Edgar Filing: VIVENDI UNIVERSAL

1
As Filed Pursuant to Rule 424(b)(3)
Registration No. 333-64754

[MP3.COM LOGO]

To the stockholders of MP3.com:

You are cordially invited to attend a special meeting of stockholders of
MP3.com, Inc. to be held on August 27, 2001, at 9:00 a.m., local time, at
MP3.com's corporate headquarters located at 4790 Eastgate Mall, San Diego,
California 92121-1970.

At the special meeting, you will be asked to vote on the adoption of a
merger agreement for a merger with Vivendi Universal, S.A., under which MP3.com
will merge with and into a wholly owned subsidiary of Vivendi Universal.

Under the merger agreement, in exchange for each of your shares of MP3.com
common stock, you may elect to receive (1) $5.00 in cash, or (2) a number of
Vivendi Universal ordinary shares (in the form of American Depositary Shares)
having a value of $5.00, subject to proration as described below. Vivendi
Universal ordinary shares (in the form of American Depositary Shares) trade on
the New York Stock Exchange under the trading symbol "V", and closed at $55.00
per share on July 23, 2001.

In connection with the merger, you may not receive all of your merger
consideration in the form that you elect. The merger agreement provides that the
percentage of shares of MP3.com common stock that will be converted into the
right to receive Vivendi Universal ordinary shares is fixed at 50% and the
percentage of shares of MP3.com common stock that will be converted into the
right to receive cash is also fixed at 50%. Therefore, the MP3.com stockholders'
elections, including yours, may be adjusted on a pro rata basis so that, in the
aggregate, 50% of the MP3.com common stock is converted into the right to
receive Vivendi Universal ordinary shares and 50% of the MP3.com common stock is
converted into the right to receive cash.

After careful consideration, MP3.com's board of directors has unanimously
approved the merger agreement and the merger and determined that the merger
agreement and the merger are advisable, fair to and in the best interests of,
MP3.com and its stockholders. The board of directors unanimously recommends that
you vote FOR the proposal to adopt the merger agreement at the special meeting.

The attached notice of special meeting and proxy statement/prospectus
explain the proposed merger and provide specific information concerning the
special meeting. Please read these materials carefully. IN PARTICULAR, YOU
SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS"
BEGINNING ON PAGE 20 OF THE PROXY STATEMENT/PROSPECTUS.

MP3.com is a Delaware corporation. Under Delaware law, the affirmative vote
of the holders of a majority of the outstanding shares of MP3.com common stock
entitled to vote at the special meeting is required to adopt the merger
agreement. MP3.com stockholders owning more than 50% of the MP3.com common stock
as of July 23, 2001 have agreed to vote all of their shares in favor of the
proposal to adopt the merger agreement. As a result, adoption of the merger
agreement by the MP3.com stockholders at the special meeting is assured.

Your vote is very important regardless of the number of shares you own. To
vote your shares, you may use the enclosed proxy card, grant a proxy online or
by telephone or attend the special meeting in person. Whether or not you plan to
attend the special meeting, please complete, sign and promptly return the
enclosed proxy card or grant a proxy online or by telephone to assure that your
shares will be voted at the special meeting. Failure to return a properly
executed proxy card, grant a proxy online or by telephone or vote at the special
meeting will have the same effect as a vote against adoption of the merger
agreement.

Sincerely,

/s/ Michael L. Robertson

Michael L. Robertson
Chief Executive Officer and Chairman of the
Board of Directors

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THE MERGER DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OR THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE
MERGER, OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This proxy statement/prospectus is dated July 26, 2001, and is first being
mailed to stockholders of MP3.com on or about July 30, 2001.
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[MP3.COM LOGO]

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 27, 2001

To the stockholders of MP3.com:

A special meeting of stockholders of MP3.com, Inc. will be held on August
27, 2001, at 9:00 a.m., local time, at MP3.com's corporate headquarters located
at 4790 Eastgate Mall, San Diego, California 92121-1970, for the following
purposes:

1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of May 20, 2001, by and among Vivendi Universal, S.A.,
Metronome Acquisition Sub Inc., and MP3.com, Inc., as amended by the
Modification Agreement, dated as of June 13, 2001, by and among such
parties, pursuant to which:

- MP3.com will merge with and into a wholly owned subsidiary of Vivendi
Universal; and

- each outstanding share of MP3.com common stock, other than any shares
held by parties to the merger agreement or stockholders who perfect
their statutory appraisal rights under Delaware law, will be
converted into the right to receive (1) $5.00 in cash or (2) a number
of Vivendi Universal ordinary shares (in the form of American
Depositary Shares, or ADSs) having a value of $5.00, subject to
proration as described below.

2. To transact such other business that may properly come before the
special meeting or any adjournment or postponement of the special
meeting.

The proposed merger is described in more detail in the accompanying proxy
statement/prospectus. A copy of the merger agreement is attached as Annex A to
the accompanying proxy statement/prospectus.

The board of directors of MP3.com has unanimously approved the merger
agreement and the merger and determined that the merger agreement and the merger
are advisable, fair to and in the best interests of, MP3.com and its
stockholders. The board of directors unanimously recommends that you vote "FOR"
the proposal to adopt the merger agreement at the special meeting.

The record date for the special meeting is July 23, 2001. If you were a
registered MP3.com stockholder at the close of business on the record date, you
are entitled to vote at the special meeting. For 10 days prior to the special
meeting, a complete list of stockholders entitled to vote at the special meeting
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will be available for examination by any stockholder for any purpose germane to
the special meeting during ordinary business hours at MP3.com's corporate
headquarters.

Your vote is very important, regardless of the number of shares you own.
Please submit your proxy as soon as possible to make sure that your shares are
represented at the special meeting. To vote your shares, you may complete and
return the enclosed proxy card or you may grant a proxy online or by telephone.
If you are a holder of record, you may also cast your vote in person at the
special meeting. If your shares are held in an account at a brokerage firm or
bank, you must instruct your broker or bank on how to vote your shares. If you
do not vote or do not instruct your broker or bank on how to vote, it will have
the same effect as voting against the adoption of the merger agreement.

Those of you who do not vote in favor of adoption of the merger agreement
have the right to demand appraisal of your shares of MP3.com common stock and to
receive payment in cash for the fair value of your shares as determined by the
Delaware Chancery Court. A copy of the provision of Delaware law that grants
appraisal rights and specifies the required procedures for demanding appraisal
is attached to the accompanying proxy statement/prospectus as Annex D.

San Diego, California
July 26, 2001

By Order of the Board of Directors,

/s/ Blake T. Bilstad

Blake T. Bilstad
Secretary
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ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and
financial information about MP3.com from other documents that are not included
in or delivered with this proxy statement/prospectus. This information is
available to you without charge upon your written or oral request. You can
obtain the documents incorporated by reference in this proxy
statement/prospectus by requesting them in writing or by telephone or e-mail at
the following address, telephone number and e-mail address:

MP3.COM, INC.
4790 Eastgate Mall
San Diego, CA 92121-1970
Attention: Investor Relations
Telephone: (858) 623-7222
E-mail: investor@mp3.com

IN ORDER TO OBTAIN THE DOCUMENTS IN TIME FOR THE SPECIAL MEETING, YOU MUST
REQUEST THE DOCUMENTS FROM MP3.COM BY AUGUST 20, 2001, WHICH IS FIVE BUSINESS
DAYS PRIOR TO THE DATE OF THE SPECIAL MEETING.

See "Where You Can Find More Information" on page 192.

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TABLE OF CONTENTS

PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 5
RISK FACTORS................................................ 20
Risks Related to the Merger............................... 20
Risks Related to an Investment in Vivendi Universal
ADSs................................................... 21
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 25
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN
PERSONS................................................... 26
THE SPECIAL MEETING......................................... 27
General................................................... 27
Date, Time and Place...................................... 27
Purpose of Special Meeting................................ 27
Record Date; Stock Entitled to Vote; Quorum............... 27
Proxies; Revocation; Solicitation......................... 27
Internet or Telephonic Proxies............................ 28
Required Vote............................................. 29
Adjournments or Postponements............................. 29
THE MERGER.................................................. 30
Background of the Merger.................................. 30
Reasons for the Merger.................................... 33
Recommendation of the MP3.com Board of Directors.......... 35
Opinion of MP3.com's Financial Advisor.................... 35
Unaudited Pro Forma Combined Condensed Financial
Statements............................................. 42
Interests of Certain Persons in the Merger................ 44
Form of Merger............................................ 48
Effective Time of the Merger.............................. 48
Consideration to be Received in the Merger................ 49
Election Procedure; Proration............................. 49
Exchange Procedures....................................... 50
Accounting Treatment...................................... 51
Regulatory Matters........................................ 51
Resale of Vivendi Universal ADSs.......................... 52
Stock Exchange Matters.................................... 52
Appraisal Rights.......................................... 52
THE MERGER AGREEMENT........................................ 56
Representations and Warranties............................ 56
Conduct of Business Pending the Merger.................... 57
No Solicitation of Acquisition Proposals.................. 59
Stock Options and Other Employee Benefit Matters.......... 60
Additional Covenants...................................... 62
Conditions to Consummation of the Merger.................. 62
Termination............................................... 63

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PAGE
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Expenses.................................................. 63
Amendment and Waiver...................................... 63
THE STOCKHOLDER AGREEMENT................................... 65
Agreement to Vote for the Merger.......................... 65
Irrevocable Proxy......................................... 65
Other Agreements.......................................... 66
TAXATION.................................................... 67
The Merger -- French Taxation............................. 67
The Merger -- United States Federal Income Taxation....... 68
COMPARATIVE STOCK PRICES AND DIVIDENDS...................... 70
Market Prices............................................. 70
Dividends................................................. 71
DESCRIPTION OF VIVENDI UNIVERSAL ORDINARY SHARES............ 72
General................................................... 72
Ownership of Vivendi Universal Ordinary Shares by
Non-French Persons..................................... 72
Voting, Dividend and Liquidation Rights................... 72
Preferential Subscription Rights.......................... 73
Form, Holding and Transfer................................ 73
Anti-Takeover Effects..................................... 74
DESCRIPTION OF VIVENDI UNIVERSAL ADSS....................... 76
American Depositary Shares................................ 76
Share Dividends and Other Distributions................... 76
Deposit, Withdrawal and Cancelation....................... 77
Voting Rights............................................. 78
Record Dates.............................................. 79
Reports and Other Communications.......................... 79
Fees and Expenses......................................... 80
Payment of Taxes.......................................... 80
Reclassifications, Recapitalizations and Mergers.......... 80
Amendment and Termination................................. 81
Limitations on Obligations and Liability to Vivendi
Universal ADS Holders.................................. 82
Disclosure of Interest in Vivendi Universal ADSs.......... 82
Requirements for Depositary Actions....................... 83
Pre-release of ADRs....................................... 83
COMPARISON OF SHAREHOLDER RIGHTS............................ 84
Size and Qualification of the Board of Directors.......... 84
Removal of Directors and Vacancies........................ 85
Shareholder Nominations and Proposals..................... 85
Shareholders' Meetings and Quorum......................... 87
Approval of Extraordinary Actions......................... 88
Shareholder Action by Written Consent..................... 89
Payment of Dividends...................................... 89
Preferential Subscription Rights.......................... 89

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PAGE
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Appraisal Rights.......................................... 90
Duties of the Board of Directors.......................... 90
Anti-Takeover Provisions.................................. 91
Shareholder Suits......................................... 93
Inspection of Books and Records........................... 93
Transactions with Interested Directors.................... 94
Director Liability and Indemnification.................... 95
MP3.COM..................................................... 96
VIVENDI UNIVERSAL........................................... 98
History and Development of Vivendi Universal.............. 98
Business Overview......................................... 101
Legal Proceedings......................................... 142
Exchange Controls......................................... 147
Taxation.................................................. 147
Operating and Financial Review and Prospects.............. 152
Directors and Senior Management........................... 177
Related Party Transactions................................ 183
Share Capital Information................................. 186
Quantitative and Qualitative Disclosures About Market
Risk................................................... 188
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 189
LEGAL AND TAX MATTERS....................................... 191
EXPERTS..................................................... 191
STOCKHOLDER PROPOSALS....................................... 191
OTHER MATTERS............................................... 191
WHERE YOU CAN FIND MORE INFORMATION......................... 192
INDEX TO FINANCIAL STATEMENTS............................... F-1
Index to Consolidated Financial Statements of Vivendi
Universal.............................................. F-1
Index to Consolidated Financial Statements of Seagram..... F-1
Index to Consolidated Financial Statements of MP3.com..... F-2
ANNEXES
Annex A Agreement and Plan of Merger (including the
Modification Agreement)................................ A-1
Annex B Stockholder Agreement............................. B-1
Annex C Opinion of Credit Suisse First Boston
Corporation............................................ C-1
Annex D Section 262 of Delaware General Corporation Law
(Appraisal Rights)..................................... D-1

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QUESTIONS AND ANSWERS ABOUT THE MERGER

The following are some questions that you, as a stockholder of MP3.com, may
have and answers to those questions. These questions and answers may not address
all questions that may be important to you as a holder of MP3.com common stock.
We urge you to read carefully the remainder of this proxy statement/prospectus
because the information in this section is not complete and additional important
information is contained in the remainder of this proxy statement/prospectus,
the annexes to this proxy statement/prospectus and the documents referred to or
incorporated by reference in this proxy statement/prospectus.

Q: WHY AM I RECEIVING THIS DOCUMENT AND PROXY CARD?

A: You are receiving this document and proxy card because you own shares of
MP3.com common stock. MP3.com has entered into a merger agreement with Vivendi
Universal pursuant to which Vivendi Universal will acquire MP3.com. This
document describes a proposal to adopt the merger agreement. This document also
gives you information about MP3.com and Vivendi Universal and other background
information so that you can make an informed investment decision, as Vivendi
Universal is offering its ordinary shares as part of the merger consideration.

Q: WHAT WILL HAPPEN TO MP3.COM AS A RESULT OF THE MERGER?

A: If the merger is completed, MP3.com will merge with and into a wholly owned
subsidiary of Vivendi Universal.

Q: WHY ARE VIVENDI UNIVERSAL AND MP3.COM PROPOSING THE MERGER?

A: The merger is expected to strongly reinforce Vivendi Universal and MP3.com's
digital efforts in the strategic areas of online music, subscriptions, branding,
technology and content.

Q: WHAT WILL I RECEIVE IN THE MERGER?

A: You will have an opportunity to make a choice about what you prefer to
receive in the merger. For each share of MP3.com common stock you own, you will
have the right to elect to receive either:

- $5.00 in cash; or

- a number of Vivendi Universal ordinary shares (in the form of American
Depositary Shares, or ADSs) having a value of $5.00.

You will not, however, be assured of receiving either all Vivendi Universal
ordinary shares or all cash, notwithstanding your choice, as explained below.

Q: WILL I RECEIVE THE FORM OF PAYMENT THAT I CHOOSE?

A: Not necessarily. The merger agreement provides that the percentage of shares
of MP3.com common stock that will be converted into the right to receive Vivendi
Universal ordinary shares is fixed at 50% and the percentage of shares of
MP3.com common stock that will be converted into the right to receive cash is
also fixed at 50%. Therefore, the MP3.com stockholders' elections, including
yours, may be adjusted on a pro rata basis so that, in the aggregate, 50% of the
MP3.com common stock is converted into the right to receive Vivendi Universal
ordinary shares and 50% of the MP3.com common stock is converted into the right
to receive cash.

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For example, if holders of 75% of the shares of MP3.com common stock have chosen
to receive Vivendi Universal ordinary shares and holders of 25% of the shares of
MP3.com common stock have chosen to receive cash, then:

- if you chose to receive Vivendi Universal ordinary shares, you would
receive Vivendi Universal ordinary shares in exchange for two-thirds of
your shares of MP3.com common stock and cash in exchange for one-third of
your shares of MP3.com common stock; and

- if you chose to receive cash, you would receive cash in exchange for all
of your shares of MP3.com common stock.

On the other hand, if holders of 75% of the shares of MP3.com common stock have
chosen to receive cash and holders of 25% of the shares of MP3.com common stock
have chosen to receive Vivendi Universal ordinary shares, then:

- if you chose to receive Vivendi Universal ordinary shares, you would
receive Vivendi Universal ordinary shares in exchange for all of your
shares of MP3.com common stock; and

- if you chose to receive cash, you would receive cash in exchange for
two-thirds of your shares of MP3.com common stock and Vivendi Universal
ordinary shares in exchange for one-third of your shares of MP3.com
common stock.

If holders of 100% of the shares of MP3.com common stock have chosen to receive
all cash, then each holder would receive cash in exchange for 50% of that
holder's shares of MP3.com common stock and Vivendi Universal ordinary shares in
exchange for 50% of that holder's shares of MP3.com common stock. The result
would be the same if holders of 100% of the shares of MP3.com common stock have
chosen to receive all Vivendi Universal ordinary shares.

Q: WHAT IS AN AMERICAN DEPOSITARY SHARE?

A: An American Depositary Share is an ownership interest in the securities of a
non-U.S. company deposited at a custodian bank. In the case of Vivendi
Universal, each ADS will represent the right to receive one Vivendi Universal
ordinary share. ADSs are represented by American Depositary Receipts, or ADRs.
ADRs are issued in book-entry form or in the form of physical certificates. It
is expected that you will receive Vivendi Universal ADSs evidenced by ADRs held
in book-entry form. You will not receive a physical certificate evidencing your
Vivendi Universal ADSs unless you specifically request one. For a description of
the ADSs, see "Description of Vivendi Universal ADSs" on page 76.

Q: HOW DO I ELECT THE FORM OF PAYMENT I PREFER?

A: If your shares are held in registered form, you will receive in a separate
mailing an election form which you should read carefully. You must return your
completed and executed election form, as described in the instructions contained
in the election form, to elect the form of merger consideration that you prefer
to receive.

IN ORDER TO BE CONSIDERED VALID, YOUR ELECTION FORM MUST BE RECEIVED BY THE
EXCHANGE AGENT BY 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 24, 2001, WHICH IS
THE BUSINESS DAY IMMEDIATELY PRECEDING THE SPECIAL MEETING.

If your MP3.com shares are held in a brokerage or other custodial account, you
will receive instructions from the entity where your shares are held advising
you of the procedures for making your election and delivering your shares.

Q: CAN I MAKE ONE ELECTION FOR SOME OF MY SHARES AND ANOTHER ELECTION FOR THE
REST?

A: Yes. You may elect to receive a combination of cash and Vivendi Universal
ordinary shares.

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Q: WHAT IF I FAIL TO MAKE AN ELECTION?

A: If you make no election, you will be deemed to have elected to receive cash.

Q: HOW SHOULD I SEND IN MY STOCK CERTIFICATES?

A: If your shares are held in registered form and you make an election of
consideration by returning a completed election form, you must send in your
MP3.com common stock certificates with your completed election form to the
exchange agent. If you do not make an election, then you must keep your stock
certificates until after the closing, when you will receive a letter of
transmittal describing how you may exchange your certificates for merger
consideration. DO NOT SEND YOUR STOCK CERTIFICATES OR ELECTION FORM WITH YOUR
PROXY CARD. If your shares are held in a brokerage or other custodial account,
you will receive instructions from the entity where your shares are held,
advising you of the procedures for making your election and delivering your
shares.

Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?

A: We expect to complete the merger in the third quarter of 2001. Because the
merger is subject to stockholder and governmental approvals, as well as other
conditions, we cannot predict the exact timing of its completion.

Q: HOW CAN I VOTE?

A: After you have carefully read this document, indicate on your proxy card how
you want to vote. Sign, date and mail the proxy card in the enclosed prepaid
return envelope as soon as possible, so that your shares may be represented and
voted at the special meeting. You may also grant a proxy online or by telephone
according to the instructions on the proxy card.

When you cast your vote using the proxy card or by submitting your proxy online
or by telephone, you also appoint Robin Richards, Paul Ouyang and Blake Bilstad
as your representatives, or proxies, at the special meeting. They will vote your
shares at the meeting as you have instructed them on the proxy card or when
submitting your proxy online or by telephone. Accordingly, if you send in your
proxy card or submit your proxy online or by telephone, your shares will be
voted whether or not you attend the special meeting.

The board of directors of MP3.com knows of no other business to be presented at
the special meeting. If any matters other than the adoption of the merger
agreement are properly presented for consideration at the special meeting
(including an adjournment of the special meeting), your proxies will vote, or
otherwise act, on your behalf in accordance with their judgment on such matters.

Q: WHO CAN VOTE?

A: Holders of record of MP3.com common stock as of the close of business on the
record date, which is July 23, 2001, are entitled to vote at the special
meeting. Beneficial owners as of the record date whose shares are held in an
account at a brokerage firm or bank will receive instructions from their broker
or bank describing how to vote their shares.

Q: HOW DOES THE MP3.COM BOARD OF DIRECTORS RECOMMEND THAT I VOTE?

A: The MP3.com board of directors unanimously recommends that you vote "FOR" the
adoption of the merger agreement.

Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

A: Yes. You can change your vote at any time before your proxy is voted. To do
so, send a written notice stating that you would like to revoke your proxy, or
send a later dated, signed proxy card to MP3.com's Secretary at 4790 Eastgate
Mall, San Diego, CA 92121-1970, or revoke your proxy online or by telephone

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before the special meeting. If you are a holder of record you may attend the
special meeting in person and vote. Merely attending the special meeting,
without voting in person, will not revoke any proxy previously delivered by you.
For a description of voting procedures, see "The Special Meeting -- Proxies;
Revocation; Solicitation" beginning on page 27.

Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?

A: It means you have multiple accounts at the transfer agent and/or with
brokers. Please sign and return all proxy cards or grant a proxy online or by
telephone to ensure that all your shares are voted.

Q: WHAT IF I DO NOT VOTE?

A: If you do not submit a proxy or instruct your broker to vote your shares, and
you do not vote in person at the special meeting, the effect will be the same as
if you voted "AGAINST" the adoption of the merger agreement. If you submit a
proxy without specifying the manner in which you would like your shares to be
voted, your shares will be voted "FOR" adoption of the merger agreement.

If your shares are held in street name, your broker will leave your shares
unvoted unless you provide instructions on how to vote. You should follow the
directions provided by your broker regarding how to instruct your broker to vote
your shares. This ensures that your shares will be voted at the special meeting.

