendor of any representation, warranty, obligation or
covenant of the Shareholder or Vendor to Seagram; (B) any Liability
sustained, incurred, assumed or acquired by any Subco on or before, or
related to any matter occurring on or before, the completion of such
transaction; and (C) any Liability which would not have been sustained,
suffered or incurred by (or which would not have been asserted,
threatened, or be pending against) Seagram, Vivendi, Vivendi Exchangeco
and Vivendi Holdings but for the transaction including, without
limitation, all Liabilities which are assumed or incurred by any of
Subco or Seagram, Vivendi, Vivendi Exchangeco and Vivendi Holdings
directly or indirectly in respect of such transactions; and
(ii) does not entail any delay in completing the Arrangement, to
Seagram, Vivendi or their respective subsidiaries or shareholders; and
(d) the terms and conditions of such transaction must be satisfactory
to Vivendi and Seagram, acting reasonably, and must include representations
and warranties which are satisfactory to Vivendi, acting reasonably, and an
indemnity from each applicable Shareholder and any Vendor which is in form
and substance satisfactory to Vivendi, acting reasonably.
In the event that the terms and conditions of such transaction are not
satisfactory to Vivendi, acting reasonably, or the Quebec Securities Commission
or any other securities regulatory authority in Canada or a court pursuant to
section 204 of the Canada Business Corporations Act refuses to grant any relief
required in connection with any such transaction, Vivendi will use its
reasonable best efforts, for a period not to exceed 15 Business Days, to assist
Seagram and the Shareholders in structuring such a transaction in a manner
satisfactory to Vivendi, acting reasonably.
In the event that the terms and conditions of such transaction are not
satisfactory to Vivendi acting reasonably and no alternative transaction can be
agreed upon as aforesaid where Vivendi has used its reasonable best efforts as
aforesaid, this shall not affect the completion of the Arrangement or this
Agreement.
16. In connection with the future crystallizations of "safe income"
attaching to Exchangeable Shares of Vivendi Exchangeco held and beneficially
owned by a Shareholder resident in Canada for purposes of the Income Tax Act
(Canada) (the "Requesting Shareholder"), Vivendi undertakes no more frequently
than annually to provide to its auditors financial information relating thereto,
and to instruct its auditors to provide to the Requesting Shareholder a
calculation of "safe income" reasonably arrived at (the "Safe Income
Computation"). Such calculation shall be based on a statement of methodology to
be provided by the Requesting Shareholder in sufficient detail to enable the
auditors to provide such calculation in an efficient manner. The Requesting
Shareholder will assume all costs and expenses relating to the Safe Income
Computation and acknowledges that Vivendi is in no way liable for the accuracy
or completeness of the Safe Income Computation or for the correctness or
suitability of the methodology provided by the Requesting Shareholder. The
Requesting Shareholder will be required to acknowledge that any information
furnished by Vivendi in connection with the Safe Income Computation is
confidential and to undertake not to disclose such information without the prior
written approval of Vivendi, not to be unreasonably withheld.
E-5
<PAGE> 638
This Shareholder Voting Agreement has been agreed and accepted this 19th
day of June, 2000.
VIVENDI S.A.
By: /s/ JEAN-MARIE MESSIER
------------------------------------
Name: Jean-Marie Messier
Title: Chairman & Chief Executive
Officer
BRONFMAN ASSOCIATES
By: /s/ EDGAR M. BRONFMAN
------------------------------------
Name: Edgar M. Bronfman
Title: Managing Partner
C. BRONFMAN FAMILY TRUST
By: /s/ BRUCE I. JUDELSON
------------------------------------
Name: Bruce I. Judelson
Title: Trustee
PBBT/EDGAR MILES BRONFMAN
FAMILY TRUST
By: /s/ EDGAR M. BRONFMAN
------------------------------------
Name: Edgar M. Bronfman
Title: Trustee
By: /s/ JOHN S. WEINBERG
------------------------------------
Name: John S. Weinberg
Title: Trustee
By: /s/ MATTHEW BRONFMAN
------------------------------------
Name: Matthew Bronfman
Title: Trustee
E-6
<PAGE> 639
By: /s/ MILDRED KALIK
----------------------------------
Name: Mildred Kalik
Title: Trustee
CHARLES ROSNER BRONFMAN
FAMILY TRUST
By: /s/ STEPHEN R. BRONFMAN
------------------------------------
Name: Stephen R. Bronfman
Title: Trustee
THE CHARLES BRONFMAN TRUST II
By: /s/ JEFFREY SCHEINE
------------------------------------
Name: Jeffrey Scheine
Title: Trustee
THE CLARIDGE FOUNDATION
By: /s/ CHARLES R. BRONFMAN
------------------------------------
Name: Charles R. Bronfman
Title: Member and Director
CRB ASSOCIATES,
LIMITED PARTNERSHIP
By: /s/ JEFFREY SCHEINE
------------------------------------
Name: Jeffrey Scheine
Title: Manager of Claridge Israel
LLC,
A General Partner
E-7
<PAGE> 640
CHARLES R. BRONFMAN
DISCRETIONARY TRUST
By: /s/ BRUCE I. JUDELSON
------------------------------------
Name: Bruce I. Judelson
Title: Trustee
/s/ EDGAR M. BRONFMAN
------------------------------------
EDGAR M. BRONFMAN
/s/ CHARLES R. BRONFMAN
------------------------------------
CHARLES R. BRONFMAN
/s/ SAMUEL BRONFMAN II
------------------------------------
SAMUEL BRONFMAN II
/s/ EDGAR BRONFMAN, JR.
------------------------------------
EDGAR BRONFMAN, JR.
/s/ MATTHEW BRONFMAN
------------------------------------
MATTHEW BRONFMAN
/s/ ELLEN BRONFMAN HAUPTMAN
------------------------------------
ELLEN BRONFMAN HAUPTMAN
E-8
<PAGE> 641
ANNEX I
<TABLE>
<CAPTION>
NUMBER OF
HOLDER OF COMMON SHARES SHARES*
----------------------- -----------
<S> <C>
Bronfman Associates......................................... 58,618,088
PBBT/Edgar Miles Bronfman Family Trust...................... 1,486,516
C. Bronfman Family Trust.................................... 14,320,000
Charles Rosner Bronfman Family Trust........................ 20,364,000
The Charles Bronfman Trust II............................... 5,000,000
The Claridge Foundation..................................... 3,280,000
CRB Associates, Limited Partnership......................... 1,300,000
Charles R. Bronfman Discretionary Trust..................... 302,760
Edgar M. Bronfman........................................... 115,840
Charles R. Bronfman......................................... 1,000
Samuel Bronfman II.......................................... 240
Edgar Bronfman, Jr. ........................................ 240
Matthew Bronfman............................................ 240
Ellen J. Bronfman Hauptman.................................. 24,000
-----------
Total............................................. 104,812,924
</TABLE>
---------------
* Does not include employee stock options. In addition, certain parties to the
Voting Agreement to which this Annex I is attached may be deemed to have
Beneficial Ownership of the common shares listed below. Such common shares
shall not be deemed to be "Shares" subject to such Voting Agreement.
<TABLE>
<CAPTION>
NUMBER OF
HOLDER OF COMMON SHARES SHARES
----------------------- ---------
<S> <C>
Saidye Rosner Bronfman Ruby Trust........................... 1,070,000
Saidye Rosner Bronfman Topaz Trust.......................... 100,004
The Chastell Foundation..................................... 54,164
The Samuel Bronfman Foundation.............................. 240,000
The Samuel and Saidye Bronfman Family Foundation............ 240
Jean de Gunzburg............................................ 66,240
</TABLE>
E-9
<PAGE> 642
ANNEX F
SHAREHOLDER GOVERNANCE AGREEMENT
AMONG
VIVENDI S.A.,
SOFIEE S.A.
AND
THE SHAREHOLDERS PARTY HERETO
DATED AS OF JUNE 19, 2000
F-1
<PAGE> 643
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms....................................... F-4
Section 1.02. Other Definitional Provisions............................... F-7
Section 1.03. Methodology for Calculations................................ F-8
ARTICLE II
CORPORATE GOVERNANCE
Section 2.01. Designees to the Board...................................... F-8
Section 2.02. Committees.................................................. F-9
Section 2.03. Miscellaneous............................................... F-10
ARTICLE III
TRANSFER OF VOTING SHARES
Section 3.01. Restrictions on Transfer.................................... F-11
Section 3.02. Right of First Offer........................................ F-12
Section 3.03. Permitted Transferees....................................... F-13
Section 3.04. Notice of Transfer.......................................... F-13
Section 3.05. Compliance with Transfer Provisions......................... F-13
ARTICLE IV
STANDSTILL
Section 4.01. No Acquisitions............................................. F-13
Section 4.02. Other Restrictions.......................................... F-14
ARTICLE V
INCIDENTAL REGISTRATIONS
Section 5.01. Right To Include Registrable Securities..................... F-15
Section 5.02. Company's Ability To Postpone............................... F-16
Section 5.03. Expenses.................................................... F-16
Section 5.04. Priority in Incidental Registrations........................ F-16
ARTICLE VI
REGISTRATION ON REQUEST
Section 6.01. Request by Holders.......................................... F-16
Section 6.02. Expenses.................................................... F-17
Section 6.03. Effective Registration Statement............................ F-17
Section 6.04. Selection of Underwriters................................... F-17
Section 6.05. Priority in Requested Registrations......................... F-17
Section 6.06. Company's Ability to Postpone............................... F-17
Section 6.07. Holdback Agreements......................................... F-18
</TABLE>
F-2
<PAGE> 644
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VII
REGISTRATION PROCEDURES
Section 7.01. Registration Procedures..................................... F-18
Section 7.02. Information................................................. F-20
Section 7.03. Discontinuance of Disposition............................... F-20
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Indemnification by the Company.............................. F-20
Section 8.02. Indemnification by the Sellers.............................. F-21
Section 8.03. Notices of Claims, Etc...................................... F-21
Section 8.04. Contribution................................................ F-22
Section 8.05. Other Indemnification....................................... F-22
Section 8.06. Nonexclusivity.............................................. F-22
ARTICLE IX
TERM AND TERMINATION
Section 9.01. Term........................................................ F-22
ARTICLE X
GENERAL PROVISIONS
Section 10.01. Notices..................................................... F-23
Section 10.02. Counterparts................................................ F-24
Section 10.03. Entire Agreement; No Third Party Beneficiaries.............. F-24
Section 10.04. Governing Law............................................... F-24
Section 10.05. Severability................................................ F-24
Section 10.06. Assignment.................................................. F-24
Section 10.07. Enforcement................................................. F-25
Section 10.08. Titles and Subtitles........................................ F-25
Section 10.09. Submission to Jurisdiction; Waivers......................... F-25
Section 10.10. Form of Securities.......................................... F-26
Section 10.11. Actions of Shareholders..................................... F-27
Section 10.12. Prohibited Transfers........................................ F-27
</TABLE>
F-3
<PAGE> 645
SHAREHOLDER GOVERNANCE AGREEMENT, dated as of June 19, 2000 (this
"Agreement"), among VIVENDI S.A., a corporation organized under the laws of
France ("Vivendi"), SOFIEE S.A., a corporation organized under the laws of
France ("Sofiee"), and each of the shareholders party hereto and the trustees
party hereto acting for the benefit of trusts that are shareholders
(collectively, the "Shareholders").
WHEREAS, Vivendi has agreed to merge with and into Sofiee (the "Vivendi
Merger") and effect the other Vivendi/Canal Transactions (as defined in the
Merger Agreement referred to below), effective as of the Closing (as defined
below);
WHEREAS following the effectiveness of the Plan of Arrangement (the
"Arrangement") contemplated by the Merger Agreement dated as of the date hereof
(the "Merger Agreement"), among Vivendi, Sofiee, The Seagram Company Ltd., a
corporation organized under the laws of Canada ("Seagram"), and the other
parties thereto, upon the terms and subject to the conditions set forth therein,
the surviving entity of the Vivendi Merger (such surviving entity being referred
to herein as, the "Company") will own 100% of the common shares of Seagram;
WHEREAS the Shareholders beneficially own in the aggregate a significant
percentage of the issued and outstanding shares of Seagram, and upon completion
of the Arrangement, will acquire Voting Shares (as defined below) of the
Company;
WHEREAS the Shareholders have entered into a Voting Agreement dated as of
the date hereof with Vivendi and Canal Plus S.A., pursuant to which each
Shareholder will take the actions specified therein; and
WHEREAS each of the parties desire to enter into this Agreement in order to
establish rights and obligations of the Shareholders as holders of Voting
Shares, effective as of the time the Arrangement becomes effective (the
"Closing").
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person. In
all instances where a provision of this Agreement by its terms requires a
Person to "cause" one of its Affiliates to take or refrain from taking a
specified action, in the case of (x) Affiliates that are natural persons
and (y) Affiliates that are not Controlled by such Person, such requirement
shall be deemed satisfied if such Person uses its reasonable best efforts
to cause such action to be taken or not taken by such Affiliate (as
applicable).
"Agreement" means this Shareholder Governance Agreement, as it may be
amended, supplemented, restated or modified from time to time.
"Beneficial Owner" or "Beneficially Own" has the meaning assigned to
such term in Rule 13d-3 under the Exchange Act and a Person's beneficial
ownership of Voting Shares shall be calculated in accordance with the
provisions of such Rule.
"Board" means the Board of Directors of the Company.
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in France
or The City of New York.
"Control" (including the terms "Controlled By" and "Under Common
Control With"), with respect to the relation ship between or among two or
more Persons, means the possession, directly or indirectly, of
F-4
<PAGE> 646
the power to direct or cause the direction of the affairs or management of
a Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise.
"Current Market Value" means, with respect to any security, the
average of the daily closing prices on the principal exchange or market on
which such security may be listed or may trade for such security for the 20
consecutive trading days commencing on the 22nd trading day prior to the
date with respect to which the Current Market Value is being determined.
The closing price for each day shall be the closing price, if reported, or,
if the closing price is not reported, the average of the closing bid and
asked prices as reported by such principal exchange or market. In the event
such closing prices or bid and asked prices, as applicable, are
unavailable, the Current Market Value shall be the Fair Market Value of
such security established by a Determination of the Directors.
"Designee" means a Family Designee or a Non-Family Designee, as the
context requires.
"Determination of the Directors" means, with respect to any matter, a
determination made on an informed basis and in good faith, on the basis of
such relevant factors as the Directors consider, in their judgment,
appropriate, by the vote of a majority of the Directors present at a
meeting of the Board if a quorum of the Directors is present at such
meeting or without a meeting if a majority of all Directors consent thereto
in writing.
"Director" means any member of the Board.
"Encumbrance" means any claim, lien (statutory or other), pledge,
hypothecation, option, charge, security interest, encumbrance, mortgage or
other rights of third parties of any nature whatsoever.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended.
"Exchangeable Shares" means the Exchangeable Shares of Vivendi
Exchangeco Limited, a wholly owned Canadian subsidiary of the Company,
issued as part of or created by the Arrangement and, for purposes of this
Agreement, includes the Vivendi Voting Rights (as defined in the
Arrangement) related thereto.
"Fair Market Value" means, as to any securities or other property, the
cash price at which a willing seller would sell and a willing buyer would
buy such securities or property in an arm's-length negotiated transaction
without time constraints.
"Family Designees" means those three of the Initial Designees who are
Shareholders, and any replacement designees of such Persons or of any such
replacement designee, in each case who is so designated pursuant to Section
2.01(d).
"Group" has the meaning assigned to such term in Section 13(d)(3) of
the Exchange Act.
"Holder" means (i) any Shareholder or any Permitted Transferee of a
Shareholder that is the record holder of Registrable Securities or (ii) any
transferee of a Shareholder or Permitted Transferee that is a Significant
Transferee at the time of the applicable Transfer to the extent that such
transferee was specifically assigned registration rights pursuant to
Section 10.06(b).
"Incidental Transfer" means any Underwritten Offering, Market Transfer
or Private Placement, together with any related or contemporaneous
transactions, of Voting Shares representing less than 0.33% of the
Company's issued and outstanding Voting Shares.
"Initial Period" means the initial four-year term of the Designees on
the Board.
"Initial Designees" means five members of the Seagram Board of
Directors who shall be designated by Seagram in writing to Vivendi,
provided that (i) three of such designees shall be Shareholders and (ii)
two of such designees shall be selected by the Board of Directors of
Seagram from and among the existing members of such Board of Directors as
of the date of the Merger Agreement and shall not be Shareholders or their
Affiliates.
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<PAGE> 647
"Initial Voting Shares" means the number of Voting Shares Beneficially
Owned by the Shareholders as of the Closing.
"Market Transfer" means a sale or other transfer which is effected in
accordance with the provisions of Rule 144 under the Securities Act or any
successor rule thereto, or a market sale or similar transaction (including
a block trade that is not designed to effect a broad distribution) which is
effected outside of the United States.
"Non-Family Designees" means those two of the Initial Designees who
are not Shareholders, and any replacement designees of such Persons or of
any such replacement designee, in each case who is so designated pursuant
to Section 2.01(d).
"Ordinary Shares" means the ordinary shares of the Company, including,
without duplication, American Depositary Shares representing such ordinary
shares, and any securities issued in substitution therefor, in connection
with any stock split, dividend or combination, or any reclassification,
recapitalization, merger, consolidation, exchange or other similar
reorganization.
"Permitted Family Transfers" means Transfers of Voting Shares having a
Current Market Value (determined for any Transfer on the applicable
transfer date) of no more than $100,000,000 in the aggregate, less the
Current Market Value (determined for any Transfer on the applicable
transfer date) of Transfers (other than pursuant to the Arrangement) of
shares of Seagram made in accordance with Section 2 of the Voting
Agreement.
"Permitted Transferee" means, in respect of any Shareholder or
Permitted Transferee, the other Shareholders, lineal descendants of any
Shareholder or Permitted Transferee, spouses of any of the foregoing, legal
representatives or estates of any of the foregoing, trusts maintained for
the benefit of any of the foregoing and/or for charitable foundations or
organizations, and corporations, private charitable foundations or other
entities Controlled by such Persons or charitable foundations or
organizations of which one or more of the foregoing is a director, in each
case to the extent such parties agree to be bound by the terms of this
Agreement in accordance with Section 3.03. In addition, any Shareholder
shall be a Permitted Transferee of the Permitted Transferees of itself and
of the other Shareholders.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivisions thereof or any Group comprised of two or more of the
foregoing.
"Private Placement" means one or a series of related
privately-negotiated Transfers to any Person or Transfers to any Person
pursuant to Rule 144A or Regulation S under the Securities Act or any
similar provisions under U.S., Canadian or other foreign law.
"Registrable Securities" means any Voting Shares held by a Holder and,
in the case of Holders that are not Shareholders of Permitted Transferees,
issued as part of the Arrangement. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when
(i) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such Registrable
Securities shall have been disposed of in accordance with such registration
statement, (ii) such securities shall have ceased to be outstanding or
(iii) such securities shall have been sold or otherwise Transferred to any
Person who is not a Permitted Transferee or a Significant Transferee.
"Registration Expenses" means any and all expenses incident to the
Company's performance of its obligations under Articles V, VI and VII of
this Agreement, including (a) all SEC, provincial securities commissions
and stock exchange or National Association of Securities Dealers, Inc.
registration and filing fees, (b) all fees and expenses of complying with
securities or blue sky laws (including reasonable fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of
the Registrable Securities), (c) all printing, messenger and delivery
expenses, (d) all fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange pursuant to
Article VII, (e) the out-of-pocket fees and disbursements of counsel for
the Company and of its independent public accountants, including the
expenses of any special audits and/or "cold comfort"
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<PAGE> 648
letters required by or incident to such performance, (f) the reasonable
fees and disbursements of one counsel selected by Holders holding a
majority of the shares being registered in such offering in connection with
each such registration or prospectus and (g) any fees and disbursements of
underwriters customarily paid by the issuers or sellers of securities,
including liability insurance if the Company so desires or if the
underwriters so require, and the fees and expenses of any special experts
retained by the Company in connection with the requested registration or
prospectus, but excluding underwriting discounts, fees or commissions, fees
and expenses of counsel for the underwriters (except as otherwise set forth
in clause (b) above) and transfer taxes, if any.
"Right of First Offer Transfer" means any Transfer other than (a) any
Transfer by a Shareholder so long as, immediately after giving effect to
such Transfer, the aggregate amount of Transfers pursuant to this clause
(a) does not exceed the number of Voting Shares equal to 2.5% of the issued
and outstanding Voting Shares as of the Closing, (b) after the date that
Transfers pursuant to clause (a) above have reached the number of Voting
Shares equal to 2.5% of the issued and outstanding Voting Shares as of the
Closing, any Incidental Transfer or (c) any Transfer pursuant to Section
3.01(a), Section 3.01(b), clause (i) of Section 3.01(d), Section 3.01(e)
(other than a Transfer relating to a Foreclosure Event) or Section 3.01(f);
provided, however, that any Transfer described in clause (c) of this
sentence shall not be deemed to be a Transfer for purposes of calculating
the percentages contained in clause (a) and (b) of this sentence.
Notwithstanding the foregoing, any foreclosure by a transferee of a
Transfer pursuant to Section 3.01(e) or a Tax Related Transfer or any
Transfer pursuant to clause (ii) of Section 3.01(d) shall be deemed a Right
of First Offer Transfer.
"SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act or
the Exchange Act.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Significant Transferee" means any Person to which any Transfer has
been made that, after giving effect to such Transfer, owns more than 1% of
the outstanding Voting Shares.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, joint venture, limited liability company or other entity
controlled by such Person directly or indirectly through one or more
intermediaries; provided that for purposes of Article IV, a Person shall be
deemed to be "controlled" by another Person if such other Person possesses,
directly or indirectly, the power to prohibit the taking of the action in
question by such controlled Person, whether through the ownership of voting
securities, as trustee or executor, by contract or otherwise.
"Tax Related Transfer" has the meaning assigned to such term in
Section 3.01(g).