An abstention or share not voted because your broker lacks the authority to vote
that share will have the same effect as a vote "AGAINST" adoption of the merger
agreement.

Q: WHO SHOULD I CALL WITH QUESTIONS?

A: If you have further questions, you may contact:

Investor Relations
MP3.com, Inc.
4790 Eastgate Mall
San Diego, CA 92121-1970
Telephone: (858) 623-7222
E-mail: investor@mp3.com

Q: WHAT STOCKHOLDER APPROVAL IS NEEDED?

A: Approval requires the affirmative vote of the holders of a majority of the
outstanding shares of common stock of MP3.com. Holders of more than 50% of
MP3.com's outstanding shares as of July 23, 2001 have agreed to vote in favor of
adoption of the merger agreement. As a result, adoption of the merger agreement
by the MP3.com stockholders at the special meeting is assured. The shareholders
of Vivendi Universal are not required to vote on the merger.

Q: IF THE MERGER IS COMPLETED, WILL MY VIVENDI UNIVERSAL ADSS BE "LISTED" FOR
TRADING?

A: We expect that your Vivendi Universal ADSs will be listed on the New York
Stock Exchange under the trading symbol "V".

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SUMMARY

The following is only a summary of material information contained in this
proxy statement/ prospectus. It may not contain all of the information that is
important to you. To understand this proposal fully, you must review all the
information in this proxy statement/prospectus, along with the annexes and the
documents referred to or incorporated by reference in this proxy
statement/prospectus. A copy of the merger agreement is attached as Annex A to
this proxy statement/prospectus and is incorporated by reference. You should
refer to the merger agreement for a complete statement of the terms of the
merger. In addition, we incorporate by reference important business and
financial information about MP3.com into this proxy statement/prospectus. You
may obtain the information incorporated by reference into this proxy
statement/prospectus without charge by following the instructions in the section
entitled "Where You Can Find More Information" on page 192.

VIVENDI UNIVERSAL (PAGE 98)

VIVENDI UNIVERSAL, S.A.
42 avenue de Friedland
75380 Paris Cedex 08, France
33 (1) 71 71 10 00

Vivendi Universal is one of Europe's largest companies, with revenue in the
year ended December 31, 2000 of E41.8 billion. Vivendi Universal operates in two
global core businesses: Media and Communications, and Environmental Services.

The Media and Communications business is divided into five business
segments: Music, Publishing and TV & Film, which constitute its content
businesses, and Telecoms and Internet, its access businesses. The Music business
produces, markets and distributes recorded music throughout the world in all
major genres, manufactures, sells and distributes video products in the United
States and internationally, and licenses music copyrights. The Publishing
business provides content across multiple platforms including print, multimedia,
on the wired Internet and to PDAs (Personal Digital Assistants) via WAP
(Wireless Application Protocol) technology. The Publishing business provides
content in five markets: Games, Education, Literature, Health and Information.
The TV & Film business produces and distributes motion picture, television and
home video/DVD products worldwide, operates and has ownership interests in a
number of cable and pay television channels, engages in the licensing of
merchandising and film property rights, and operates theme parks and retail
stores around the world. The Telecoms business provides a broad range of
telecommunications services, including mobile and fixed telephony, Internet
access and data services and transmission, principally in Europe. The Internet
business manages strategic Internet initiatives and new online ventures for
Vivendi Universal. Utilizing advanced digital distribution technology, the
Internet business develops e-commerce, e-services and thematic portals that
offer access to the Internet through a variety of devices, including mobile
phones, PDAs, interactive TV and computers.

Vivendi Environnement, a 63% effectively owned subsidiary of Vivendi
Universal, operates the Environmental Services business, with operations around
the globe. Vivendi Environnement provides environmental management services,
including water treatment and system operation, waste management, energy
services (excluding the sale, production and trading of electricity) and
transportation services, to a wide range of public authorities and industrial,
commercial and residential customers.

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MP3.COM (PAGE 96)

MP3.COM, INC.
4790 Eastgate Mall
San Diego, CA 92121-1970
(858) 623-7000

MP3.com has created a unique and robust technology infrastructure designed
to facilitate the storage, management, promotion and delivery of digital music.
As the Internet's premier Music Service Provider (MSP), MP3.com is dedicated to
providing consumers access to music when they want it, where they want it, using
any web-enabled device. MP3.com's web site hosts what it believes is the largest
collection of digital music available on the Internet, with more than one
million songs and audio files posted from over 150,000 digital artists and
record labels. Dedicated to growing the digital music space, MP3.com's products
and services include on-demand Subscription Music Channels, an innovative
Business Music Services program, a Radio Services program and others.
Additionally, through MP3.com's MSP technology initiative and Music
InterOperating System, MP3.com is partnering with a variety of forward-looking
businesses to expand its digital music strategy.

RECENT EVENTS

On July 23, 2001, Vivendi Universal announced second quarter and first half
2001 revenue and EBITDA results for its Media and Communications business. For
the second quarter of 2001 ended June 30, EBITDA (earnings before interest,
taxes, depreciation and amortization) increased to E1.3 billion, and revenue
growth was 16% (excluding Universal Studios Group Filmed Entertainment) versus
the pro forma results of the comparable period in 2000. Excluding Maroc Telecom,
which was consolidated for the first time in the second quarter of 2001, revenue
growth was 8% (excluding Universal Studios Group Filmed Entertainment) and
EBITDA growth was 35%. For the first half of 2001, the Media and Communications
business generated EBITDA growth of 77% to E2.2 billion versus pro forma results
for the first half of 2000 (62% excluding Maroc Telecom). Revenues for the first
half of 2001 were E12.4 billion, reflecting a 15% increase over the pro forma
first half 2000, excluding Universal Studios Group Filmed Entertainment, and 11%
overall excluding Maroc Telecom. For additional information, see "Vivendi
Universal -- Operating and Financial Review and Prospects -- Recent
Developments", beginning on page 155.

On June 1, 2001, Vivendi Universal announced that it had agreed to acquire
all of the outstanding shares of Houghton Mifflin Company, a leading educational
publisher in the United States, pursuant to a cash tender offer at $60 per
share. The board of directors of both companies unanimously approved the
transaction. The tender offer expired on July 6, 2001, and approximately 90% of
the outstanding shares of Houghton Mifflin were tendered. Vivendi Universal
accepted, and has paid for, all tendered shares. Vivendi Universal expects to
complete its acquisition of Houghton Mifflin in August 2001. As a result of the
transaction, Vivendi Universal expects to strengthen its core content businesses
by gaining a worldwide leadership position in education.

THE SPECIAL MEETING (PAGE 27)

GENERAL (PAGE 27)

MP3.com will hold a special meeting of stockholders on August 27, 2001, at
9:00 a.m., local time, at which you will be asked to adopt the merger agreement.

RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM (PAGE 27)

Each share of MP3.com common stock outstanding as of July 23, 2001 entitles
its holder to one vote on any matter to be considered at the special meeting.
The presence, in person or by proxy, of a majority

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of the outstanding shares of MP3.com common stock is required for a quorum for
the transaction of business at the special meeting.

PROXIES; REVOCATION; SOLICITATION (PAGE 27)

If you vote your shares of MP3.com common stock by signing a proxy, your
shares will be voted at the special meeting as you indicate on your proxy card.
If no instructions are indicated on your signed proxy card, your shares of
MP3.com common stock will be voted "FOR" adoption of the merger agreement. If
you grant a proxy online or by telephone, your shares will be voted at the
special meeting as you instruct. If your shares are held in street name, you
should follow the directions provided by your broker regarding how to instruct
your broker to vote your shares. An abstention, unreturned proxy or share not
voted because your broker lacks the authority to vote that share will have the
same effect as a vote "AGAINST" adoption of the merger agreement.

You may revoke your proxy at any time before the vote at the special
meeting by submitting a written revocation to the Secretary of MP3.com at 4790
Eastgate Mall, San Diego, CA 92121-1970, or by submitting a new proxy, in either
case, dated after the date of the proxy that is being revoked. In addition, a
proxy may be revoked by voting in person at the special meeting. Simply
attending the special meeting without voting will not revoke your proxy.

REQUIRED VOTE (PAGE 29)

The affirmative vote of the holders of a majority of the outstanding shares
of MP3.com common stock entitled to vote at the special meeting is necessary for
the adoption of the merger agreement. Vivendi Universal has entered into a
stockholder agreement with MP3.com stockholders who together beneficially own
and have voting control of more than 50% of the shares of MP3.com common stock
outstanding as of July 23, 2001. Under the stockholder agreement, these
stockholders have agreed to vote all their shares of MP3.com common stock in
favor of adoption of the merger agreement. As a result, adoption of the merger
agreement by the MP3.com stockholders at the special meeting is assured.

THE MERGER (PAGE 30)

A copy of the merger agreement (including the modification agreement) is
attached as Annex A to this proxy statement/prospectus. We encourage you to read
the merger agreement because it is the principal document governing the merger.

FORM OF MERGER AND CONSIDERATION TO BE RECEIVED IN THE MERGER (PAGES 48 AND 49)

In the merger, MP3.com will merge with and into Metronome Acquisition Sub,
a wholly owned subsidiary of Vivendi Universal. Under the merger agreement,
MP3.com stockholders will have the right to elect to receive either $5.00 in
cash or a number of Vivendi Universal ordinary shares (in the form of Vivendi
Universal ADSs) having a value of $5.00 for each share of MP3.com common stock
that they hold. The overall percentage of shares of MP3.com common stock that
will be converted into the right to receive Vivendi Universal ordinary shares is
fixed at 50% and the percentage of shares of MP3.com common stock that will be
converted into the right to receive cash is also fixed at 50%. Therefore, the
elections of all the holders of MP3.com common stock, including yours, may be
adjusted on a pro rata basis so that, in the aggregate, 50% of the shares are
converted into the right to receive Vivendi Universal ordinary shares and 50% of
the shares are converted into the right to receive cash.

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APPRAISAL RIGHTS (PAGE 52)

Under Section 262 of the Delaware General Corporation Law, if you do not
vote your outstanding shares of MP3.com common stock in favor of adoption of the
merger agreement, you will be entitled to dissent and elect to have the "fair
value" of your shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, judicially determined by the Delaware Court of Chancery and
paid to you in cash. The complete text of Section 262 is attached as Annex D.

If you consider seeking appraisal, you should be aware that the fair value
of your shares as determined under Section 262 could be more than, the same as
or less than the $5.00 per share payment (in cash or Vivendi Universal ordinary
shares) you would be entitled to elect to receive under the merger agreement if
you did not seek appraisal of your shares.

RECOMMENDATION OF THE MP3.COM BOARD OF DIRECTORS (PAGE 35)

The MP3.com board of directors has unanimously approved the merger
agreement and the merger and determined that the merger agreement and the merger
are advisable, fair to and in the best interests of, MP3.com and its
stockholders. The board of directors unanimously recommends that MP3.com
stockholders vote "FOR" the proposal to adopt the merger agreement at the
special meeting.

CONDITIONS TO CONSUMMATION OF THE MERGER (PAGE 62)

Vivendi Universal and MP3.com are obligated to complete the merger only if
several conditions are satisfied or waived. These conditions include:

- obtaining the approval of the stockholders of MP3.com for the adoption of
the merger agreement;

- the applicable waiting period having expired or been terminated under
United States antitrust laws and obtaining all required approvals under
foreign antitrust laws;

- no governmental authority enacting or issuing any statute, rule,
injunction or other order which legally restrains or otherwise prohibits
the consummation of the merger;

- the registration statement on Form F-4, of which this document is a part,
becoming effective and remaining effective;

- the New York Stock Exchange approving the listing of the Vivendi
Universal ADSs to be issued in connection with the merger;

- the representations and warranties of Vivendi Universal and MP3.com being
true and correct (subject to specified qualifications as to materiality
and material adverse effects) as of the date of the merger agreement and
as of the date of closing;

- Vivendi Universal and MP3.com performing in all material respects all of
their respective obligations required by the merger agreement at or prior
to the closing date; and

- Vivendi Universal and MP3.com having received tax opinions from their
respective U.S. tax advisors.

TERMINATION (PAGE 63)

The merger agreement may be terminated and the merger may be abandoned at
any time before the effective time of the merger:

- by the mutual consent of Vivendi Universal and MP3.com;

- by Vivendi Universal or by MP3.com, in the event of an uncured breach by
the other party of any representation, warranty, covenant or agreement
contained in the merger agreement if the breach would cause the specified
conditions to the merger not to be satisfied;

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- by Vivendi Universal or by MP3.com, if they do not complete the merger on
or before November 30, 2001;

- by Vivendi Universal or by MP3.com, if any legal restraint to the merger
is in effect and has become final and unappealable; or

- by Vivendi Universal or by MP3.com, if MP3.com's stockholders fail to
approve the merger at the special meeting.

THE STOCKHOLDER AGREEMENT (PAGE 65)

Vivendi Universal has entered into a stockholder agreement with several
MP3.com stockholders, including Michael Robertson (Chairman and CEO), Robin
Richards (President and a director) and Sequoia Capital. Pursuant to the
stockholder agreement, those stockholders have agreed to vote shares
representing more than 50% of the outstanding MP3.com common stock as of July
23, 2001 in favor of the merger and against any action that could impede the
merger. As a result, adoption of the merger agreement by the MP3.com
stockholders at the special meeting is assured. A copy of the stockholder
agreement is attached to this proxy statement/prospectus as Annex B.

INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 44)

When you consider the recommendation of the MP3.com board of directors that
you vote in favor of adoption of the merger agreement, you should keep in mind
that a number of officers and members of the MP3.com board have interests in the
merger that are different from, or in addition to, your interests as a
stockholder. Their additional interests arise primarily in connection with their
continued employment following the consummation of the merger and the
compensation they will receive in connection with that employment.

REGULATORY MATTERS (PAGE 51)

Transactions such as the merger are reviewed by the United States
Department of Justice and the United States Federal Trade Commission to
determine whether they comply with applicable antitrust laws. Under the
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the related rules and regulations, the merger may not be completed
until applicable waiting period requirements have been satisfied. Vivendi
Universal and MP3.com each filed notification reports with the Department of
Justice and Federal Trade Commission under the Hart-Scott-Rodino Act on June 12,
2001. The waiting period expired at midnight on July 12, 2001, and thus all
applicable waiting periods under the Hart-Scott-Rodino Act have been satisfied.

TAXATION (PAGE 67)

The merger is expected to qualify as a "reorganization" under U.S. federal
income tax laws. As a result, U.S. holders of MP3.com common stock generally
will not recognize any gain or loss under U.S. federal income tax laws with
respect to Vivendi Universal ADSs received in exchange for their shares of
MP3.com common stock and will recognize gain (but not loss) only to the extent
of any cash received. However, a U.S. stockholder that receives only cash in the
merger will recognize gain (or loss) to the extent that the cash received
exceeds (or is less than) its tax basis in the surrendered shares of MP3.com
common stock. Cash received for fractional Vivendi Universal ADSs is treated
separately as though the stockholder had first received the fractional Vivendi
Universal ADS and then exchanged the deemed-received fractional Vivendi
Universal ADS for cash.

ACCOUNTING TREATMENT (PAGE 51)

Vivendi Universal prepares its financial statements using French generally
accepted accounting principles, or GAAP. In accordance with the rules and
regulations of the Securities and Exchange Commission, Vivendi Universal intends
to account for the merger using the "purchase" method of

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accounting for business combinations under French GAAP. When it reconciles its
financial statements to U.S. GAAP, it also will account for the arrangement
using the "purchase" method of accounting for business combinations. This means
that Vivendi Universal will record the excess of the purchase price of MP3.com
over the fair value of MP3.com's identifiable assets, including intangible
assets and liabilities, as "goodwill".

EXPENSES (PAGE 63)

Each of Vivendi Universal and MP3.com will bear all expenses it incurs in
connection with the merger, except that Vivendi Universal and MP3.com will share
equally the expenses of filing with the SEC the registration statement of which
this proxy statement/prospectus is a part and the printing and mailing of this
proxy statement/prospectus.

COMPARISON OF SHAREHOLDER RIGHTS (PAGE 84)

As a result of the merger, your shares of MP3.com common stock may be
converted into the right to receive Vivendi Universal ordinary shares, in the
form of Vivendi Universal ADSs. Because MP3.com is a corporation organized under
the laws of Delaware and Vivendi Universal is a societe anonyme organized under
the laws of The Republic of France, there are differences between the rights of
MP3.com stockholders and the rights of holders of Vivendi Universal ADSs and
ordinary shares. For a discussion of these differences, see "Comparison of
Shareholder Rights" and "Description of Vivendi Universal Ordinary Shares".

ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS (PAGE 26)

Vivendi Universal is a French societe anonyme. Many of Vivendi Universal's
directors and executive officers, including the persons who signed the
registration statement on Form F-4, of which this document is a part, and some
of the experts named in this document, are resident outside the United States,
and a substantial portion of Vivendi Universal's assets and all or a substantial
portion of the assets of such persons are located outside the United States. As
a result, it may be difficult for you to effect service of process within the
United States upon such persons to enforce against them judgments of the courts
of the United States predicated upon, among other things, the civil liability
provisions of the federal securities laws of the United States. In addition, it
may be difficult for you to enforce, in original actions brought in courts in
jurisdictions located outside the United States, among other things, civil
liabilities predicated upon such securities laws.

OPINION OF MP3.COM'S FINANCIAL ADVISOR (PAGE 35)

MP3.com's financial advisor, Credit Suisse First Boston Corporation, has
delivered a written opinion to the MP3.com board of directors as to the
fairness, from a financial point of view, of the consideration provided for in
the merger. A copy of the full text of Credit Suisse First Boston's written
opinion, dated May 20, 2001, is attached to this document as Annex C. We
encourage you to read this opinion carefully in its entirety for a description
of the procedures followed, assumptions made, matters considered and limitations
on the review undertaken. CREDIT SUISSE FIRST BOSTON'S OPINION IS ADDRESSED TO
THE MP3.COM BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO ANY MATTER RELATING TO THE MERGER.

COMPARATIVE STOCK PRICES AND DIVIDENDS (PAGE 70)

The table below presents the New York Stock Exchange closing market price
for Vivendi Universal ADSs, as reported on the New York Stock Exchange Composite
Transaction Tape under the symbol "V", and the last reported sale price of the
MP3.com common stock, as reported on the Nasdaq National Market under the symbol
"MPPP". These prices are presented on two dates:

- May 18, 2001, the last trading day before the public announcement of the
signing of the merger agreement; and

- July 23, 2001, the latest practicable date before the printing of this
document.

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The exchange ratio, meaning the number of Vivendi Universal ADSs you will
receive for each share of MP3.com common stock, will be the quotient of $5.00
divided by the average per share closing price of Vivendi Universal ADSs for the
five trading days ending the trading day before the special meeting. Based on
the $5.00 per share merger consideration (in cash or Vivendi Universal ADSs),
the merger consideration represents a premium of approximately 66% over the
closing price per share of MP3.com common stock on May 18, 2001.

MP3.COM EQUIVALENT
VIVENDI UNIVERSAL ADS COMMON STOCK PER SHARE
SHARE PRICE SHARE PRICE DATA(1)
--------------------- ------------ ----------

May 18, 2001 $68.15 $3.01 $5.00
July 23, 2001 $55.00 $4.92 $5.00

---------------

(1) Assuming, for purposes of calculating the exchange ratio, that the average
per share closing price of Vivendi Universal ADSs for the five trading days
ending the trading day before the special meeting equals the share price of
Vivendi Universal ADSs set forth in the column headed "Vivendi Universal ADS
Share Price".

MARKET PRICES

The following table sets forth, for the periods indicated, the high and low
per share sales prices of Vivendi Universal ordinary shares, Vivendi Universal
ADSs and MP3.com common stock on the Paris Bourse, the New York Stock Exchange
and the Nasdaq National Market, respectively. For periods before December 8,
2000, the columns headed "Vivendi Universal" set forth information for Vivendi,
S.A. ordinary shares and Vivendi, S.A. ADSs, and for periods before September
2000, the high and low bids for Vivendi, S.A. ADSs are on the over-the-counter
market. Prior to December 8, 2000, each Vivendi, S.A. ADS represented one-fifth
of a Vivendi, S.A. ordinary share, but to facilitate comparison, price
information is shown as if each Vivendi, S.A. ADS represented one Vivendi, S.A.
ordinary share. Prices are rounded to the nearest cent.

VIVENDI UNIVERSAL VIVENDI UNIVERSAL MP3.COM COMMON
ORDINARY SHARES ADSS STOCK
----------------- ----------------- -----------------
HIGH LOW HIGH LOW HIGH LOW
------- ------ ------- ------ ------- ------

1999
First Quarter*.................. E87.13 E72.33 $101.65 $76.05 NA NA
Second Quarter*................. 81.10 69.60 88.35 71.90 NA NA
Third Quarter................... 83.70 65.05 86.25 68.75 $105.00 $23.31
Fourth Quarter.................. 92.95 61.10 94.40 66.25 64.63 25.00
2000
First Quarter................... E150.00 E79.10 $142.50 $81.25 $40.13 $15.00
Second Quarter.................. 122.00 85.30 128.75 81.25 22.50 6.50
Third Quarter................... 97.10 80.30 91.85 70.00 14.38 3.75
Fourth Quarter.................. 89.65 68.60 77.50 50.00 10.75 2.34
2001
First Quarter................... E82.00 E61.20 $76.00 $54.30 $6.13 $1.56
Second Quarter.................. 79.70 61.60 69.73 54.85 5.00 1.50
Third Quarter (through July 23,
2001)........................ 71.50 60.45 61.01 50.50 4.95 4.82

---------------
* Restated for a 3 for 1 stock split which occurred on May 11, 1999.

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DIVIDENDS

Vivendi Universal

The table below sets forth the total dividends paid per Vivendi, S.A.
ordinary share and Vivendi, S.A. ADS in respect of 1996 to 1999 and per Vivendi
Universal ordinary share and Vivendi Universal ADS in respect of 2000. The
amounts shown exclude the avoir fiscal, a French tax credit described under
"Vivendi Universal -- Taxation". Vivendi Universal historically paid annual
dividends in respect of its prior fiscal year. Amounts are rounded to the
nearest cent.

DIVIDEND PER ORDINARY SHARE DIVIDEND PER ADS
--------------------------- ----------------

E(1) $(2)
1996*................................................ 0.61 0.14
1997*................................................ 0.76 0.17
1998*................................................ 0.92 0.17
1999................................................. 1.00 0.22
2000**............................................... 1.00 0.89

---------------
* Restated for a 3 for 1 stock split which occurred on May 11, 1999.

** Prior to December 8, 2000, each Vivendi, S.A. ADS represented one-fifth of a
Vivendi, S.A. ordinary share, while each Vivendi Universal ADS now
represents one Vivendi Universal ordinary share.

(1) Until 1999 (i.e., until the dividend for the year ended December 31, 1998),
Vivendi, S.A. paid dividends in French francs. Amounts in French francs have
been translated at the official fixed exchange rate of E1.00 = FF6.55957.

(2) Translated solely for convenience into dollars at the noon buying rates on
the respective dividend payment date, or on the following business day if
such date was not a business day in the United States. The noon buying rate
may differ from the rate that may be used by the depositary to convert euros
to dollars for the purpose of making payments to holders of ADRs.

MP3.com

MP3.com has not paid cash dividends to its stockholders.

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COMPARATIVE PER SHARE INFORMATION

The following table shows per share data regarding the earnings and book
value of Vivendi Universal and MP3.com. The results of operations of The Seagram
Company Ltd. are included in Vivendi Universal's operating results beginning
December 8, 2000. MP3.com's and Vivendi Universal's fiscal years each end on
December 31.

THE FOLLOWING COMPARATIVE PER SHARE DATA ARE DERIVED FROM THE HISTORICAL
CONSOLIDATED FINANCIAL STATEMENTS OF VIVENDI UNIVERSAL AND MP3.COM. YOU SHOULD
READ THE INFORMATION IN THIS SECTION IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND ACCOMPANYING NOTES OF VIVENDI UNIVERSAL AND MP3.COM THAT ARE
FOUND ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS.

AS OF OR FOR THE
YEAR ENDED
DECEMBER
31, 2000
----------------

VIVENDI UNIVERSAL -- HISTORICAL
Amounts in accordance with French GAAP
Basic earnings............................................ E3.6
Diluted earnings.......................................... E3.4
Book value................................................ E52.43
Amounts in accordance with U.S. GAAP
Basic earnings............................................ E3.24
Diluted earnings.......................................... E3.03
Book value................................................ E59.89

AS OF OR FOR THE AS OF OR FOR THE
YEAR ENDED THREE MONTHS
DECEMBER ENDED MARCH
31, 2000 31, 2001
---------------- ----------------

MP3.COM -- HISTORICAL
Basic net loss............................................ $(4.18) $(0.69)
Diluted net loss.......................................... $(4.18) $(0.69)
Book value (per common share outstanding)................. $ 2.53 $ 1.96

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CURRENCIES AND EXCHANGE RATES

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 ("Euro",
"euro" or E), was introduced. The following 12 member states participate in EMU
and have adopted the euro as their national currency: Austria, Belgium, Finland,
France, Germany, Greece, 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 Vivendi Universal has
translated French francs into euros at that rate. For your convenience, this
document contains translations of French franc and euro amounts in U.S. dollars.
In this proxy statement/prospectus, unless otherwise indicated, all amounts are
expressed in U.S. dollars ("dollars", "U.S. dollars", "$", USD or US$).

The following table shows the U.S. dollar/euro exchange rate for 1999
through 2001 based on the noon buying rate expressed in dollars per euro and the
French franc/U.S. dollar exchange rate for 1996 through 1998 based on the noon
buying rate expressed in French francs per dollar. The "noon buying rate" is the
rate in New York City for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York. For information
regarding the effect of currency fluctuations on Vivendi Universal's results of
operations, see "Vivendi Universal -- Operating and Financial Review and
Prospects", page 152.

PERIOD AVERAGE
YEAR END RATE* HIGH LOW
---- ------ ------- ---- ----

U.S. DOLLAR/EURO
June 2001................................................. 0.85 0.89 0.86 0.84
May 2001.................................................. 0.85 0.89 0.89 0.85
April 2001................................................ 0.89 0.90 0.90 0.88
March 2001................................................ 0.88 0.91 0.93 0.88
February 2001............................................. 0.92 0.92 0.94 0.90
January 2001.............................................. 0.94 0.94 0.96 0.91
2000...................................................... 0.94 0.92 1.03 0.83
1999...................................................... 1.00 1.06 1.17 1.00

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

---------------
* For yearly figures, the average of the noon buying rates for French francs or
euros, as the case may be, on the last business day of each month during the
year.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF VIVENDI UNIVERSAL

The selected consolidated financial data for each of the years in the
three-year period ended December 31, 2000 have been derived from Vivendi
Universal's consolidated financial statements and the related notes, which are
included elsewhere in this proxy statement/prospectus. The selected consolidated
financial data at year end and for each of the years in the two-year period
ended December 31, 1997 have been derived from its consolidated financial
statements not included in this proxy statement/prospectus.

Vivendi Universal's consolidated financial statements have been prepared in
accordance with French GAAP, which differs in some significant respects from
U.S. GAAP. The principal differences between French GAAP and U.S. GAAP, as they
relate to Vivendi Universal, are described in Note 16 to its consolidated
financial statements. For a discussion of significant transactions and
accounting changes that affect the comparability of its consolidated financial
statements and the financial data presented below, refer to "Vivendi
Universal -- Operating and Financial Review and Prospects" and the notes to
Vivendi Universal's consolidated financial statements. The Vivendi Universal
selected historical consolidated financial data below only reflect the merger
transactions among Vivendi, S.A., The Seagram Company Ltd. and Canal Plus for
the period from December 8, 2000 to December 31, 2000, and do not reflect the
proposed merger transaction between Vivendi Universal and MP3.com. The effects
of these transactions on a full-year basis are reflected in "The
Merger -- Unaudited Pro Forma Combined Condensed Financial Statements".

Vivendi Universal's consolidated financial statements and the selected
financial data presented below are reported in euros. For periods presented
prior to January 1, 1999, its financial statements have been prepared in French
francs and translated into euros using the official fixed exchange rate of E1.00
= FF6.55957, applicable since December 31, 1998 (see Note 2 to Vivendi
Universal's consolidated financial statements).

YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2000 1999(1) 1999 1998 1997 1996
--------- -------- -------- -------- -------- --------
MILLIONS OF EUROS, EXCEPT PER SHARE AMOUNTS

INCOME STATEMENT
AMOUNTS IN ACCORDANCE WITH FRENCH
GAAP
Revenue............................ 41,797.6 40,854.5 41,622.5 31,737.1 25,476.6 25,293.4
Revenue outside France............. 20,625.1 17,243.7 17,829.3 10,313.0 8,504.8 7,793.0
Operating income................... 2,571.4 1,835.5 2,280.5 1,331.4 595.5 546.4
Exceptional items, net............. 2,946.8 (845.8) (837.8) 249.3 878.6 139.8
Goodwill amortization.............. 634.2 606.4 612.0 209.5 374.7 146.8
Minority interest.................. 624.9 (159.4) 5.3 212.2 (115.1) (56.4)
Net income......................... 2,299.0 1,434.6 1,431.4 1,120.8 822.0 297.7
Basic earnings per share........... 3.6 2.7 2.7 2.5 2.1 0.8
Dividends per share................ 1.0 1.0 1.0 0.9 0.8 0.6
Average shares outstanding
(millions)...................... 633.8 530.5 530.5 456.6 393.6 368.4
Shares outstanding at year end
(millions)...................... 1,080.8 595.6 595.6 478.4 402.1 367.8
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Revenue............................ 34,275.8 36,542.9 36,542.9 -- -- --
Operating income................... 1,178.2 (677.0) (677.0) -- -- --
Net income......................... 1,907.8 246.1 246.1 565.2 -- --
Basic earnings per share........... 3.24 0.48 0.48 1.29 -- --
Diluted earnings per share......... 3.03 0.47 0.47 1.25 -- --

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FINANCIAL POSITION
AMOUNTS IN ACCORDANCE WITH FRENCH
GAAP

Shareholders' equity............... 56,675.1 10,776.5 10,892.2 7,840.2 6,846.7 5,134.7
Minority interest.................. 9,787.4 3,754.5 4,052.4 2,423.0 1,742.3 825.9
Net financial debt(2).............. 25,514.1 22,832.7 22,832.7 6,502.2 4,177.0 6,874.6
Total assets....................... 150,737.9 84,613.7 82,777.0 48,982.4 39,365.2 36,624.9
Total long-term assets............. 112,579.3 47,915.4 45,340.9 26,072.6 20,810.4 19,098.4
AMOUNTS IN ACCORDANCE WITH U.S. GAAP

Shareholders' equity............... 64,729.4 16,954.5 16,954.5 10,265.4 -- --
Total assets....................... 151,818.0 74,497.0 74,497.0 -- -- --
CASH FLOW DATA
Net cash provided by operating
activities...................... 2,514.2 771.6 1,409.4 2,897.9 1,601.1 2,502.0
Net cash used for investing
activities...................... 1,480.5 12,918.3 13,556.2 2,925.9 3,106.4 --
Net cash (used for) provided by
financing activities............ (631.3) 13,745.8 13,745.8 222.6 1,664.4 --
Capital expenditures............... 5,799.8 6,153.7 6,791.5 4,478.2 2,713.3 2,134.4
OTHER DATA
EBITDA(3).......................... 5,980.9 4,300.6 5,235.0 3,453.0 2,144.2 2,003.8

---------------
(1) Restated to give effect to changes in accounting policies (see Note 2 to
Vivendi Universal's consolidated financial statements).

(2) Net financial debt is defined as the sum of long-term debt, subordinated
debt, bank overdrafts and other short-term borrowings after deduction of
short-term loans, cash, cash equivalents and marketable securities and
long-term loans. Long-term loans are included under the caption "Portfolio
investments held as fixed assets (others)" in Vivendi Universal's
consolidated balance sheet. Long-term loans amounted to E1,502.2 million in
2000, E1,273.6 million in 1999 and E1,960.3 million in 1998.

(3) EBITDA is defined as operating income before amortization and depreciation,
expenses of replacement and repair of installation and equipment owned by
local authorities. EBITDA should not be considered an alternative to
operating or net income as an indicator of Vivendi Universal'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. Vivendi Universal EBITDA may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.

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RECONCILIATION OF EBITDA TO NET INCOME

YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999(1) 1999 1998
-------- -------- -------- --------
MILLIONS OF EUROS

EBITDA
Music........................................... 94.2 -- -- --
Publishing...................................... 493.4 410.7 417.0 355.0
TV & Film....................................... 526.0 84.8 86.0 13.0
Telecoms........................................ 1,303.3 493.7 1,372.0 674.0
Internet........................................ (183.7) (34.3) (51.0) (4.0)
-------- -------- -------- --------
2,233.2 954.9 1,824.0 1,038.0
Holding and Corporate........................... (137.0) (75.9) (75.5) (43.0)
-------- -------- -------- --------
Media & Communications....................... 2,096.2 879.0 1,748.5 995.0
Environmental Services.......................... 3,544.3 2,723.6 2,781.0 1,929.0
Non-core businesses............................. 340.4 698.0 705.5 529.0
-------- -------- -------- --------
Total Vivendi Universal......................... 5,980.9 4,300.6 5,235.0 3,453.0
Depreciation and amortization..................... (3,131.3) (2,186.3) (2,678.3) (1,831.7)
Expenses of replacement and repair of
installation.................................... (278.2) (278.8) (276.2) (289.9)
-------- -------- -------- --------
Operating income.................................. 2,571.4 1,835.5 2,280.5 1,331.4
Net financial (expense) income.................... (632.9) (87.1) (220.1) 9.3
Exceptional items, net............................ 2,946.8 (845.8) (837.8) 249.3
Income taxes and deferred tax..................... (1,020.9) 946.1 793.2 (90.0)
Goodwill amortization............................. (634.2) (606.4) (612.0) (209.5)
Equity in net income of affiliates................ (306.3) 32.9 32.9 42.5
Minority interest................................. (624.9) 159.4 (5.3) (212.2)
-------- -------- -------- --------
Net income........................................ 2,299.0 1,434.6 1,431.4 1,120.8

---------------
(1) Restated to give effect to changes in accounting policies (see Note 2 to
Vivendi Universal's consolidated financial statements).

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MP3.COM

The following selected consolidated financial data as of December 31, 2000,
1999 and 1998, and for the years ended December 31, 2000 and 1999 and for the
period from March 17, 1998 (inception) to December 31, 1998 are derived from the
audited consolidated financial statements of MP3.com, which are included
elsewhere in this proxy statement/prospectus. The financial data as of March 31,
2001 and 2000, and for the three month periods ended March 31, 2001 and 2000 are
derived from unaudited condensed consolidated financial statements, which are
included elsewhere in this proxy statement/prospectus. The unaudited condensed
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial position and results of operations for
these periods, in accordance with accounting principles generally accepted in
the United States.

The consolidated results of operations for the three months ended March 31,
2001 are not necessarily indicative of the results that may be reported for any
other interim period or for the year ending December 31, 2001. The data should
be read in conjunction with the consolidated financial statements, related
notes, and other financial information included in this proxy
statement/prospectus and incorporated by reference herein. Certain prior period
amounts have been reclassified to conform to the current period presentation.

You should carefully review MP3.com's consolidated financial statements and
related notes included elsewhere in this proxy statement/prospectus and the
information provided in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations", included in
MP3.com's Annual Report on Form 10-K, as amended, and MP3.com's Quarterly Report
on Form 10-Q, incorporated herein by reference.

All amounts in thousands, except per share amounts.

PERIOD FROM
YEARS ENDED MARCH 17, 1998 THREE MONTHS ENDED
DECEMBER 31, (INCEPTION) TO MARCH 31,
-------------------- DECEMBER 31, -------------------
2000 1999 1998 2001 2000
--------- -------- -------------- -------- --------

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues................................. $ 80,136 $ 21,899 $ 1,162 $ 21,750 $ 17,495
Cost of revenues (excludes amortization of
deferred compensation of $128, $256, $--,
$--, and $71, respectively)................ 15,760 9,211 215 4,875 3,756
--------- -------- ------- -------- --------
Gross profit................................. 64,376 12,688 947 16,875 13,739
Operating expenses:
Sales and marketing (excludes amortization
of deferred compensation of $1,884,
$10,952, $380, $321, and $591,
respectively)............................ 71,217 23,998 79 10,491 17,002
Engineering and product development
(excludes amortization of deferred
compensation of $2,379, $3,027, $170,
$325, and $805, respectively)............ 22,447 9,417 395 5,595 5,279
General and administrative (excludes
amortization of deferred compensation and
stock-based compensation of $7,615,
$8,053, $--, $325, and $2,935,
respectively)............................ 31,503 9,307 142 6,218 7,762
Charge for litigation and copyright
matters.................................. 170,000 -- -- -- --
Costs related to acquisition activities.... 1,704 -- -- -- 1,704

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Amortization of deferred compensation and
other stock based compensation........... 12,006 22,288 550 971 4,402
Charge related to class action and
derivative lawsuits...................... -- -- -- 41,428 --
--------- -------- ------- -------- --------
Total operating expenses............ 308,877 65,010 1,166 64,703 36,149
--------- -------- ------- -------- --------
Loss from operations......................... (244,501) (52,322) (219) (47,828) (22,410)
Interest income (expense), net............... 17,412 10,852 (4) 1,700 5,678
Impairment of strategic investments and loss
on sale of short-term investments available
for sale................................... (50,736) -- -- -- --
--------- -------- ------- -------- --------
Loss before minority interest and income
taxes...................................... (277,825) (41,470) (223) (46,128) (16,732)
(Benefit) provision for income taxes......... -- (93) 134 -- --
Minority interest in losses of an
unconsolidated subsidiary.................. (1,668) (1,105) -- -- (1,405)
--------- -------- ------- -------- --------
Net loss..................................... $(279,493) $(42,482) $ (357) $(46,128) $(18,137)
========= ======== ======= ======== ========
Net loss per share(1):
Basic and diluted.......................... $ (4.18) $ (0.78) $ (0.01) $ (0.69) $ (0.28)
========= ======== ======= ======== ========
Weighted average shares -- basic and
diluted.................................. 66,799 54,194 26,183 66,929 64,628
========= ======== ======= ======== ========

DECEMBER 31, MARCH 31,
------------------------------------- -------------------
2000 1999 1998 2001 2000
--------- -------- -------------- -------- --------

BALANCE SHEET DATA:
Cash, cash equivalents, short-term
investments and restricted cash............ $ 128,846 $427,981 $ 39 $ 91,211 $378,493
Working capital.............................. 90,611 388,192 133 54,744 335,838
Total assets................................. 238,599 471,882 463 199,366 458,231
Total stockholders' equity................... 173,716 417,550 195 134,355 402,647

---------------
(1) See Note 1 to MP3.com's consolidated financial statements for a description
of the computation of the net loss per share and the number of shares used
in the per share calculation.

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RISK FACTORS

An investment in Vivendi Universal ordinary shares involves a number of
risks, some of which are related to the merger and some of which are inherent in
an investment in Vivendi Universal. You should carefully consider the following
information about these risks, together with the other information in this proxy
statement/prospectus, in considering the proposed merger between Vivendi
Universal and MP3.com and your election to receive cash and/or Vivendi Universal
ADSs in the proposed merger.

RISKS RELATED TO THE MERGER

THE INTEGRATION OF MP3.COM INTO VIVENDI UNIVERSAL MAY BE DIFFICULT AND
EXPENSIVE TO ACHIEVE AND MAY NOT RESULT IN THE BENEFITS THAT WE CURRENTLY
ANTICIPATE.

The merger will present challenges to Vivendi Universal's management,
including the integration of MP3.com's operations and personnel. In addition, it
may present special risks, including possible unanticipated liabilities,
unanticipated costs, diversion of management attention and loss of personnel.

Vivendi Universal may not be able to integrate successfully or manage
profitably the operations it will acquire in the merger. Following the merger,
Vivendi Universal may not achieve the revenue or profitability increases or cost
savings currently anticipated to arise from the merger. If Vivendi Universal's
management is not able to implement a business plan that effectively integrates
MP3.com's operations, the anticipated benefits of the merger may not be
realized.

OFFICERS AND DIRECTORS OF MP3.COM MAY HAVE INTERESTS IN THE MERGER THAT ARE
DIFFERENT FROM THOSE OF MP3.COM'S STOCKHOLDERS.

A number of officers and directors of MP3.com who recommend that you vote
in favor of the merger agreement have employment or severance agreements or
benefit arrangements that provide them with interests in the merger that may be
different from yours. The receipt of compensation or other benefits in
connection with the merger (including the acceleration of vesting of stock
options), or the continuation of indemnification arrangements for current
directors following completion of the merger, may influence these persons in
making their recommendation that you vote in favor of adoption of the merger
agreement. See "The Merger -- Interests of Certain Persons in the Merger".

YOU MAY NOT RECEIVE THE FORM OF MERGER CONSIDERATION THAT YOU ELECT.

THE PRICE OF VIVENDI UNIVERSAL ADSS AT THE CLOSING OF THE MERGER MAY VARY
FROM THE FIVE-DAY AVERAGE PRICE USED TO DETERMINE THE EXCHANGE RATIO FOR THE
MERGER.

The price of Vivendi Universal ADSs may vary as a result of changes in the
business, operations or prospects of Vivendi Universal, general market and
economic conditions and other factors. The number of shares of Vivendi Universal
ADSs issued in the merger will be calculated based on an exchange ratio equal to
$5.00 divided by the average per share closing price of Vivendi Universal ADSs
on the New York Stock Exchange for the five consecutive trading days ending on
the trading day immediately preceding the date of the special meeting. The
market value of the Vivendi Universal ADSs on the date on which the merger is
completed may be different than the five-day average price of Vivendi Universal
ADSs used in determining the exchange ratio. As a result, the market value of
the Vivendi Universal ADSs you receive pursuant to the merger may be more or
less than the $5.00 value assumed in calculating the exchange ratio.
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RISKS RELATED TO AN INVESTMENT IN VIVENDI UNIVERSAL ADSS

THE PRICES OF VIVENDI UNIVERSAL ADSS MAY BE ADVERSELY AFFECTED BY FACTORS
DIFFERENT FROM THOSE AFFECTING THE PRICES OF MP3.COM'S SHARES.

Upon completion of the merger, some MP3.com stockholders will become
holders of Vivendi Universal ADSs. Vivendi Universal will operate in numerous
markets and industries that differ from the markets and industries in which
MP3.com has historically operated. In addition, Vivendi Universal will face
foreign currency risks that are different from those faced by MP3.com. Vivendi
Universal's results of operations and the market prices of its shares may be
adversely affected by factors different from those that affect the results of
operations of MP3.com prior to the merger.

VIVENDI UNIVERSAL MAY SUFFER REDUCED PROFITS OR LOSSES AS A RESULT OF
INTENSE COMPETITION.

Most of the industries in which Vivendi Universal operates are highly
competitive and require substantial human and capital resources. Many other
companies serve each of the markets in which Vivendi Universal competes. 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,
Vivendi Universal's communications business relies on some important third-party
content. There is no assurance that the desired rights to content will be
available on commercially reasonable terms, and 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, APPROVALS AND CONSENTS.

Vivendi Universal needs 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 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 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 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 or
does not grow as quickly as it expects, Vivendi Universal's profitability and
the return it earns on many of its investments may suffer.

THE INTEGRATION OF THE SEAGRAM COMPANY LTD.'S AND CANAL PLUS S.A.'S
TRANSFERRED BUSINESSES INTO VIVENDI UNIVERSAL MAY BE DIFFICULT AND EXPENSIVE TO
ACHIEVE AND MAY NOT RESULT IN THE BENEFITS CURRENTLY ANTICIPATED.

Vivendi Universal may not be able to integrate successfully or manage
profitably the operations acquired in the merger transactions between Vivendi,
The Seagram Company Ltd. and Canal Plus S.A. Vivendi Universal may not achieve
the revenue or profitability increases or cost savings currently

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anticipated to arise from the merger transactions. 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. 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 acquired operations, the anticipated benefits of the merger transactions may
not be realized.

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 unauthorized versions of audio and audiovisual products such
as compact discs, videotapes and DVDs. A substantial portion of Vivendi
Universal's revenue comes from the sale of audio and audiovisual products
potentially subject to unauthorized copying. 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 or other
rights. Intellectual property rights to information that is potentially subject
to widespread, uncompensated dissemination on the Internet represents a
substantial portion of Vivendi Universal's market value. If Vivendi Universal
fails to obtain appropriate relief through the judicial process or the complete
enforcement of judicial decisions issued in its favor, or if it fails to develop
effective means of protecting its intellectual property or entertainment-related
products and services, its results of operations and financial position may
suffer.