"Transfer" means, directly or indirectly, to sell, transfer, assign,
pledge, encumber, hypothecate or similarly dispose of, either voluntarily
or involuntarily, or to enter into any contract, option or other
arrangement or under standing that is designed to, or could be expected to,
result in the disposition (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) of, any Voting
Shares or any interest in any Voting Shares.
"Underwritten Offering" means the sale of Voting Shares for cash in an
underwritten public offering or block trade, which, in any case, is
designed to effect a broad distribution of such Voting Shares.
"Voting Share Equivalents" means any warrants, options, rights or
securities convertible into, or exchangeable or exercisable for, Voting
Shares.
"Voting Shares" means any securities the holders of which are
generally entitled to vote for members of the Board, including the Ordinary
Shares and the Exchangeable Shares, and any securities issued in
substitution therefor, in connection with any stock split, dividend or
combination, or any reclassification, recapitalization, merger, demerger,
exchange or other similar reorganization.
Section 1.02. Other Definitional Provisions. (a) The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any
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<PAGE> 649
particular provision of this Agreement, and Article and Section references are
to this Agreement unless otherwise specified.
The words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation".
(b) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
Section 1.03. Methodology for Calculations. For purposes of this
Agreement, (x) the Transfer of a Voting Share Equivalent shall be treated as the
Transfer of the Voting Shares into which such Voting Share Equivalent can be
converted, exchanged or exercised and (y) the conversion, exchange or exercise
of a Voting Share Equivalent into Voting Shares and the exchange of Exchangeable
Shares into American Depositary Shares or Ordinary Shares shall be deemed to not
be a Transfer. For purposes of calculating the amount of outstanding Voting
Shares as of any date and the amount of Voting Shares Beneficially Owned by any
Person as of any date, the amount of any Voting Shares shall be equal to the
number of votes such Voting Shares shall then entitle the holder thereof to cast
in an election for members of the Board (assuming that all Voting Shares were
voted in such election) and disregarding (x) any Voting Shares held by the
Company or its Affiliates and (y) any limitation on the voting rights of the
holders of Voting Shares that is dependent on the number of Voting Shares
voted). For all purposes hereunder, the Shareholders shall be entitled to rely
on the most recent publicly available information regarding the number of
outstanding Voting Shares as of any date of determination (unless the Company
shall have in fact provided the Shareholders with more updated information).
Shareholders who hold Exchangeable Shares shall not be obligated to first
exercise the exchange right pertaining thereto in connection with a Right of
First Offer Transfer or a request for registration of Registrable Securities
hereunder; provided, however, that "Current Market Value", "Offer Price" or
"Specified Price", as applicable, for purposes of Section 3.02 shall nonetheless
be determined with reference to the Ordinary Shares underlying such Exchangeable
Shares if such Ordinary Shares are the securities proposed to be transferred.
ARTICLE II
CORPORATE GOVERNANCE
Section 2.01. Designees to the Board. (a) The Company will use its best
efforts to cause the election by the shareholders of the Company of each of the
Initial Designees to the Board, effective as of the Closing, and their
continuation on the Board for the Initial Period (subject to the other
provisions of this Article II). Effective as of the Closing and for so long as
the Company shall have the obligation to cause the nomination of any Family
Designees to the Board, the Company's bylaws shall provide that the Board shall
be comprised of no more than 20 members (the "Board Limit"); provided, that the
Board Limit shall be reduced to (i) 19 on the first anniversary of the Closing
and (ii) 18 on the second anniversary of the Closing; provided, further that,
notwithstanding the foregoing, the Board Limit shall be reduced to the extent
required by French law or rule on the date on which any French law or rule
requiring such a reduction becomes effective (and such bylaw provision shall not
be amended without the prior written consent of the Shareholders pursuant to
Section 10.06(c)).
(b) Following the completion of the Initial Period, the number of Family
Designees shall not exceed the corresponding number set forth in the table
below. The number of Family Designees may not increase after a reduction of the
number of Family Designees pursuant to the following table and Section 2.01(e).
<TABLE>
<CAPTION>
PERCENTAGE OF THE INITIAL
VOTING SHARES BENEFICIALLY
NUMBER OF OWNED BY SHAREHOLDERS AND
FAMILY DESIGNEES PERMITTED TRANSFEREES
---------------- ------------------------------------
<C> <S>
3 > 75%
2 > 50% but less than or equal to 75%
1 > 25% but less than or equal to 50%
</TABLE>
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<PAGE> 650
(c) Following the completion of the Initial Period, (i) the Company shall
use its best efforts to cause the continuation on the Board of each of the
Family Designees (including by causing the nomination of such individuals for
election to the Board, and by using its best efforts to cause the election of
such individuals by the shareholders of the Company), subject to the limitations
contained in Section 2.01(b) and (ii) the renomination of the Non-Family
Designees shall be at the discretion of the Board.
(d) In the event that a vacancy in the Board is created at any time by the
death, disability, retirement, resignation or removal (with or without cause) of
a Family Designee or a Non-Family Designee (during the Initial Period only,
solely in the case of Non-Family Designees), the Shareholders (in the case of a
Family Designee) and the remaining Non-Family Designee (or, in the event that
there is no remaining Non-Family Designee on the Board, the Shareholders
(provided that such replacement Non-Family Designee shall not be a Shareholder
or an Affiliate of a Shareholder)) (in the case of a Non-Family Designee) shall
have the right to designate any Person as a replacement Family Designee or a
Non-Family Designee (during the Initial Period only, solely in the case of
Non-Family Designees), as the case may be, to fill such vacancy and the Company
agrees to use its best efforts to cause such vacancy to be filled as promptly as
possible with the replacement Designee. The Company shall not take any action to
cause the removal of a Family Designee or a Non-Family Designee (during the
Initial Period only, solely in the case of Non-Family Designees) without cause,
except pursuant to Section 2.01(e)(ii). Unless the Company otherwise agrees, the
Shareholders (in their capacity as shareholders of the Company) shall not, and
shall use their best efforts to cause each Family Designee not to, take any
action to cause the removal of any Director (other than the Family Designees)
with or without cause. The Board will use its best efforts to cause, including
by making the necessary proposals to the shareholders of the Company, the
Designees to be entitled to directors fees to the same extent as other
independent directors of the Company. The Designees will be entitled to be
reimbursed by the Company for all reasonable travel and out-of-pocket expenses
incurred by the Designees as a result of attending meetings of the Board to the
same extent as other independent directors of the Company. For purposes of this
paragraph, "cause" shall mean the wilful and continuous failure of a Director to
substantially perform such Director's duties to the Company or the wilful
engaging by a Director in gross misconduct materially and demonstrably injurious
to the Company. Notwithstanding anything to the contrary contained herein, in
the event that a Family Designee or a Non-Family Designee (during the Initial
Period only, solely in the case of Non-Family Designees) is removed from the
Board with or without cause, the Shareholders (in the case of a Family Designee)
and the remaining Non-Family Designee (or, in the event that there is no
remaining Non-Family Designee on the Board, the Shareholders (provided that such
replacement Non-Family Designee shall not be a Shareholder or an Affiliate of a
Shareholder)) (in the case of a Non-Family Designee) shall have the right to
designate any Person as a replacement Family Designee or a Non-Family Designee
(during the Initial Period only, solely in the case of Non-Family Designees), as
the case may be.
(e) If, at any time, the number of Family Designees exceeds the number of
Family Designees to which the Shareholders are entitled pursuant to Section
2.01(b), then:
(i) the Shareholders shall use their best efforts to cause a Family
Designee or Family Designees, as the case may be, to resign from the Board
as promptly as practicable in order to ensure compliance with Section
2.01(b);
(ii) if a Family Designee or Family Designees, as the case may be,
shall not have resigned within three days of the event requiring such
resignation, the Company may take or cause to be taken all actions
necessary to remove a Family Designee or Family Designees, as the case may
be, from the Board and the Shareholders shall vote (and cause each of its
Affiliates to vote, if applicable), all Voting Shares Beneficially Owned by
it and otherwise take or cause to be taken all actions necessary to remove
such Family Designee or Family Designees, as the case may be.
Section 2.02. Committees. (a) For so long as the Shareholders are
entitled to at least two Family Designees pursuant to Section 2.01(b) or the
Shareholders and their Permitted Transferees are collectively the largest holder
of Voting Shares (other than the Company and its Affiliates), the Shareholders
shall have the right to designate the Chairman of the Compensation Committee of
the Board, and the Company agrees to cause such designee to be appointed to and
maintained in such position.
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<PAGE> 651
(b) The Company agrees (i) to cause the Chairman of the Compensation
Committee of the Company designated by the Shareholders pursuant to Section
2.02(a) to be appointed and maintained as a member of the Nominating Committee
of the Board and (ii) that, during the period the Shareholders have the right to
designate the Chairman of the Compensation Committee of the Board, the
Nominating Committee of the Board will be responsible for proposing to the Board
the nomination of all Directors, other than the Family Designees.
(c) For so long as the Shareholders have the right to designate the
Chairman of the Compensation Committee of the Board pursuant to Section 2.02(a),
the Shareholders shall also have the right to designate one member of the Audit
Committee of the Board, and the Company agrees to cause such designee to be
appointed to and maintained in such position.
(d) In the event that the Board shall form an executive committee or any
other similar committee such that the failure of the Shareholders to participate
in such committee would be inconsistent with the purposes of the Board and
committee participation rights of the Shareholders provided for under this
Agreement, the Shareholders shall also have the right to designate one member of
each such committee of the Board, and the Company agrees to cause such designee
to be appointed to and maintained in each such position (for so long as the
Shareholders have the right to designate the Chairman of the Compensation
Committee of the Board pursuant to Section 2.02(a)).
(e) In the event that a vacancy in one of the foregoing committee positions
is created at any time by the death, disability, retirement, resignation or
removal (with or without cause) of a designee of the Shareholders to the
committees of the Board pursuant to Section 2.02 (a "Committee Designee"), the
Shareholders shall have the right to designate a replacement designee to fill
such vacancy and the Company agrees to use its best efforts to cause such
vacancy to be filled as promptly as possible with the replacement designee. The
Company shall not take any action to cause the removal of a Committee Designee
without cause, except pursuant to Section 2.02(f)(ii). Unless the Company
otherwise agrees, the Shareholders (in their capacity as shareholders of the
Company) shall not, and shall use their best efforts to cause the Committee
Designees not to, take any action to cause the removal of any committee member
(other than the Committee Designees) with or without cause. The Committee
Designees will be entitled to committee member fees to the same extent as other
independent committee members of the Company. The Committee Designees will be
entitled to be reimbursed by the Company for all reasonable travel and
out-of-pocket expenses incurred by the Committee Designees as a result of
attending meetings of the applicable committee to the same extent as other
independent committee members of the Company. For purposes of this paragraph,
"cause" shall mean the wilful and continuous failure of a committee member to
substantially perform such member's duties to the Company or the wilful engaging
by a committee member in gross misconduct materially and demonstrably injurious
to the Company. Notwithstanding anything to the contrary contained herein, in
the event that a Committee Designee is removed from the applicable committee
with or without cause, the Shareholders shall have the right to designate any
Person as a replacement Committee Designee.
(f) If, at any time, the Shareholders are not entitled to designate the
Chairman of the Compensation Committee of the Board pursuant to Section 2.02(a),
then:
(i) the Shareholders shall use their best efforts to cause each
Committee Designee to resign from the applicable committee of the Board as
promptly as practicable;
(ii) if the Committee Designees shall not have resigned within three
days of the event requiring such resignation, the Company may take or cause
to be taken all actions necessary to remove the Committee Designees from
the committees of the Board upon which the Committee Designees may be
serving and the Shareholders shall vote (and cause each of its Affiliates
to vote, if applicable) all Voting Shares Beneficially Owned by them and
otherwise take or cause to be taken all actions necessary to remove the
Committee Designees.
Section 2.03. Miscellaneous. (a) The Company agrees that the number of
meetings of the Board and the committees of the Board shall be consistent with
the past practice of Vivendi.
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<PAGE> 652
(b) The Company agrees that one-third of Board meetings and, to the extent
practicable, committee meetings each year shall take place in the United States
and that all Board meetings and committee meetings will be conducted in English.
(c) The Company agrees that (i) all Directors will receive notice of
meetings and delivery of materials at substantially the same time and (ii)
documents delivered to American and Canadian Directors shall be in English.
(d) The Company agrees that it will not amend its constituent documents or
enter into any agreement or arrangement in any manner that (i) would result in
the Company being unable to fulfill its obligations hereunder or (ii) could
reasonably be expected to discriminate against any Shareholder or Permitted
Transferee by virtue of the size of its holdings of Voting Shares, or its
citizenship, residence or other similar criteria.
ARTICLE III
TRANSFER OF VOTING SHARES
Section 3.01. Restrictions on Transfer. Without the consent of the
Company, each Shareholder agrees not to Transfer any Voting Shares Beneficially
Owned by such Shareholder (x) prior to the date that is 90 days after the
Closing (other than Permitted Family Transfers or pursuant to Section 3.01(b) or
Section 3.01(e)) and (y) thereafter, not to make any such Transfer except:
(a) to the Company, any of its Affiliates or any assignee of the
Company's rights under Section 3.02;
(b) to any Permitted Transferee, so long as such Permitted Transferee
agrees to be bound by the terms of this Agreement in accordance with
Section 3.03 (if not already bound hereby);
(c) pursuant to an Underwritten Offering, Market Transfer or a Private
Placement, in each case so long as the ultimate purchaser would not (to the
transferor's knowledge after reasonable due inquiry) Beneficially Own more
than 5% of the then outstanding Voting Shares, after giving effect to such
transfer;
(d) pursuant to a bona fide third party tender offer or exchange offer
which was not induced directly or indirectly by any Shareholder or any
Affiliate of any Shareholder and (i) which is approved by the Board or (ii)
in circumstances in which it is reasonably likely the Shareholders would
be, as a result of not tendering or exchanging, relegated to different
consideration than would be available to those shareholders who did tender
or exchange, taking into account any provisions thereof (including with
respect to proration and any proposed second step or back end transaction
(or the absence of such provisions)); provided that, in the case of clause
(ii), all conditions to such tender or exchange offer (other than the
minimum tender or exchange condition) are reasonably likely to be satisfied
or waived at the scheduled expiration date and the minimum tender or
exchange condition is reasonably likely to be satisfied or waived at the
scheduled expiration date for such offer even if the Shareholders do not
tender or exchange; and provided, further, notwithstanding the foregoing,
prior to completing a Transfer pursuant to clause (ii) of this Section
3.01(d), the applicable Voting Shares shall have been offered to the
Company pursuant to the right of first offer specified in Section 3.02 and
no such Transfer shall be permitted if the Company commits to purchase such
Voting Shares pursuant to Section 3.02(d) (any such offer, a "Permitted
Tender Offer");
(e) any Encumbrance on the Voting Shares in connection with bona fide
financings with a financial institution, so long as the foreclosure by such
financial institution (and any transferee thereof) is subject to the right
of first offer specified in Section 3.02 and such financial institution
(and any transferee thereof) acknowledges in writing for the benefit of the
Company such right of first offer;
(f) any Transfer arising as a result of a merger or similar
transaction involving the Company; or
(g) any Transfer to the extent necessary to satisfy the estimated
Canadian federal and provincial tax obligations upon the ultimate Transfer
of the Exchangeable Shares during the final year that the
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<PAGE> 653
Exchangeable Shares remain outstanding (or in any prior year during which
the Exchangeable Shares are redeemed or otherwise exchanged for Ordinary
Shares (or within the first four months of the following year), other than
as a result of a Shareholder retracting against the Company or other
redemption caused by the voluntary action of the Shareholders pursuant to
the terms of the Exchangeable Shares), so long as such transfer (i) is
subject to the right of first offer specified in Section 3.02 and (ii) is
not made pursuant to a tender offer or exchange offer (other than a
Permitted Tender Offer).
A Shareholder shall provide notice to the Company (including the aggregate
Current Market Value of all such Transfers) upon the making of any Permitted
Family Transfer.
Section 3.02. Right of First Offer. (a) Any Right of First Offer Transfer
by any Shareholder or any Permitted Transferee of the Shareholders (the proposed
transferor, the "Transferring Party") will be subject to the right of first
offer provisions of this Section 3.02.
(b) Prior to effecting any Right of First Offer Transfer, the Transferring
Party shall deliver a written notice (the "Offer Notice") to the Company, which
Offer Notice shall specify (i) the number or amount and description of the
Voting Shares intended to be Transferred, (ii) the applicable exception under
Section 3.01 pursuant to which such Transfer is being made and (iii) if
applicable, the Specified Price (as defined below). The Offer Notice shall
constitute an irrevocable offer to the Company or its designee, for the period
of time described below, to purchase all (but not less than all) of such Voting
Shares at (i) the Offer Price (as defined in Section 3.02(c) below), in the case
of a Permitted Tender Offer, (ii) the price set by the Transferring Party in the
Offer Notice (the "Specified Price"), in the case of a Private Placement, or
(iii) the Current Market Value as of the date of the Offer Notice, in all other
cases.
(c) For purposes hereof, the "Offer Price" shall mean with respect to any
Permitted Tender Offer, the final tender offer or exchange offer price offered
per Voting Share in such offer, or any other offer announced prior to the
scheduled expiration date of the initial offer, if higher, taking into account
any provisions thereof with respect to proration and any proposed second step or
"back-end" transaction. To the extent the Offer Price consists of consideration
other than cash or a publicly traded security for which a closing market price
is published for each Business Day (in which case such non-cash portion of the
consideration shall be equal to the Current Market Value determined as of the
Business Day prior to the announcement of the Permitted Tender Offer), such
consideration shall be valued by a determination of a internationally recognized
investment bank (selected by the Company and reasonably satisfactory to the
Transferring Party) of the Fair Market Value thereof of the consideration being
offered per Voting Share, giving effect to any tax benefit that the Transferring
Party would have realized by reason of receiving such non-cash consideration.
Notwithstanding anything to the contrary contained in this Section 3.02, the
time periods applicable to an election by the Company to purchase the offered
securities set forth in Section 3.02(d) shall not be deemed to commence until
the determination of the investment bank under this Section 3.02(c) has been
made; provided that, in no event shall any such election be permitted later than
48 hours prior to the latest time by which Voting Shares shall be tendered in
order to be accepted pursuant to such offer or to qualify for any proration
applicable to such offer if all conditions to such offer (other than the number
of shares tendered) are reasonably likely to be satisfied or waived. The Company
agrees to use its reasonable best efforts to cause the determination of the
investment bank under this Section 3.02(c) to be made as promptly as
practicable.
(d) If the Company elects to purchase all of the offered Voting Shares at
the price described in Section 3.02(b), it shall give irrevocable notice to the
Transferring Party within 24 hours of its receipt of the Offer Notice (or in the
case of a Permitted Tender Offer, not later than five Business Days prior to the
expiration date of such offer or such later time as permitted by Section
3.02(c)). If the Company shall deliver such a notice, it shall constitute a
binding obligation, subject to obtaining any governmental and other similar
required approvals and, in the case of a Permitted Tender Offer, all of the
conditions to such Permitted Tender Offer being satisfied or waived, to purchase
the offered Voting Shares, which notice shall include the date set for the
closing of such purchase, which date shall be no later than 15 days following
the delivery of such election notice (the "Determination Date"), subject to
extension to the extent necessary to obtain required governmental approvals and
other required approvals, which the Transferring Party and the Company shall use
their respective reasonable best efforts to obtain as promptly as practicable.
Notwithstanding the
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foregoing, such time periods shall not be deemed to commence with respect to any
purported notice that does not comply in all material respects with the
requirements of this Section 3.02(d). The Company may assign its rights to
purchase under this Section 3.02 to any Person. To the extent that the closing
of any such purchase has not occurred by the Determination Date (whether to the
Company or an assignee), the Transferring Party may terminate the relevant
agreement to sell the Voting Shares to the Company and sell the Voting Shares in
accordance with the provisions of Section 3.01.
(e) If the Company does not respond to the Offer Notice within the required
response time period or elects not to purchase the offered Voting Shares, the
Transferring Party shall be free to Transfer the offered Voting Shares in any
manner permitted by Section 3.01; provided that (x) such Transfer is closed
within 120 days (in the case of a registered Underwritten Offering), 60 days (in
the case of a Private Placement) or 30 days (in the case of any other Transfer)
after the latest of (A) the expiration of the foregoing required response time
periods, or (B) the receipt by the Transferring Party of the foregoing election
notice, and (y) the price at which the Voting Shares are Transferred must be
equal to or higher than (i) the Offer Price, in the case of a Transfer pursuant
to a Permitted Tender Offer (with any non-cash consideration being valued at the
same value used to determine the Offer Price), (ii) the Specified Price, in the
case of a Private Placement (with any non-cash consideration being valued using
the methodology described in the second sentence of Section 3.02(c) (provided
that the investment bank shall be selected by the Transferring Shareholder and
shall be reasonably acceptable to the Company), and giving effect to any tax
benefit that the Transferring Party would have realized by reason of receiving
such non-cash consideration), or (iii) the Fair Market Value of such Voting
Shares pursuant to a transaction of the type being effected at the time of such
Transfer (taking into account any applicable market discounts for such a
transaction), in all other cases.
Section 3.03. Permitted Transferees. Any Permitted Transferee shall be
subject to the terms and conditions of this Agreement as if such Permitted
Transferee were a Shareholder. Prior to the initial acquisition of Beneficial
Ownership of any Voting Shares by any Permitted Transferee, and as a condition
thereto, each Shareholder agrees (a) to cause such Permitted Transferees to
agree in writing with the Company to be bound by the terms and conditions of
this Agreement to the extent described in the preceding sentence and (b) that it
shall remain directly liable for the performance by the Permitted Transferees of
all obligations of such Permitted Transferees under this Agreement. To the
extent a Permitted Transferee Beneficially Owns Voting Shares and is not an
individual, a trust or an estate, and a third party (which is not a Shareholder
or a Permitted Transferee) acquires Control of such Permitted Transferee, such
acquisition of Control shall be deemed to be a Transfer of the Voting Shares
held by such Permitted Transferee subject to the transfer restrictions of
Section 3.01 and the right of first offer provisions of Section 3.02, in each
case to the extent applicable to a Transfer of Voting Shares.