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 depend 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 future operations are expected to be
financed in part by a portion of the proceeds it expects to receive from the
sale of the Spirits and Wine business (described below under "Vivendi
Universal -- Business Overview -- Spirits and Wine"). While Vivendi Universal
and certain of its subsidiaries have entered into a contract for the sale of the
Spirits and Wine business, that contract is subject to customary closing
conditions, including receipt of regulatory approvals. If the conditions for the
sale of the Spirits and Wine business are not satisfied, Vivendi Universal may
need to pursue alternative transactions and may have to seek alternative forms
of financing. Vivendi Universal may forego attractive business opportunities and
lose market share if it cannot secure financing on satisfactory terms.

VIVENDI UNIVERSAL'S CONTENT ASSETS IN TV, MOTION PICTURES AND MUSIC MAY NOT
BE COMMERCIALLY SUCCESSFUL.

Vivendi Universal expects a significant amount of its revenue to come from
the production and distribution of content offerings such as feature films,
television series and records. 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. Because Vivendi Universal expects the
popularity of its content offerings to be a significant factor driving the
growth of its communication services, its failure to produce films, series and
records with broad consumer appeal could materially harm its business and
prospects for growth.

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CURRENCY EXCHANGE RATE FLUCTUATIONS MAY NEGATIVELY AFFECT VIVENDI
UNIVERSAL'S FINANCIAL RESULTS, THE MARKET VALUE OF THE VIVENDI UNIVERSAL ADSS
AND THE VALUE OF DIVIDENDS RECEIVED BY HOLDERS OF VIVENDI UNIVERSAL ADSS.

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, Vivendi Universal 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. To the extent this has a
negative effect on its financial condition as presented in its financial
statements, it could cause the price of its shares to decline. In addition, when
Vivendi Universal pays dividends to holders of Vivendi Universal ADSs, those
dividends will be converted from euros to U.S. dollars. As a result, changes in
currency exchange rates could affect the value of dividends that holders of
Vivendi Universal ADSs receive.

VIVENDI UNIVERSAL'S BUSINESS OPERATIONS IN SOME COUNTRIES MAY BE SUBJECT TO
ADDITIONAL RISKS.

Vivendi Universal conducts business in markets around the world. The risks
associated with conducting business in some countries outside of Western Europe,
the United States and Canada can include slower payment of invoices,
nationalization of businesses, social, political and economic instability,
increased currency exchange risk and currency repatriation restrictions, among
other risks. Vivendi Universal may not be able to insure or hedge against these
risks. Furthermore, financing may not be available in countries with less than
investment grade sovereign credit ratings. As a result, it may be difficult to
create or maintain profit-making operations in developing markets.

VIVENDI UNIVERSAL MAY NOT BE SUCCESSFUL IN DEVELOPING NEW TECHNOLOGIES OR
INTRODUCING NEW PRODUCTS AND SERVICES.

Many of the industries in which Vivendi Universal operates 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 ADSS MAY BE SUBJECT TO THE VOLATILITY
GENERALLY ASSOCIATED WITH INTERNET AND TECHNOLOGY COMPANY SHARES.

The market for shares of Internet and technology companies has, over the
past year, 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 may be subject to
similar volatility.

PROVISIONS IN MANY OF THE ENVIRONMENTAL CONTRACTS OF VIVENDI UNIVERSAL'S
SUBSIDIARY, VIVENDI ENVIRONNEMENT, MAY CREATE SIGNIFICANT RESTRICTIONS OR
OBLIGATIONS ON ITS BUSINESS OR ALLOW ITS CUSTOMERS TO MODIFY OR TERMINATE THOSE
CONTRACTS.

Contracts with governmental authorities make up a significant percentage of
the revenue of Vivendi Universal's 63% effectively owned subsidiary, Vivendi
Environnement. 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. Although Vivendi Environnement is generally entitled to full
indemnification in the

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event of a unilateral modification or termination of a contract by a
governmental authority, such modifications or terminations could reduce its
revenue and profits if full indemnification is not available.

VIVENDI UNIVERSAL MAY INCUR ENVIRONMENTAL LIABILITY IN CONNECTION WITH
PAST, PRESENT AND FUTURE OPERATIONS.

Each of Vivendi Universal's businesses, primarily in the case of Vivendi
Environnement, is subject to extensive and increasingly stringent environmental
laws and regulations. In some circumstances, Vivendi Universal 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 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.

THE ABILITY OF HOLDERS OF VIVENDI UNIVERSAL ADSS TO INFLUENCE THE
GOVERNANCE OF VIVENDI UNIVERSAL MAY BE LIMITED.

Holders of Vivendi Universal's ADSs may not have the same ability to
influence corporate governance with respect to the company as shareholders in
some U.S. companies would. For example, the depositary may not receive voting
materials in time to ensure that holders of Vivendi Universal's ADSs can
instruct the depositary to vote their shares. In addition, the depositary's
liability to holders of Vivendi Universal's ADSs for failing to carry out voting
instructions or for the manner of carrying out voting instructions is limited by
the depositary agreement.

JUDGMENTS OF U.S. COURTS MAY NOT BE ENFORCEABLE AGAINST VIVENDI UNIVERSAL.

Judgments of U.S. courts, including those predicated on the civil liability
provisions of the federal securities laws of the United States, may not be
enforceable in French courts. As a result, shareholders who obtain a judgment
against Vivendi Universal in the United States may not be able to require it to
pay the amount of the judgment. See "Enforceability of Civil Liabilities Against
Foreign Persons" on page 26.

SOME PROVISIONS OF VIVENDI UNIVERSAL'S STATUTS COULD HAVE ANTI-TAKEOVER
EFFECTS.

Vivendi Universal's statuts (its organizational documents) contain
provisions that are intended to impede the accumulation of its shares by third
parties seeking to gain a measure of control of Vivendi Universal. For example,
in the case where a quorum of less than 60% is present at a shareholders'
meeting, the statuts adjust the rights of each shareholder that owns in excess
of 2% of Vivendi Universal's voting power through the application of a formula
pursuant to which the voting power of each such shareholder will be equal to
that which it would possess if 100% of Vivendi Universal's shareholders were
present or represented at the shareholders' meeting at which the vote takes
place. In addition, the statuts provide that any person or group that fails to
notify Vivendi Universal within 15 days of acquiring or disposing of at least
0.5% or any multiple of 0.5% of its 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 "Description of Vivendi Universal Ordinary
Shares -- Anti-Takeover Effects" on page 74 and "Comparison of Shareholder
Rights -- Anti-Takeover Provisions" on page 91.

PRE-EMPTIVE RIGHTS MAY NOT BE AVAILABLE FOR U.S. PERSONS.

Under French law, shareholders have pre-emptive rights to subscribe for
cash issuances of new shares or other securities giving rights to acquire
additional shares on a pro rata basis. U.S. holders of Vivendi Universal shares
may not be able to exercise pre-emptive rights for its shares unless a
registration statement under the U.S. Securities Act of 1933, as amended, is
effective with respect to such rights or an

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32

exemption from the registration requirements imposed by the Securities Act is
available. Vivendi Universal may, from time to time, issue new shares or other
securities giving rights to acquire additional shares at a time when no
registration statement is in effect and no Securities Act exemption is
available. If so, U.S. holders of its shares will be unable to exercise their
pre-emptive rights.

VIVENDI UNIVERSAL IS EXEMPT FROM CERTAIN REQUIREMENTS UNDER THE EXCHANGE
ACT.

As a "foreign private issuer", for the purposes of the U.S. federal
securities laws, Vivendi Universal is exempt from rules under the U.S.
Securities Exchange Act of 1934, as amended, 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 are 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 purchase and sale 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, nor will it be required to
comply with Regulation FD, which restricts the selective disclosure of material
information. Accordingly, there may be less information concerning Vivendi
Universal publicly available than there is for those U.S. companies.

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 proxy statement/ prospectus contains
"forward-looking statements". These statements may include statements regarding
the period following completion of the merger.

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 Universal or MP3.com or the merger, 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 Universal and MP3.com
and the risks relating to the merger 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 proxy statement/prospectus. Vivendi Universal
and MP3.com are not under any obligation, and expressly disclaim any obligation,
to update or alter any forward-looking statements, whether as a result of new
information, future events or otherwise.

All subsequent forward-looking statements attributable to Vivendi Universal
or MP3.com, or any person acting on their behalf, are expressly qualified in
their entirety by the cautionary statements contained or referred to in this
section.

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ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS

Vivendi Universal is a corporation organized under the laws of France. Some
of Vivendi Universal's directors and officers are citizens or residents of
countries other than the United States. Substantial portions of Vivendi
Universal's assets are located outside the United States. Accordingly, it may be
difficult for investors:

- to obtain jurisdiction over Vivendi Universal or its 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 Universal or its directors or officers
judgments obtained in such actions;

- to obtain judgments against Vivendi Universal or its 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 Universal or its 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
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.

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THE SPECIAL MEETING

GENERAL

This proxy statement/prospectus is being furnished to you as part of the
solicitation of proxies by the MP3.com board of directors for use at the special
meeting to be held on August 27, 2001. The purpose of the special meeting is for
you to consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of May 20, 2001, by and among MP3.com, Vivendi Universal, and
Metronome Acquisition Sub, a wholly owned subsidiary of Vivendi Universal, as
amended by the Modification Agreement, dated as of June 13, 2001, by and among
such parties. A copy of the merger agreement (including the modification
agreement) is attached to this proxy statement/prospectus as Annex A.

DATE, TIME AND PLACE

The special meeting will be held on August 27, 2001, at 9:00 a.m., local
time, at MP3.com's corporate headquarters located at 4790 Eastgate Mall, San
Diego, California 92121-1970.

PURPOSE OF SPECIAL MEETING

At the special meeting, MP3.com will ask you to vote upon a proposal to
adopt the merger agreement and to transact any other business that properly
comes before the special meeting or any adjournment or postponement of the
special meeting. The MP3.com board of directors has unanimously approved the
merger agreement and the merger and determined that the merger agreement and the
merger are advisable, fair to and in the best interests of, MP3.com and its
stockholders. The MP3.com board of directors unanimously recommends that you
vote "FOR" the proposal to adopt the merger agreement at the special meeting.

RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM

The MP3.com board of directors has fixed the close of business on July 23,
2001 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the special meeting. Only holders of record of MP3.com
common stock at the close of business on the record date are entitled to notice
of, and to vote at, the special meeting. As of the record date, 69,127,762
shares of MP3.com common stock were issued and outstanding and held by
approximately 477 holders of record. Each holder of record of MP3.com common
stock on the record date will be entitled to one vote for each share held on all
matters to be voted upon at the special meeting.

A quorum will be present at the special meeting if a majority of the shares
of MP3.com common stock issued and outstanding and entitled to vote at the
special meeting are represented in person or by a properly executed proxy. If a
quorum is not present at the special meeting, we expect that the special meeting
will be adjourned or postponed to solicit additional proxies.

PROXIES; REVOCATION; SOLICITATION

If you vote your shares of MP3.com common stock by signing a proxy, your
shares, unless your proxy is revoked, will be voted at the special meeting as
you indicate on your proxy card. If no instructions are indicated on your signed
proxy card, your shares of MP3.com common stock will be voted "FOR" adoption of
the merger agreement. If you grant a proxy online or by telephone, your shares
will be voted at the special meeting as you instruct. If your shares are held in
street name, you should follow the directions provided by your broker or bank
regarding how to instruct your broker or bank to vote your shares. If an
executed proxy card is returned by a broker or bank holding shares which
indicates that the broker or bank does not have discretionary authority to vote
on the adoption of the merger agreement, known as a broker non-vote, the shares
will be considered present at the special meeting for determining the presence
of a quorum, but will not be considered to have been voted in favor of adoption
of the merger agreement. The inspector of election appointed for the special
meeting will tabulate all votes and will separately tabulate

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affirmative and negative votes, abstentions and broker non-votes. Abstentions
and broker non-votes will have the same effect as votes "AGAINST" adoption of
the merger agreement.

You may revoke your proxy at any time before the vote at the special
meeting by submitting a written revocation to the Secretary of MP3.com at 4790
Eastgate Mall, San Diego, CA 92121-1970, or by submitting a new proxy to such
address, in either case, dated after the date of the proxy that is being
revoked. In addition, a proxy may also be revoked by voting in person at the
special meeting. Simply attending the special meeting without voting will not
revoke your proxy.

The MP3.com board of directors is not currently aware of any other business
to be brought before the special meeting. If, however, other matters are
properly brought before the special meeting (including a proposal for an
adjournment or postponement of the special meeting), the individuals appointed
as proxies will have discretionary authority to vote the shares represented by
duly executed proxies in accordance with their discretion and judgment.

The solicitation of proxies will occur primarily by mail but may include
telephone or oral communications by regular employees of MP3.com, acting without
special compensation. MP3.com also will request that persons and entities
holding shares that are registered in their own names or in the names of their
nominees but that are beneficially owned by others send proxy materials to, and
obtain proxies from, those beneficial owners. All expenses involved in the
solicitation of proxies will be paid by MP3.com and will include reimbursement
of brokerage firms and others for expenses in forwarding proxy solicitation
material to the beneficial owners of shares of MP3.com common stock.

YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.

INTERNET OR TELEPHONIC PROXIES

For shares registered in your name:

Delaware, the state in which MP3.com is incorporated, permits electronic
submission of proxies online or by telephone, instead of submitting proxies by
mail on the enclosed proxy card, if your shares are held of record in your name.
You may grant a proxy telephonically by calling, toll free, 1-800-840-1208 on a
touch-tone telephone. You may also grant a proxy online by going to
http://www.proxyvoting.com/mppp.

For shares registered in the name of a broker or bank:

A number of brokers and banks are participating in a program provided
through ADP Investor Communication Services that offers telephone and online
proxy options. If your shares are held in an account with a broker or bank
participating in the ADP Investor Communication Services program, you may grant
a proxy telephonically by calling the telephone number shown on the voting form
received from your broker or bank and as indicated on the proxy card, or online
at ADP Investor Communication Services' voting web site at
http://www.proxyvote.com.

General information for all shares voted online or by telephone:

Proxies submitted online or by telephone must be received by 5:00 p.m.,
Eastern Daylight Time, on August 24, 2001. Submitting your proxy online or by
telephone will not affect your right to vote in person should you decide to
attend the special meeting.

THE TELEPHONE AND ONLINE PROCEDURES ARE DESIGNED TO AUTHENTICATE
STOCKHOLDERS' IDENTITIES, TO ALLOW STOCKHOLDERS TO GRANT A PROXY AND TO CONFIRM
THAT STOCKHOLDERS' INSTRUCTIONS HAVE BEEN RECORDED PROPERLY. STOCKHOLDERS
GRANTING A PROXY ONLINE SHOULD UNDERSTAND THAT THERE MAY BE COSTS ASSOCIATED
WITH ELECTRONIC ACCESS, SUCH AS INDIRECT USAGE CHARGES FROM INTERNET ACCESS
PROVIDERS AND TELEPHONE COMPANIES, THAT MUST BE BORNE BY THE STOCKHOLDER.

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REQUIRED VOTE

The affirmative vote of the holders of a majority of outstanding shares of
MP3.com common stock entitled to vote at the special meeting is necessary for
the adoption of the merger agreement.

As of July 23, 2001, the directors and executive officers of MP3.com
beneficially owned, in the aggregate, 37,093,087 shares of MP3.com common stock,
or approximately 53% of the shares of MP3.com common stock outstanding on that
date. Michael Robertson and Robin Richards, along with Sequoia Capital, have
each entered into a stockholder agreement with Vivendi Universal, described
under "The Stockholder Agreement", obligating themselves to vote "FOR" adoption
of the merger agreement. These stockholders together beneficially own and have
voting control of more than 50% of the shares of MP3.com common stock
outstanding as of July 23, 2001. So long as these stockholders vote to adopt the
merger agreement, as required by the stockholder agreement, adoption of the
merger agreement by the MP3.com stockholders at the special meeting is assured.

ADJOURNMENTS OR POSTPONEMENTS

Although it is not expected, the special meeting may be adjourned or
postponed for the purpose of soliciting additional proxies. The special meeting
may be adjourned either by the chairman of the meeting or by the vote of a
majority of the shares casting votes. Any signed proxies received by MP3.com
will be voted in favor of an adjournment or postponement in these circumstances
unless the shares represented by the proxy are to be voted against the proposal
to adopt the merger agreement. Any adjournment or postponement of the special
meeting for the purpose of soliciting additional proxies will allow MP3.com
stockholders who have already sent in their proxies to revoke them at any time
before they are used.

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THE MERGER

The discussion in this proxy statement/prospectus of the merger and the
principal terms of the merger agreement is qualified in its entirety by
reference to the merger agreement (including the modification agreement), a copy
of which is attached to this proxy statement/prospectus as Annex A and is
incorporated by reference in this proxy statement/prospectus.

BACKGROUND OF THE MERGER

Philippe Germond, Chairman & Chief Executive Officer of Vivendi Universal's
Telecoms and Internet business divisions, routinely meets with executives of
other music, Internet and media companies to discuss developments in the
industry.

During the fall of 2000 through February 2001, representatives of Vivendi
Universal, including Mr. Germond and representatives of MP3.com, including
Michael Robertson, Chairman and Chief Executive Officer of MP3.com, and Robin
Richards, President and a director of MP3.com, discussed from time to time ways
in which the companies could cooperate, including by means of a potential
business combination.

On January 25, 2001, at a meeting of the MP3.com board of directors, the
board first considered the possibility of a business combination transaction for
MP3.com. Mr. Richards led the board in discussions regarding potential
acquisition partners of MP3.com and various strategic approaches to a business
combination for the board to consider. The board discussed the potential
benefits of a variety of strategic alternatives and weighed those potential
benefits against the risk of any resulting disruptions to MP3.com's business.

In late January 2001, representatives of Credit Suisse First Boston,
MP3.com's financial advisor, met with MP3.com to discuss strategic alternatives
for MP3.com.

In late February and early March 2001, Mr. Richards and Paul Ouyang, Chief
Financial Officer of MP3.com, held telephonic meetings with representatives of
Credit Suisse First Boston to discuss potential merger partners of MP3.com and
various potential strategic approaches that MP3.com might consider.

On February 27, 2001, Mr. Richards and Mr. Germond met in New York to
discuss a potential business combination between MP3.com and Vivendi Universal.

On March 1, 2001, Mr. Richards and Mr. Ouyang held a telephonic meeting
with representatives of Credit Suisse First Boston to discuss Mr. Richards'
meeting with Mr. Germond in New York and the possibility of a transaction with
Vivendi Universal.

On March 9, 2001, MP3.com and its legal counsel, Latham & Watkins, received
a legal due diligence request from Cravath, Swaine & Moore, Vivendi Universal's
legal counsel.

On March 12, 2001, Mr. Richards, Mr. Ouyang and other members of MP3.com's
management team met with representatives of Credit Suisse First Boston at
MP3.com's offices in Los Angeles, California to discuss a potential business
combination between MP3.com and Vivendi Universal.

On March 14, 2001, MP3.com and Vivendi Universal executed a confidentiality
agreement in anticipation of Vivendi Universal's due diligence review of
MP3.com.

During the period from March 12, 2001 to March 21, 2001, the management of
MP3.com and representatives of Credit Suisse First Boston continued their
discussions regarding a potential business combination between MP3.com and
Vivendi Universal. During this time, Credit Suisse First Boston, at the
direction of MP3.com's board, engaged in discussions with Goldman Sachs, Vivendi
Universal's financial advisor, regarding preliminary terms of a potential
transaction.

On March 21, 2001, representatives of Vivendi Universal, Goldman Sachs and
Credit Suisse First Boston attended a meeting at Goldman Sachs' offices in Los
Angeles, California, at which Mr. Richards, Mr. Ouyang, Steve Sheiner, Executive
Vice President, Sales and Marketing of MP3.com, and other

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members of MP3.com's management team made a presentation on MP3.com's business,
operations and financial condition.

Beginning March 23, 2001, representatives of Vivendi Universal conducted
technical due diligence at MP3.com's headquarters in San Diego, California.

On March 29, 2001, MP3.com's board held a telephonic meeting during which
Mr. Richards reported to the board on the status of discussions with Vivendi
Universal as a potential merger partner for MP3.com. The board then engaged in a
full discussion regarding a potential business combination between MP3.com and
Vivendi Universal.

On April 3, 2001, Mr. Richards, Mr. Ouyang and representatives of Credit
Suisse First Boston met with Mr. Germond, Gerard Ries, Vice President,
Development, Telecom and Internet of Vivendi Universal, other representatives of
Vivendi Universal, and representatives of Goldman Sachs in New York to discuss
the potential benefits of a business combination. Vivendi Universal and MP3.com
did not reach an agreement on terms at such meeting and discussions were
suspended. During the following week, Mr. Richards and Mr. Germond reinitiated
discussions regarding the proposed transaction.

During the first two weeks of April 2001, at the direction of the MP3.com
board and the Vivendi Universal board, respectively, Credit Suisse First Boston
and Goldman Sachs engaged in numerous discussions relating to the terms of the
potential transaction, including the form and amount of consideration to be
received by MP3.com's stockholders.

From April 17, 2001 to April 18, 2001, Mr. Richards, Mr. Sheiner and
representatives of Credit Suisse First Boston attended meetings with Mr. Germond
and Mr. Ries in Paris to discuss the proposed terms of a business combination
between MP3.com and Vivendi Universal.

On April 19, 2001, Vivendi Universal sent MP3.com a preliminary term sheet
setting forth Vivendi Universal's intent regarding an acquisition of MP3.com by
Vivendi Universal. MP3.com management reviewed and discussed the preliminary
term sheet with MP3.com's legal and financial advisors. On April 20, 2001,
MP3.com sent a revised term sheet to Vivendi Universal. The parties continued to
engage in discussions regarding the proposed terms of the transaction, including
the proposed form and amount of consideration and Vivendi Universal's
requirements that some of MP3.com's stockholders enter into a stockholder
agreement and some of MP3.com's officers enter into employment agreements with
Vivendi Universal, in each case at the time of signing the merger agreement.

On April 20, 2001, at a meeting of the MP3.com board, representatives of
Credit Suisse First Boston discussed with the board the proposed terms of a
business combination between MP3.com and Vivendi Universal, including a proposed
price of $5.00 per share of MP3.com common stock. Latham & Watkins reviewed and
commented on the duties of the board of directors with respect to a potential
transaction. Latham & Watkins then recommended that a committee of directors who
were not being asked to sign a stockholder agreement be formed to evaluate the
transaction with the assistance of separate legal counsel. The board appointed a
special committee to evaluate the proposed transaction, consisting of Thomas A.
Heymann, Lawrence F. Probst III and Justice Howard B. Wiener.

At the end of April 2001, Vivendi Universal and its legal and financial
advisors and MP3.com and its legal and financial advisors met at the offices of
Latham & Watkins in San Diego, California to conduct business and legal due
diligence of MP3.com.

Following this due diligence, on April 27, 2001, Vivendi Universal's legal
advisors delivered preliminary drafts of a merger agreement and stockholder
agreement to MP3.com and its legal advisors.

On April 30, 2001, Mr. Richards met with John Borgia, Senior Executive Vice
President, Human Resources of Vivendi Universal, to discuss employment issues
related to the proposed transaction.

In early May 2001, the special committee of the MP3.com board engaged
Richards, Layton & Finger as its legal counsel to assist it in evaluating the
proposed transaction, and on May 3, 2001, the special committee held its initial
meeting. Richards, Layton & Finger and Latham & Watkins made a

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presentation to the special committee regarding the status of the proposed
transaction and the important negotiating aspects of the transaction. The
special committee discussed MP3.com's alternatives to the proposed transaction,
including its future as an independent entity. The special committee also
discussed the nature and extent of the stockholder agreement required by Vivendi
Universal in connection with the proposed transaction. At the conclusion of its
initial meeting, the special committee concurred that MP3.com management should
continue its negotiations with Vivendi Universal.

Also on May 3, 2001, Mr. Richards and representatives of Credit Suisse
First Boston met with Mr. Germond, Mr. Ries, Mr. Borgia and representatives of
Vivendi Universal's legal and financial advisors in New York to discuss economic
terms of the proposed merger agreement, stockholder agreement and various
employment agreements.

During the period from April 28, 2001 to May 20, 2001, MP3.com and its
legal and financial advisors and Vivendi Universal and its legal and financial
advisors held several telephone meetings to discuss due diligence matters.
Initial drafts of the two-year employment agreements, the form of one-year
employment agreements and the term sheets for the retention and non-compete
agreements were distributed on May 7, 2001, May 9, 2001 and May 18, 2001,
respectively. Negotiations concerning the merger agreement, the stockholder
agreement and the various employment agreements continued through May 20, 2001.

On May 7, 2001, the special committee of the MP3.com board met with
Richards, Layton & Finger, Latham & Watkins and Credit Suisse First Boston to
discuss the status of the proposed transaction. Representatives of Credit Suisse
First Boston reviewed with the special committee MP3.com's business and the
potential strategic alternatives available to MP3.com.

On May 9, 2001, the special committee of the MP3.com board met with
Richards, Layton & Finger and Latham & Watkins. Latham & Watkins updated the
special committee regarding the status of the proposed transaction, including
open issues in the merger agreement and open issues relating to employee
matters. The special committee also discussed the terms of the proposed
stockholder agreement. The special committee concluded that MP3.com management
should proceed with negotiation of the terms of the definitive transaction
documents pending resolution of the open issues.

On May 9, 2001, Jean-Marie Messier, Chairman and Chief Executive Officer of
Vivendi Universal, and Mr. Robertson met regarding the proposed transaction.

On May 15, 2001, at a meeting of the MP3.com board, the board discussed the
proposed merger of MP3.com with Vivendi Universal. Mr. Richards provided the
board with a status update of the proposed transaction. Also at the meeting,
representatives of Credit Suisse First Boston reviewed with the board its
financial analysis of the merger consideration. Latham & Watkins summarized the
principal remaining open issues in the transaction agreements and issues
relating to the board's duties with respect to the proposed transaction.

On May 18, 2001, Mr. Richards met with Edgar Bronfman, Jr., Vice Chairman
of Vivendi Universal, in New York to discuss and negotiate the remaining open
issues in the transaction agreements.

Also on May 18, 2001, the special committee of the MP3.com board met with
Richards, Layton & Finger, Latham & Watkins and Credit Suisse First Boston to
review the proposed terms and conditions of the transaction documents.
Representatives of Credit Suisse First Boston reviewed with the special
committee the status of the continuing negotiations with Vivendi Universal.

On May 19, 2001, the special committee of the MP3.com board met with
representatives of Richards, Layton & Finger, Latham & Watkins and Credit Suisse
First Boston. The special committee reviewed drafts of the merger agreement and
stockholder agreement in substantially final forms and Latham & Watkins
summarized the changes that had been negotiated since the previous meeting of
the special committee. Credit Suisse First Boston updated its financial analysis
and informed the special committee that it was prepared to provide to the board
an opinion as to the fairness, from a financial point of view, of the merger
consideration. Representatives of Credit Suisse First Boston also responded to
questions raised by members of the special committee. Following the
presentation, the special committee engaged in a full

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discussion of the terms of the proposed merger. The special committee concluded
that the merger agreement was fair to MP3.com's stockholders and that the
proposed acquisition was in the best interests of MP3.com and its stockholders.
Accordingly, the special committee voted to recommend that the board approve the
merger agreement and related agreements.

Immediately following the special committee meeting on May 19, 2001, the
MP3.com board held a special telephonic meeting with MP3.com's legal and
financial advisors to discuss the status of final negotiations with Vivendi
Universal. Latham & Watkins summarized the terms of the merger agreement and
related agreements and responded to questions from members of the MP3.com board
about the terms of those agreements. In addition, Credit Suisse First Boston
updated its financial analysis and rendered to the board an oral opinion, which
opinion was confirmed by delivery of a written opinion dated May 20, 2001, to
the effect that, as of the date of the opinion and based on and subject to the
matters described in the opinion, the merger consideration was fair, from a
financial point of view, to the holders of MP3.com common stock. Representatives
of Credit Suisse First Boston also responded to questions raised by members of
the MP3.com board regarding its analysis and opinion. Following the
presentation, the MP3.com board engaged in a full discussion of the terms of the
proposed merger and the financial analysis and opinion of Credit Suisse First
Boston. The special committee delivered its recommendation to the board that the
board approve the merger, the merger agreement and the stockholder agreement.
The MP3.com board concluded that the merger agreement was fair to MP3.com's
stockholders and that the proposed merger was advisable and in the best
interests of MP3.com and its stockholders. Accordingly, the MP3.com board
unanimously approved the merger, the merger agreement and the stockholder
agreement and authorized management to proceed with the execution of the merger
documents.

On May 20, 2001, Vivendi Universal, Metronome Acquisition Sub and MP3.com
executed the definitive merger agreement, and the required stockholders and
employees of MP3.com executed the stockholder agreement and employment
agreements, as applicable, with Vivendi Universal.

Also on May 20, 2001, Vivendi Universal and MP3.com issued a joint press
release announcing the execution of the merger agreement and related documents.

REASONS FOR THE MERGER

The MP3.com board has unanimously approved the merger agreement and the
merger and determined that the merger agreement and the merger are advisable,
fair to, and in the best interests of, MP3.com and its stockholders. The MP3.com
board of directors unanimously recommends that you vote "FOR" the proposal to
adopt the merger agreement at the special meeting.

The MP3.com board consulted with MP3.com's management, as well as its legal
counsel, independent accountants and financial advisors in reaching its decision
to approve the merger agreement and the merger. Among the factors considered by
MP3.com's board in its deliberations were the following:

- MP3.com's stockholders will have the opportunity to benefit from the
potential appreciation in the value of Vivendi Universal ordinary shares;

- MP3.com's management's view of the financial condition, results of
operations, assets, liabilities, businesses and prospects of Vivendi
Universal and MP3.com after giving effect to the merger;

- the effect of the merger on MP3.com's ability to broaden its customer
base, facilitate expansion and make possible economies of scale which
would enhance the ability of MP3.com to penetrate its market;

- current industry, economic and market conditions, including the potential
for further consolidation within MP3.com's industry and the fact that
stockholder value may be maximized by selling MP3.com to a larger, better
capitalized company;

- historical market prices and trading information with respect to Vivendi
Universal shares and MP3.com common stock;

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- the merger consideration represented an approximate 66% premium over the
closing price per share of MP3.com's common stock on May 18, 2001, the
last trading day before the public announcement of the signing of the
merger agreement;

- MP3.com's pending litigation and the effect of the merger on the ability
of MP3.com to resolve pending litigation matters while continuing to
focus on the growth of its business;

- the likelihood of an alternative transaction and MP3.com's prospects if
it were to continue as an independent company;

- the terms and conditions of the merger agreement, including the closing
conditions, the stockholder agreement and the expected tax-free treatment
to MP3.com's stockholders to the extent they receive Vivendi Universal
ordinary shares;

- the financial presentation, including the opinion of Credit Suisse First
Boston as to the fairness from a financial point of view of the merger
consideration to be received by the holders of MP3.com common stock, as
described more fully below under the caption "Opinion of MP3.com's
Financial Advisor"; and

- the ability of the MP3.com board to enter into discussions with another
party in response to an unsolicited superior offer to the merger if the
MP3.com board believes in good faith, after consultation with its legal
counsel, that such action is required in order to comply with its
fiduciary obligations.

MP3.com's board also identified and considered some potentially negative
factors in its deliberations concerning the merger, including:

- the loss of control over future operations of MP3.com after the merger;

- the impact of the loss of MP3.com's status as an independent company on
MP3.com's stockholders, employees and customers;

- the risk that the potential benefits sought in the merger might not be
fully realized;

- the possibility that the merger might not be completed and the potential
adverse effects of the public announcement of the merger on:

-- MP3.com's ability to attract and retain key employees;

-- the progress of some of MP3.com's strategic initiatives; and

-- MP3.com's overall competitive position;

- the risk that, despite the efforts of Vivendi Universal and MP3.com, key
technical, sales and management personnel might not remain employees of
Vivendi Universal following the completion of the merger;

- the restrictions on MP3.com imposed by the merger agreement and the
potential business opportunities that might be foregone due to these
restrictions or the pendency of the merger generally;

- the fact that some officers and directors of MP3.com have interests in
the merger that may conflict with the interests of MP3.com stockholders;
and

- the transaction costs expected to be incurred in connection with the
merger and the other risks described under the heading "Risk
Factors -- Risks Related to the Merger" beginning on page 20.

In light of the factors described above, the MP3.com board determined that
the value and benefits available to MP3.com stockholders from the merger
exceeded the potential value and benefits they might realize from MP3.com
continuing as an independent company.

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The foregoing discussion of the information and factors considered by the
MP3.com board is not intended to be exhaustive but is believed to include all
material factors considered by MP3.com's board. In view of the complexity and
wide variety of information and factors, both positive and negative, considered
by the MP3.com board, it did not find it practical to quantify, rank or
otherwise assign relative or specific weights to the factors considered. In
addition, the MP3.com board did not attach any relative or specific weights to
the factors considered, or any aspect of any particular factor, but, rather,
conducted an overall analysis of the factors described above, including
discussions with MP3.com's management and legal and financial advisors. In
considering the factors described above, individual members of the MP3.com board
may have given different weight to different factors. The MP3.com board
considered all these factors as a whole and believed the factors supported its
determination to approve the merger agreement and the merger and recommend to
the stockholders of MP3.com that they approve the merger agreement and the
merger.

RECOMMENDATION OF THE MP3.COM BOARD OF DIRECTORS

At the special meeting, the holders of MP3.com common stock will be asked
to vote upon a proposal to adopt the merger agreement and to transact any other
business that properly comes before the special meeting or any adjournment or
postponement of the special meeting. The MP3.com board of directors has
unanimously approved the merger agreement and the merger and determined that the
merger agreement and the merger are advisable, fair to and in the best interests
of, MP3.com and its stockholders. The MP3.com board of directors unanimously
recommends that the MP3.com stockholders vote "FOR" the proposal to adopt the
merger agreement at the special meeting.

OPINION OF MP3.COM'S FINANCIAL ADVISOR

Credit Suisse First Boston has acted as MP3.com's exclusive financial
advisor in connection with the merger. MP3.com selected Credit Suisse First
Boston based on Credit Suisse First Boston's experience, expertise and
reputation. Credit Suisse First Boston is an internationally recognized
investment banking firm and is regularly engaged in the valuation of businesses
and securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.

In connection with Credit Suisse First Boston's engagement, MP3.com
requested that Credit Suisse First Boston evaluate the fairness, from a
financial point of view, to the holders of MP3.com common stock of the
consideration provided for in the merger. On May 19, 2001, at a meeting of the
MP3.com board of directors held to evaluate the merger, Credit Suisse First
Boston rendered to the MP3.com board of directors an oral opinion, which opinion
was confirmed by delivery of a written opinion dated May 20, 2001, the date of
the merger agreement, to the effect that, as of that date and based on and
subject to the matters described in its opinion, the consideration provided for
in the merger was fair, from a financial point of view, to the holders of
MP3.com common stock.

A COPY OF CREDIT SUISSE FIRST BOSTON'S WRITTEN OPINION, DATED MAY 20, 2001,
TO THE MP3.COM BOARD OF DIRECTORS, WHICH SETS FORTH, AMONG OTHER THINGS, THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C AND IS INCORPORATED INTO THIS DOCUMENT
BY REFERENCE. HOLDERS OF MP3.COM COMMON STOCK ARE ENCOURAGED TO READ THIS
OPINION CAREFULLY AND IN ITS ENTIRETY. CREDIT SUISSE FIRST BOSTON'S OPINION IS
ADDRESSED TO THE MP3.COM BOARD OF DIRECTORS AND RELATES ONLY TO THE FAIRNESS OF
THE CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO ANY MATTER RELATING TO THE MERGER. THE
SUMMARY OF CREDIT SUISSE FIRST BOSTON'S OPINION IN THIS DOCUMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.

In arriving at its opinion, Credit Suisse First Boston reviewed the merger
agreement and related documents as well as publicly available business and
financial information relating to MP3.com and Vivendi Universal. Credit Suisse
First Boston also reviewed other information relating to MP3.com and Vivendi
Universal provided to or discussed with Credit Suisse First Boston by MP3.com
and Vivendi

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Universal, including publicly available financial forecasts for MP3.com and
Vivendi Universal, and met with the managements of MP3.com and Vivendi Universal
to discuss the businesses and prospects of MP3.com and Vivendi Universal. Credit
Suisse First Boston also considered financial and stock market data of MP3.com
and Vivendi Universal, and compared those data with similar data for other
publicly held companies in businesses similar to MP3.com and Vivendi Universal
and considered, to the extent publicly available, the financial terms of other
business combinations and transactions that have been announced or effected.
Credit Suisse First Boston also considered other information, financial studies,
analyses and investigations and financial, economic and market criteria that it
deemed relevant, including the potential impact on MP3.com of pending and future
copyright infringement litigation and related claims.

In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the information that
was provided to or otherwise reviewed by it and relied on that information being
complete and accurate in all material respects. With respect to the publicly
available financial forecasts for MP3.com and Vivendi Universal referred to
above, Credit Suisse First Boston reviewed and discussed the forecasts with the
managements of MP3.com and Vivendi Universal and was advised, and assumed, that
the forecasts represent reasonable estimates and judgments as to the future
financial performance of MP3.com and Vivendi Universal. Credit Suisse First
Boston also assumed, with MP3.com's consent, that the merger would be treated as
a tax-free reorganization for federal income tax purposes. In addition, Credit
Suisse First Boston was not requested to make, and did not make, an independent
evaluation or appraisal of the assets or liabilities, contingent or otherwise,
of MP3.com or Vivendi Universal, and Credit Suisse First Boston was not
furnished with any evaluations or appraisals.

Credit Suisse First Boston's opinion was necessarily based on information
available to it, and financial, economic, market and other conditions as they
existed and could be evaluated, on the date of Credit Suisse First Boston's
opinion. Credit Suisse First Boston's opinion did not address the relative
merits of the merger as compared to other business strategies that might have
been available to MP3.com or the underlying business decision of MP3.com to
proceed with the merger. Credit Suisse First Boston did not express any opinion
as to what the value of Vivendi Universal ADSs actually would be when issued in
the merger or the prices at which Vivendi Universal ADSs or Vivendi Universal
ordinary shares would trade at any time. Although Credit Suisse First Boston
evaluated the consideration in the merger from a financial point of view, Credit
Suisse First Boston was not requested to, and did not, recommend the specific
consideration payable in the merger, which consideration was determined between
MP3.com and Vivendi Universal. In connection with its engagement, Credit Suisse
First Boston was not requested to, and did not, solicit third party indications
of interest in the possible acquisition of all or any part of MP3.com. No other
limitations were imposed on Credit Suisse First Boston with respect to the
investigations made or procedures followed in rendering its opinion.

In preparing its opinion to the MP3.com board of directors, Credit Suisse
First Boston performed a variety of financial and comparative analyses,
including those described below. The summary of Credit Suisse First Boston's
analyses described below is not a complete description of the analyses
underlying Credit Suisse First Boston's opinion. The preparation of a fairness
opinion is a complex process involving various determinations as to the most
appropriate and 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, Credit Suisse First Boston made qualitative judgments
as to the significance and relevance of each analysis and factor that it
considered. Accordingly, Credit Suisse First Boston believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
factors or focusing on information presented in tabular format, without
considering all analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.

In its analyses, Credit Suisse First Boston considered industry
performance, regulatory, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of MP3.com
and Vivendi Universal. No company, transaction or business used in Credit Suisse

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First Boston's analyses as a comparison is identical to MP3.com and Vivendi
Universal or the proposed merger, and an evaluation of the results of those
analyses is not entirely mathematical. Rather, the analyses involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the acquisition, public trading or other
values of the companies, business segments or transactions analyzed. The
estimates contained in Credit Suisse First Boston's analyses and the ranges of
valuations resulting from any particular analysis are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Credit Suisse First
Boston's analyses and estimates are inherently subject to substantial
uncertainty.

Credit Suisse First Boston's opinion and financial analyses were only one
of many factors considered by the MP3.com board of directors in its evaluation
of the proposed merger and should not be viewed as determinative of the views of
the MP3.com board of directors or management with respect to the merger or the
consideration provided for in the merger.

The following is a summary of the material financial analyses underlying
Credit Suisse First Boston's opinion delivered to the MP3.com board of directors
in connection with the merger. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE
INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND CREDIT
SUISSE FIRST BOSTON'S FINANCIAL ANALYSES, 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. CONSIDERING THE DATA IN THE TABLES BELOW
WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES,
INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD
CREATE A MISLEADING OR INCOMPLETE VIEW OF CREDIT SUISSE FIRST BOSTON'S FINANCIAL
ANALYSES.

Precedent Transaction Analysis

Credit Suisse First Boston reviewed premiums paid in 47 stock-for-stock
transactions since January 1, 1999 involving companies in the Internet industry
and 240 stock-for-stock transactions since April 30, 1987 involving companies in
the technology industry. For each group of transactions, Credit Suisse First
Boston calculated the premium of the exchange ratio provided for in each
transaction to the ratio of the stock prices for the acquirors and targets in
the transactions one trading day prior to the announcement of the transaction
and over various other periods prior to the announcement of the transaction.
Credit Suisse First Boston then derived implied per share values for MP3.com
common stock by applying the average premiums in the groups of transactions for
the periods observed to the average closing prices of MP3.com common stock over
the corresponding periods prior to the announcement of the merger. This analysis
indicated the following implied per share values for MP3.com common stock over
the various periods:

IMPLIED SHARE PRICE
-----------------------------------------------
90 60 30 10
PRECEDENT TRANSACTION DAYS DAYS DAYS DAYS 1 DAY AVERAGE
--------------------- ----- ----- ----- ----- ----- -------

47 Precedent Internet Transactions..... $4.38 $3.67 $3.98 $4.13 $3.94 $4.03

240 Precedent Technology
Transactions......................... $4.36 $3.62 $3.91 $4.09 $3.98 $4.00

Credit Suisse First Boston noted that the value of the per share
consideration for MP3.com common stock provided for in the merger was $5.00 in
cash or stock.

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Premiums Paid Analysis

Credit Suisse First Boston reviewed the closing price of MP3.com common
stock on May 18, 2001, the average closing prices of MP3.com common stock over
various periods ending May 18, 2001 and the closing price of MP3.com common
stock on the first day of each of the periods observed. Credit Suisse First
Boston then calculated the percentage premium of the per share consideration
provided for in the merger of $5.00 in cash or stock to the closing price of
MP3.com common stock on May 18, 2001, the average closing prices of MP3.com
common stock over the various periods observed and the closing price of MP3.com
common stock on the first day of each of the periods observed. This analysis
indicated the following:

PREMIUM OF
MP3.COM AVERAGE MERGER
STOCK PRICE PREMIUM OF MERGER MP3.COM CONSIDERATION
ON THE FIRST CONSIDERATION STOCK PRICE TO AVERAGE
DAY OF PERIOD TO STOCK PRICE OVER PERIOD STOCK PRICE
------------- ----------------- ----------- -------------

May 18, 2001................. $3.01 66.1% -- --
10 Trading Days.............. $3.01 66.1% $2.94 70.3%
20 Trading Days.............. $2.60 92.3% $2.95 69.3%
30 Trading Days.............. $1.81 175.9% $2.74 82.4%
45 Trading Days.............. $2.25 122.2% $2.55 95.7%
60 Trading Days.............. $3.31 50.9% $2.59 93.0%
90 Trading Days.............. $4.94 1.3% $3.26 53.4%

Illustrative Future Trading Analysis

Credit Suisse First Boston reviewed the revenue implied for MP3.com by a
range of selected forward stock price to earnings multiples, assuming a 34.0%
tax rate, 15.0% pre-tax margin and $5.00 per share price for MP3.com. Utilizing
MP3.com's annualized 2001 first quarter revenues (excluding revenues from its
contract with Montaigne Participations Et Gestion, or MPG) and based on
MP3.com's current capitalization, Credit Suisse First Boston then calculated the
annual percentage of non-MPG revenue growth for one year and three years
required to achieve the implied revenue values. This analysis indicated the
following results:

IMPLIED ONE YEAR THREE YEAR
FORWARD PRICE/ REVENUE ANNUAL ANNUAL
EARNINGS MULTIPLES (IN MILLIONS) GROWTH RATE GROWTH RATE
------------------ ------------- ----------- -----------

10.0x $347.4 1,091% 128%
20.0x $173.7 496% 81%
30.0x $115.8 297% 58%
40.0x $ 86.9 198% 44%

In addition, assuming an annual non-MPG revenue growth rate of 50.0% and
utilizing MP3.com's annualized 2001 first quarter non-MPG revenue, Credit Suisse
First Boston also calculated the number of years required to achieve the implied
revenue values derived above. Based on the range of forward stock price to
earnings multiples of 10.0x to 40.0x, this analysis indicated a range of 6.1
years to 2.7 years, respectively.