Section 3.04. Notice of Transfer. To the extent any Shareholder or any
Permitted Transferee shall Transfer any Voting Shares, such Shareholder or
Permitted Transferee shall, within three Business Days following consummation of
such Transfer, deliver notice thereof to the Company.
Section 3.05. Compliance with Transfer Provisions. Any Transfer or
attempted Transfer of Voting Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Voting Shares as the owner of
such Voting Shares for any purpose.
ARTICLE IV
STANDSTILL
Section 4.01. No Acquisitions. (a) Each Shareholder covenants and agrees
with the Company that such Shareholder shall not, and shall cause each of its
Affiliates not to, directly or indirectly, acquire, or agree to acquire, by
purchase or otherwise, Beneficial Ownership of any Voting Shares or Voting Share
Equivalents (except by way of stock dividends, stock reclassifications or other
distributions or offerings made available to holders of Voting Shares generally
including capital increases) if following any such acquisition the
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Shareholders and Persons acting in concert with the Shareholders would
collectively Beneficially Own more than 10% of the outstanding Voting Shares.
(b) Each Shareholder represents and warrants that neither it nor, to its
knowledge, any of its Affiliates, Beneficially Own any Voting Shares or Voting
Share Equivalents as of the date of this Agreement and agrees that, as of the
Closing, except for Ordinary Shares and Exchangeable Shares issued to it
pursuant to the Arrangement or Ordinary Shares underlying employee stock
options, such Shareholder shall not Beneficially Own any Voting Shares or Voting
Share Equivalents.
Section 4.02. Other Restrictions. Except as expressly set forth in
Article II, each Shareholder covenants and agrees with the Company that such
Shareholder shall not, and it will cause its Affiliates not to, directly or
indirectly, alone or in concert with others, unless specifically requested in
writing by the Chief Executive Officer of the Company or by a resolution of a
majority of the Directors of the Company, take any of the actions set forth
below (or take any action that would require the Company to make an announcement
regarding any of the following):
(a) effect, seek, offer, engage in, propose (whether publicly or
otherwise) or cause or participate in, or assist any other Person to
effect, seek, engage in, offer or propose (whether publicly or otherwise)
or participate in (other than through the making of any Transfer permitted
by the terms of this Agreement):
(i) any acquisition of Beneficial Ownership of Voting Shares which
would result in a breach of Section 4.01 of this Agreement;
(ii) any tender or exchange offer, merger, consolidation, share
exchange, business combination, recapitalization, restructuring,
liquidation, dissolution or other extraordinary transaction involving
the Company or any material portion of its business or any purchase of
all or any substantial part of the assets of the Company or any material
portion of its business; or
(iii) any "solicitation" of "proxies" (as such terms are used in
the proxy rules of the SEC but without regard to the exclusion set forth
in Section 14a-1(1)(2)(iv) from the definition of "solicitation") with
respect to the Company or any of its Affiliates or any action resulting
in any Shareholder, any Affiliates of any Shareholder, or such other
Person becoming a "participant" in any "election contest" (as such terms
are used in the proxy rules of the SEC) with respect to the Company or
any of its Subsidiaries;
(b) propose any matter for submission to a vote of shareholders of the
Company or any of its Affiliates;
(c) seek election to, seek to place a representative (other than the
Family Designees) on, or seek the removal of, any Director, except pursuant
to Section 2.01;
(d) grant any proxy with respect to any Voting Shares (other than to a
Shareholder, its Affiliates or the Chief Executive Officer of the Company);
(e) except as contemplated by this Agreement, execute any written
consent with respect to any Voting Shares;
(f) form, join or participate in a Group with respect to any Voting
Shares or deposit any Voting Shares in a voting trust or subject any Voting
Shares to any arrangement or agreement with respect to the voting of such
Voting Shares or other agreement having similar effect (in each case except
among Shareholders, Permitted Transferees and their respective Affiliates);
(g) take any other action to seek to affect the control of the
management or Board of the Company or any of its Affiliates, including
publicly suggesting or announcing its willingness to engage in or have
another Person engage in a transaction that could reasonably be expected to
result in a business combination or to increase the ownership percentage of
the Shareholders; provided that nothing in this Section 4.02(g) shall
restrict the manner in which (A) a Shareholder, a Permitted Transferee or
any of their respective Affiliates may vote its shares or (B) a Family
Designee, Shareholder or Affiliate thereof, may (i) vote on any matter
submitted to the Board or (ii) participate in deliberations or discussions
of
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the Board or take any other action in his or her capacity as a Director or
officer of the Company (so long as such actions do not otherwise violate
any other provision of Section 4.01 or Section 4.02);
(h) enter into any discussions, negotiations, arrangements or
understandings with any Person with respect to any of the foregoing, or
advise, assist, encourage or seek to persuade others to take any action
with respect to any of the foregoing (in each case except among
Shareholders, Permitted Transferees and their respective Affiliates);
(i) disclose to any Person (other than a Shareholder, Permitted
Transferee or their respective Affiliates), or otherwise induce, encourage,
discuss or facilitate, any intention, plan or arrangement inconsistent with
the foregoing or with the restrictions on transfer set forth in Article III
or form any such intention which would result in the Company or any of its
Affiliates or any Shareholder or any Affiliates of any Shareholder being
required to make any such disclosure in any filing with a Governmental
Entity (as defined in the Merger Agreement) or being required to make a
public announcement with respect thereto; or
(j) request the Company or any of its Affiliates, directors, officers,
employees, representatives, advisors or agents, directly or indirectly, to
amend or waive this Agreement (including this Section 4.02) or the statutes
or by-laws (or similar constituent documents) of the Company or any of its
Affiliates.
ARTICLE V
INCIDENTAL REGISTRATIONS
Section 5.01. Right To Include Registrable Securities. If the Company at
any time after 90 days following the Closing proposes to register Ordinary
Shares under the Securities Act (other than a registration on Form F-4 or F-8,
or any successor or other forms promulgated for similar purposes), for sale for
its own account or the account of any other Person, pursuant to a registration
statement on which it is permissible to register Registrable Securities for sale
to the public under the Securities Act, it will each such time give prompt
written notice to each Holder of its intention to do so. Upon the written
request of any Holder made within 15 days after the receipt of any such notice
(which request shall specify the maximum number of Registrable Securities
intended to be disposed of by such Holder), the Company will use its reasonable
best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the Holders thereof (with the securities that the Company at the time proposes
to register) to permit the sale or other disposition by such Holders (in
accordance with the intended method of distribution thereof) of the Registrable
Securities to be so registered or qualified for sale; provided that (a) if, at
any time after giving written notice of its intention to register or sell any
Ordinary Shares and prior to the effective date of the registration statement or
prospectus filed in connection with such registration or sale by way of
prospectus, the Company shall determine for any reason not to proceed with the
proposed registration of the Ordinary Shares to be sold by it and/or the other
applicable Persons, the Company may, at its election, give written notice of
such determination to each applicable Holder and, thereupon, shall be relieved
of its obligation to register or qualify for sale pursuant to a prospectus any
Registrable Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith), and (b) if
such registration involves an Underwritten Offering, all Holders of Registrable
Securities requesting to be included in the registration or sale by way of
prospectus must sell their Registrable Securities to the underwriters selected
by the Company on the same terms and conditions as apply to the Company, with
such differences, including any with respect to indemnification and liability
insurance, as may be customary or appropriate in combined primary and secondary
offerings. If a registration requested pursuant to this Section 5.01 involves an
Under written Offering, any Holder of Registrable Securities requesting to be
included in such registration or sale by way of prospectus may elect, in writing
prior to the effective date of the registration statement or prospectus filed in
connection with such registration or sale by way of prospectus, not to register
such Registrable Securities in connection with such registration or sell such
Registrable Securities pursuant to such sale by way of prospectus; provided,
however, that such withdrawal shall be irrevocable and, after making such
withdrawal, a Holder shall no longer have any right to include Registrable
Securities in the registration or sale by way of prospectus as to which such
withdrawal was made.
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Section 5.02. Company's Ability To Postpone. The Company shall be
entitled to postpone for a reasonable period of time (but not exceeding a total
of 120 days in any 360-day period) the filing of any registration statement or
suspend the effectiveness of any registration statement otherwise effecting any
registration or permitting any sale by way of prospectus under this Article V,
if, upon a Determination of the Directors, the Company concludes that, a
registration or sale by way of prospectus of Registrable Securities pursuant to
this Article V would materially adversely affect any financing, offering,
acquisition or disposition, corporate reorganization or other material
transaction involving the Company or any of its Affiliates, or would require
premature disclosure thereof. The Company shall promptly give each applicable
Holder notice of such conclusion. If the Company shall so postpone the filing of
a registration statement or prospectus, the Holders of Registrable Securities
requesting registration or sale by way of prospectus thereof pursuant to Section
5.01 shall have the right to withdraw the request for registration or sale by
way of prospectus by giving written notice to the Company within 30 days after
receipt of the notice of postponement (provided that the Company shall remain
responsible for all Registration Expenses incurred in connection therewith).
Section 5.03. Expenses. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Article V (whether or not consummated).
Section 5.04. Priority in Incidental Registrations. If a registration
pursuant to this Article V involves an Underwritten Offering and the managing
underwriter advises the Company that, in its opinion, the number of Registrable
Securities requested to be included in such registration or sale by way of
prospectus exceeds the number which can be sold in such offering, so as to be
likely to have an adverse effect on the successful marketing of such offering
(including the price at which such securities can be sold pursuant thereto),
then the Company will include in such registration (a) first, 100% of the
securities the Company proposes to sell for its own account, (b) second, up to
100% of the securities requested to be registered by any Holder of the Company
pursuant to demand registration rights in any agreement between the Company and
such Person, and (c) third, to the extent of the number of Registrable
Securities (and securities held by other Persons with similar incidental
registration rights) requested to be included in such registration which, in the
opinion of such managing underwriter, can be sold without having the adverse
effect referred to above, the number of Registrable Securities (and such
securities) which the Holders (and such other Persons) have requested to be
included in such registration or sale by way of prospectus, such amount to be
allocated pro rata among all requesting Holders (and such other Persons) on the
basis of the relative number of shares of Registrable Securities then held by
each such Holder (or Voting Shares then held by such other Person) (provided
that any shares thereby allocated to any such Holder (or such other Person) that
exceed such Holder's (or such other Person's) request will be reallocated among
the remaining requesting Holders (and such other Persons) in like manner).
ARTICLE VI
REGISTRATION ON REQUEST
Section 6.01. Request by Holders. At any time, and from time to time,
after 90 days following the Closing, upon the written request of any Holder
requesting that the Company effect the registration under the Securities Act of
all or part of the Registrable Securities and specifying the intended method of
disposition thereof, the Company shall, as promptly as practicable, use its
reasonable best efforts to effect the registration under the Securities Act
(including by means of a shelf registration (which the Company shall not be
required to keep effective for more than 120 days) pursuant to Rule 415 under
the Securities Act (or any successor rule thereto) if so requested and if the
Company is then eligible to effect a shelf registration for such disposition) of
the Registrable Securities which the Company has been so requested to register
so as to permit the disposition (in accordance with the intended method thereof
as aforesaid) of the Registrable Securities so to be registered; provided that
the Company shall not be obligated to file a registration statement relating to
any request for registration under this Section 6.01 within a period of 180 days
after the effective date of any other registration statement or prospectus which
included Ordinary Shares of the Holder making such request or its Affiliates
under this Section 6.01; provided further that the Company shall not be required
to effect more than eight requested registrations pursuant to this Article VI.
The Holder providing such notice shall also notify the
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<PAGE> 658
other Holders, each of which shall be able to request that Voting Shares they
Beneficially Own be included as part of such requested registration; provided
that during the period commencing on the Closing and ending on the first
anniversary of the Closing, the Company shall not be obligated to effect more
than one such requested registration.
Section 6.02. Expenses. The Company will pay all Registration Expenses in
connection with the registrations of Registrable Securities pursuant to this
Article VI (whether or not consummated).
Section 6.03. Effective Registration Statement. A registration requested
pursuant to this Article VI will not be deemed to have been effected unless it
has become effective; provided that if, within 60 days after it has become
effective, the offering of Registrable Securities pursuant to such registration
or prospectus is interfered with by any stop order, injunction or other order or
requirement of the SEC, any provincial securities commission or other
governmental agency or court, such registration or sale by way of prospectus
will be deemed not to have been effected.
Section 6.04. Selection of Underwriters. If a requested registration
pursuant to this Article VI involves an Underwritten Offering, Holders holding a
majority of the shares being registered in such offering shall have the right to
select the investment banker or bankers and managers to administer the offering
and the method of distribution for the offering, subject to the consent of the
Company, which shall not be unreasonably withheld.
Section 6.05. Priority in Requested Registrations. If a requested
registration pursuant to this Article VI involves an Underwritten Offering and
the managing underwriter advises the Company that, in its opinion, the number of
securities requested to be included in such registration or sale by way of
prospectus (including securities of the Company or other Persons which are not
Registrable Securities) exceeds the number which can be sold in such offering,
so as to be likely to have an adverse effect on the successful marketing of such
offering (including the price at which such securities can be sold pursuant
thereto), the Company will include in such registration only the Registrable
Securities requested to be included in such registration. In the event that the
number of Registrable Securities requested to be included in such registration
exceeds the number which, in the opinion of such managing underwriter, can be
sold without having the adverse effect referred to above, the number of such
Registrable Securities to be included in such registration shall be allocated
pro rata among all requesting Holders on the basis of the relative number of
shares of Registrable Securities then held by each such Holder and requested to
be included (provided that any shares thereby allocated to any such Holder that
exceed such Holder's request shall be reallocated among the remaining requesting
Holders in like manner). In the event that the number of Registrable Securities
requested to be included in such registration or sale by way of prospectus is
less than the number which, in the opinion of the managing underwriter, can be
sold without having the adverse effect referred to above, the Company may
include in such registration or sale by way of prospectus the securities the
Company (or any other stockholder) proposes to sell up to the number of
securities that, in the opinion of the underwriter, can be sold without having
the adverse effect referred to above.
Section 6.06. Company's Ability to Postpone. The Company shall be
entitled to postpone for a reasonable period of time (but not exceeding a total
of 120 days in any 360-day period) the filing of any registration statement or
suspend the effectiveness of any registration statement or otherwise effecting
any registration or qualifying Registrable Securities for sale by way of
prospectus under this Article VI, if, upon a Determination of the Directors the
Company concludes that, a registration or sale by way of prospectus of
Registrable Securities pursuant to this Article VI would materially adversely
affect any financing, offering, acquisition or disposition, corporate
reorganization or other material transaction involving the Company or any of its
Affiliates, or would require premature disclosure thereof; provided, however,
that in any event the Company shall not be required to effect any registration
or sale by way of prospectus prior to the termination, waiver or reduction of
any reasonable "blackout period" required by the underwriters to be applicable
to the Holders or the Company, if any, in connection with any offering (any
blackout period described in this proviso not to exceed the shorter of (i) the
shortest blackout period applicable to the Company and/or the other holders of
securities of the Company selling in the offering giving rise to such blackout
period and (ii) 90 days). The Company shall promptly give each applicable Holder
notice of such conclusion. If the
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Company shall so postpone the filing of a registration statement or prospectus
or suspend the effectiveness or use of any registration statement or prospectus,
the Holders of Registrable Securities requesting registration or sale by way of
prospectus thereof pursuant to Section 6.01 shall have the right to withdraw the
request for registration by giving written notice to the Company within 30 days
after receipt of the notice of postponement or suspension and, in the event of
such withdrawal, such request shall not be counted for purposes of the requests
for registration or sale by way of prospectus to which Holders of Registrable
Securities are entitled pursuant to Section 6.01 hereof (provided that the
Company shall remain responsible for all Registration Expenses incurred in
connection therewith).
Section 6.07. Holdback Agreements. Notwithstanding anything in this
Agreement to the contrary, the Company shall not be required to effect any
requested registration or sale by way of prospectus under Section 6.01 within a
period of (i) 7 days prior to or (ii) such number of days as was required by the
underwriters (or determined in the good faith judgment of the Board, in the case
of a previous offering that was not an Underwritten Offering) (in either event
not to exceed 90 days) following the effective date of any other registration
statement or prospectus relating to an Underwritten Offering or any other
offering of Ordinary Shares (a "Recent Offering"), if, in the opinion of the
underwriters of such Recent Offering (or the good faith judgment of the Board,
in the case of a Recent Offering that is not an Underwritten Offering), such
requested registration or sale by way of prospectus could have an adverse effect
on such Recent Offering or the market for the Ordinary Shares.
ARTICLE VII
REGISTRATION PROCEDURES
Section 7.01. Registration Procedures. If and whenever the Company is
required to use its reasonable best efforts to effect or cause the registration
of any Registrable Securities under the Securities Act as provided in this
Agreement, the Company will, as promptly as practicable:
(a) prepare and, in any event within 60 days after the end of the
period within which a request for registration may be given to the Company,
file with the SEC a registration statement with respect to such Registrable
Securities and use its reasonable best efforts to cause such registration
statement to become effective;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a
period not in excess of 120 days (or such shorter period during which the
distribution of securities thereunder continues) and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement (so long
as such intended methods of disposition are commercially reasonable);
provided that before filing a registration statement or prospectus, or any
amendments or supplements thereto, the Company will furnish to one counsel
selected by the applicable Holders of Registrable Securities covered by
such registration statement, copies of all documents proposed to be filed,
which documents will be subject to the reasonable review of such counsel;
(c) furnish to each seller of such Registrable Securities such number
of copies of such registration statement and of each amendment and
supplement thereto (in each case including all exhibits), such number of
copies of the prospectus included in such registration statement (including
each preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as such seller
may reasonably request in order to facilitate the disposition of the
Registrable Securities by such seller;
(d) use its reasonable best efforts to register or qualify such
Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable
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Securities owned by such seller, except that the Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction where, but for the requirements of this
Section 7.01(d), it would not be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(e) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(f) notify each seller of any such Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act within the appropriate
period mentioned in Section 7.01(b), of the Company's becoming aware that
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of any such seller and subject to Section
7.01(b), prepare and furnish to such seller a reasonable number of copies
of an amended or supplemental prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing;
(g) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable (but not more than 18
months) after the effective date of the registration statement, an earnings
statement which shall satisfy the provisions of Section 11(a) of the
Securities Act and the rules and regulations promulgated thereunder;
(h) use its reasonable efforts to list or have admitted for trading,
as applicable, such Registrable Securities on each securities exchange on
which the Ordinary Shares are then listed or traded;
(i) enter into such customary agreements (including an underwriting
agreement in customary form) and take such other actions as sellers of a
majority of shares of such Registrable Securities or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities;
(j) use its reasonable efforts to obtain a "cold comfort" letter or
letter from the Company's independent public accountants in customary form
and covering matters of the type customarily covered by "cold comfort"
letters as the applicable Holders shall reasonably request (provided that
Registrable Securities constitute at least 25% of the securities covered by
such registration statement);
(k) make reasonably available for inspection by representatives of the
sellers of such Registrable Securities covered by such registration
statement, by any underwriter participating in any disposition to be
effected pursuant to such registration statement and by any attorney,
accountant or other agent retained by such sellers or any such underwriter,
all pertinent financial and other records, pertinent corporate documents
and properties of the Company, and cause all of the Company's officers,
directors and employees to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement (subject to each party referred to in this
Section 7.01(k) entering into customary confidentiality agreements in a
form reasonably acceptable to the Company and provided that the Company
shall not be required to disclose any information which it is prohibited by
law or any agreement from disclosing, or which could in its judgment result
in a waiver or loss of any attorney-client privilege to which it may be
entitled); and
(l) use its reasonable efforts (taking into account the interests of
the Company) to make available members of the Company's management to
participate in customary "road show" presentations that may be reasonably
requested by the Holders and the managing underwriter in any Underwritten
Offering;
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provided that the participation of such individuals shall not interfere in
any material respect with the conduct of their duties to the Company.
Section 7.02. Information. The Company may require each seller of
Registrable Securities as to which any registration is being effected to furnish
the Company with such information regarding such seller and pertinent to the
disclosure requirements relating to the registration and the distribution of
such securities as the Company may from time to time reasonably request in
writing.
Section 7.03. Discontinuance of Disposition. Each Holder of Registrable
Securities agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 7.01(f), such Holder
will forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 7.01(f), and, if so directed by the Company, such Holder will deliver to
the Company (at the Company's expense) all copies of the prospectus covering
such Registrable Securities current at the time of receipt of such notice. In
the event the Company shall give any such notice, the period mentioned in
Section 7.01(b) shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section 7.01(f)
and including the date when each seller of Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 7.01(f).
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to Articles V or VI, the Company will, and it hereby does, indemnify and hold
harmless, the seller of any Registrable Securities covered by such registration
statement and each person who participates as an underwriter in any offering or
sale of the Registrable Securities, their directors and officers or general and
limited partners (and the directors and officers and general and limited
partners thereof), and each other Person, if any, who controls such seller or
underwriter within the meaning of the Securities Act (collectively, the
"Indemnified Parties"), against any and all losses, claims, damages or
liabilities, joint or several, and expenses to which such seller, any such
director or officer or general or limited partner or controlling Person may
become subject under the Securities Act, common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Securities Act,
any preliminary, final or summary prospectus contained therein, or any amendment
or supplement thereto, or (b) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of a prospectus or a preliminary
prospectus, in light of the circumstances under which they are made), and the
Company will reimburse each such Indemnified Party for any legal or any other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, liability, action or proceeding; provided that the Company
shall not be liable to any Indemnified Party in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such indemnified
parties for use in the preparation thereof; and provided, further, that the
Company will not be liable to any Indemnified Party (including any person
controlling such Indemnified Party), who is obligated to deliver a prospectus in
transactions in a security as to which a registration statement has been filed
pursuant to the Securities Act, under the indemnity agreement in this Section
8.01, with respect to any preliminary prospectus or the final prospectus or the
final prospectus as amended or supplemented, as the case may be, to the extent
that any such loss, claim, damage or liability of such Indemnified Party arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission contained in any preliminary prospectus
F-20
<PAGE> 662
and such Registrable Securities were sold to a person to whom there was not sent
or given, at or prior to the written confirmation of such sale, a copy of the
final prospectus (excluding any documents incorporated by reference therein) or
of the final prospectus as then amended or supplemented (excluding any documents
incorporated by reference therein), whichever is most recent, if the Company has
previously furnished copies thereof to such Indemnified Party and such
prospectus corrects such untrue statement or omission or alleged untrue
statement or omission. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any
Indemnified Party and shall survive the transfer of such securities by such
seller and the termination of this Agreement.
Section 8.02. Indemnification by the Sellers. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to Article V or VI, each prospective seller of Registrable Securities shall
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 8.01) the Company, all other prospective sellers, and any of
their respective directors, officers or general or limited partners, and other
Persons, if any, who control the Company or such sellers, as the case may be,
within the meaning of the Securities Act, with respect to any statement or
alleged statement in or omission or alleged omission from such registration
statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement, if such statement or alleged statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such seller for use in
the preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated by reference
into any of the foregoing; provided, however, that in no event shall the
liability of any seller hereunder be greater than the dollar amount of the
proceeds received by such seller upon its sale of the Registrable Securities
giving rise to such indemnification obligation. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Company or any of the prospective sellers, or any of their respective
Affiliates, directors, officers or controlling Persons and shall survive the
transfer of such securities by such seller and the termination of this
Agreement.
Section 8.03. Notices of Claims, Etc. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Article VIII, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action; provided that the failure of
the indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under Sections 8.01 or 8.02, as the case
may be, except to the extent that the indemnifying party is actually prejudiced
by such failure to give notice. In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party for
any legal or other expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of investigation, unless in
such indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim (in
which event such indemnified party and any other indemnified party to which such
conflict of interest applies shall be reimbursed for the reasonable expenses
incurred in connection with retaining one separate legal counsel for all such
indemnified parties in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances). No indemnifying party will,
without the prior written consent of the indemnified party (which consent shall
not be unreasonably withheld), consent to entry of any judgment or enter into
any settlement in respect of any such indemnifiable claim, unless any such
judgment or settlement includes as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. No indemnified party will,
without the prior written consent of the indemnifying party (which consent shall
not be unreasonably withheld), consent to entry of any judgment or enter into
any settlement in respect of any such indemnifiable claim which the indemnifying
party is defending in good faith.
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<PAGE> 663
Section 8.04. Contribution. (a) If for any reason the indemnity provided
for in this Article VIII is unavailable or is insufficient to hold harmless an
indemnified party under this Article VIII, then the indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and of the indemnified party in connection with the
actions, statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations;
provided, however, that in no event shall the liability of any seller hereunder
be greater than the dollar amount of the proceeds received by such seller upon
its sale of the Registrable Securities giving rise to such indemnification
obligation. The relative fault of the indemnifying party, on the one hand, and
of the indemnified party, on the other, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by such party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(b) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8.04 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Section 8.05. Other Indemnification. Indemnification similar to that
specified in Sections 8.01 and 8.02 (with appropriate modifications) shall be
given by the Company and each seller of Registrable Securities with respect to
any required registration or other qualification of securities under any
federal, state or provincial law or regulation or governmental authority other
than the Securities Act.
Section 8.06. Nonexclusivity. The obligations of the parties under this
Article VIII shall be in addition to any liability which any party may otherwise
have to any other party.
ARTICLE IX
TERM AND TERMINATION
Section 9.01. Term. (a) This Agreement shall become effective upon the
Closing and prior thereto shall be of no force or effect. If the Merger
Agreement shall be terminated in accordance with its terms, this Agreement shall
automatically be deemed to have been terminated and shall thereafter be of no
force or effect.
(b) Subject to paragraph (a) above or paragraph (c) and (d) below, the
rights and obligations of the Shareholders and the Permitted Transferees of the
Shareholders hereunder shall terminate upon the earlier of (i) the 30th
anniversary of the Closing and (ii) the date on which the Shareholders are no
longer entitled to designate any Family Designees to the Board pursuant to
Section 2.01(b); provided that Articles III and IV of this Agreement shall
automatically become effective and reinstated if, within 12 months following the
date of termination pursuant to clause (ii) above, the Shareholders and
Permitted Transferees Beneficially Own a number of Voting Shares that would have
entitled the Shareholders to designate at least one Designee to the Board
pursuant to Section 2.01(b) as a result of the acquisition of Voting Shares by
any Shareholder or any Permitted Transferee (and shall continue only for so long
as such level of ownership continues).
(c) In addition, the rights and obligations of the Shareholders and their
Permitted Transferees under Section 2.03 and Article III and Article IV of this
Agreement shall terminate immediately (x) at the time any Person or Group
becomes the Beneficial Owner of more than 33% of the Voting Shares or (y) in the
event that the Company breaches in any material respect the terms of this
Agreement, which such breach is not cured within 10 days after notice of such
breach by any Shareholder.
F-22
<PAGE> 664
(d) Notwithstanding anything else to the contrary, the provisions contained
in Articles V, VI and VII shall continue so long as there are, and shall
terminate when there are no longer, any Registrable Securities. In addition, the
rights and obligations of the Company under Section 2.01, 2.02 and 2.03 and
Article V, VI and VII of this Agreement shall terminate as to any Shareholder in
the event that such Shareholder breaches in any material respect the terms of
this Agreement, which such breach is not cured within 10 days after notice of
such breach by the Company.
(e) The provisions of Article VIII shall remain operative and in full force
and effect regardless of any termination or expiration of this Agreement.
(f) Notwithstanding anything to the contrary contained herein, in no
circumstances shall Section 10.12 terminate until the earlier of (i) the day
after the close of the fifth full taxable year of each Person who entered into a
gain recognition agreement described in Section 10.12 following the close of the
taxable year of the Closing and (ii) the date on which no gain recognition
agreements specified in Section 10.12 are in effect.
ARTICLE X
GENERAL PROVISIONS
Section 10.01. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed duly given and received (a) on the date
of delivery if delivered personally, or by facsimile upon confirmation of
transmission by the sender's fax machine if sent on a Business Day (or otherwise
on the next Business Day) or (b) on the first Business Day following the date of
dispatch if delivered by a recognized next-day courier service. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(i) if to Vivendi or Sofiee (prior to the Closing) and the Company
(after the Closing), to:
42, avenue de Friedland
75380 Paris Cedex 08
France
Fax: 33-1-7171-1414
Attention: Guillaume Hannezo
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Fax: (212) 474-3700
Attention: Faiza J. Saeed
Bredin Prat
130 rue du Faubourg
Saint-Honore
75008 Paris
Fax: 33-1-4359-7001
Attention: Elena Baxter
F-23
<PAGE> 665
(ii) if to any Shareholder, to the address of such Shareholder
specified on the signature page hereto
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Fax: (212) 455-2502
Attention: John G. Finley
Brian M. Stadler
Goodman Phillips & Vineberg
1501 McGill College Avenue
26th Floor
Montreal, Quebec
H3A 3N9
Fax: (514) 941-6499
Attention: Michael Vineberg
Section 10.02. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
both parties need not sign the same counterpart.
Section 10.03. Entire Agreement; No Third Party Beneficiaries. (a) This
Agreement constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof, other than the Voting Agreement.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
(c) The provisions of this Agreement shall be binding upon and inure to the
benefit of the Company upon completion of the Vivendi Merger as the surviving
entity of the Vivendi Merger without any action on the part of any party.
Section 10.04. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without giving
effect to applicable principles of conflict of laws, except to the extent the
substantive laws of France are mandatorily applicable under French law.
Section 10.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
Section 10.06. Assignment; Amendments. (a) Except as provided in Section
3.02(d), Section 3.03 and Section 10.06(b) and (c), neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto, in whole or in part (whether by operation of law or
otherwise), without the prior written consent of the other parties, and any
attempt to make any such assignment without such consent shall be null and void.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by, the parties and their respective
successors and assigns. If the Company assigns its rights to purchase under
Section 3.02(d), the Company shall guarantee the purchase obligations of its
assignee.
F-24
<PAGE> 666
(b) If a Shareholder or a Permitted Transferee transfers Voting Shares to a
Significant Transferee and in connection therewith specifically assigns, in
whole or in part, to such Significant Transferee registration rights under this
Agreement (and such Significant Transferee agrees to be bound to the applicable
registration rights provisions of this Agreement), such Significant Transferee
shall thereafter have the rights and obligations of a "Holder" under this
Agreement with respect to such Voting Shares (and the Shareholders and their
Permitted Transferees shall be entitled to assign such rights hereunder without
the consent of any other party hereto); provided, however, that no assignment of
any rights under Article VI may be made to any Significant Transferee unless
such Significant Transferee Beneficially Owns, after giving effect to such
Transfer, at least 3% of the outstanding Voting Shares.
(c) No amendment to this Agreement shall be effective unless it shall be in
writing and (i) prior to the Closing, signed by Vivendi, Sofiee and each of the
Shareholders and (ii) after the Closing, signed by the Company and Shareholders
holding a majority of the Voting Shares held by the Shareholders at such time,
except no such amendment shall affect a Shareholder disproportionately when
compared to other Shareholders without the consent of such Shareholder.
Section 10.07. Enforcement. (a) Each of the Company and each Shareholder
acknowledges that the other party would not have an adequate remedy at law for
money damages in the event that any of the covenants or agreements of the other
party in this Agreement were not performed in accordance with its terms, and it
is therefore agreed that each of the Company and each Shareholder, in addition
to and without limiting any other remedy or right it may have, will have the
right to an injunction or other equitable relief in any court of competent
jurisdiction, enjoining any such breach and enforcing specifically the terms and
provisions hereof, and each of the Company and each Shareholder hereby waives
any and all defenses they may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable relief.
(b) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
Section 10.08. Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
Section 10.09. Submission to Jurisdiction; Waivers. The Company and each
of the Shareholders irrevocably consents to the exclusive jurisdiction and venue
in the United States District Court for the Southern District of New York and in
the courts hearing appeals therefrom unless no federal subject matter
jurisdiction exists, in which event, the Company and each of the Shareholders
irrevocably consents to the exclusive jurisdiction and venue in the Supreme
Court of the State of New York, New York County, and in the courts hearing
appeals therefrom, for the resolution of any dispute, action, suit or proceeding
arising out of or relating to this Agreement. The Company and each of the
Shareholders hereby irrevocably waives, and agrees not to assert, by way of
motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, the defense of sovereign immunity, any claim
that it is not personally subject to the jurisdiction of the above-named courts
for any reason other than the failure to serve process in accordance with this
Section, that it or its property is exempt or immune from the jurisdiction of
any such court or from any legal process commenced in such courts (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise), and to the fullest
extent permitted by applicable law, that the suit, action or proceeding in any
such court is brought in an inconvenient forum, that the venue of such suit,
action or proceeding is improper, or that this Agreement, or the subject matter
hereof or thereof, may not be enforced in or by such courts and further
irrevocably waives, to the fullest extent permitted by applicable law, the
benefit of any defense that would hinder, fetter or delay the levy, execution or
collection of any amount to which the party is entitled pursuant to the final
judgment of any court having jurisdiction. The Company and each of the
Shareholders hereby respectively appoints Cravath, Swaine & Moore and Simpson
Thacher & Bartlett at their respective offices in New York, New York (each a
"Process Agent"), as the designees, appointees and agents of the Company and
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<PAGE> 667
the Shareholders, respectively, to receive, for and on such parties' behalf,
service of process in such jurisdiction in any legal action or proceeding with
respect to this Agreement and such service shall be deemed complete upon
delivery thereof to the applicable Process Agent; provided, that in the case of
any such service upon a Process Agent, the party effecting such service shall
also deliver a copy thereof to the party who designated such Process Agent in
the manner provided in Section 10.01. Each party shall take all such action as
may be necessary to continue said appointment in full force and effect or to
appoint another agent so that it will at all times have an agent for service of
process for the above purposes in New York, New York. The Company and each of
the Shareholders further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered airmail, postage prepaid, to such party at its
address set forth in this Agreement, such service of process to be effective
upon acknowledgment of receipt of such registered mail. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law. The Company and each of the Shareholders expressly acknowledges that the
foregoing waiver is intended to be irrevocable under the laws of the State of
New York and of the United States of America; provided, that each such party's
consent to jurisdiction and service contained in this Section is solely for the
purpose referred to in this Section and shall not be deemed to be a general
submission to said courts or in the State of New York other than for such
purpose.
Section 10.10. Form of Securities. (a) All Voting Shares held by the
Shareholders that are not certificated shall be held in the form of nominatif
pur in accordance with French law. Upon request, the Company will provide any
Shareholder with certificated Voting Shares, in lieu of a corresponding number
of Voting Shares held in the form of nominatif pur, to the extent such
Shareholder makes such a request in connection with a Transfer permitted by
Section 3.01(e).
(b)(i) In the case of Voting Shares that are certificated, upon original
issuance thereof, and until such time as the same is no longer required
hereunder or under the applicable requirements of the Securities Act or
applicable state securities or "blue sky" laws, any certificate issued
representing any Voting Shares held by each Shareholder or any Permitted
Transferee (including all certificates issued in exchange thereof or in
substitution therefor) shall bear the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO VOTING
AGREEMENTS AND RESTRICTIONS ON TRANSFER SET FORTH IN A CERTAIN SHAREHOLDER
GOVERNANCE AGREEMENT DATED AS OF JUNE 19, 2000 RELATING TO THE COMPANY
ISSUING THE SHARES REPRESENTED BY THIS CERTIFICATE, (THE "COMPANY"), COPIES
OF WHICH AGREEMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THESE SHARES MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR IN A TRANSACTION EXEMPT FROM, OR NOT SUBJECT TO, THE SECURITIES ACT."
(ii) The certificates representing the Voting Shares held by each
Shareholder or any Permitted Transferee (including any certificate issued in
exchange thereof or in substitution therefor) shall also bear any legend
required under any applicable state securities or "blue sky" laws.
(iii) The Company may make a notation on its records or give instructions
to any transfer agents or registrars for the Voting Shares in order to implement
the restrictions on Transfer set forth in Article III.
(iv) In connection with any Transfer of Voting Shares, the transferor shall
provide the Company with such customary certificates, opinions and other
documents as the Company may reasonably request to assure that such Transfer
complies fully with applicable securities and other laws.
(v) The Company shall not incur any liability for any delay in recognizing
any Transfer of Voting Shares if the Company in good faith reasonably believes
that such Transfer may have been or would be in violation in
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<PAGE> 668
any material respect of the provisions of the Securities Act, applicable state
securities or "blue sky" laws, or this Agreement.
(vi) After such time as the legend described in this Section 10.10(b) is no
longer required on any certificate or certificates representing the Voting
Shares held by any Shareholder, upon the request of such Shareholder, the
Company will cause such certificate or certificates to be exchanged for a
certificate or certificates that do not bear such legend.
Section 10.11. Actions of Shareholders. Each Shareholder agrees and
acknowledges, with respect to the arrangements contemplated by this Agreement
and matters related to the Company upon which the Shareholders are entitled to
vote, such Shareholder is acting in concert with the other Shareholders.
Section 10.12. Prohibited Transfers. If any Person enters into a gain
recognition agreement pursuant to Treasury Regulation Section 1.367(a)-3(b) with
respect to the Seagram shares transferred pursuant to the Merger Agreement and
the Arrangement, neither Vivendi, Sofiee or any Affiliate or subsidiary thereof
nor any transferee thereof (any of the foregoing, a "Vivendi Party") shall make,
directly or indirectly, during the period ending on the earlier of (i) the day
after the close of the fifth full taxable year of such Person following the
close of the taxable year of the Closing and (ii) the date on which such gain
recognition agreement is terminated any "disposition" (or any "deemed
disposition"), within the meaning of Treasury Regulation Section 1.367(a)-8 (the
"Regulations"), in whole or in part of any of the stock or assets of Seagram
that would cause such Person to recognize gain, in whole or in part, under the
gain recognition agreement. Notwithstanding the foregoing, this Section 10.12
shall not apply to any disposition or deemed disposition that is attributable,
in whole or in part, to actions taken, or actions failed to be taken (including,
without limitation, ceasing to be a U.S. citizen or resident, or failing to
notify the Internal Revenue Service of a transaction, or failing to enter into a
new gain recognition agreement), by such Person (or by an Affiliate, or party
related to, such Person); provided, however, that where such disposition or
deemed disposition also involves an action taken by a Vivendi Party (such as an
actual transfer of the Seagram shares), the Vivendi Party shall timely notify
such Person of such action. During the term of any gain recognition agreement
described in this Section 10.12, the Vivendi Parties will timely provide the
information necessary to allow such Person to file the Annual Certification
required by Treasury Regulation Section 1.367(a)-8(b)(5).
IN WITNESS WHEREOF, Vivendi, Sofiee and each Shareholder have duly executed
this Shareholder Governance Agreement as of the date first written above.
VIVENDI S.A.
By: /s/ JEAN-MARIE MESSIER
------------------------------------
Name: Jean-Marie Messier
Title: Chairman & Chief Executive
Officer
SOFIEE S.A.
By: /s/ JEAN-MARIE MESSIER
------------------------------------
Name: Jean-Marie Messier
Title: Authorized Signing Officer
F-27
<PAGE> 669
BRONFMAN ASSOCIATES
By: /s/ EDGAR M. BRONFMAN
------------------------------------
Name: Edgar M. Bronfman
Title: Managing Partner
C. BRONFMAN FAMILY TRUST
By: /s/ BRUCE I. JUDELSON
------------------------------------
Name: Bruce I. Judelson
Title: Trustee
PBBT/EDGAR MILES BRONFMAN
FAMILY TRUST
By: /s/ EDGAR M. BRONFMAN
------------------------------------
Name: Edgar M. Bronfman
Title: Trustee
By: /s/ JOHN S. WEINBERG
------------------------------------
Name: John S. Weinberg
Title: Trustee
By: /s/ MATHEW BRONFMAN
------------------------------------
Name: Mathew Bronfman
Title: Trustee
By: /s/ MILDRED KALIK
------------------------------------
Name: Mildred Kalik
Title: Trustee
F-28
<PAGE> 670
CHARLES ROSNER BRONFMAN FAMILY TRUST
By: /s/ STEPHEN R. BRONFMAN
------------------------------------
Name: Stephen R. Bronfman
Title: Trustee
THE CHARLES BRONFMAN TRUST II
By: /s/ JEFFREY SCHEINE
------------------------------------
Name: Jeffrey Scheine
Title: Trustee
THE CLARIDGE FOUNDATION
By: /s/ CHARLES R. BRONFMAN
------------------------------------
Name: Charles R. Bronfman
Title: Member and Director
CRB ASSOCIATES,
LIMITED PARTNERSHIP
By: /s/ JEFFREY SCHEINE
------------------------------------
Name: Jeffrey Scheine
Title: Manager of Claridge
Israel, LLC, A General
Partner
F-29
<PAGE> 671
CHARLES R. BRONFMAN
DISCRETIONARY TRUST
By: /s/ BRUCE I. JUDELSON
------------------------------------
Name: Bruce I. Judelson
Title: Trustee
By: /s/ EDGAR M. BRONFMAN
------------------------------------
EDGAR M. BRONFMAN
By: /s/ CHARLES R. BRONFMAN
------------------------------------
CHARLES R. BRONFMAN
By: /s/ SAMUEL BRONFMAN II
------------------------------------
SAMUEL BRONFMAN II
By: /s/ EDGAR BRONFMAN, JR.
------------------------------------
EDGAR BRONFMAN, JR.
By: /s/ MATTHEW BRONFMAN
------------------------------------
MATTHEW BRONFMAN
By: /s/ ELLEN BRONFMAN HAUPTMAN
------------------------------------
ELLEN BRONFMAN HAUPTMAN
F-30
<PAGE> 672
ADDRESSES FOR SIGNATORIES
For: Bronfman Associates, PBBT/Edgar Miles Bronfman, Edgar M. Bronfman, Samuel
Bronfman II, Edgar Bronfman, Jr. and Matthew Bronfman
c/o Edgar Bronfman, Jr.
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Fax: (212)572-7825
For: C. Bronfman Family Trust, Charles Rosner Bronfman Family Trust, The
Charles Bronfman Trust II, The Claridge Foundation, CRB Associates,
Limited Partnership, Charles R. Bronfman Discretionary Trust, Charles R.
Bronfman and Ellen Bronfman Hauptman
c/o Samuel Minzberg
President and Chief Executive Officer
Claridge Inc.
1170 Peel Street
8th floor
Montreal, Quebec
Canada H3B 4P2
Fax: (514)878-5296
F-31
<PAGE> 673
ANNEX G
ARRANGEMENT RESOLUTION
SPECIAL RESOLUTION OF THE SEAGRAM COMPANY LTD. SHAREHOLDERS
BE IT RESOLVED THAT:
1. The arrangement (the "Arrangement") under Section 192 of the Canada
Business Corporations Act (the "CBCA") involving The Seagram Company Ltd.
("Seagram"), as more particularly described and set forth in the Joint
Proxy Statement -- Prospectus (the "Circular") of Seagram accompanying the
notice of this meeting (as the Arrangement may be or may have been modified
or amended) is hereby authorized, approved and adopted.
2. The plan of arrangement (the "Plan of Arrangement") involving
Seagram, the full text of which is set out as Annex B to the Circular (as
the Plan of Arrangement may be or may have been modified or amended) is
hereby authorized, approved and adopted.