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Comparable Companies Analysis

Credit Suisse First Boston compared financial, operating and stock market
data of MP3.com to corresponding data of the following 14 publicly traded
companies in the online music industry, information hubs industry and internet
infrastructure industry:

ONLINE MUSIC INFORMATION HUBS INTERNET INFRASTRUCTURE
------------------------------- ------------------------------- ----------------------------------

- RealNetworks, Inc. - AOL Time Warner Inc. - VeriSign, Inc.
- Sonic Foundry, Inc. - Yahoo! Inc. - Ariba, Inc.
- Liquid Audio, Inc. - Terra Networks, Inc. - Commerce One, Inc.
- ARTISTdirect, Inc. - Akamai Technologies, Inc.
- Launch Media, Inc. - Inktomi Corporation
- Intertrust Technologies Cor-
poration

Credit Suisse First Boston compared stock prices as a multiple of estimated
calendar years 2001 and 2002 earnings per share and fully diluted aggregate
values, calculated as fully diluted equity market value plus net debt, as a
multiple of estimated calendar years 2001 and 2002 revenues. All multiples were
based on closing stock prices on May 18, 2001. Estimated financial data for
MP3.com was based on publicly available research analysts' estimates and
estimated financial data for the group of companies was based on IBES consensus
estimates. This analysis indicated the following mean and median implied
multiples for the groups of companies, as compared to the implied multiples for
MP3.com:

ONLINE MUSIC INFORMATION HUBS INTERNET INFRASTRUCTURE
-------------- ---------------- -------------------------
MEAN MEDIAN MEAN MEDIAN MEAN MEDIAN MP3.COM
----- ------ ----- ------- -------- -------------- -------

PRICE AS MULTIPLE OF:
Estimated calendar year 2001
earnings.......................... 142.9x 142.9x 38.6x 38.6x 100.7x 100.7x NM
Estimated calendar year 2002
earnings.......................... 94.6x 94.6x 82.0x 82.0x 78.1x 78.1x 71.8x
AGGREGATE VALUE AS MULTIPLE OF:
Estimated calendar year 2001
revenue........................... 4.7x 4.7x 7.5x 5.8x 4.8x 3.5x 1.9x
Estimated calendar year 2002
revenue........................... 3.4x 3.4x 5.9x 4.7x 3.5x 3.0x 1.4x

Credit Suisse First Boston also compared financial, operating and stock
market data of Vivendi Universal to corresponding data of the following six
publicly traded companies in the media industry:

- AOL Time Warner Inc.

- Viacom Inc.

- Sony Corporation

- The Walt Disney Company

- News Corporation Limited

- Yahoo! Inc.

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Credit Suisse First Boston compared stock prices as a multiple of estimated
calendar years 2001 and 2002 earnings per share and fully diluted aggregate
values as a multiple of estimated calendar years 2001 and 2002 revenues and
estimated calendar year 2001 earnings before interest, taxes, depreciation and
amortization, commonly referred to as EBITDA. All multiples were based on
closing stock prices on May 18, 2001. Estimated financial data for Vivendi
Universal and for the group of companies was based on publicly available
research analysts' estimates. This analysis indicated the following mean and
median implied multiples for the group of companies, as compared to the implied
multiples for Vivendi Universal:

MEAN MEDIAN VIVENDI UNIVERSAL
----- ------ -----------------

PRICE AS MULTIPLE OF:
Estimated calendar year 2001 earnings............. 90.9x 48.8x 27.6x
Estimated calendar year 2002 earnings............. 62.7x 45.0x 22.7x
AGGREGATE VALUE AS MULTIPLE OF:
Estimated calendar year 2001 revenue.............. 5.0x 3.7x 1.8x
Estimated calendar year 2002 revenue.............. 4.2x 3.3x 1.7x
Estimated calendar year 2001 EBITDA............... 58.8x 20.8x 11.8x

Pro Forma Impact Analysis

Credit Suisse First Boston analyzed the potential pro forma effect of the
merger on Vivendi Universal's estimated earnings per share, assuming 5.0%
interest income on cash and no synergies or one-time charges relating to the
merger or amortization of goodwill, for the second half of calendar year 2001
and for calendar year 2002, based on publicly available research analysts'
estimates. Based on the consideration provided for in the merger of $5.00 and
assuming 50% of the merger consideration consists of cash, this analysis
indicated that the merger could be dilutive to Vivendi Universal's estimated
earnings per share for the second half of calendar year 2001 and calendar year
2002. The actual results achieved by the combined company may vary from
projected results and the variations may be material.

Other Factors

In the course of preparing its opinion, Credit Suisse First Boston also
reviewed and considered other information and data, including:

- the potential impact on MP3.com of pending and future copyright
infringement litigation and related claims;

- the illustrative per share values for MP3.com common stock implied by
various revenue, earnings per share and earnings multiple assumptions and
the illustrative earnings per share for MP3.com implied by various stock
price and earnings multiple assumptions;

- research analysts' reports for MP3.com common stock and Vivendi Universal
ordinary shares, including revenue and earnings per share estimates;

- reported revenue and earnings per share for the last seven fiscal
quarters for MP3.com compared to publicly available research analysts'
estimates for the respective quarters; and

- historical price performance and trading characteristics of MP3.com
common stock and Vivendi Universal ordinary shares and ADSs and the
relationship between movements in MP3.com common stock, movements in
Vivendi Universal ADSs and movements in selected publicly traded
companies and selected stock indices.

Miscellaneous

MP3.com has agreed to pay Credit Suisse First Boston for its financial
advisory services customary fees upon consummation of the merger. Credit Suisse
First Boston also received a fee upon delivery of its opinion. MP3.com also has
agreed to reimburse Credit Suisse First Boston for its out-of-pocket expenses,

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including fees and expenses of legal counsel and any other advisor retained by
Credit Suisse First Boston, and to indemnify Credit Suisse First Boston and
related parties against liabilities, including liabilities under the federal
securities laws, arising out of its engagement.

Credit Suisse First Boston and its affiliates in the past have provided
financial services to MP3.com unrelated to the proposed merger, for which
services Credit Suisse First Boston and its affiliates have received
compensation. In the ordinary course of business, Credit Suisse First Boston and
its affiliates may actively trade the securities of MP3.com and Vivendi
Universal for their own accounts and for the accounts of customers and,
accordingly, may at any time hold long or short positions in those securities.

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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

The following unaudited pro forma combined 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 merger transactions among Vivendi, Seagram and Canal Plus which were
completed on December 8, 2000;

- the disposition of Seagram's spirits and wine business, including the
results of operations and financing costs; and

- the proposed merger transaction between Vivendi Universal and MP3.com.

The unaudited pro forma combined condensed financial statements have been
derived from, and should be read in conjunction with, the historical
consolidated financial statements, including the notes thereto, of both Vivendi
Universal and MP3.com included elsewhere in this proxy statement/prospectus.

The unaudited pro forma combined condensed balance sheet of Vivendi
Universal at December 31, 2000 gives effect to the proposed merger transactions
between Vivendi Universal and MP3.com as if they occurred at December 31, 2000.
The unaudited pro forma combined condensed income statement for the year ended
December 31, 2000 gives effect to the merger transactions among Vivendi, Seagram
and Canal Plus and the proposed merger transaction between Vivendi Universal and
MP3.com as if they occurred at January 1, 2000.

The unaudited pro forma combined condensed financial statements are
presented for informational purposes only and are not necessarily indicative of
the financial condition or results of operations of Vivendi Universal that would
have occurred had the transactions been consummated as of the dates indicated.
In addition, the unaudited pro forma combined condensed financial statements are
not necessarily indicative of the future financial condition or results of
operations of Vivendi Universal.

PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET

DECEMBER 31, 2000
------------------------------------------------------
VIVENDI PRO FORMA PRO FORMA
(MILLIONS OF EUROS) UNIVERSAL(A) MP3.COM(B) ADJUSTMENTS COMBINED
------------------- ------------ ---------- ----------- ---------

Current assets.............................. 35,146 167 -- 35,313
Non current assets.......................... 116,672 90 213(c) 116,975
------- --- --- -------
TOTAL ASSETS.............................. 151,818 257 213 152,288
======= === === =======
Current liabilities......................... 46,071 69 -- 46,140
Long-term liabilities....................... 31,651 1 200(d) 31,852
Minority interest........................... 9,367 -- -- 9,367
Total shareholders' equity.................. 64,729 187 13(e) 64,929
------- --- --- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................. 151,818 257 213 152,288
======= === === =======

---------------
(a)Represents the Vivendi Universal consolidated condensed balance sheet as of
December 31, 2000 per Note 16 to the Vivendi Universal consolidated
financial statements beginning on page F-41.

(b)Represents the MP3.com consolidated condensed balance sheet as of December
31, 2000, translated from U.S. dollars to euros at the year-end exchange rate
of $0.9305 to E1.00.

(c)Represents the excess of the purchase price for MP3.com over the net book
value of net assets acquired.

(d)Represents the portion of the consideration to be paid in cash.

(e)Represents the elimination of the equity of MP3.com and the issuance of
Vivendi Universal shares for the portion of the merger consideration issued
in ordinary shares.

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PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT

YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------------------------
(MILLIONS OF EUROS, VIVENDI PRO FORMA PRO FORMA
EXCEPT PER SHARE DATA) UNIVERSAL(A) SEAGRAM(B) CANAL PLUS(C) MP3.COM(D) ADJUSTMENTS COMBINED
---------------------- ------------ ---------- ------------- ---------- ----------- ---------

REVENUE*................. 34,275.8 10,724.0 3,599.2 86.7 -- 48,685.7
Cost of revenue.......... (23,172.9) (6,278.0) (2,772.1) (17.1) -- (32,240.1)
Selling, general and
administrative costs... (8,997.9) (3,852.0) (956.0) (135.5) -- (13,941.4)
Goodwill amortization.... (760.1) (589.0) (390.4) (1.7) (30.5)(e) (1,771.7)
Other operating
expense................ (166.7) (6.0) (439.8) (197.0) -- (809.5)
--------- -------- -------- ------ ----- ---------
OPERATING INCOME
(LOSS)................. 1,178.2 (1.0) (959.1) (264.6) (30.5) (77.0)
Financial income
(expense), net......... (393.8) (173.0) (83.1) 18.8 (11.1)(f) (642.2)
Other income (expense)... 3,007.4 -- 373.7 (54.9) -- 3,326.2
--------- -------- -------- ------ ----- ---------
NET INCOME (LOSS) BEFORE
TAXES, MINORITY
INTEREST AND EQUITY
INTEREST............... 3,791.8 (174.0) (668.5) (300.7) (41.6) 2,607.0
Taxes.................... (798.5) (143.0) 45.4 -- -- (896.1)
--------- -------- -------- ------ ----- ---------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST
EQUITY INTEREST........ 2,993.3 (317.0) (623.1) (300.7) (41.6) 1,710.9
Equity interest.......... (546.1) 60.0 192.9 (1.8) -- (295.0)
Minority interest........ (579.7) 16.0 136.4 -- -- (427.3)
--------- -------- -------- ------ ----- ---------
NET INCOME (LOSS) FROM
CONTINUED OPERATIONS... 1,867.5 (241.0) (293.8) (302.5) (41.6) 988.6
Net income (loss) from
discontinued
operations............. 40.3 (40.3) -- -- -- --
Cumulative effect of
change in accounting
principle.............. -- (426.0) -- -- -- (426.0)
--------- -------- -------- ------ ----- ---------
NET INCOME (LOSS)........ 1,907.8 (707.3) (293.8) (302.5) (41.6) 562.6
========= ======== ======== ====== ===== =========
EARNINGS PER SHARE:
Basic.................. 3.24 -- -- -- -- 0.54
Diluted................ 3.03 -- -- -- -- 0.54(g)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (MILLIONS):
Basic.................. 588.8 -- -- -- -- 1,036.0
Diluted................ 640.0 -- -- -- -- 1,036.0

---------------
* Includes excise taxes and contributions collected on behalf of local
authorities of E1,729 million for Vivendi Universal.

(a)Represents the Vivendi Universal consolidated condensed income statement for
the year ended December 31, 2000 per Note 16 to the Vivendi Universal
consolidated financial statements.

(b)Represents the consolidation of the operating results of Seagram for the
period January 1, 2000 to December 8, 2000, including the amortization of
goodwill and other intangible assets generated by the merger for the same
period.

(c)Represents the consolidation of the operating results of Canal Plus for the
period January 1, 2000 to December 8, 2000 (previously accounted for using
the equity method), including E293.8 million amortization of goodwill
generated by the merger for the same period.

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(d)Represents the consolidated condensed statement of operations of MP3.com for
the year ended December 31, 2000, translated from U.S. dollars to euros at
the average exchange rate for the period of $0.9240 to E1.00.

(e)Represents the amortization of goodwill over 7 years related to the
acquisition of MP3.com, allocated to the year ended December 31, 2000.

(f)Represents the cost of financing related to the portion of the consideration
to be paid in cash.

(g)Average shares of 51 million and incremental income related to the conversion
of these shares were not included in the computation of pro forma diluted
earnings per share because to do so would have been anti-dilutive.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of the MP3.com board of directors that
MP3.com stockholders vote to adopt the merger agreement, MP3.com stockholders
should be aware that a number of officers and directors of MP3.com have
interests in the merger that are different from, or in addition to, the
interests of MP3.com stockholders generally. The MP3.com board of directors was
aware of and considered these interests when it considered and approved the
merger agreement.

Employment Agreements

Two-Year Employment Agreements. In contemplation of the merger, MP3.com
and Vivendi Universal entered into employment agreements dated May 20, 2001,
with each of Greg Kostello, Derrick Oien and Steve Sheiner. The employment
agreements become effective only upon the consummation of the merger. The
employment agreements have a scheduled term of two years following the date of
the merger.

During the term of the agreements, the surviving corporation will employ
Mr. Kostello as its Executive Vice President of Engineering, Mr. Oien as its
Chief Operating Officer and Mr. Sheiner as its Executive Vice President of Sales
& Marketing. During the term of the agreements, the surviving corporation will
pay Mr. Kostello, Mr. Oien and Mr. Sheiner an annual base salary of $242,000,
$231,000 and $308,000, respectively, for the first year of the term and
$266,200, $254,100 and $338,800, respectively, for the second year of the term.
During the term of the agreements, the executives will be eligible to receive an
annual bonus as determined by the surviving corporation, based on performance
criteria mutually agreed to by the executives and the surviving corporation, in
an amount that may range from 0% -- 200% of a target bonus of $215,000, $100,000
and $275,000 for Mr. Kostello, Mr. Oien and Mr. Sheiner, respectively. The
actual amount of the bonus payable to the executive will be determined by the
surviving corporation in its sole discretion. In no event, however, will the
actual bonus for the first year of the employment agreements' term be less than
$107,500, $50,000 and $137,500 for Mr. Kostello, Mr. Oien and Mr. Sheiner,
respectively. The actual bonus amount will be determined as soon as practicable
following the expiration of each of the first and second years of the term of
the employment agreements and will be paid in cash promptly thereafter.

During the term of the agreements, the executives will be entitled to
participate in the pension and welfare plans and programs, including the 401(k)
and health insurance plans, generally made available by the surviving
corporation for its employees.

Subject to the approval of the Vivendi Universal Compensation Committee, at
the effective time of the merger, Mr. Kostello, Mr. Oien and Mr. Sheiner each
will be granted options to purchase 15,000 ordinary shares of Vivendi Universal,
which shares will be issued in the form of ADSs representing Vivendi Universal
ordinary shares. The options will be granted with an exercise price equal to the
fair market value of the Vivendi Universal ordinary shares subject to the
options on the date of grant and will otherwise be subject to the terms and
conditions of the Vivendi Universal stock option plan pursuant to which the
options are granted.

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Mr. Kostello, Mr. Oien and Mr. Sheiner each will be entitled to receive a
retention bonus of $300,000, 50% of which is payable on the effective date of
the merger and 25% of which is payable on each of the first and second
anniversaries of the effective date of the merger, subject to the executive's
continued employment with the surviving corporation and continued compliance
with the terms of his employment agreement.

If the surviving corporation terminates the executive's employment without
"cause" or the executive terminates his employment for "good reason", as such
terms are defined in the employment agreements, the executive will be entitled
to receive:

- a lump sum cash severance payment equal to the sum of:

-- an amount equal to the remaining portion of the executive's annual
base salary that would have been paid to the executive had he
remained employed through the end of the agreement's two-year
scheduled term, or, if greater, an amount equal to 25% of the
executive's annual base salary in effect at the time of termination;

-- an amount equal to two times the executive's annual target bonus if
he is terminated during the first year of the term of the agreement
or one times his annual target bonus if he is terminated during the
second year of the term of the agreement; and

-- an amount equal to the portion of the $300,000 retention bonus that
is unpaid as of the executive's termination;

- full vesting and immediate exercisability of all the executive's options
to purchase Vivendi Universal ordinary shares received pursuant to the
merger agreement upon the rollover of the executive's prior options to
purchase shares of MP3.com common stock; and

- reimbursement for any required COBRA premiums in respect of the
executive's continued health plan coverage during the first 12 months
following his termination or until he obtains comparable
employer-provided health coverage, if earlier.

Each employment agreement contains restrictive covenants pertaining to
confidentiality, nonsolicitation and noncompetition. The nonsolicitation
provision remains applicable through the one-year anniversary of the executive's
termination of employment. The noncompetition provision remains applicable
through the second anniversary of the completion of the merger. The employment
agreements also require each executive to assign any rights he may have in
inventions and intellectual property acquired with respect to the business.

Form of One-Year Employment Agreements. In the merger agreement, Vivendi
Universal agreed that, if it offers a one-year written employment agreement to
any employee of MP3.com or the surviving corporation, it will enter into such
agreement in a form previously agreed to by Vivendi Universal and MP3.com. Any
employment agreement so entered into becomes effective only upon the
consummation of the merger.

The form of employment agreement has a scheduled term of one year following
the date of the merger. During the term of the agreement, the surviving
corporation will agree to employ the employee in a position and at an annual
base salary to be determined by the parties. The surviving corporation may, in
its discretion, provide for the employee's participation in an annual bonus plan
during the term of the employment agreement, and Vivendi Universal may, in its
sole discretion, provide for the employee's participation in Vivendi Universal's
stock option plan during the term of the employment agreement. During the term
of the agreement, the employee will be entitled to participate in the pension
and welfare plans and programs, including the 401(k) and health insurance plans,
generally made available by the surviving corporation for its employees.

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If the surviving corporation terminates the executive's employment without
"cause", as such term is defined in the form of employment agreements, the
employee will be entitled to receive:

- a lump sum cash severance payment in an amount equal to the remaining
portion of the employee's base salary that would have been paid to the
employee had he or she remained employed through the end of the
agreement's scheduled term, or, if greater, an amount equal to 25% of the
employee's base salary in effect at the time of termination;

- full vesting and immediate exercisability of all the employee's options
to purchase Vivendi Universal ordinary shares received pursuant to the
merger agreement upon the rollover of the employee's prior options to
purchase shares of MP3.com common stock, but only to the extent provided
by the terms of such prior options or the relevant MP3.com stock option
plan; and

- reimbursement for any required COBRA premiums in respect of the
employee's continued health plan coverage during the first six months
following the employee's termination or until the employee obtains
comparable employer-provided health coverage, if earlier.

The form of employment agreement also requires the employee to assign any
rights he or she may have in inventions and intellectual property acquired with
respect to the business.

Retention and Non-Compete Agreements

In connection with the merger, MP3.com and Vivendi Universal agreed to
enter into agreements with each of Paul Ouyang and Robin Richards prior to the
effective time of the merger containing terms set forth in term sheets agreed to
by the parties at the time of the merger agreement. These agreements will be
entered into for the purpose of retaining the services of Mr. Ouyang and Mr.
Richards in assisting with the transition of MP3.com into the surviving
corporation following the consummation of the merger.

Paul Ouyang. The term sheet for the proposed agreement with Mr. Ouyang
provides for a six-month term from the date of the merger. The surviving
corporation will pay Mr. Ouyang compensation of $285,000 for the six-month term.
The surviving corporation will also pay Mr. Ouyang a retention and non-compete
payment of $2,480,000, with 50% of that amount payable at the completion of the
merger and 50% payable at the expiration of the agreement's six-month term. If,
during the term of the agreement, the surviving corporation terminates Mr.
Ouyang's employment without cause, his right to receive the retention and
non-compete payment will be accelerated. Mr. Ouyang will be entitled to receive,
for one year following his termination of employment, continued coverage under
the surviving corporation's health insurance plans. Mr. Ouyang will be subject
to a noncompetition obligation during the period of time in which he is employed
by the surviving corporation and for one year following his termination of
employment. Mr. Ouyang will also waive his rights to receive any payments under
any other plans or agreements that provide for any "gross-up" payments in
respect of taxes.

Robin Richards. The term sheet for the proposed agreement with Mr.
Richards provides for an initial term of six months from the date of the merger.
Thereafter, the term of the agreement will be, at the surviving corporation's
sole discretion, on a month-to-month basis. The surviving corporation will pay
Mr. Richards compensation in an amount of $400,000 for the initial six-month
term and thereafter in an amount mutually agreed to between the parties. The
surviving corporation will also pay Mr. Richards a retention and non-compete
payment of $5,520,000, with 50% of that amount payable at the completion of the
merger and 50% payable at the expiration of the agreement's initial term. If,
during the term of the agreement, the surviving corporation terminates Mr.
Richards's employment without cause, his right to receive the retention and
non-compete payment will be accelerated. Mr. Richards will also be entitled to
receive, for one year following his termination of employment, continued
coverage under the surviving corporation's health insurance plans. Mr. Richards
will be subject to a noncompetition obligation during the period of time in
which he is employed by MP3.com and for one year following his termination of
employment. Mr. Richards will waive his rights to receive any payments under any
other plans or agreements that provide for any "gross-up" payments in respect of
taxes. The surviving corporation will

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also continue to employ Mr. Richards's current secretary for the initial
six-month term at her salary in effect immediately prior to the completion of
the merger.