3. The merger agreement (including the schedules thereto) dated as of
June 19, 2000 (the "Merger Agreement") among Vivendi, Canal Plus S.A.,
Sofiee S.A., 3744531 Canada Inc. and Seagram and the transactions
contemplated thereby, the actions of the board of directors of Seagram in
approving the Merger Agreement and the transactions contemplated thereby,
and the actions of the officers of Seagram in executing and delivering the
Merger Agreement, are hereby confirmed, ratified and approved.
4. Notwithstanding that this resolution has been passed (and the
Arrangement adopted) by the shareholders of Seagram or that the Arrangement
has been approved by the Superior Court of Justice (Ontario), the directors
of Seagram are hereby authorized and empowered without further notice to or
approval of the shareholders of Seagram (i) to amend the Merger Agreement
or the Plan of Arrangement to the extent permitted by the Merger Agreement,
and (ii) subject to the terms of the Merger Agreement, not to proceed with
the Arrangement.
5. Any officer or director of Seagram is hereby authorized and
directed for and on behalf of Seagram to execute, under the seal of Seagram
or otherwise, and to deliver articles of arrangement and such other
documents as are necessary or desirable to the Director under the CBCA in
accordance with the Merger Agreement for filing.
6. Any officer or director of Seagram is hereby authorized and
directed for and on behalf of Seagram to execute or cause to be executed,
under the seal of Seagram or otherwise, and to deliver or cause to be
delivered, all such other documents and instruments and to perform or cause
to be performed all such other acts and things as may be necessary or
desirable to give full effect to the foregoing resolution and the matters
authorized hereby.
G-1
<PAGE> 674
ANNEX H
Commercial List Court File No. 00-CL-3898
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
IN THE MATTER OF THE CANADA BUSINESS CORPORATIONS ACT, R.S.C.
1985, CHAP. C-44, SECTIONS 192 AND 204, AS AMENDED
AND IN THE MATTER OF AN APPLICATION BY THE SEAGRAM COMPANY
LTD. RELATING TO A PROPOSED ARRANGEMENT
INVOLVING THE SEAGRAM COMPANY LTD. AND ITS SECURITY HOLDERS
AND IN THE MATTER OF AN APPLICATION BY THE SEAGRAM COMPANY
LTD. RELATING TO A PROPOSED OFFER BY THE
SEAGRAM COMPANY LTD. TO ITS SHAREHOLDERS TO PARTICIPATE
IN A HOLDING COMPANY REORGANIZATION
NOTICE OF APPLICATION
THE RESPONDENTS:
A LEGAL PROCEEDING HAS BEEN COMMENCED by the applicant. The claim made by
the applicant appears on the following page.
THIS APPLICATION will come on for a hearing before a Judge presiding over
the Commercial List on December 6, 2000, at 10:00 A.M., or as soon after that
time as the Application may be heard at 393 University Avenue, Toronto, Ontario.
IF YOU WISH TO OPPOSE THIS APPLICATION, to receive notice of any step in
the application or to be served with any documents in the application you or an
Ontario lawyer acting for you must forthwith prepare a notice of appearance in
Form 38A prescribed by the Rules of Civil Procedure, serve it on the applicant's
lawyer or, where the applicant does not have a lawyer, serve it on the
applicant, and file it, with proof of service, in this court office, and you or
your lawyer must appear at the hearing.
IF YOU WISH TO PRESENT AFFIDAVIT OR OTHER DOCUMENTARY EVIDENCE TO THE COURT
OR TO EXAMINE OR CROSS-EXAMINE WITNESSES ON THE APPLICATION, you or your lawyer
must, in addition to serving your notice of appearance, serve a copy of the
evidence on the applicant's lawyer or, where the applicant does not have a
lawyer, serve it on the applicant, and file it, with proof of service, in the
court office where the application is to be heard as soon as possible, but not
later than 2 p.m. on the day before the hearing.
IF YOU FAIL TO APPEAR AT THE HEARING, JUDGMENT MAY BE GIVEN IN YOUR ABSENCE
AND WITHOUT FURTHER NOTICE TO YOU. IF YOU WISH TO OPPOSE THIS APPLICATION BUT
ARE UNABLE TO PAY LEGAL FEES, LEGAL AID MAY BE AVAILABLE TO YOU BY CONTACTING A
LOCAL LEGAL AID OFFICE.
Date: October 24, 2000
Address of Court Office:
393 University Avenue
Toronto, ON M5G 1E6
H-1
<PAGE> 675
<TABLE>
<S> <C>
TO: ALL HOLDERS OF COMMON SHARES OF THE SEAGRAM COMPANY LTD.
AND TO: ALL HOLDERS OF OPTIONS TO PURCHASE COMMON SHARES OF THE
SEAGRAM COMPANY LTD. UNDER THE SEAGRAM STOCK PLAN.
AND TO: ALL HOLDERS OF STOCK APPRECIATION RIGHTS RELATING TO COMMON
SHARES OF THE SEAGRAM COMPANY LTD.
AND TO: THE DIRECTOR APPOINTED PURSUANT TO SECTION 260 OF THE CANADA
BUSINESS CORPORATIONS ACT
Richard Shaw
Director General
Corporations Directorate, Industry Canada
9th Floor, Jean Edmonds Tower South
365 Laurier Avenue West
Ottawa, ON K1A 0C8
Attention: Jean Turner
AND TO: BLAKE, CASSELS & GRAYDON LLP
Commerce Court West
Suite 2800, Box 25
199 Bay Street
Toronto, ON M5L 1A9
Jeffrey W. Galway
Tel: (416) 863-3859
Fax: (416) 863-2653
Solicitors for Vivendi, Vivendi Universal Exchangeco Inc.,
Vivendi Universal Holdings Company and Sofiee S.A.
</TABLE>
H-2
<PAGE> 676
APPLICATION
1. The applicant The Seagram Company Ltd. ("Seagram") makes application
for:
(a) an interim Order for advice and directions pursuant to Section 192
of the Canada Business Corporations Act, R.S.C. 1985, Chap. C-44, as
amended ("CBCA");
(b) a final Order approving a plan of arrangement (the "Plan of
Arrangement") involving Seagram and certain security holders as proposed by
Seagram substantially in the form described in a joint proxy
statement-prospectus of Seagram, Vivendi and Canal Plus S.A. ("Canal
Plus"), to be dated on or about November 1, 2000 (the "Joint Circular"),
and mailed to the holders of common shares of Seagram, the holders of
options to purchase common shares of Seagram under the Seagram Stock Plans
(as defined in the Plan of Arrangement), and the holders of stock
appreciation rights under the Seagram Stock Plans relating to common shares
of Seagram, pursuant to Section 192 of the CBCA;
(c) an Order directing and declaring that an offer proposed by Seagram
to holders of common shares of Seagram to participate in a holding company
reorganization (the "Offer") as set out in the Joint Circular is an exempt
offer and is not a take-over bid under Section 194 of the CBCA, pursuant to
Section 204 of the CBCA; and
(d) such further and other relief as counsel may advise and the court
may consider appropriate.
2. The grounds for the application are:
(a) Sections 192, 194 and 204 of the CBCA;
(b) Part XVII of the CBCA and Part VIII of the Canada Business
Corporations Regulations;
(c) all statutory requirements under the CBCA have been fulfilled;
(d) the Plan of Arrangement is fair and reasonable;
(e) an exemption of the Offer would not unfairly prejudice a holder of
shares of Seagram;
(f) Rules 14.05(2), 17.02 and 38 of the Rules of Civil Procedure; and
(g) such further and other grounds as counsel may advise and this
Honourable Court may permit.
3. The following documentary evidence will be used at the hearing of the
application:
(a) such interim Order as may be granted by this Honourable Court;
(b) the Affidavit of Daniel R. Paladino to be sworn, and the exhibits
thereto;
(c) the further affidavits of deponents on behalf of the Applicant,
reporting as to the compliance with any interim Order of this Honourable
Court and as to the result of any meetings ordered by any interim Order of
this Honourable Court; and
(d) such further and other material as counsel may advise and this
Honourable Court may permit.
4. The Notice of Application will be sent to all registered holders of
common shares of Seagram, all holders of options to purchase common shares of
Seagram under the Seagram Stock Plans and all holders of stock appreciation
rights of Seagram under the Seagram Stock Plans relating to common shares of
Seagram at their addresses as they appear on the books and records of Seagram at
the close of business on the record date established by Seagram, or as this
Honourable Court may direct in the interim Order, and pursuant to Rules 17.02(n)
and 17.02(o) of the Rules of Civil Procedure, in the case of those holders whose
addresses, as they appear on the books and records of Seagram, are outside
Ontario.
H-3
<PAGE> 677
<TABLE>
<S> <C>
Date of Issue: October 24, 2000 OSLER, HOSKIN & HARCOURT LLP
P.O. Box 50
1 First Canadian Place
Toronto, ON M5X 1B8
Larry Lowenstein (LSUC 23120C)
Tel: (416) 862-6454
Laura K. Fric (LSUC 36545Q)
Tel: (416) 862-5899
Fax: (416) 862-6666
Solicitors for the Applicant,
The Seagram Company Ltd.
</TABLE>
H-4
<PAGE> 678
ANNEX I
Commercial List Court File No. 00-CL-3898
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
<TABLE>
<S> <C> <C> <C>
THE HONOURABLE MR. ) MONDAY, THE 30TH DAY
)
JUSTICE CAMERON ) OF OCTOBER, 2000
)
</TABLE>
IN THE MATTER OF THE CANADA BUSINESS CORPORATIONS ACT, R.S.C.
1985, CHAP. C-44, SECTIONS 192 AND 204, AS AMENDED
AND IN THE MATTER OF AN APPLICATION BY THE SEAGRAM COMPANY LTD.
RELATING TO A PROPOSED ARRANGEMENT INVOLVING THE SEAGRAM COMPANY
LTD. AND ITS SECURITY HOLDERS
AND IN THE MATTER OF AN APPLICATION BY THE SEAGRAM COMPANY LTD.
RELATING TO A PROPOSED OFFER BY THE SEAGRAM COMPANY LTD. TO ITS
SHAREHOLDERS TO PARTICIPATE IN A HOLDING COMPANY REORGANIZATION
INTERIM ORDER
THIS MOTION, made by the Applicant The Seagram Company Ltd. ("Seagram") for
an interim Order for advice and directions of the Court in connection with an
application (the "Application") to approve an arrangement under Section 192 of
the Canada Business Corporations Act, R.S.C. 1985, Chap. C-44, as amended (the
"CBCA"), and other related relief, was heard this day at 393 University Avenue,
Toronto, Ontario.
ON READING the Notice of Application, the Notice of Motion, the Affidavit
of Daniel R. Paladino, sworn October 25 , 2000 (the "Affidavit") and the
exhibits thereto, and on hearing the submissions of counsel for Seagram, counsel
for Vivendi, Vivendi Universal Exchangeco Inc., Vivendi Universal Holdings
Company and Sofiee S.A. ("Sofiee"), no one appearing for the Director appointed
pursuant to Section 260 of the CBCA (the "Director") although served with notice
of this motion,
1. THIS COURT ORDERS that for the purposes of this interim Order ("Interim
Order"), the following defined terms shall have the following meanings, which
meanings are set out with greater specificity in the draft Joint Proxy
Statement-Prospectus of Seagram, Vivendi and Canal Plus (the "Joint Circular")
attached as Exhibit "A" to the Affidavit:
(a) "Merger Agreement" means the merger agreement dated as of June 19,
2000, among Vivendi, Sofiee, Canal Plus, Vivendi Universal Exchangeco Inc.
and Seagram, as amended, supplemented or restated;
(b) "Seagram Common Shares" means the outstanding common shares in the
capital of Seagram; and
(c) "Seagram Stock Plans" means the Seagram 1983 Stock Appreciation
Right and Stock Unit Plan, the Seagram Stock Plan for Non-Employee
Directors, the Seagram 1988 Stock Option Plan, the Seagram 1992 Stock
Incentive Plan and the Seagram 1996 Stock Incentive Plan, in each case as
amended to the date of the Merger Agreement.
2. THIS COURT ORDERS that for the purposes of this Interim Order, the term
"Seagram Security Holders" shall mean, collectively, the holders of Seagram
Common Shares, the holders of options to purchase
I-1
<PAGE> 679
Seagram Common Shares under the Seagram Stock Plans and the holders of stock
appreciation rights under the Seagram Stock Plans relating to Seagram Common
Shares.
3. THE COURT ORDERS that for the purposes of this Interim Order, the term
"Offer" shall mean the offer proposed by Seagram to holders of Seagram Common
Shares to participate in a holding company reorganization involving Seagram, as
set out with greater specificity in the Affidavit and the draft Joint Circular
attached as Exhibit "A" to the Affidavit.
4. THIS COURT ORDERS that Seagram is authorized and directed to call, hold
and conduct a special meeting (the "Seagram Meeting") of the holders of Seagram
Common Shares to, among other things, consider and, if deemed advisable, to
pass, with or without variation, a special resolution (the "Arrangement
Resolution") to approve an arrangement (the "Arrangement") substantially in the
same form as the Plan of Arrangement found at Annex "B" of the Joint Circular
(the "Plan of Arrangement"), attached as Exhibit "A" to the Affidavit.
5. THIS COURT ORDERS that the Seagram Meeting shall be called, held and
conducted in accordance with the notice of the Seagram Meeting (the "Notice")
forming part of the Joint Circular, the CBCA and the articles and by-laws of
Seagram, including quorum requirements, subject to the terms of this Interim
Order or any further Order of this Honourable Court.
6. THIS COURT ORDERS that Seagram is authorized to make such amendments,
revisions or supplements to the Plan of Arrangement as it may determine, subject
to the terms of the Merger Agreement and without any additional notice to the
Seagram Security Holders, and the Plan of Arrangement as so amended, revised or
supplemented shall be the Plan of Arrangement submitted to the Seagram Meeting
and the subject of the Arrangement Resolution.
7. THIS COURT ORDERS that Seagram, if it deems advisable, is specifically
authorized to adjourn or postpone the Seagram Meeting on one or more occasions,
without the necessity of first convening the Seagram Meeting or first obtaining
any vote of the holders of Seagram Common Shares respecting the adjournment or
postponement, subject to the terms of the Merger Agreement.
8. THIS COURT ORDERS that the Notice of Application, the Notice of Meeting,
the Joint Circular, the Form of Proxy and the Letter of Transmittal and Election
Form (collectively referred to as the "Meeting Materials") in substantially the
same form as contained in Exhibits "A", "H" and "G" to the Affidavit (with such
amendments, additional communications or documents thereto as counsel for
Seagram or counsel for Vivendi, Vivendi Universal Exchangeco Inc., Vivendi
Universal Holdings Company and Sofiee may advise are necessary or desirable,
provided that such amendments, communications or documents are not inconsistent
with the terms of this Interim Order) and this Interim Order shall be
disseminated, distributed, sent and given to the Seagram Security Holders, the
directors of Seagram, the auditors of Seagram, Vivendi, Sofiee, and the
Director, by one or more of the following methods not later than twenty-one (21)
days prior to the date of the Seagram Meeting, excluding the date of delivery
and the date of the Seagram Meeting:
(a) in the case of the registered holders of Seagram Common Shares, by
prepaid ordinary mail, by expedited parcel post, by courier or by delivery
in person, addressed to each such holder at his, her or its address, as
shown on the books or records of Seagram;
(b) in the case of non-registered holders of Seagram Common Shares, by
providing multiple copies of the Meeting Materials to intermediaries and
registered nominees, by prepaid ordinary mail, expedited parcel post or
otherwise, to facilitate the broad distribution of the Meeting Materials to
non-registered holders of Seagram Common Shares;
(c) in the case of the holders of options to purchase Seagram Common
Shares under the Seagram Stock Plans and the holders of stock appreciation
rights under the Seagram Stock Plans relating to Seagram Common Shares, by
prepaid ordinary mail, by expedited parcel post, by courier or by delivery
in person, addressed to each such holder at his, her or its address, as
shown on the books or records of Seagram;
I-2
<PAGE> 680
(d) in the case of the directors of Seagram, by courier or by delivery
in person, addressed to the individual directors;
(e) in the case of the auditors of Seagram, by courier or by delivery
in person, addressed to the firm of auditors;
(f) in the case of Vivendi, Vivendi Universal Exchangeco Inc., Vivendi
Universal Holdings Company and Sofiee, by courier or by delivery in person,
to the solicitors for Vivendi, Vivendi Universal Exchangeco Inc., Vivendi
Universal Holdings Company and Sofiee; and
(g) in the case of the Director, by courier, by fax or by delivery in
person, to the Director;
and that such mailing, delivery and distribution shall constitute good and
sufficient notice of the Application, the Seagram Meeting and the hearing in
respect of the Application upon such persons.
9. THIS COURT ORDERS that the Meeting Materials shall be deemed, for the
purposes of this Interim Order and the Application, to have been received:
(a) in the case of distribution by prepaid ordinary mail, three (3)
business days after delivery thereof to the post office;
(b) in the case of distribution by expedited parcel post, three (3)
business days after delivery thereof to the post office;
(c) in the case of distribution by courier, one (1) business day after
receipt by the courier;
(d) in the case of fax, one (1) business day after transmission
thereof; and
(e) in the case of distribution by delivery in person, on receipt
thereof by the intended addressee.
10. THIS COURT ORDERS that the record date for determining the registered
holders of Seagram Common Shares entitled to receive the Meeting Materials shall
be the close of business on November 1, 2000 (the "Record Date").
11. THIS COURT ORDERS that the accidental failure or omission to give
notice of the Seagram Meeting, or the non-receipt of such notice, shall not
invalidate any resolution passed or proceedings taken at the Seagram Meeting and
shall not constitute a breach of this Interim Order.
12. THIS COURT ORDERS that Seagram is authorized to use the Form of Proxy,
in substantially the same form attached as Exhibit "H" to the Affidavit, subject
to Seagram's ability to insert dates and other relevant information in the final
Form of Proxy. Seagram is authorized, at its expense, to solicit proxies,
directly and through its officers, directors and employees, and through such
agents or representatives as it may retain for the purpose, and by mail or such
other forms of personal or electronic communication as it may determine, subject
to the terms of the Merger Agreement. The procedure for the use of proxies at
the Seagram Meeting shall be as set out in the Joint Circular.
13. THIS COURT ORDERS that Seagram may in its discretion waive generally
the time limits for the deposit of proxies by the holders of Seagram Common
Shares, if Seagram deems it advisable to do so.
14. THIS COURT ORDERS that votes shall be taken at the Seagram Meeting on
the basis that each holder of Seagram Common Shares is entitled to one (1) vote
for each Seagram Common Share held and that, subject to further Order of this
Honourable Court, the vote required to pass and approve the Arrangement
Resolution shall be the affirmative vote of not less than 66 2/3% of the votes
cast on the Arrangement Resolution (for this purpose any spoiled votes,
illegible votes, defective votes and abstentions shall be deemed not to be votes
cast) by the holders of Seagram Common Shares present in person or represented
by proxy at the Seagram Meeting.
15. THIS COURT ORDERS that the only persons entitled to attend the Seagram
Meeting shall be: (a) the registered holders of Seagram Common Shares, or their
respective proxies; (b) the officers, directors, auditors and advisors of
Seagram; (c) the representatives of Vivendi and Sofiee; (d) the Director; and
(e) other persons with the permission of the Chairman of the Meeting.
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<PAGE> 681
16. THIS COURT ORDERS that the only persons entitled to vote at the Seagram
Meeting shall be the registered holders of Seagram Common Shares as at the close
of business on the Record Date for the Seagram Meeting, subject to the
provisions of the CBCA with respect to persons who become registered holders of
Seagram Common Shares after that date.
17. THIS COURT ORDERS that the registered holders of Seagram Common Shares
shall be entitled to exercise rights of dissent and appraisal, in accordance
with and in compliance with Section 190 of the CBCA (except as the procedures of
that section are varied by this paragraph 17) and the Plan of Arrangement, and
to seek fair value for their Seagram Common Shares, provided that any holders of
Seagram Common Shares who wish to dissent (a) must, as a condition precedent
thereto, provide a written dissent notice objecting to the Arrangement
Resolution to Seagram's Secretary at The Seagram Company Ltd., 1430 Peel Street,
Montreal, Quebec H3A 1S9, not later than 5:00 p.m. (Eastern time) on the
business day immediately preceding the Meeting, and (b) must otherwise strictly
comply with Section 190 of the CBCA and the Plan of Arrangement. For the
purposes of these proceedings, the "court" referred to in Section 190 of the
CBCA means this Honourable Court.
18. THIS COURT ORDERS that, pursuant to Section 204 of the CBCA and subject
to further Order of this Honourable Court, the Offer is an exempt offer and is
not a take-over bid under Section 194 of the CBCA.
19. THIS COURT ORDERS that upon approval by the holders of Seagram Common
Shares in the manner set forth in this Interim Order, Seagram may apply to this
Honourable Court on or about December 6, 2000 for approval of the Arrangement
and that the distribution and delivery of the Notice of Application herein, in
accordance with paragraph 8 of this Interim Order, shall constitute good,
sufficient and valid service of such Notice of Application pursuant to this
Interim Order, and no other form of service need be made and no other material
need be served on such persons in respect of these proceedings, unless a Notice
of Appearance is served on Seagram's solicitors as set out below.
20. THIS COURT ORDERS that the holders of options to purchase Seagram
Common Shares under the Seagram Stock Plans and the holders of stock
appreciation rights under the Seagram Stock Plans relating to Seagram Common
Shares are parties to this proceeding.
21. THIS COURT ORDERS that the only persons entitled to notice of any
further proceedings herein, including any hearing to sanction and approve the
Arrangement, and to appear and to be heard thereon, shall be (a) the solicitors
for Seagram, (b) the solicitors for Vivendi, Vivendi Universal Exchangeco Inc.,
Vivendi Universal Holdings Company and Sofiee, (c) the Director and (d) persons
who have delivered a Notice of Appearance herein in accordance with the Rules of
Civil Procedure, including service of said notice on Seagram's solicitors,
Osler, Hoskin & Harcourt LLP, P.O. Box 50, 1 First Canadian Place, Toronto,
Ontario M5X 1B8, Attention: Larry P. Lowenstein.
22. THIS COURT ORDERS and declares that the time for service of the Notice
of Motion and Motion Record, including the Affidavit of Daniel R. Paladino and
the exhibits thereto, on the Director is hereby abridged, and that the service
of the foregoing documents on the Director constituted good, sufficient and
valid service.
23. THIS COURT ORDERS that, to the extent of any inconsistency or
discrepancy with respect to the matters provided for in this Interim Order that
as between this Interim Order and terms of any instrument creating, governing or
collateral to the Seagram Common Shares or the articles or by-laws of Seagram,
this Interim Order shall govern.
24. THIS COURT ORDERS that Seagram shall be entitled, at any time, to seek
leave to vary this Order.
--------------------------------------
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<PAGE> 682
ANNEX J
[GOLDMAN SACHS LETTERHEAD]
June 19, 2000
Board of Directors
The Seagram Company Ltd.
c/o J. E. Seagram Corp.
375 Park Avenue
New York, New York 10152
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding common shares, without nominal or par
value (the "Common Shares"), of The Seagram Company Ltd., a corporation existing
under the laws of Canada (the "Company"), of the Exchange Ratio (as defined
below) pursuant to the Merger Agreement, dated as of June 19, 2000, among
Vivendi S.A., a corporation existing under the laws of France (including its
successors, "Vivendi"), Canal Plus S.A., a corporation existing under the laws
of France ("Canal Plus"), Sofiee S.A., a corporation existing under the laws of
France and a wholly owned subsidiary of Vivendi, which is intended to be renamed
Vivendi Universal ("Vivendi Universal"), 3744531 Canada Inc., a corporation
existing under the laws of Canada and a wholly owned subsidiary of Vivendi
("Vivendi Exchangeco"), and the Company (the "Agreement") and the related Plan
of Arrangement under Section 192 of the Canada Business Corporations Act (the
"Plan of Arrangement"). The Agreement and the Plan of Arrangement provide that
each Common Share, other than (i) Exchangeable Elected Shares (as defined in the
Plan of Arrangement), (ii) Common Shares held by Dissenting Shareholders (as
defined in the Plan of the Arrangement) who are ultimately entitled to be paid
the fair value of the Common Shares held by them and (iii) Common Shares held by
Vivendi or any affiliate thereof, will be transferred by the holder thereof,
without any act or formality on its part, to 3045479 Nova Scotia Company, an
unlimited liability company existing under the laws of the Province of Nova
Scotia and a wholly owned subsidiary of Vivendi, in exchange for that number of
fully paid and non-assessable American depositary shares of Vivendi ("Vivendi
ADSs"), each representing one ordinary share in the capital of Vivendi, nominal
value Euro 5.50 ("Vivendi Shares"), equal to the Exchange Ratio.
Each person who is a holder of record of Common Shares and who either (i)
is a Canadian Resident (as defined in the Plan of Arrangement) that holds such
shares on its own behalf or (ii) holds such shares on behalf of a person who is
a Canadian Resident will be entitled, with respect to all or a portion of such
shares, to elect to receive, in lieu of receiving Vivendi ADSs as described
above, non-voting exchangeable shares in the capital of Vivendi Exchangeco (the
"Exchangeable Shares"), each of which is exchangeable into one Vivendi ADS,
subject to adjustment, and has the other rights, privileges, restrictions and
conditions set out in the Exchangeable Share Provisions (as defined in the Plan
of Arrangement), in exchange for such holder's Common Shares, subject to the
provisions of the Agreement and the Plan of Arrangement. Each Exchangeable
Elected Share will be transferred by the holder thereof, without any act or
formality on its part, to Vivendi Exchangeco in exchange for, subject to the
provisions of the Agreement and the Plan of Arrangement, (i) that number of
fully paid and non-assessable Exchangeable Shares equal to the Exchange Ratio
and (ii) that number of fully paid and non-assessable Vivendi Voting Rights (as
defined in the Plan of Arrangement) equal to the number of Exchangeable Shares
issued in accordance with the foregoing clause (i), which Vivendi
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<PAGE> 683
Voting Rights Vivendi will deposit with or for the account of the Custodian (as
defined in the Plan of Arrangement) for and on behalf of the holders of the
Exchangeable Shares issued in accordance with the foregoing clause (i) in
accordance with the Custody Agreement to be entered into by Vivendi, Vivendi
Exchangeco and the Custodian at such time.
The Agreement provides that the Vivendi Parties (as defined in the
Agreement) and Canal Plus will use their respective best efforts to prepare,
complete and execute the agreements specified in Schedule I to the Agreement and
all other agreements (collectively, the "Vivendi/Canal Agreements") necessary to
effect the transactions set forth on Schedule I to the Agreement (collectively,
the "Vivendi/Canal Transactions") as promptly as practicable, and use reasonable
best efforts to satisfy each of the conditions to closing set forth in the
Vivendi/Canal Agreements as promptly as practicable and diligently pursue and
implement the transactions contemplated thereby. The Vivendi/Canal Transactions
include the following transactions to be completed in the following sequence:
(i) the contribution by Vivendi to Vivendi Universal of its 15% interest in
Canal Plus, following which Vivendi Universal will hold approximately 49% of
Canal Plus's outstanding shares; (ii) the merger of Vivendi with and into
Vivendi Universal, with Vivendi Universal as the surviving corporation and with
each Vivendi Share being converted into one share of Vivendi Universal; (iii)
the contribution by Canal Plus of its French and international non-regulated
business (the "Non-Regulated Business") to a wholly owned subsidiary of Canal
Plus ("Newco 1"); (iv) the contribution by Newco 1 of the Non-Regulated Business
to a wholly owned subsidiary of Newco 1 ("Newco 2"); (v) the pro rata
distribution by Canal Plus to its shareholders, including Vivendi Universal, of
all of the shares of Newco 1 and, concurrently, the merger of Newco 1 with and
into Vivendi Universal, with Vivendi Universal as the surviving corporation and
with, as part of these steps, each shareholder of Canal Plus receiving two
shares of Vivendi Universal per share of Canal Plus; and (vi) the contribution
by Vivendi Universal to Newco 2 of its approximately 49% interest in Canal Plus.
Vivendi, Vivendi Universal and Canal Plus have agreed to provide the
Company with a reasonable opportunity to review and comment on the Vivendi/Canal
Agreements, prior to the execution and delivery thereof, and that such
agreements will be reasonably acceptable to the Company. Vivendi, Vivendi
Universal and Canal Plus also have agreed that the Vivendi/Canal Plus
Transactions will be effected in the manner and on the terms specified in
Schedule I to the Agreement, including application of the exchange ratio
specified therein, and on other such terms and agreements as are reasonably
acceptable to the Company.
For purposes of the Agreement and the Plan of Arrangement, "Exchange Ratio"
means the number (rounded to the nearest one ten-thousandth) determined by
dividing (i) U.S.$77.35 by (ii) the Average Market Price (as defined in the Plan
of Arrangement); provided, however, that if the Average Market Price is equal or
greater than U.S.$124.3369, the Exchange Ratio will be 0.6221, and if the
Average Market Price is equal to or less than U.S.$96.6875, the Exchange Ratio
will be 0.8000.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided significant investment banking
services to the Company from time to time, including, among others, having acted
as financial advisor to the Company in connection with the sale of Tropicana
Products, Inc. in August 1998, having acted as a joint lead manager and
bookrunner of a public offering of $500,000,000 aggregate principal amount of
8.00% Senior Quarterly Income Debt Securities due 2038 of Joseph E. Seagram &
Sons, Inc. ("JES"), a wholly owned subsidiary of the Company, in November 1998,
having acted as a managing underwriter of a public offering of $3,500,000,000
aggregate principal amount of Senior Notes and Senior Debentures of JES in
December 1998, having acted as global coordinator of a public offering of
37,000,000 Common Shares of the Company in June 1999, having acted as a managing
underwriter of a public offering of 18,500,000 7.50% Adjustable Conversion-rate
Equity Security Units of the Company in June 1999, having acted as financial
advisor to the Company in connection with the sale of the Mumm and Perrier-Jouet
Champagne Houses in July 1999, having acted as financial advisor to the Company
in connection with the sale of Universal Concerts in September 1999 and having
acted as its financial advisor in connection with, and
J-2
<PAGE> 684
having participated in certain of the negotiations leading to, the Agreement and
the Plan of Arrangement. John S. Weinberg, a Managing Director of Goldman, Sachs
& Co., is a director of the Company.
Goldman, Sachs & Co., and its affiliate Goldman Sachs Paris Inc. et Cie,
have provided significant investment banking services to Vivendi in connection
with numerous transactions and other situations, including, among others, having
acted as financial advisor to Vivendi in connection with the acquisition of
United States Filter Corporation in April 1999, having acted as a managing
underwriter of a public offering of Euro 2,600,000,016 aggregate principal
amount of bonds of Vivendi Environnement, convertible and/or exchangeable into
new or existing shares of Vivendi or Vivendi Environnement, in April 1999,
having acted as a managing underwriter of a public offering of 45,444,174
Vivendi Shares in May 1999, having acted as financial advisor to Sithe Energies,
Inc., a subsidiary of Vivendi, in connection with the sale of 21 independent
power production plants in May 2000 and acting as the joint global coordinator
and joint bookrunner for the proposed global offering of ordinary shares of
Vivendi Environnement, and may provide investment banking services to Vivendi in
the future. In addition, we are working with another client in its discussions
with the Company concerning a possible transaction involving the Company's
spirits and wine business. In addition, we have provided from time to time, and
currently are providing, certain investment banking services to Canal Plus.
Goldman, Sachs & Co. provides a full range of financial and securities services
and, in the course of its normal trading activities, may from time to time
effect transactions and hold securities, including derivative securities, of the
Company, Vivendi or Canal Plus for its own account or for the accounts of
customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Plan of Arrangement; the Shareholder Voting Agreement, dated as
of June 19, 2000, among Vivendi and certain shareholders of the Company (the
"Voting Agreement"); the Shareholder Governance Agreement, dated as of June 19,
2000, among Vivendi, Vivendi Universal and certain shareholders of the Company
(the "Governance Agreement"); Annual Reports to Shareholders and Annual Reports
on Form 10-K of the Company for the five fiscal years and transition period
ended June 30, 1999; Annual Reports to Shareholders of Vivendi for the five
years ended December 31, 1999; Annual Reports to Shareholders of Canal Plus for
the five years ended December 31, 1999; the Registration Statement on Form 20-F
of Vivendi as filed on a confidential basis with the Securities and Exchange
Commission on May 25, 2000; the June 15, 2000 draft Offering Memorandum for the
proposed global offering of ordinary shares of Vivendi Environnement; certain
interim reports to shareholders and Quarterly Reports on Form 10-Q of the
Company; certain interim reports to shareholders of Vivendi; certain interim
reports to shareholders of Canal Plus; certain other communications from the
Company, Vivendi and Canal Plus to their respective shareholders; certain
internal financial analyses and forecasts for the Company prepared by the
management of the Company; certain internal financial analyses and forecasts for
Vivendi and Canal Plus prepared by their respective managements and provided to
us by Vivendi and adjusted by the management of the Company; and certain cost
savings and operating synergies projected by the management of Vivendi to result
from the transactions contemplated by the Agreement and the Plan of Arrangement.
Vivendi has informed us that Vivendi and Canal Plus do not have, and therefore
we have not been provided with or reviewed, any historical financial statements
or other historical financial information for Vivendi and its subsidiaries or
Canal Plus and its subsidiaries for any period subsequent to December 31, 1999.
We have held discussions with members of the senior managements of the Company
and Vivendi regarding their assessment of the strategic rationale for, and the
potential benefits of, the transactions contemplated by the Agreement and the
Plan of Arrangement and the past and current business operations, financial
condition and future prospects of their respective companies. We also have held
discussions with members of the senior management of Canal Plus regarding its
past and current business operations, financial condition and future prospects.
In addition, we have reviewed the reported price and trading activity for the
Common Shares, the Vivendi Shares and the shares of Canal Plus, nominal value
Euro 0.75, compared certain financial and stock market information for the
Company, Vivendi and Canal Plus with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the entertainment industry
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition,
J-3
<PAGE> 685
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company, Vivendi or Canal Plus or any of their subsidiaries
and we have not been furnished with any such evaluation or appraisal. We have
assumed that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the transactions contemplated by the
Agreement and the Plan of Arrangement will be obtained without any adverse
effect on the Company, Vivendi or Canal Plus or on the contemplated benefits of
the transactions contemplated by the Agreement and the Plan of Arrangement in
any respect meaningful to our analysis. We have also assumed that the
Vivendi/Canal Plus Transactions will be effected in accordance with the exchange
ratios specified in Schedule I to the Agreement and in the aggregate on a basis
consistent with Schedule I to the Agreement (other than inconsistencies that are
not meaningful to our analysis). The opinion expressed herein does not reflect
any view with respect to the terms of the Voting Agreement or the Governance
Agreement. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transactions contemplated by the
Agreement and the Plan of Arrangement and such opinion does not constitute a
recommendation as to how any holder of Common Shares should vote with respect to
such transactions.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement and the Plan of Arrangement is fair
from a financial point of view to the holders of Common Shares. We are not
expressing any opinion herein as to the prices at which the Vivendi ADSs or the
Exchangeable Shares may trade if and when they are issued or as to the election
of Canadian Residents between receiving the Vivendi ADSs and the Exchangeable
Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
--------------------------------------
GOLDMAN, SACHS & CO.
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<PAGE> 686
ANNEX K
[MORGAN STANLEY DEAN WITTER LETTERHEAD]
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
June 19, 2000
Board of Directors
The Seagram Company Ltd.
c/o Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Members of the Board:
We understand that The Seagram Company Ltd. ("Seagram"), Vivendi S.A.
("Vivendi"), Canal Plus S.A. ("CANAL+"), Sofiee S.A. ("Sofiee") and 3744531
Canada Inc. (the "Vivendi Subsidiary") have entered into a Merger Agreement,
dated as of June 19, 2000 (the "Merger Agreement"), which generally provides,
among other things, for (i) the merger of Vivendi with and into Sofiee (a wholly
owned subsidiary of Vivendi), which will be renamed Vivendi Universal, (ii)
Vivendi Universal's acquisition of the non-regulated businesses of CANAL+ and
the CANAL+ shareholders' retention of the French regulated businesses (the
transactions described in clauses (i) and (ii) are collectively referred to
herein as the "Vivendi/Canal Transactions") and (iii) Vivendi Universal's
acquisition of Seagram pursuant to the terms and conditions set forth in the
plan of arrangement (the "Plan of Arrangement") under section 192 of the Canada
Business Corporations Act (the transactions described in clauses (i) through
(iii) are collectively referred to herein as the "Transactions"). Pursuant to
the Plan of Arrangement, each outstanding common share, without nominal or par
value, of Seagram ("Seagram Common Share"), other than shares held by Vivendi or
any affiliate of Vivendi, shares as to which dissent rights have been perfected
and Electing Shares (as defined below), will be exchanged for that number of
Vivendi Universal American Depositary Shares ("Vivendi Universal ADSs") equal to
U.S. $77.35 divided by the U.S. dollar equivalent of the average closing prices
on the Paris Bourse of the ordinary shares, Euro 5.50 nominal value each, of
Vivendi ("Vivendi Ordinary Shares") for the 20 consecutive trading days ending
on the third complete trading day prior to the effective date of the Plan of
Arrangement (the "Exchange Ratio"), provided that the Exchange Ratio will equal
0.8000 if such average is equal to or less than U.S. $96.6875 and will equal
0.6221 if such average is equal to or exceeds U.S. $124.3369. Each beneficial
owner of Seagram Common Shares who is a Canadian resident may elect to receive
for each Seagram Common Share it owns (the "Electing Shares") such number of
exchangeable shares of the Vivendi Subsidiary equal to the Exchange Ratio (the
"Exchangeable Shares"), subject to adjustment as described in the Plan of
Arrangement and subject to a limit of 97,000,000 on the number of Exchangeable
Shares that will be issued under the Plan of Arrangement, and one Vivendi Voting
Right (as contemplated by the Plan of Arrangement) for each Exchangeable Share
received. The Exchangeable Shares will be exchangeable at the option of the
holder thereof for Vivendi Universal ADSs. The terms and conditions of the
Transactions are more fully set forth in the Merger Agreement and the Plan of
Arrangement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement and the Plan of Arrangement is fair from a financial point
of view to the holders of Seagram Common Shares.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Seagram, Vivendi and CANAL+, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Seagram, Vivendi and CANAL+
prepared by the managements of Seagram, Vivendi and CANAL+, respectively;
K-1
<PAGE> 687
(iii) reviewed certain financial analyses and projections for Seagram
prepared by the management of Seagram;
(iv) reviewed certain financial analyses and projections for Vivendi
and CANAL+ prepared by the respective managements of such companies and
adjusted by the management of Seagram;
(v) reviewed the past and current operations and financial condition
and the prospects of Seagram, Vivendi and CANAL+, which information was
based, in part, on discussions conducted with members of the management of
Seagram, Vivendi and CANAL+;
(vi) reviewed information relating to certain strategic, financial and
operational benefits anticipated from the Transactions, which information
was based, in part, on discussions conducted with members of the management
of Seagram and Vivendi;
(vii) reviewed the pro forma impact of the Transactions on the
earnings and capitalization ratios of Vivendi;
(viii) reviewed the reported prices and trading activity for Seagram
Common Shares, Vivendi Ordinary Shares and the ordinary shares, Euro 0.75
nominal value each, of CANAL+ (the "CANAL+ Ordinary Shares");
(ix) compared the financial performance of Seagram, Vivendi and CANAL+
and the prices and trading activity of Seagram Common Shares, Vivendi
Ordinary Shares and CANAL+ Ordinary Shares with those of certain other
publicly traded companies and their securities;
(x) reviewed the financial terms, to the extent publicly available, of
transactions that shared certain characteristics with the Transactions we
deemed relevant;
(xi) participated in certain discussions and negotiations among
representatives of Seagram and Vivendi and their financial and legal
advisors;
(xii) reviewed the Merger Agreement, the Plan of Arrangement and other
related agreements executed by the parties to the Transactions; and
(xiii) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections and the internal
financial statements and the other financial and operating data provided by
Seagram, Vivendi and CANAL+, including information relating to the anticipated
strategic, financial and operational benefits of the Transactions, we have
assumed that the information provided has been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial and operational performance of Seagram, Vivendi and CANAL+,
respectively. We have not made, and have not assumed responsibility for making,
any independent valuation or appraisal of the assets or liabilities of Seagram,
Vivendi or CANAL+ or any of their subsidiaries, nor have we been furnished with
any such valuations or appraisals.
We have further assumed, with your consent, that the Transactions will be
consummated in all material respects in accordance with the terms set forth in
the Merger Agreement and the Plan of Arrangement, including, among other things,
that the exchange of shares pursuant to the Plan of Arrangement will be treated
as a tax-free exchange for U.S. Seagram shareholders and Canadian Seagram
shareholders that elect to receive Exchangeable Shares, pursuant to the Internal
Revenue Code of 1986, as amended, or the Income Tax Act (Canada), as applicable.
In addition, we have assumed that the Vivendi/Canal Transactions will be
consummated in all material respects in accordance with the terms set forth in
the Vivendi/Canal Agreements (as such term is defined in the Merger Agreement).
We have also assumed that in connection with the receipt of the regulatory
approvals required for the proposed Transactions, no restrictions will be
imposed that would have a material adverse effect on Seagram, Vivendi or CANAL+,
or on the benefits expected to be derived from the Transactions. Our opinion
does not address or express any opinion on the terms of the Shareholder Voting
Agreement or the Shareholder Governance Agreement.
K-2
<PAGE> 688
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, the information made available to us as of, and the
financial condition of each of Seagram, Vivendi and CANAL+ on, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of Seagram or
any of its assets. This opinion does not address Seagram's underlying business
decision to participate in the Transactions.
We have acted as financial advisor to the Board of Directors of Seagram in
connection with the Transactions and will receive a fee for our services. In the
ordinary course of business, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and its affiliates may from time to time trade in the securities or
indebtedness of Seagram, Vivendi or CANAL+ for its own account, the accounts of
investment funds and other clients under the management of Morgan Stanley and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities or indebtedness. In the past, Morgan
Stanley and its affiliates have provided financial advisory and financing
services for Seagram and Vivendi, or their affiliates, and have received fees
for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Seagram and may not be used for any other purpose without our prior
written consent, except that this letter may be included in its entirety in any
filing made by Seagram, if required, in respect of the Transactions with the
Securities and Exchange Commission. This opinion does not in any manner address
the price at which Seagram Common Shares will trade prior to the consummation of
the Transactions or the prices at which Vivendi Ordinary Shares, Vivendi
Universal ADSs or Exchangeable Shares will trade following the consummation of
the Transactions or the fairness of the Sofiee Exchange Ratio or the Canal
Exchange Ratio (as those terms are defined in Schedule I to the Merger
Agreement). In addition, we express no recommendation or opinion as to how the
shareholders of Seagram, Vivendi or CANAL+ should vote at the respective
shareholders' meetings to be held in connection with the Transactions.
Based on and subject to the foregoing, we are of the opinion, on the date
hereof, that the Exchange Ratio pursuant to the Merger Agreement and the Plan of
Arrangement is fair from a financial point of view to the holders of Seagram
Common Shares.
/s/ MORGAN STANLEY DEAN WITTER
--------------------------------------
Morgan Stanley Dean Witter
K-3
<PAGE> 689
ANNEX L
Merrill Lynch
International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Telephone: 020 7628 1000
Direct: 020 7867
Telex: 8811047 MERLYN G
[MERRILL LYNCH LOGO]
Board of Directors
Canal Plus S.A.