Repurchase Agreements

MP3.com previously permitted certain executives to exercise options in
MP3.com common shares prior to the options' scheduled exercise date. At the time
of such early exercise, MP3.com entered into agreements with those executives
which provide MP3.com with a right to repurchase, in certain events, those
MP3.com common shares acquired by the executive pursuant to such early exercise
with respect to which, as of such event, MP3.com's repurchase right has not
lapsed. Upon the completion of the merger, repurchase agreements with Josh Beck,
Greg Flores, Paul Ouyang and Robin Richards will terminate and MP3.com's
repurchase right with respect to MP3.com common shares covered by such
agreements will expire.

Under the repurchase agreements with Mr. Ouyang and Mr. Richards, a change
of control of MP3.com will generally result in the accelerated expiration of
MP3.com's repurchase right. Under those repurchase agreements, MP3.com's
repurchase right will not expire, however, to the extent necessary to avoid any
accelerated lapsing of the repurchase right from being treated as an "excess
parachute payment" under Section 280G of the Internal Revenue Code. In
connection with the merger, MP3.com agreed to amend the repurchase agreements
with Mr. Ouyang and Mr. Richards by removing such limitation on the expiration
of MP3.com's repurchase right, and as a result Mr. Ouyang and Mr. Richards will
receive full, accelerated lapsing of MP3.com's repurchase right under the
agreements with respect to shares still subject to the repurchase right at the
effective time of the merger.

Option Agreement

In connection with the merger, Paul Ouyang entered into an agreement with
MP3.com and Vivendi Universal under which Mr. Ouyang agreed (1) not to exercise
the option granted to him by Michael Robertson to purchase from Mr. Robertson
500,000 MP3.com common shares and (2) not to sell, transfer or otherwise dispose
of that option to another person or entity, in each case, prior to the record
date for the special meeting.

Retention Pool

The merger agreement provides for the establishment of a cash retention
pool of up to $13,000,000. Employees of MP3.com on the effective date of the
merger, other than Mr. Robertson, Mr. Richards and Mr. Ouyang, will be eligible
to receive payment from the retention pool. Payments from the retention pool
will be made in a lump sum within three days of the effective time of the
merger, other than with respect to Mr. Kostello, Mr. Oien and Mr. Sheiner, who
will each receive 50% of their retention payment within three days of the
effective time of the merger and, if still employed by the surviving
corporation, 25% of their retention payment on each of the first and second
anniversaries of the effective time of the merger.

Stock Options

Under the merger agreement, each option to acquire MP3.com common shares
that is outstanding at the effective time of the merger will remain outstanding
and be assumed by Vivendi Universal. Each option to acquire MP3.com common
shares will be amended and converted into an option to acquire, on the same
terms and conditions as were applicable under such option, the number of Vivendi
Universal ordinary shares (rounded down to the nearest whole share) equal to the
product of the number of MP3.com common shares subject to the option immediately
prior to the effective time of the merger multiplied by the "exchange ratio",
and the exercise price per Vivendi Universal ordinary share will be an amount
equal to the exercise price per MP3.com common share otherwise purchasable
pursuant to the option immediately prior to the effective time of the merger
divided by the "exchange ratio". The "exchange ratio" is obtained by dividing
$5.00 by the average per share closing price of Vivendi Universal

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ADSs on the New York Stock Exchange for the five consecutive trading days ending
on the trading day immediately preceding the date of the special meeting.

Under the terms of outstanding stock option agreements issued under
MP3.com's stock option plans, if there is a change in control (as defined in the
stock option plans) and, within one month prior to, or 18 months after, the date
of the change in control, the option holder is involuntarily terminated other
than for death, disability or cause (as defined in the option agreement), or if
the option holder terminates his or her employment due to a constructive
termination (as defined in the option agreement), then outstanding options will
become fully vested and immediately exercisable.

Vivendi Universal and MP3.com have agreed that unvested, in-the-money
options held by some of MP3.com's executives, including Mr. Richards, Mr.
Ouyang, Mr. Kostello, Mr. Oien and Mr. Sheiner, will become fully vested and
exercisable immediately prior to the effective time of the merger, and that
those executives may elect the portion of the shares subject to such options
desired to be converted into cash and the portion of such shares desired to be
converted into Vivendi Universal ordinary shares at the effective time of the
merger, all in accordance with the procedures generally applicable to other
MP3.com stockholders; provided, that the executive unconditionally exercises
such options effective immediately prior to the effective time of the merger.

Indemnification; Directors' and Officers' Insurance

The merger agreement provides that all rights to indemnification for acts
and omissions occurring at or before the effective time of the merger existing
in favor of the current and former directors and officers of MP3.com and its
subsidiaries as provided in their respective articles of organization or
by-laws, and any existing indemnification agreements with MP3.com the existence
of which do not breach the merger agreement will be assumed by the surviving
corporation in the merger and that Vivendi Universal will cause these provisions
to continue in full force and effect in accordance with their terms. The merger
agreement also provides that for six years after the completion of the merger,
Vivendi Universal will either maintain the directors' and officers' liability
insurance policy in effect as of the date of the merger agreement for acts or
omissions occurring at or before the effective time of the merger covering those
persons who were, as of the date of the merger agreement, covered by that
policy, or otherwise provide coverage for such people, on terms no less
favorable than those in effect on the date of the merger agreement, provided
that in either case Vivendi Universal will not be obligated to pay aggregate
premiums in excess of 200% of the last annual premium paid by MP3.com, which was
$1,937,400. If 200% of such premium, or $3,874,800, would be exceeded, Vivendi
Universal will obtain a policy with the greatest coverage available for a cost
not exceeding $3,874,800.

FORM OF MERGER

Subject to the terms and conditions of the merger agreement and in
accordance with Delaware law, upon completion of the merger, MP3.com will be
merged with and into Metronome Acquisition Sub, a wholly owned subsidiary of
Vivendi Universal formed for purposes of the merger and a party to the merger
agreement, or, upon the election of Vivendi Universal, another wholly owned
subsidiary of Vivendi Universal. The acquisition subsidiary will survive the
merger as a wholly owned subsidiary of Vivendi Universal.

EFFECTIVE TIME OF THE MERGER

The merger will become effective upon the filing of the certificate of
merger by Vivendi Universal and MP3.com with the Secretary of State of the State
of Delaware or such later time agreed upon by Vivendi Universal and MP3.com and
specified in the certificate of merger.

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CONSIDERATION TO BE RECEIVED IN THE MERGER

Upon completion of the merger, each share of MP3.com common stock, except
for treasury stock and stock held by Vivendi Universal, the acquisition
subsidiary and stockholders who perfect their appraisal rights, will be
converted into the right to receive, at the election of the stockholder, one of
the following:

- $5.00 in cash; or

- a number of Vivendi Universal ordinary shares (in the form of Vivendi
Universal ADSs) equal to the "exchange ratio".

The Vivendi Universal ordinary shares are expected to come from Vivendi
Universal treasury stock. The "exchange ratio" will be equal to $5.00 divided by
the average per share closing price of Vivendi Universal ADSs on the New York
Stock Exchange for the five consecutive trading days ending on the trading day
immediately preceding the date of the special meeting. The market value of the
Vivendi Universal ADSs on the date on which the merger is completed may be
different than the five trading-day average price of Vivendi Universal ADSs used
in determining the exchange ratio. As a result, the market value of the Vivendi
Universal ADSs you receive pursuant to the merger may be more or less than the
$5.00 value assumed in calculating the exchange ratio.

The merger has been structured, and adjustments to MP3.com stockholder
elections will be made, so that immediately prior to the effective time of the
merger, the percentage of shares of MP3.com common stock that will be converted
into the right to receive Vivendi Universal ordinary shares is fixed at 50% and
the percentage of shares of MP3.com common stock that will be converted into the
right to receive cash is also fixed at 50%. The proration mechanism is discussed
below under "-- Election Procedure; Proration". The conversion of each share of
MP3.com common stock (other than those held by stockholders who perfect their
appraisal rights) into the right to receive $5.00 in cash or Vivendi Universal
ADSs will occur automatically upon completion of the merger. After the merger,
each certificate that previously represented shares of MP3.com common stock will
represent only the right to receive the merger consideration (or, in the case of
shares subject to appraisal rights, the right to receive the amount in cash
determined under Delaware law), including cash for any fractional shares of
Vivendi Universal ADSs. All shares of MP3.com common stock to be so converted
shall, by virtue of the merger and without any action on the part of the holders
thereof, cease to be outstanding, be canceled and cease to exist.

ELECTION PROCEDURE; PRORATION

The Bank of New York, as exchange agent for Vivendi Universal, is mailing
you a form of election in a separate mailing. MP3.com stockholders should use
the form of election to elect whether to receive cash or Vivendi Universal
ordinary shares as consideration in connection with the merger. For an election
to be properly made, the form of election must be received by the exchange agent
by 5:00 p.m., New York City Time, on August 24, 2001, which is the business day
immediately preceding the special meeting, and it must be accompanied by the
stock certificates to which such election form relates. If no form of election
is received, the stockholder will be deemed to have elected to receive cash
consideration.

A form of election may be revoked by written notice to the exchange agent
prior to the due date of the election form or after such time if the exchange
agent is legally required to permit revocations and the merger is not yet
effective. If an election form is revoked, the stock certificates to which such
election form relates will be returned promptly. The determination of the
exchange agent is binding as to whether an election has been properly made or
revoked.

If holders of more than 50% of the outstanding shares of MP3.com common
stock elect to receive Vivendi Universal ordinary shares, the exchange agent
will allocate, pro rata to the holders making this election in accordance with
the number of shares of MP3.com common stock that they hold, a sufficient number
of shares of MP3.com common stock to be converted into $5.00 per share instead
of Vivendi Universal ordinary shares so that the number of shares of MP3.com
common stock that the holders initially elected to convert into Vivendi
Universal ordinary shares less the number of shares of MP3.com

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common stock so designated to be converted instead into cash equals 50% of the
outstanding shares of MP3.com common stock immediately prior to the time the
merger becomes effective.

If holders of less than 50% of the outstanding shares of MP3.com common
stock elect to receive Vivendi Universal ordinary shares, the exchange agent
will allocate, pro rata to the holders making cash elections in accordance with
the number of shares of MP3.com common stock that they hold, a sufficient number
of shares of MP3.com common stock to be converted into Vivendi Universal
ordinary shares instead of cash so that the number of shares of MP3.com common
stock that the holders initially elected to convert into Vivendi Universal
ordinary shares plus the number of shares of MP3.com common stock so designated
to be converted instead into Vivendi Universal ordinary shares equals 50% of the
outstanding shares of MP3.com common stock immediately prior to the time the
merger becomes effective.

EXCHANGE PROCEDURES

As of the effective time of the merger, Vivendi Universal will provide, or
cause the surviving corporation in the merger to provide, to the depositary the
Vivendi Universal ordinary shares in the form of Vivendi Universal ADSs. The
depositary will deposit with the exchange agent, for the benefit of the MP3.com
stockholders, receipts issued in accordance with Vivendi Universal's deposit
agreement evidencing the Vivendi Universal ADSs issuable in connection with the
merger. In addition, Vivendi Universal will take all steps necessary to enable
and cause the surviving corporation in the merger to provide to the exchange
agent cash necessary to pay for the shares of MP3.com common stock converted
into the right to receive cash. For a summary of the terms of the deposit
agreement, see "Description of Vivendi Universal ADSs" beginning on page 76.

If your shares are held in registered form and you make an election of
consideration by returning a completed election form, you must send in your
MP3.com common stock certificates with your completed election form to the
exchange agent. If you do not make an election, then you must keep your stock
certificates until after the closing, when you will receive a letter of
transmittal describing how you may exchange your certificates for merger
consideration. Upon surrender of a stock certificate for cancelation to the
exchange agent, together with a letter of transmittal, duly completed and
validly executed, and such other documents reasonably required by the exchange
agent, an MP3.com stockholder will receive a receipt evidencing that number of
Vivendi Universal ADSs and/or cash that the stockholder is entitled to receive
in connection with the merger.

MP3.COM STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD.

Holders of certificates previously representing MP3.com common stock will
not be paid the merger consideration or dividends or distributions on the
Vivendi Universal ADSs which they are entitled to receive pursuant to the merger
with a record date after the merger, and will not be paid cash for any
fractional shares of Vivendi Universal ADSs, until their certificates are
surrendered to the exchange agent for exchange. When their certificates are
surrendered, any unpaid dividends and any cash instead of fractional shares will
be paid without interest.

In the event of a transfer of ownership of MP3.com common stock that is not
registered in the transfer records of MP3.com, the cash portion of the merger
consideration, including any cash payable instead of fractional shares, may be
paid, and a certificate representing the proper number of shares of Vivendi
Universal ADSs may be issued, to a person other than the person in whose name
the surrendered certificate is registered if:

- the surrendered certificate is properly endorsed or otherwise is in
proper form for transfer; and

- the person requesting such payment and issuance pays any transfer or
other taxes required by reason of the payment of cash and the issuance of
Vivendi Universal ADSs to a person other than the registered holder of
the surrendered certificate, or establishes to the satisfaction of
Vivendi Universal that such taxes have been paid or are not applicable.

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The merger consideration paid and issued upon surrender for exchange of
shares of MP3.com common stock, including any dividends or distributions or any
cash paid instead of any fractional shares or upon exercise of appraisal rights,
will be deemed to have been paid and issued in full satisfaction of all rights
pertaining to those shares of MP3.com common stock formerly represented by such
certificates. No dividend or distribution with respect to Vivendi Universal
ordinary shares shall relate to such fractional share interests and such
fractional share interests shall not entitle or enable the owner thereof to vote
or to any rights of a stockholder of Vivendi Universal.

No certificates or scrip representing, or receipts evidencing, fractional
Vivendi Universal ADSs will be issued to any MP3.com stockholder upon surrender
of certificates previously representing MP3.com common stock. Each MP3.com
stockholder who would otherwise have been entitled to receive a fraction of
Vivendi Universal ADSs will be entitled to receive an amount in cash equal to
the product obtained by multiplying the fractional share interest to which the
holder would otherwise be entitled by the average of the closing price of
Vivendi Universal ADSs on the New York Stock Exchange for the five consecutive
trading days ending on the trading day immediately preceding the special
meeting.

ACCOUNTING TREATMENT

Vivendi Universal prepares its financial statements using French generally
accepted accounting principles, or GAAP. In accordance with the rules and
regulations of the SEC, Vivendi Universal intends to account for the merger
using the "purchase" method of accounting for business combinations under French
GAAP. When it reconciles its financial statements to U.S. GAAP, it also will
account for the arrangement using the "purchase" method of accounting for
business combinations, which means that MP3.com will be treated as a separate
entity for periods prior to the completion of the merger and, thereafter, as a
wholly owned subsidiary of Vivendi Universal. In addition, this means that
Vivendi Universal will record the excess of the purchase price of MP3.com over
the fair value of MP3.com's identifiable assets, including intangible assets and
liabilities, as "goodwill".

REGULATORY MATTERS

The merger is subject to the expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Act of 1976. On June 12, 2001,
Vivendi Universal and MP3.com each filed a Notification and Report Form with the
Antitrust Division and the Federal Trade Commission and requested an early
termination of the required waiting period. The waiting period expired at
midnight on July 12, 2001, and thus all applicable waiting periods under the
Hart-Scott-Rodino Act have been satisfied. At any time before or after the
completion of the merger, the Antitrust Division, the Federal Trade Commission
or others could take action under the antitrust laws with respect to the merger,
including seeking to enjoin the completion of the merger, to rescind the merger
or to approve the merger conditionally upon the divestiture of substantial
assets of Vivendi Universal or MP3.com. A challenge to the merger on antitrust
grounds could be made and, if such a challenge is made, it could be successful.

The antitrust and competition laws of some foreign jurisdictions may
require (or, in some instances, provide for on a voluntary basis) notification
of certain transactions and the observance of pre-consummation waiting periods.
Vivendi Universal and MP3.com will make any such required filings (and, if
deemed in Vivendi Universal's and MP3.com's interests, any such voluntary
filings) with the appropriate antitrust and competition authorities as promptly
as practicable.

The merger agreement requires each of Vivendi Universal and MP3.com to use
reasonable efforts to take all actions and cooperate with the other party in
obtaining all necessary waivers, consents and approvals from governmental
entities and the making of all necessary registrations and filings with
governmental entities in connection with the merger. However, Vivendi Universal
is not required to agree to divest any assets or any of its or MP3.com's
businesses, or to cease to conduct business or operations in any jurisdiction in
which it or MP3.com conducts business or operations as of the date of the merger
agreement.

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It is possible that any of the governmental entities with which filings are
made may seek various regulatory concessions. There can be no assurance that:

- Vivendi Universal or MP3.com will be able to satisfy or comply with such
conditions; or

- compliance or non-compliance will not have adverse consequences for
Vivendi Universal after completion of the merger.

See "The Merger Agreement -- Conditions to Consummation of the Merger" on
page 62.

RESALE OF VIVENDI UNIVERSAL ADSS

Vivendi Universal ADSs you receive pursuant to the merger will not be
subject to any restrictions on transfer arising under the Securities Act, except
for shares issued to any MP3.com stockholder who may be deemed to be an
"affiliate" of Vivendi Universal or MP3.com for purposes of Rule 145 under the
Securities Act. Pursuant to the merger agreement, MP3.com will deliver to
Vivendi Universal a list of those persons who are affiliates of MP3.com. It is
expected that each such affiliate will agree not to transfer any shares of
Vivendi Universal ADSs received pursuant to the merger except in compliance with
the resale provisions of Rule 144 or 145 under the Securities Act or as
otherwise permitted under the Securities Act. The merger agreement requires
MP3.com to use reasonable efforts to cause its affiliates who elect to receive
Vivendi Universal ADSs to deliver affiliate letter agreements prior to the
completion of the merger. This proxy statement/prospectus does not cover resales
of Vivendi Universal ADSs received by any person upon completion of the merger,
and no person is authorized to make any use of this proxy statement/prospectus
in connection with any resale.

STOCK EXCHANGE MATTERS

It is a condition to the completion of the merger that the Vivendi
Universal ADSs issuable to MP3.com stockholders pursuant to the merger be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance.

If the merger is completed, MP3.com common stock will be delisted from the
Nasdaq National Market and will be deregistered under the Exchange Act.

APPRAISAL RIGHTS

When the merger is completed, MP3.com stockholders who did not vote in
favor of the adoption of the merger agreement and who complied with the
procedures prescribed in Section 262 of the General Corporation Law of the State
of Delaware will be entitled to a judicial appraisal of the fair value of their
shares, exclusive of any element of value arising from the accomplishment or
expectation of the merger, and to receive payment of the fair value of their
shares in cash, together with a judicially determined fair rate of interest. The
following is a brief summary of the statutory procedures that must be followed
by an MP3.com stockholder in order to perfect his or her appraisal rights under
Delaware law.

THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE DELAWARE LAW
PERTAINING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT
OF SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE WHICH IS
ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX D. BECAUSE OF THE
COMPLEXITY OF SECTION 262 AND THE NEED TO STRICTLY COMPLY WITH VARIOUS TECHNICAL
REQUIREMENTS, YOU SHOULD READ ANNEX D IN ITS ENTIRETY. A PERSON HAVING A
BENEFICIAL INTEREST IN SHARES OF MP3.COM COMMON STOCK HELD OF RECORD IN THE NAME
OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE
RECORD HOLDER TO FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY
MANNER TO PERFECT APPRAISAL RIGHTS.

Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the adoption of the merger agreement
by MP3.com stockholders, the corporation, not less than 20 days prior to the
meeting, must notify each of its stockholders entitled to appraisal rights that
such

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appraisal rights are available and include in such notice a copy of Section 262.
THIS PROXY STATEMENT/ PROSPECTUS SHALL CONSTITUTE SUCH NOTICE.

A holder of shares of MP3.com common stock wishing to exercise such
holder's appraisal rights:

- must deliver to MP3.com, before the vote on the adoption of the merger
agreement at the special meeting, a written demand for the appraisal of
his or her shares; and

- must not vote in favor of the adoption of the merger agreement.

In order not to vote in favor of the adoption of the merger agreement, a
stockholder must either:

- not return a proxy card, not grant a proxy via the telephone or Internet
and not vote in person in favor of the adoption of the merger agreement;

- return a proxy card with the "AGAINST" or "ABSTAIN" box checked;

- vote in person against the adoption of the merger agreement; or

- register in person an abstention from the proposal to adopt the merger
agreement.

ALL WRITTEN DEMANDS FOR APPRAISAL PURSUANT TO SECTION 262 SHOULD BE SENT OR
DELIVERED TO MP3.COM AT 4790 EASTGATE MALL, SAN DIEGO, CA 92121-1970, ATTENTION:
SECRETARY.

A holder of shares of MP3.com common stock wishing to exercise such
holder's appraisal rights must hold of record such shares on the date the
written demand for appraisal is made and must continue to hold such shares of
record through the effective time of the merger. A vote against the adoption of
the merger agreement will not in and of itself constitute a written demand for
appraisal satisfying the requirements of Section 262. The demand must reasonably
inform MP3.com of the identity of the holder as well as the intention of the
holder to demand an appraisal of the "fair value" of the shares held by such
holder. A stockholder's failure to make the written demand prior to the taking
of the vote on the adoption of the merger agreement at the special meeting of
MP3.com stockholders will constitute a waiver of appraisal rights.

Only a holder of record of shares of MP3.com common stock is entitled to
assert appraisal rights for the shares of MP3.com common stock registered in
that holder's name. A demand for appraisal in respect of shares of MP3.com
common stock should be executed by or on behalf of the holder of record, fully
and correctly, as such holder's name appears on such holder's stock
certificates, and must state that such person intends thereby to demand
appraisal of such holder's shares of MP3.com common stock in connection with the
merger. If the shares of MP3.com common stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the shares of MP3.com common stock are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one for two or more joint owners, may execute a
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that in
executing the demand, the agent is agent for such owner or owners. A record
holder such as a broker who holds shares of MP3.com common stock as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares of MP3.com common stock held for one or more beneficial owners while not
exercising such rights with respect to the shares of MP3.com common stock held
for other beneficial owners. In such case, however, the written demand should
set forth the number of shares of MP3.com common stock as to which appraisal is
sought, and where no number of shares of MP3.com common stock is expressly
mentioned, the demand will be presumed to cover all shares of MP3.com common
stock held in the name of the record owner. Stockholders who hold their shares
of MP3.com common stock in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee.