85/89 Quai Andre Citroen
75711 Paris Cedex 15
FRANCE As of June 19, 2000
Members of the Board of Directors:
Canal Plus S.A. (the "Company"), Vivendi S.A. ("Vivendi"), Sofiee S.A., a
wholly owned subsidiary of Vivendi ("Sofiee"), 3744531 Canada Inc. and The
Seagram Company Ltd. ("Seagram") propose to enter into a Merger Agreement (the
"Merger Agreement") dated as of June 19, 2000 with respect to the combination of
the businesses of Vivendi, the Company and Seagram pursuant to the terms and
subject to the conditions set forth in the Merger Agreement (the "Merger"). We
note that Vivendi has held approximately 49% of the shares in the capital of the
Company since September 1999 and has held greater than 33% since its acquisition
of Havas S.A. in June 1998; and that 34% of such shareholding is held by Sofiee.
Pursuant to and in accordance with the terms of our engagement letter with you
dated as of May 12, 2000, you have requested us to provide to you the opinion
set forth below.
The Merger will consist of the following transactions occurring
substantially simultaneously and being interdependent upon one another, all as
more fully described in the Merger Agreement:
- Vivendi will merge with and into Sofiee;
- The Company will contribute all of its Non-Regulated Business (as defined
in the Merger Agreement) to a newly formed wholly owned subsidiary of the
Company ("Newco 1"). The Company and Newco 1 will enter into a
contribution treaty to this effect. Newco 1 will then contribute the
Non-Regulated Business to a newly formed wholly owned subsidiary of Newco
1 ("Newco 2"). Newco 1 and Newco 2 will enter into a contribution treaty
to this effect;
- Subject to the requisite votes provided for in the Merger Agreement of
the Canal+, Vivendi and Seagram shareholders approving the transactions
and the Final Order (as defined in the Merger Agreement) being adopted by
a Canadian court having jurisdiction, the Company will distribute all of
the shares of Newco 1 to its shareholders. As a result, Sofiee and the
other shareholders of the Company will, respectively, own approximately
49% and 51% of Newco 1. Sofiee will then absorb Newco 1, with each
shareholder of the Company, other than Sofiee, receiving 2 Sofiee shares
(the "Canal Exchange Ratio") in exchange for each of its Newco 1 shares.
As a result, Sofiee will hold approximately 49% of the Company and 100%
of Newco 2 (the holder of the Non-Regulated Business). Following the
absorption of Newco 1 by Sofiee, the 49% shareholding of Sofiee in the
Company will be contributed to Newco 2; and
- Sofiee will change its name to Vivendi Universal S.A. ("Vivendi
Universal") and will enter into a plan of arrangement (substantially in
the form and content of Schedule F to the Merger Agreement (the "Plan of
Arrangement")) under Canadian law with Seagram (the "Seagram Merger")
pursuant to which each outstanding share of Seagram common stock (other
than Seagram common stock held by Vivendi Universal) will be exchanged,
at the option of the Seagram shareholder subject to certain conditions
set forth in the Plan of Arrangement, either for (a) the right to receive
L-1
<PAGE> 690
a number of Vivendi ADSs (as defined in the Plan of Arrangement)
determined by dividing US$77.35 by the Average Market Price (as defined
in the Merger Agreement) (the "Seagram Exchange Ratio"), provided that if
the Average Market Price is equal to or greater than US$124.3369, the
Seagram Exchange Ratio will be 0.6221 and if the Average Market Price is
equal to or less than $96.6875, the Seagram Exchange Ratio will be 0.8000
or (b) the right to receive a number of Exchangeable Shares (as defined
in the Plan of Arrangement) equal to the Seagram Exchange Ratio.
You have asked us for your benefit whether, in our opinion and in the
context of the Merger taken as a whole, the Canal Exchange Ratio is fair from a
financial point of view to the holders of the Company shares, other than Vivendi
and its affiliates.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports and related financial
information for the five fiscal years ended December 31st, 1999;
(2) Reviewed Vivendi's Annual Reports and related financial
information for the five fiscal years ended December 31st, 1999;
(3) Reviewed Seagram's Annual Reports and related financial
information for the five fiscal years ended June 30th, 1999;
(4) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company, Vivendi and Seagram, furnished to us by the
Company, Vivendi and Vivendi's outside advisors, as well as a description
of the amount of the cost savings and other synergies expected to result
from the Merger (the "Expected Synergies") furnished to us and prepared by
the Company and Vivendi;
(5) Conducted discussions with members of senior management of the
Company and Vivendi's outside advisors concerning the businesses and
prospects of the Company, Vivendi and Seagram before and after giving
effect to the Merger;
(6) Reviewed the historical market prices and trading activity for
the Company shares, the Vivendi shares and the Seagram shares and compared
them with that of certain publicly traded companies which we deemed to be
reasonably similar to the Company, Vivendi and Seagram, respectively;
(7) Compared the results of operations of the Company, Vivendi and
Seagram with that of certain companies which we deemed to be reasonably
similar to the Company, Vivendi and Seagram, respectively;
(8) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions which we deemed to be
relevant;
(9) Reviewed the potential pro forma impact of the Merger;
(10) Reviewed the Merger Agreement, including the Plan of Arrangement;
and
(11) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied, with your consent, on
the accuracy and completeness of all information supplied or otherwise made
available to us, discussed with or reviewed by or for us, or publicly available,
and we have not assumed any responsibility for independently verifying such
information or undertaken an independent evaluation or appraisal of any of the
assets or liabilities of the Company, Vivendi or Seagram or been furnished with
any such evaluation or appraisal. In addition, with your consent, we have not
assumed any obligation to conduct any physical inspection of the properties or
facilities of the Company, Vivendi or Seagram, nor have we been permitted access
to Seagram's or
L-2
<PAGE> 691
Vivendi's management for the purposes of conducting discussions concerning each
of their respective businesses and prospects.
With respect to the financial forecast information furnished to or
discussed with us by the Company, Vivendi and Vivendi's outside advisors, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgments of the managements of the Company
and Vivendi, and of Vivendi's outside advisors, as to the expected future
financial performance of the Company, Vivendi and Seagram, as the case may be.
With respect to the Expected Synergies furnished to or discussed with us, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgments of the managements of the Company
and Vivendi as to the Expected Synergies. We have further assumed that the
Seagram Merger will be accounted for as a pooling of interests in Vivendi
Universal's financial statements under French generally accepted accounting
principles. We have also assumed that the transactions comprising the Merger,
including the spin-off of the Non-Regulated Business to the Company
shareholders, will qualify as tax-free reorganizations for income tax purposes
in the relevant jurisdictions.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the expected benefits of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of all or parts of the
Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We have, in the past, provided
financial advisory and financing services to the Company and Vivendi and/or
their affiliates and may continue to do so and have received, and may receive,
fees for the rendering of such services and may participate in a proposed
financing transaction for a subsidiary of Vivendi. In addition, in the ordinary
course of our business, we may actively trade the Company shares and other
securities of the Company, as well as securities of Vivendi and Seagram, for our
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. The opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder as to how such shareholder should vote on the proposed Merger or
any matter related thereto. This letter may not be reproduced or summarized or
referred to in any form or document without our prior written consent.
We are not expressing any opinion herein as to the prices at which the
Vivendi shares, the Company shares, the Vivendi Universal shares, the Vivendi
ADSs, the Exchangeable Shares, or the Seagram shares will trade following the
announcement or consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
in the context of the Merger taken as a whole, on the date hereof, the Canal
Exchange Ratio is fair from a financial point of view to the holders of the
Company shares, other than Vivendi and its affiliates.
L-3
<PAGE> 692
Merrill Lynch
International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Telephone: 020 7628 1000
Direct: 020 7867
Telex: 8811047 MERLYN G
(MERRILL LYNCH LOGO)
Board of Directors
Canal Plus S.A.
85/89 Quai Andre Citroen
75711 Paris Cedex 15
FRANCE As of October 20, 2000
Members of the Board of Directors:
Canal Plus S.A. (the "COMPANY"), Vivendi S.A. ("VIVENDI"), Sofiee S.A., a
wholly owned subsidiary of Vivendi, 3744531 Canada Inc. and The Seagram Company
Ltd. ("SEAGRAM") have entered into a Merger Agreement dated as of June 19, 2000
with respect to the combination of the businesses of Vivendi, the Company and
Seagram pursuant to the terms and subject to the conditions set forth in the
Merger Agreement. We have previously issued you an opinion dated June 19, 2000
that, subject to the factors considered, assumptions made and qualifications
stated in such opinion, as of the date of such opinion and in the context of the
Merger taken as a whole, the Canal Exchange Ratio is fair from a financial point
of view to the holders of the Company shares, other than Vivendi and its
affiliates (the "MERRILL OPINION"; except as otherwise defined herein,
capitalized terms being used herein as therein defined).
In issuing the Merrill Opinion we assumed, among other things, that the
Seagram Merger will be accounted for as a pooling of interests in Vivendi
Universal's financial statements under French generally accepted accounting
principles (the "POOLING ASSUMPTION"). You have advised us that, since the date
we issued the Merrill Opinion, the terms of the Seagram Merger have been
modified so that the Seagram Merger will no longer be accounted for as a pooling
of interests in Vivendi Universal's financial statements under French generally
accepted accounting principles, but will rather be accorded purchase accounting
treatment for such purposes (the "ACCOUNTING MODIFICATION").
We are providing this letter for your benefit in order to state that,
assuming that the Accounting Modification was made prior to the date of the
Merrill Opinion and we did not state the Pooling Assumption therein, we are of
the view that, as of the date thereof and subject to the other factors
considered, assumptions made and qualifications stated in such opinion (other
than the Pooling Assumption), the Accounting Modification does not by itself
alter the opinion set forth in the Merrill Opinion.
Except as specifically stated above with respect to the Pooling Assumption
and the Accounting Modification, nothing in this letter is intended to otherwise
limit the other factors considered, assumptions made or qualifications stated in
the Merrill Opinion, or to expand the Merrill Opinion in any way. Without
limiting the foregoing, the Merrill Opinion speaks only as of June 19, 2000, and
nothing in this letter constitutes a "bring down" or other reiteration of the
Merrill Opinion as of any other date.
This letter is for the use and benefit of the Board of Directors of the
Company and may not be reproduced or summarised or referred to in any form or
document without our prior written consent. Neither this letter nor the Merrill
Opinion addresses the merits of the underlying decision by the Company to engage
in the Merger or constitutes a recommendation to any shareholder as to how such
shareholder should vote on the proposed Merger or any matter related thereto.
L-4
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ANNEX M
[LAZARD LOGO] LAZARD FRERES
S.A.S. AU CAPITAL DE 500.000.000 F
151, BOULEVARD HAUSSMANN
75382 PARIS CEDEX 08
R.C.E. PARIS X 542 10 815
TEL: + 33 (0) 1 44 13 01 11
FAX: + 33 (0) 1 44 13 01 00
WWW.LAZARD.COM
The Board of Directors
VIVENDI
42, avenue de Friedland
75380 Paris cedex 08
Paris, as of 18 June 2000
Dear Members,
We understand that Vivendi S.A., a corporation existing under the laws of
France ("Vivendi"), The Seagram Company Ltd., a corporation existing under the
laws of Canada ("Seagram"), Canal Plus S.A., a corporation existing under the
laws of France ("Canal+"), Sofiee S.A., a corporation existing under the laws of
France, and 374451 Canada Inc., a corporation existing under the laws of Canada,
propose to enter into a merger agreement (the "Agreement") and related
agreements providing for the combination of Vivendi, Seagram and Canal+ into
Vivendi Universal (the "Combination"). The Combination consists primarily of the
following transactions:
-- Vivendi will merge into its wholly-owned subsidiary Vivendi Universal;
-- Vivendi Universal will acquire all the businesses of Canal+ other than
Canal+'s French premium pay television channel, which Canal+ will
retain; and
-- a combination of Vivendi Universal, through its subsidiaries, with
Seagram in accordance with a plan of arrangement under Canadian Law.
Pursuant to the Combination,
-- Vivendi shareholders will receive one Vivendi Universal ordinary share
for each Vivendi ordinary share they hold. Because each Vivendi ADS
represents one-fifth of a Vivendi ordinary share, and each Vivendi
Universal ADS will represent one Vivendi Universal ordinary share,
holders of Vivendi ADSs will receive one Vivendi Universal ADS for every
five Vivendi ADSs they hold;
-- Seagram shareholders other than Canadian residents electing to receive
non-voting exchangeable shares of Vivendi's Canadian subsidiary Vivendi
Exchangeco and related Vivendi Universal voting rights, or those who
exercise dissenters' rights, will receive a number of Vivendi Universal
ADSs determined pursuant to an exchange ratio (the "Seagram Exchange
Ratio") set forth in the plan of arrangement. Each Vivendi Universal ADS
will represent one Vivendi Universal ordinary share; and
-- Canal+ shareholders will receive two Vivendi Universal ordinary shares
for each Canal+ ordinary share they own and will retain their existing
shares in Canal+ (the "Canal Exchange Ratio"). Because each Canal+ ADS
represents one-fifth of a Canal+ ordinary share, holders of Canal+ ADSs
will receive two Vivendi Universal ADSs for every five Canal+ ADSs they
hold. Canal+ shareholders and holders of Canal+ ADSs will also retain
their Canal+ shares or ADS.
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You have requested our opinion as to the fairness, from a financial point
of view, to Vivendi, of the Seagram Exchange Ratio and the Canal Exchange Ratio.
In connection with this opinion, we have, among other things:
(i) Reviewed the financial terms and conditions of the draft Agreement
and plan of arrangement;
(ii) Analyzed certain historical business and financial information
relating to Vivendi, Seagram and Canal+;
(iii) Reviewed various financial forecasts and other data provided to us
by Vivendi, Seagram and Canal+ relating to their respective
businesses (such forecasts that were provided to us regarding
Seagram were limited in time and scope);
(iv) Held discussions with members of the senior managements of Vivendi
and Seagram with respect to the businesses and prospects of Vivendi,
Seagram and Canal+ and the strategic objectives of each, and the
possible benefits which might be realized following the Combination;
(v) Reviewed public information with respect to certain other companies
in lines of businesses we believe to be generally comparable to the
businesses of Vivendi, Seagram and Canal+;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of businesses we believe to be
generally comparable to the businesses of Vivendi, Seagram and
Canal+, and in other industries generally;
(vii) Reviewed the historical stock prices and trading volumes of the
stock of Vivendi, Seagram and Canal+; and
(viii) Conducted such other financial studies, analyses and investigations
as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of Vivendi, Seagram or Canal+, or concerning
the solvency of or issues relating to solvency concerning Vivendi, Seagram or
Canal+. With respect to financial forecasts, including the potential benefits
projected to be realized following the Combination and the amount and treatment
of goodwill, if any, in connection with the Combination, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of management of Vivendi, Seagram or Canal+ as
to the future financial performance of Vivendi, Seagram or Canal+, respectively.
We assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based.
Further, our opinion is necessarily based on accounting standards,
economic, monetary, exchange rates, market and other conditions as in effect on,
and the information made available to us as of the date hereof. In rendering our
opinion, we did not address the relative merits of the Combination or Vivendi's
underlying decision to undertake the Combination and not engage in other
possible transactions, and does not address any other aspect of the transactions
contemplated by the Agreement.
In rendering our opinion, we have assumed that the Combination will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions by Vivendi and that obtaining the necessary
regulatory approvals and third party consents, if any, for the Combination will
not have an adverse effect on Vivendi, Seagram or Canal+, and that the projected
synergies of the Combination are realized substantially in accordance with such
projections, both as to the financial effect and the timing thereof. We have
also assumed that the definitive Agreement will not differ in any material
respect from the draft thereof furnished to us.
We are acting as investment banker to Vivendi in connection with the
Combination and will receive a fee for our services, a substantial portion of
which is contingent upon consummation of the Combination. We have in the past
provided, and are currently providing, investment banking services to Vivendi
for which we have received and anticipate receiving customary fees. We are
rendering this opinion in
M-2
<PAGE> 695
accordance with customary practice in France and under the express condition
that it be interpreted in accordance with the laws of France.
Our engagement and the opinion expressed herein are for the benefit of the
Board of Directors of Vivendi in connection with its consideration of the
Combination. This opinion is not intended to and does not constitute a
recommendation to any shareholder of Vivendi, Seagram or Canal+ as to whether
such shareholder should vote for the Combination. We are not expressing any
opinion herein as to the prices at which share of Vivendi, Seagram or Canal+ may
trade following the date as of which this opinion is rendered or as to the value
of the Vivendi Universal shares, the Vivendi Universal ADSs or any other
security issued or to be issued by Vivendi Universal, Vivendi or Canal+
following the consummation of the Combination. It is understood that this letter
may not be disclosed or otherwise referred to without our prior consent, except
in its entirety in a U.S. proxy statement or as may otherwise be required by law
or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Seagram Exchange Ratio and the Canal Exchange Ratio are
fair to Vivendi from a financial point of view.
Very truly yours,
/s/ LAZARD FRERES
--------------------------------------
LAZARD FRERES S.A.S.
M-3
<PAGE> 696
ANNEX N
CANADA BUSINESS CORPORATIONS ACT
R.S.C. 1985, c. C-44 AS AMENDED
190. (1) Right to Dissent -- Subject to sections 191 and 241, a holder of shares
of any class of a corporation may dissent if the corporation is subject to an
order under paragraph 192(4)(d) that affects the holder or if the corporation
resolves to
(a) amend its articles under section 173 or 174 to add, change or
remove any provisions restricting or constraining the issue, transfer or
ownership of shares of that class;
(b) amend its articles under section 173 to add, change or remove any
restriction on the business or businesses that the corporation may carry
on;
(c) amalgamate otherwise than under section 184;
(d) be continued under section 188; or
(e) sell, lease or exchange all or substantially all its property
under subsection 189(3).
(2) Further Right -- A holder of shares of any class or series of shares
entitled to vote under section 176 may dissent if the corporation resolves to
amend its articles in a manner described in that section.
(3) Payment of Shares -- In addition to any other right he may have, but
subject to subsection (26), a shareholder who complies with this section is
entitled, when the action approved by the resolution from which he dissents or
an order made under subsection 192(4) becomes effective, to be paid by the
corporation the fair value of the shares held by him in respect of which he
dissents, determined as of the close of business on the day before the
resolution was adopted or the order was made.
(4) No partial dissent -- A dissenting shareholder may only claim under
this section with respect to all the shares of a class held by him on behalf of
any one beneficial owner and registered in the name of the dissenting
shareholder.
(5) Objection -- A dissenting shareholder shall send to the corporation, at
or before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the resolution,
unless the corporation did not give notice to the shareholder of the purpose of
the meeting and of his right to dissent.
(6) Notice of resolution -- The corporation shall, within ten days after
the shareholders adopt the resolution, send to each shareholder who has filed
the objection referred to in subsection (5) notice that the resolution has been
adopted, but such notice is not required to be sent to any shareholder who voted
for the resolution or who has withdrawn his objection.
(7) Demand for payment -- A dissenting shareholder shall, within twenty
days after he receives a notice under subsection (6) or, if he does not receive
such notice, within twenty days after he learns that the resolution has been
adopted, send to the corporation a written notice containing
(a) his name and address;
(b) the number and class of shares in respect of which he dissents;
and
(c) a demand for payment of the fair value of such shares.
(8) Share certificate -- A dissenting shareholder shall, within thirty days
after sending a notice under subsection (7), send the certificates representing
the shares in respect of which he dissents to the corporation or its transfer
agent.
(9) Forfeiture -- A dissenting shareholder who fails to comply with
subsection (8) has no right to make a claim under this section.
N-1
<PAGE> 697
(10) Endorsing certificate -- A corporation or its transfer agent shall
endorse on any share certificate received under subsection (8) a notice that the
holder is a dissenting shareholder under this section and shall forthwith return
the share certificates to the dissenting shareholder.
(11) Suspension of rights -- On sending a notice under subsection (7), a
dissenting shareholder ceases to have any rights as a shareholder other than the
right to be paid the fair value of his shares as determined under this section
except where
(a) the dissenting shareholder withdraws his notice before the
corporation makes an offer under subsection (12),
(b) the corporation fails to make an offer in accordance with
subsection (12) and the dissenting shareholder withdraws his notice, or
(c) the directors revoke a resolution to amend the articles under
subsection 173(2) or 174(5), terminate an amalgamation agreement under
subsection 183(6) or an application for continuance under subsection
188(6), or abandon a sale, lease or exchange under subsection 189(9),
(d) in which case his rights as a shareholder are reinstated as of the
date he sent the notice referred to in subsection (7).
(12) Offer to pay -- A corporation shall, not later than seven days after
the later of the day on which the action approved by the resolution is effective
or the day the corporation received the notice referred to in subsection (7),
send to each dissenting shareholder who has sent such notice:
(a) a written offer to pay for his shares in an amount considered by
the directors of the corporation to be the fair value thereof, accompanied
by a statement showing how the fair value was determined; or
(b) if subsection (26) applies, a notification that it is unable
lawfully to pay dissenting shareholders for their shares.
(13) Same terms -- Every offer made under subsection (12) for shares of the
same class or series shall be on the same terms.
(14) Payment -- Subject to subsection (26), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (12) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has
been made.
(15) Corporation may apply to court -- Where a corporation fails to make an
offer under subsection (12), or if a dissenting shareholder fails to accept an
offer, the corporation may, within fifty days after the action approved by the
resolution is effective or within such further period as a court may allow,
apply to a court to fix a fair value for the shares of any dissenting
shareholder.
(16) Shareholder application to court -- If a corporation fails to apply to
a court under subsection (15), a dissenting shareholder may apply to a court for
the same purpose within a further period of twenty days or within such further
period as a court may allow.
(17) Venue -- An application under subsection (15) or (16) shall be made to
a court having jurisdiction in the place where the corporation has its
registered office or in the province where the dissenting shareholder resides if
the corporation carries on business in that province.
(18) No security for costs -- A dissenting shareholder is not required to
give security for costs in an application made under subsection (15) or (16).
(19) Parties -- On an application to a court under subsection (15) or (16),
(a) all dissenting shareholders whose shares have not been purchased
by the corporation shall be joined as parties and are bound by the decision
of the court; and
N-2
<PAGE> 698
(b) the corporation shall notify each affected dissenting shareholder
of the date, place and consequences of the application and of his right to
appear and be heard in person or by counsel.
(20) Powers of court -- On an application to a court under subsection (15)
or (16), the court may determine whether any other person is a dissenting
shareholder who should be joined as a party, and the court shall then fix a fair
value for the shares of all dissenting shareholders.
(21) Appraisers -- A court may in its discretion appoint one or more
appraisers to assist the court to fix a fair value for the shares of the
dissenting shareholders.
(22) Final order -- The final order of a court shall be rendered against
the corporation in favour of each dissenting shareholder and for the amount of
the shares as fixed by the court.
(23) Interest -- A court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date the
action approved by the resolution is effective until the date of payment.
(24) Notice that subsection (26) applies -- If subsection (26) applies, the
corporation shall, within ten days after the pronouncement of an order under
subsection (22), notify each dissenting shareholder that it is unable lawfully
to pay dissenting shareholders for their shares.
(25) Effect where subsection (26) applies -- If subsection (26) applies, a
dissenting shareholder, by written notice delivered to the corporation within
thirty days after receiving a notice under subsection (24), may
(a) withdraw his notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder is reinstated to
his full rights as a shareholder; or
(b) retain a status as a claimant against the corporation, to be paid
as soon as the corporation is lawfully able to do so or, in a liquidation,
to be ranked subordinate to the rights of creditors of the corporation but
in priority to its shareholders.
(26) Limitation -- A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due; or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
N-3
<PAGE> 699
ANNEX O
VIVENDI
A SOCIETE ANONYME WITH A CAPITAL OF 3,332,700,404 EUROS
REGISTERED OFFICE: 42, AVENUE DE FRIEDLAND - 75008 PARIS
RCS 780 129 961 PARIS
------------------------
DRAFT RESOLUTIONS
------------------------
First Resolution: Approval of the terms of the transactions between
Vivendi, Canal+ and Seagram.
The purpose of this resolution is to approve all the terms and conditions
of the transactions between Vivendi, Canal+ and Seagram.
The shareholders' meeting, voting under conditions of quorum and with the
majority required for Extraordinary Shareholders' Meetings, having taken note of
the following:
- the report of the Board of Directors to the shareholders' meeting and
specifically the information document approved by the Commission des
Operations de Bourse, which appears as an addendum to the aforementioned
report,
- the resolutions submitted to Sofiee's joint ordinary and extraordinary
shareholders' meeting on the date hereof,
hereby approves, under the condition of the completion of the merger of Vivendi
referred to in the second resolution of this meeting, all the terms and
conditions of the transactions with Canal+ and Seagram, which are summarized in
the report of the Board of Directors and its addenda, and which specifically
include:
- the contribution to Sofiee of the interest held by Vivendi in Canal+,
- the merger of SIG 40 into Sofiee, following the contribution made by
Canal+ to SIG 40 and the simultaneous distribution to Canal+'s
shareholders of the SIG 40 shares issued in payment of this contribution,
the consideration for the aforementioned merger, and the assumption by
Sofiee of the stock option purchase plans and the stock option
subscription plans assumed by SIG 40, and the resulting waiver of the
preferential subscription right,
- the authorization given by the extraordinary shareholders' meeting of
Sofiee to Sofiee's Board of Directors to issue bonds redeemable in shares
(ORA) reserved for Vivendi Universal Holding SAS for a maximum nominal
amount of 46,222,167,503.9 euros for an issuance price per ORA
corresponding to the average price at closure, on the Premier Marche of
the Paris Bourse, of the Vivendi share between the 23rd trading day and
the 3rd trading day prior to the date of issuance and granting the right
to issue a number of shares at a maximum nominal value of 2,208,704,789.5
euros, to be exchanged for the Seagram common shares which will be
contributed in the transaction, and to allow the assumption of stock
option plans, stock appreciation rights, ACES and other securities giving
access to Seagram's share capital, and more generally all consideration
granted to Seagram's shareholders for the acquisition of 100% of the
Seagram common shares, which are summarized in the report of the Board of
Directors and the addenda thereto,
- the adoption by Sofiee of the name Vivendi Universal, of the articles of
association described in the report of the Board of Directors and the
addenda hereto, and financial authorizations granted to its Board of
Directors,
O-1
<PAGE> 700
- the designation as members of Sofiee's Board of Directors, chaired by Mr.
Jean-Marie Messier, of Eric Licoys, Bernard Arnault, Jean-Louis Beffa,
Jean-Marc Espalioux, Philippe Foriel-Destezet, Jacques Friedmann, Henri
Lachmann, Thomas Middlehof, Simon Murray, Serge Tchuruk, Rene Thomas,
Marc Vienot, Madame Esther Koplowitz, current members of the Vivendi
Board of Directors, and Edgar M. Bronfman, Charles R. Bronfman, Edgar
Bronfman, Jr., Richard H. Brown, Andre Desmarais and Pierre Lescure.
Second Resolution: Approval of the merger of the Company into Sofiee, the
name of which shall become Vivendi Universal.
The purpose of this resolution is the approval of the terms and conditions
of the merger of the Company into Sofiee (Vivendi Universal), especially the
adoption of the exchange ratio of one Vivendi Universal share for one Vivendi
share and the valuation of the net assets contributed.
The shareholders' meeting, voting under conditions of quorum and with the
majority required for extraordinary meetings, having taken note of the
following:
- the merger agreement of the Company with Vivendi Universal dated as of
June 30, 2000 and its amendment dated as of October 20, 2000, filed with
the Commercial Court of Paris, according to the terms of which the
Company contributes, as at January 1, 2000, to Vivendi Universal, under
certain conditions listed in the aforementioned merger agreement, all the
assets and liabilities included in its balance sheet and described in the
aforementioned merger agreement.
- the report of the Board of Directors to the shareholders' meeting, and
- the reports of the statutory appraisers of the merger,
hereby approves the merger of the Company into Sofiee, its valuation and
consideration, and specifically:
- all the provisions of the merger agreement and its addenda,
- the valuation of the contributed net assets for an amount of
13,587,851,461.06 euros, as appears on the balance sheet of the Company
at December 31, 1999,
- the payment of the contributions made in connection with the merger
according to an exchange rate of one Vivendi Universal share for one
Vivendi share.
The Shareholders' Meeting takes note of the provisions of Sofiee's articles
of association, and in particular the absence of double voting rights, as
described in the report of the Board of Directors, and the financial
authorizations and the authorizations to approve the stock option plans approved
by the Shareholders' Meeting of Sofiee on September 21, 2000.
The aforementioned merger operation will be executed when the conditions
listed in the agreement relating to such merger have been satisfied or when one
and/or all the parties receive such conditions, either in whole or in part.
Third Resolution: Dissolution of the Company without liquidation.
The purpose of this resolution is the approval of the dissolution without
liquidation of Vivendi upon its merger into Vivendi Universal and the
satisfaction of the conditions stipulated in the merger agreement and all the
operations related to the Vivendi/Canal+/Seagram transactions.
The Shareholders' Meeting hereby approves that, as a result of the
preceding resolution and subject to the completion of the merger, the Company
shall be duly dissolved without liquidation as a result of the merger of the
Company into Vivendi Universal on the date on which all the conditions have
either been satisfied or waived by one and/or all parties, in whole or in part.
Fourth Resolution: Final completion of the merger and transactions among
Vivendi, Canal+ and Seagram.
O-2
<PAGE> 701
The purpose of this resolution is to delegate to the Board of Directors the
power to verify the final completion of the merger, all the conditions to the
merger and to the transactions.
The Shareholders' meeting grants all powers to the Board of Directors of
the Company, and as a result of its merger into Sofiee, to Sofiee's Board of
Directors, with the right to delegate to the Chairman of the aforementioned
Board of Directors, in order to ensure the final satisfaction of all the
conditions listed in the merger agreement approved by the present meeting, or as
the case may be, to waive such conditions in whole or in part on behalf of the
Company, and the final satisfaction of all the conditions of the merger
transaction resulting particularly from the favorable vote of the shareholders'
meetings of Sofiee, Canal+ and Seagram and, as a result:
- to ensure the completion of the operations which have been submitted for
the approval of the present shareholders' meeting, and of Sofiee, Canal+
and Seagram's shareholders' meetings,
- to reiterate, if need be, and in all forms, the approved operations,
stipulate all the certifications, complementary or rectifying documents
which may be necessary, and to perform all acts deemed useful,
- to fill out all forms, make all declarations before legal authorities, as
well as all notices to all parties whatsoever; and in the event of
difficulty, to bring or respond to suits,
- for these purposes, to sign all exhibits, legal acts and documents, elect
legal domicile, replace and delegate within the limits of the powers
stipulated herein, and to do everything that is necessary in this regard.
Fifth Resolution: Power to execute all documents.
The Shareholders' Meeting grants all powers to the bearer of an original, a
copy or a summary of the minutes of these deliberations in order to satisfy all
legal requirements to render the aforementioned resolutions public.
O-3
<PAGE> 702
ANNEX P
CANAL+
A FRENCH SOCIETE ANONYME WITH A CAPITAL OF 94,586,271.75 EUROS
REGISTERED OFFICE: 85, QUAI ANDRE CITROEN, 75015 PARIS
REGISTRY OF COMMERCE AND COMPANIES: PARIS 329 211 734
------------------------
DRAFT RESOLUTIONS
1. EXTRAORDINARY AGENDA
FIRST RESOLUTION
The shareholders, having the quorum and majority required for extraordinary
shareholders' meetings, and having taken note of:
-- the proposed contribution agreement, governed by the legal regime
applicable to spin-offs (scissions), executed by the Company and by the
Societe d'Exploitation de Services Audiovisuels (to be renamed "CANAL+
Regie"), and filed with the Clerk of the Commercial Court of Paris,
pursuant to which CANAL+ will transfer to CANAL+ Regie, subject to the
conditions precedent listed in said proposed agreement, its business of
selling advertising on pay television channels and theme channels (as
defined in the agreement), with retroactive effect as of January 1,
2000,
-- the Board of Directors' report to the shareholders' meeting, and
-- the reports of the statutory appraisers (commissaires aux apports et a
la scission),
approved the contribution in favor of CANAL+ Regie, its valuation and the
consideration therefor, and in particular:
-- all the provisions of the draft contribution agreement and exhibits
thereto relating to the contribution,
-- the issuance by CANAL+ Regie to the Company of 5,000,000 shares, of par
value one (1) euro each, fully paid up, in the form of a capital
increase.
The contribution shall be carried out upon due acknowledgment that the
conditions precedent listed in the proposed agreement relating to this
contribution have been completed or waived, in all or part, in which case the
contribution referred to in this resolution shall occur immediately prior to the
completion of the contribution referred to in the third resolution.
SECOND RESOLUTION
The shareholders, having the quorum and majority required for extraordinary
shareholders' meetings, and having taken note of:
-- the proposed contribution agreement governed by the legal regime
applicable to spin-offs (scissions), executed by the Company and by
Vangur (to be renamed "CANAL+ Distribution"), and filed with the Clerk
of the Commercial Court of Paris, pursuant to which Canal+ will transfer
to CANAL+ Distribution, subject to the conditions precedent listed in
said proposed agreement, the distribution and marketing business of the
CANAL+ pay-TV and channel packages (as defined in said agreement),
including the contribution of certain rights and obligations (apport en
jouissance) referred to in the draft contribution agreement, in
particular CANAL+'s subscriber base, the right to use such base for all
business purposes and, consequently, all the financial rights (except
for advertising and sponsoring) relating to the exclusive commercial
exploitation of the CANAL+
P-1
<PAGE> 703
channel (all as referred to and defined in said agreement), all effective
retroactively to January 1, 2000,
-- the Board of Directors' report to the shareholders' meeting, and
-- the reports of the statutory appraisers (commissaires aux apports et a
la scission),
approved the contribution in favor of CANAL+ Distribution, its valuation and
consideration, and in particular:
-- all the provisions of the proposed contribution and exhibits thereto,
-- issuance by CANAL+ Distribution to the Company of 13,000,000 shares of
par value one (1) euro each, fully paid up, in the form of a capital
increase.
The contribution shall be carried out upon due acknowledgement that the
conditions precedent listed in the proposed agreement relating to this business
contribution have been completed or waived, in all or part, in which case the
contribution being the subject of this resolution shall occur immediately prior
to the contribution referred to in the third resolution.
THIRD RESOLUTION
The shareholders, having the quorum and majority required for extraordinary
shareholders' meetings, and having taken note of:
-- the proposed contribution agreement, governed by the legal regime
applicable to spin-offs (scissions), executed by the Company and by SIG
40, and filed with the Clerk of the Commercial Court of Paris, pursuant
to which CANAL+ will transfer to SIG 40, subject to the conditions
precedent listed in said proposed agreement, its activities other than
the business of editing and broadcasting its French premium
pay-television channel (and other than the legal title to those assets,
liabilities, rights and obligations having been contributed (apportes en
jouissance) to Vangur (CANAL+ Distribution)), and in particular the
shareholdings described in said proposed agreement, including the
shareholdings the Company will respectively hold in CANAL+ Regie and
CANAL+ Distribution as a result of the contributions described in the
first and second resolutions submitted to this meeting, as well as the
holding company functions related thereto, including administrative
functions, all effective retroactively to January 1, 2000,
-- the Board of Directors' report to the shareholders' meeting, and
-- the reports of the statutory appraisers (commissaires aux apports et a
la scission), approved the contribution, its valuation and
consideration, and in particular:
-- all the provisions of the proposed contribution agreement and exhibits
thereto relating to said contribution,
-- issuance by SIG 40 to the Company of 126,693,608 shares of par value one
(1) euro each, fully paid up, issued with a premium of 1,979,846,586
euros, as a capital increase, and to be allocated among the shareholders
according to a ratio of one SIG 40 share per CANAL+ share held.
The contribution shall be carried out upon due acknowledgement that the
conditions precedent listed in the proposed agreement relating to this
contribution have been completed or waived, in all or part, in which case the
contribution being the subject of this resolution shall occur immediately after
the completion of the contributions referred to in the first and second
resolutions submitted to this meeting.
The shareholders, taking note of the fact that the contribution is governed
by the legal regime applicable to spin-offs (scissions) pursuant to Article L
236-27 of the French Commercial Code, and that the amount of the reserves is
higher than the net value of the transfer, approved, pursuant to the
aforementioned proposed contribution agreement, the distribution to the
shareholders of the Company of the SIG 40 shares received by CANAL+ in
consideration for the above-referred contribution in favor of
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SIG 40, pursuant to a ratio of one SIG 40 share per CANAL+ share held, it being
specified that this distribution will be carried out upon completion of the
conditions precedent provided for such purpose in the contribution agreement
relating to SIG 40.
The shareholders, further to the contribution described in this resolution,
and the undertaking by SIG 40 to account for a special reserve for long term
capital gains up to a proportion of CANAL+'s special reserve for long term
capital gains determined in accordance with applicable tax rules, decided to
allocate said distribution, amounting to 2,106,540,194 euros, to the following
accounts:
-- 1,009,224,159 euros to the "issuance and contribution premium" account
-- 1,097,316,035 euros to the "other reserves" account.
The shareholders consequently took note of the fact that, due to those
conditions precedent and to the conditions precedent to the merger-absorption of
SIG 40 by Sofiee, the SIG 40 shares to be distributed to the shareholders will
be immediately cancelled and exchanged for shares of Vivendi Universal (formerly
named Sofiee) resulting from the merger between SIG 40 and Sofiee, pursuant to a
ratio of two Vivendi Universal shares per SIG 40 share, to be granted to
CANAL+'s shareholders other than Vivendi Universal.
The shareholders further took note of the fact that the approval of the
contribution in favor of SIG 40 referred to herein is part of the merger
contemplated between the Vivendi and CANAL+ groups, to be effected through the
merger-absorption of SIG 40 by Sofiee to occur at the same time as all of the
merger transactions between the Vivendi, CANAL+ and Seagram groups, and to the
extent necessary, the shareholders, having acknowledged the reports of the
statutory appraisers (commissaires aux apports et a la fusion), regarding the
contribution and merger, decided to approve the merger described in the draft
merger agreement and exhibits included as Exhibit E to the draft contribution
agreement in favor of SIG 40 and more generally, decided to approve all the
proposed merger transactions between the Vivendi, CANAL+ and Seagram groups
described in the French prospectus registered by the French Commission des
operations de bourse, which constitutes an annex to the report of the Board of
Directors of the Company to this meeting.
FOURTH RESOLUTION
The shareholders, having the quorum and majority required for extraordinary
shareholders' meeting, granted all powers to the Board of Directors, including
the power to delegate to its chairman, to acknowledge or waive the final
completion of all of the conditions precedent listed in the proposed
contribution agreements submitted to this meeting, and consequently:
-- to acknowledge the completion of the contributions whose approval has
been submitted to this meeting, including the correlative distribution
of the SIG 40 shares to the shareholders of CANAL+;
-- to reiterate, if necessary and in any form whatsoever, the contribution
in favor of the various beneficiary companies, to draw up all such
ratifying, additional or rectified instruments as might be necessary, to
carry out all formalities useful to facilitate the transmission of the
rights and obligations transferred by the Company to the various
beneficiary companies;
-- to carry out all formalities and make all governmental filings, as well
as all notices and communications; and, in case of difficulty, initiate
or follow any legal proceedings;
-- for the purposes described above, sign all documents and instruments,
elect domicile, substitute and delegate within the limit of these
powers, and perform all necessary actions.
It granted all powers to the Board of Directors, with possibility of
delegation, to ensure that all formalities subsequent to the aforementioned
contributions had been carried out by the companies benefiting from the
contributions.
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FIFTH RESOLUTION
The shareholders, having the quorum and majority required for extraordinary
shareholders' meetings, and having taken note of the Board of Directors' report
and the statutory auditors' report, authorized the Board of Directors:
- to cancel the shares acquired as a result of the implementation of the
authorizations granted by the ordinary shareholders' meeting of CANAL+,
pursuant to Articles L 225-209 et seq. of the French Commercial Code to
buy and sell CANAL+ shares, within the limit of 10% of its capital by
twenty-four-month period, and to reduce the share capital by charging the
difference between the repurchase value of the canceled shares and their
par value to the premiums and reserves;
- to modify the Company's by-laws accordingly and to carry out all
necessary formalities.
This authorization is given for a five-year period as from this meeting.
Its effective date is, however, subject to approval of the sixth resolution
(ordinary agenda) of this meeting.
2. ORDINARY AGENDA
SIXTH RESOLUTION
The shareholders, having the quorum and majority required for ordinary
shareholders' meetings, and having taken note of the Board of Directors' report
and the information appearing in the information circular filed with the
Commission des operations de bourse, authorized the Board of Directors, pursuant
to the provisions of Article L 225-209 of the French Commercial Code, to acquire
a number of shares representing up to 10% of the number of shares forming the
Company's capital, i.e. 12,611,502 shares.
The shareholders decided that these purchases could be carried out with a
view to:
-- market stabilization of the market price of the Company's shares,
-- granting stock options to the employees and/or corporate officers of the
Company and/or its group or enable the exercise of said options,
-- granting shares in the context of the employees' participation in the
proceeds of the expansion (participation aux fruits de l'expansion),
-- delivering the shares to the exercise of rights attached to the
securities entitling to shares of the Company by reimbursement,
conversion, exchange, presentation of a warrant or any other way,
-- maintaining, canceling, assigning or transferring the acquired shares.
In light of the contribution and distribution transactions submitted to
this meeting, the maximum price at which the Company may carry out those
acquisitions shall be set according to the market price of the CANAL+ share
after completion of said transactions. The shareholders therefore decided to set
the maximum price at which the Company may carry out those acquisitions at 175%
of the average of the first listed market prices of the CANAL+ share during the
five consecutive trading days following the first listing of the shares of
Vivendi Universal (ex-Sofiee) on the Premier Marche of ParisBourse(SBF) S.A. The
acquisitions shall comply with the rules provided for by the regulations of the
Commission des operations de bourse relating to trading by issuers in their own
securities.
The shareholders decided to grant all powers to the Board of Directors in
order to sell or otherwise assign the shares thus acquired, within the limit of
a minimum price equal to 25% of the average of the first listed market prices of
the CANAL+ share during the five consecutive trading days following the first
listing of the shares of Vivendi Universal (ex-Sofiee) on the Premier Marche of
ParisBourse(SBF) S.A.
The Board of Directors may carry out the acquisition, assignment and
transfer of the Company's shares by any means on the market or over-the-counter.
Those means include the use of any derivative
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financial instrument traded on a regulated market or over-the-counter, and the
setting up of option strategies (purchase and sale of call or put options, and
any combinations thereof).
This authorization is given for a maximum eighteen-month period as from
this meeting. It replaces as from this meeting the authorization previously
granted by the fourth resolution of the extraordinary and ordinary shareholders'
meeting of April 28, 2000, which authorization will be terminated as from the
coming into force of this resolution.
The Board of Directors shall provide in its report to the annual
shareholders' meeting the information relating to the purchases of shares and
assignments thus completed.
In order to ensure the performance of this authorization, all powers were
granted to the Board of Directors, with possibility of sub-delegration, in order
to place any stock exchange orders, enter into any agreements for the purpose,
in particular, to keep the purchase and sale registers, to carry out all filings
with the Commission des operations de bourse and the Conseil des marches
financiers or any other body, carry out all formalities and, generally, make all
necessary actions.
The effectiveness of this resolution is subject to the condition precedent
of the completion of the contribution transactions submitted to this meeting.
3. EXTRAORDINARY AND ORDINARY AGENDA
SEVENTH RESOLUTION
The shareholders, having the necessary quorum and majority, granted all
powers to the bearer of an original, a copy or extract from these minutes of the
meeting in order to carry out all legal formalities.
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[VIVENDI UNIVERSAL LOGO]