Within ten days after the effective time of the merger, the surviving
corporation must notify each holder of MP3.com common stock who has complied
with Section 262 and who has not voted in favor of
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the adoption of the merger agreement of the date that the merger has become
effective. Within 120 days after the effective time of the merger, the surviving
corporation or any holder of MP3.com common stock who has complied with Section
262 and is entitled to appraisal rights under Section 262 may file a petition in
the Delaware Court of Chancery demanding a determination of the fair value of
such holder's shares of MP3.com common stock. The surviving corporation is under
no obligation to and has no present intention to file such a petition.
Accordingly, it is the obligation of the holders of MP3.com common stock to
initiate all necessary action to perfect their appraisal rights in respect of
their shares of MP3.com common stock within the time prescribed in Section 262.

Within 120 days after the effective time of the merger, any holder of
MP3.com common stock who has complied with the requirements for exercise of
appraisal rights will be entitled, upon written request, to receive from the
surviving corporation a statement setting forth the aggregate number of shares
not voted in favor of the adoption of the merger agreement and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such statement must be mailed within ten days after a
written request for the statement has been received by the surviving corporation
or within ten days after the expiration of the period for delivery of demands
for appraisal, whichever is later.

If a petition for an appraisal is timely filed by a holder of shares of
MP3.com common stock and a copy of the petition is served upon the surviving
corporation, the surviving corporation will then be obligated within 20 days to
file with the Delaware Register in Chancery a duly verified list containing the
names and addresses of all stockholders who have demanded an appraisal of their
shares and with whom agreements as to the value of their shares have not been
reached. After notice to such stockholders as required by the court, the
Delaware Court of Chancery is empowered to conduct a hearing on such petition to
determine those stockholders who have complied with Section 262 and who have
become entitled to appraisal rights under Section 262. The Delaware Court of
Chancery may require the holders of shares of MP3.com common stock who demanded
payment for their shares to submit their stock certificates to the Delaware
Register in Chancery for notation on the certificate of the pendency of the
appraisal proceeding. If any stockholder fails to comply with such direction,
the Delaware Court of Chancery may dismiss the proceedings as to such
stockholder.

After determining the holders of MP3.com common stock entitled to
appraisal, the Delaware Court of Chancery will appraise the "fair value" of
their shares of MP3.com common stock, exclusive of any element of value arising
from the accomplishment or expectation of the merger, together with a fair rate
of interest, if any, to be paid upon the amount determined to be the fair value.
Holders of MP3.com common stock considering seeking appraisal should be aware
that the fair value of their shares of MP3.com common stock as so determined
could be more than, the same as or less than the consideration they would
receive pursuant to the merger if they did not seek appraisal of their shares of
MP3.com common stock and that investment banking opinions as to fairness from a
financial point of view are not necessarily opinions as to fair value under
Section 262. The Delaware Supreme Court has stated that proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court should be considered in the
appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a stockholder's exclusive remedy. The Delaware Court of Chancery will also
determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares of MP3.com common stock have been appraised.
The costs of the action may be determined by the court and taxed upon the
parties as the court deems equitable. The court may also order that all or a
portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all the shares entitled to be appraised.

Any holder of shares of MP3.com common stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the effective time of
the merger, be entitled to vote the shares of MP3.com common stock subject to
such demand for any purpose or be entitled to the payment of dividends or other
distributions on those shares of MP3.com common stock (except dividends or other
distributions payable

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to holders of record of MP3.com common stock as of a record date prior to the
effective time of the merger).

If any stockholder who demands appraisal of such holder's shares of MP3.com
common stock under Section 262 fails to perfect, or effectively withdraws or
loses, such holder's right to appraisal, the shares of MP3.com common stock of
such stockholder will be deemed to have been converted at the effective time of
the merger into the right to receive the merger consideration. A stockholder
will fail to perfect, or effectively lose or withdraw, such holder's right to
appraisal if no petition for appraisal is filed within 120 days after the
effective time of the merger, or if the stockholder delivers to the surviving
corporation a written withdrawal of such holder's demand for appraisal and an
acceptance of the merger, except that any such attempt to withdraw made more
than 60 days after the effective time of the merger will require the written
approval of the surviving corporation and, once a petition for appraisal is
filed, the appraisal proceeding may not be dismissed as to any holder absent
court approval.

FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE FOR PERFECTING APPRAISAL RIGHTS MAY
RESULT IN THE LOSS OF SUCH RIGHTS.

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THE MERGER AGREEMENT

The following description of the merger agreement is qualified in its
entirety by reference to the complete text of the merger agreement (including
the modification agreement), a copy of which is attached to this proxy
statement/prospectus as Annex A and is incorporated herein by reference. We urge
you to read the full text of the merger agreement.

REPRESENTATIONS AND WARRANTIES

The merger agreement contains representations and warranties relating to:

- organization, standing, corporate power and authority and other corporate
matters concerning MP3.com and its subsidiaries, Vivendi Universal and
Metronome Acquisition Sub;

- the subsidiaries of MP3.com;

- the capital structure of MP3.com;

- the compliance of the merger agreement with:

-- the certificate of incorporation, by-laws and similar organizational
documents of MP3.com and its subsidiaries, Vivendi Universal and
Metronome Acquisition Sub;

-- applicable laws, judgments and orders; and

-- contracts of MP3.com and its subsidiaries, Vivendi Universal and
Metronome Acquisition Sub;

- consents, approvals and authorizations of and filings with, governmental
entities and non-governmental self-regulatory entities;

- documents filed with the SEC by Vivendi Universal (since September 11,
2000) and by MP3.com (since July 20, 1999) and financial statements
included in those documents and compliance with U.S. securities laws;

- the absence of material changes or events concerning Vivendi Universal
and MP3.com since the date of their respective most recent audited
financial statements;

- the accuracy of information supplied by Vivendi Universal and MP3.com for
use in this proxy statement/prospectus and the registration statement of
which this proxy statement/prospectus is a part;

- litigation involving MP3.com and its subsidiaries and significant legal
fees;

- contracts to which MP3.com or any of its subsidiaries is a party;

- compliance with applicable laws by MP3.com and its subsidiaries;

- the absence of changes in benefit plans of MP3.com and its subsidiaries;

- labor, environmental and employee welfare and benefit plan matters with
respect to MP3.com and its subsidiaries;

- tax matters with respect to MP3.com and its subsidiaries;

- title to property owned or leased by MP3.com and its subsidiaries;

- rights in and non-infringement of intellectual property with respect to
MP3.com and its subsidiaries;

- the payment of fees and indemnification of brokers, investment bankers
and financial advisors by MP3.com;

- receipt of an opinion of Credit Suisse First Boston by MP3.com;

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- the vote of MP3.com stockholders required to adopt the merger agreement
and the absence of any requirement of a vote of Vivendi Universal
shareholders relating to the merger agreement or the merger;

- in the case of MP3.com, the inapplicability of state takeover laws to the
merger and the other transactions contemplated by the merger agreement
and the stockholder agreement;

- the interim operations and business activities of Metronome Acquisition
Sub;

- the due authorization and issuance of Vivendi Universal ADSs (as well as
the underlying Vivendi Universal ordinary shares) to be issued pursuant
to the merger; and

- matters relating to MP3.com's privacy policy and terms and conditions
published on its web site.

CONDUCT OF BUSINESS PENDING THE MERGER

Under the merger agreement, MP3.com agreed that, during the period of time
before completion of the merger, except as consented to in writing by Vivendi
Universal or as specifically required or permitted by the merger agreement, it
will, and will cause each of its subsidiaries to:

- carry on their businesses only in the ordinary course consistent with
past practice;

- comply in all material respects with all applicable laws and regulations;
and

- use all reasonable efforts to preserve intact their business
organizations, use reasonable efforts to keep available the services of
their officers and other key employees, and, in connection therewith,
preserve the goodwill of the business.

In addition, MP3.com has agreed that it will not, and will not permit its
subsidiaries to, without Vivendi Universal's prior written consent:

- declare, set aside or pay dividends on, or make any other distribution in
respect of, any of its capital stock, except for dividends by a direct or
indirect wholly owned subsidiary of MP3.com to its parent;

- subject to exceptions pursuant to restricted stock purchase agreements,
repurchase or redeem its capital stock or any other securities;

- split, combine or reclassify any of its capital stock or issue any
securities in substitution for shares of its capital stock;

- issue, deliver, sell, pledge or otherwise encumber any of its capital
stock, equity or voting interests or convertible or other similar
securities, other than pursuant to the settlement of its class-action and
derivative lawsuits, and other than the issuance of common stock upon the
exercise of existing stock options, warrants or purchase rights under the
employee stock purchase plan;

- amend its certificate of incorporation or by-laws or similar
organizational documents, other than as required in connection with the
settlement of its class-action and derivative lawsuits;

- acquire any entity or business, or any assets that, individually, cost
more than $500,000, or, in the aggregate, cost more than $3,000,000,
other than components or supplies in the ordinary course of business
consistent with past practice;

- sell, lease, license, encumber or otherwise dispose of any of its
properties or assets having an aggregate value in excess of $500,000,
except sales or licenses of finished goods or services in the ordinary
course of business consistent with past practice;

- incur any debt or guarantee any debt of another person or issue or sell
any debt securities or warrants or other rights to acquire any debt
securities or enter into any arrangement having a similar economic
effect, except for inter-company debt and except for up to $100,000 in
short term borrowings incurred in the ordinary course of business
consistent with past practice;

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- make any loans, advances or capital contributions to, or investments in,
any other person;

- make any new capital expenditures or enter into any agreements providing
for payments which, individually, are in excess of $1,000,000 or, in the
aggregate, are in excess of $3,000,000;

- make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of MP3.com or any of its subsidiaries, or
settle or compromise any material income tax liability;

- pay, discharge, settle or satisfy any claims, liabilities or obligations,
or litigation, or modify the terms of any existing settlement or
arrangement, other than the payment, discharge, settlement or
satisfaction in the ordinary course of business consistent with past
practice of non-litigation liabilities recognized or disclosed in
MP3.com's most recent consolidated financial statements filed with the
SEC or incurred since the date of those financial statements in the
ordinary course of business consistent with past practice;

- waive or assign any claims or rights that, individually, have a value in
excess of $500,000 or, in the aggregate, have a value in excess of
$2,000,000, or waive any material benefit of, terminate or fail to
enforce any confidentiality or similar agreement to which MP3.com or any
of its subsidiaries is a party or a beneficiary;

- enter into or amend any contract or other agreement that contains
guarantees as to MP3.com's or any of its subsidiaries' future revenues;

- obtain any real property for use as an office or similar facility;

- except as required by law or as otherwise contemplated by the merger
agreement:

-- establish, enter into, adopt, amend or terminate any benefit plan or
benefit agreement;

-- change the manner in which contributions to any pension plan are made
or the basis on which contributions are determined; or

-- take any action to accelerate any rights or benefits, or make any
material determinations not in the ordinary course of business
consistent with past practice, under any benefit plan or benefit
agreement;

- increase the compensation, bonus or fringe or other benefits of any of
its employees, except salary increases for non-executive officer
employees in the ordinary course of business consistent with past
practice or, after consultation with Vivendi Universal, bonuses awarded
in the ordinary course of business consistent with past practice;

- grant any increase in severance or termination pay, amend or modify any
stock option, or pay any benefit or amount not required by a plan or
arrangement in effect on the date of the merger agreement;

- transfer or license any intellectual property rights of MP3.com and its
subsidiaries other than non-exclusive licenses in the ordinary course of
business consistent with past practice;

- take any action that would or could reasonably be expected to result in
any of the conditions to the merger not being satisfied;

- cancel any indebtedness;

- enter into or amend any agreement pursuant to which any person is granted
an exclusive marketing, manufacturing or other rights with respect to any
product, process or technology of MP3.com or any of its subsidiaries
other than in accordance with current business practices;

- make any changes in accounting methods, principles or practices unless
required by a change in GAAP;

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- increase the head count of its employees by more than 5%; or

- authorize, or commit, resolve or agree to take, any of the foregoing
actions.

NO SOLICITATION OF ACQUISITION PROPOSALS

The merger agreement contains detailed provisions prohibiting MP3.com from
seeking an alternative transaction. Under these "no solicitation" provisions,
MP3.com has agreed that neither it nor its subsidiaries will, and that it will
not authorize or permit any of its or its subsidiaries' directors, officers,
employees, investment bankers, attorneys, accountants or other advisors or
representatives to, directly or indirectly:

- solicit, initiate or encourage, or take any other action intended to, or
which could reasonably be expected to, facilitate any inquiries or the
making of any proposal that constitutes, or could reasonably be expected
to, lead to a "takeover proposal", as defined below; or

- enter into, continue or otherwise participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or otherwise cooperate in any way with, a takeover proposal.

However, the merger agreement does not prevent the MP3.com board of
directors from participating in discussions or negotiations with any person
making an unsolicited bona fide written takeover proposal that the MP3.com board
determines in good faith (after consulting with outside counsel and a financial
advisor) constitutes or is reasonably likely to lead to a "superior proposal",
as defined below, if the board determines in good faith (after consultation with
outside counsel) that it is required to do so in order to comply with its
fiduciary duties. Even in such a case, MP3.com is required to notify Vivendi
Universal before participating in any discussions or negotiations and keep
Vivendi Universal fully informed of their status.

"Takeover proposal" means any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase of 20% or more of the
assets of MP3.com and its subsidiaries, taken as a whole, or 20% or more of any
class or series of equity securities of MP3.com or any of its subsidiaries, any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class or series of equity securities of
MP3.com or any of its subsidiaries, or any merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
similar transaction involving MP3.com or any of its subsidiaries pursuant to
which any person (or its shareholders) would beneficially own 20% or more of any
class or series of equity securities of MP3.com (or any resulting parent or
surviving entity), other than the transactions contemplated by the merger
agreement.

"Superior proposal" means any offer not solicited by MP3.com made by a
third party to consummate a tender offer, exchange offer, merger, consolidation,
share exchange or similar transaction which would result in such third party (or
its shareholders) owning, directly or indirectly, 50% or more of the shares of
MP3.com common stock then outstanding (or of the surviving entity in a merger)
or 50% or more of the assets of MP3.com and its subsidiaries and otherwise on
terms which the MP3.com board determines in good faith (following receipt of the
advice of a financial advisor of nationally recognized reputation) to be more
favorable to the MP3.com stockholders from a financial point of view than the
merger.

The merger agreement further provides that neither MP3.com, the MP3.com
board nor any committee of the MP3.com board may:

- withdraw or modify, or propose to withdraw or modify, in a manner adverse
to Vivendi Universal, the approval or recommendation by the board or
committee of the merger agreement or the merger, except to the extent
that the board determines in good faith (after consultation with outside
counsel) that it is required to do so in order to comply with its
fiduciary duties;

- approve or recommend, or propose to approve or recommend, any takeover
proposal; or

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- approve or recommend, or propose to approve or recommend, or execute or
enter into any letter of intent, memorandum of understanding, agreement
in principle, acquisition agreement, merger agreement, option agreement,
joint venture agreement, partnership agreement or other similar agreement
or propose or agree to do any of the foregoing constituting or related
to, or which is intended to or could reasonably be expected to lead to,
any takeover proposal.

STOCK OPTIONS AND OTHER EMPLOYEE BENEFIT MATTERS

Employee Benefit Matters

Employees of MP3.com and its subsidiaries who continue their employment
after the effective time of the merger will continue to be provided through
December 31, 2002, with employee benefits that are substantially comparable in
the aggregate to the employee benefits provided to those employees immediately
prior to the effective time of the merger, provided that:

- neither Vivendi Universal nor the surviving corporation will have any
obligation to issue, or adopt any plans or arrangements providing for the
issuance of, shares of capital stock, warrants, options, stock
appreciation rights or other rights in respect of any shares of capital
stock of any entity or any securities convertible or exchangeable into
such shares pursuant to any such plans or arrangements; and

- no plans or arrangements of MP3.com or any of its subsidiaries providing
for such issuance of equity-based awards will be taken into account in
determining whether employee benefits are substantially comparable in the
aggregate.

Vivendi Universal will not be prevented from:

- terminating the employment of any individual who was an employee of
MP3.com and its subsidiaries immediately prior to the effective time of
the merger;

- making any change in the employee benefits available to any such
employee; or

- amending or terminating any particular benefit plan or agreement of
MP3.com and its subsidiaries to the extent permitted by the terms of such
plan or agreement as in effect immediately prior to the effective time of
the merger.

Pursuant to the terms of the merger agreement, employees of MP3.com and its
subsidiaries who continue their employment after the effective time of the
merger will be given credit under each employee benefit plan, program, policy or
arrangement of Vivendi Universal or any of its affiliates in which those
employees are eligible to participate for all service with MP3.com or any
predecessor employer (to the extent such credit was given by MP3.com) for
purposes of eligibility, vesting, severance and vacation entitlement.

The merger agreement provides that MP3.com will not permit the commencement
of any offerings under its employee stock purchase plan that would commence on a
date following the date of the merger agreement. With respect to any offering
under the employee stock purchase plan that is in effect immediately prior to
the effective time of the merger, each participant's accumulated payroll
deductions will be used to purchase MP3.com common shares immediately prior to
the effective time of the merger in accordance with the terms of the employee
stock purchase plan. The employee stock purchase plan will be terminated at the
effective time of the merger.

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stockholders; provided, that the executive unconditionally exercises such
options effective immediately prior to the effective time of the merger.

Vivendi Universal also agreed that, if it offers a one-year written
employment agreement to any employee of MP3.com or the surviving corporation,
the employment agreement will be in the form previously agreed to by Vivendi
Universal and MP3.com (as described in "Interests of Certain Persons in the
Merger -- Employment Agreements -- Form of One-Year Employment Agreements" on
page 45).

Conversion of Stock Options

Under the merger agreement, each option to acquire MP3.com common stock
that is outstanding at the effective time of the merger will remain outstanding
and be assumed by Vivendi Universal. Each option to acquire MP3.com common stock
will be amended and converted into an option to acquire, on the same terms and
conditions as were applicable under such option, the number of Vivendi Universal
ordinary shares (rounded down to the nearest whole share) equal to the product
of:

- the number of MP3.com common shares subject to the option immediately
prior to the effective time of the merger; and

- the "exchange ratio", at an exercise price per Vivendi Universal ordinary
share equal to the exercise price per MP3.com common share otherwise
purchasable pursuant to the option immediately prior to the effective
time of the merger divided by the "exchange ratio". The "exchange ratio"
is obtained by dividing $5.00 by the average per share closing price of
Vivendi Universal ADSs on the New York Stock Exchange for the five
consecutive trading days ending on the trading day immediately preceding
the date of the special meeting.

Under the terms of outstanding stock option agreements issued under
MP3.com's stock option plans, if there is a change in control (as defined in the
stock option plans) and, within one month prior to or 18 months after the date
of the change in control, the option holder is involuntarily terminated other
than for death, disability or cause (as defined in the option agreement), or if
the option holder terminates his or her employment due to a constructive
termination (as defined in the option agreement), then outstanding options will
become fully vested and immediately exercisable.

Indemnification; Directors' and Officers' Insurance

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premium, or $3,874,800, would be exceeded, Vivendi Universal will obtain a
policy with the greatest coverage available for a cost not exceeding $3,874,800.

ADDITIONAL COVENANTS

The merger agreement also contains other covenants by Vivendi Universal and
MP3.com, including a covenant to use reasonable efforts to take all actions and
to do all things necessary, proper or advisable to consummate the merger in the
most expeditious manner practicable.

CONDITIONS TO CONSUMMATION OF THE MERGER

Each party's obligation to complete the merger is subject to the
satisfaction or waiver of the following conditions before completion of the
merger:

- the adoption of the merger agreement by holders of a majority of all
outstanding shares of MP3.com common stock;

- the approval for listing on the New York Stock Exchange, subject to
official notice of issuance, of the shares of Vivendi Universal ADSs
issuable to MP3.com stockholders and optionholders pursuant to the merger
agreement;

- the expiration or termination of any waiting period applicable to the
merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any similar law;

- the effectiveness of, and the absence of any restraining order,
injunction or other court order or decree or other legal restraint or
prohibition in effect preventing completion of the merger; and

- the absence of any stop order or proceeding seeking a stop order with
respect to, the registration statement on Form F-4 of which this proxy
statement/prospectus forms a part.

In addition, the obligation of each party to complete the merger is further
subject to the satisfaction or waiver of the following additional conditions:

- the representations and warranties of the other party (except those
representations and warranties of MP3.com specifically dealt with below)
set forth in the merger agreement disregarding all qualifications and
exceptions relating to materiality or material adverse effect, being true
and correct as of the date of the merger agreement and as of the closing
date as though made as of the closing date, except to the extent the
representations and warranties expressly relate to a specific date, in
which case on that date, and except to the extent that the facts or
matters as to which the representations and warranties are not so true
and correct, individually or in the aggregate, have not had and could not
reasonably be expected to have a material adverse effect on the other
party;

- the other party having performed in all material respects all obligations
required to be performed by it under the merger agreement at or prior to
the closing date; and

- having received from its U.S. tax advisor on the closing date an opinion
stating that the merger will qualify for U.S. federal income tax purposes
as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code.

In addition, Vivendi Universal's and the acquisition subsidiary's
obligation to complete the merger is further subject to the satisfaction or
waiver of the following conditions:

- the representations and warranties of MP3.com regarding litigation being
true and correct in all material respects as of the date of the merger
agreement; and

- the representations and warranties of MP3.com regarding the capital
structure of MP3.com being true and correct as of the date of the merger
agreement and as of the closing date, except to the extent such
representations and warranties expressly speak as of an earlier date, in
which case as of the earlier date.

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The merger agreement provides that a "material adverse effect" means, when
used in reference to MP3.com or Vivendi Universal, any change, development,
effect, event, condition, occurrence or state of facts that is materially
adverse to the business, assets or results of operations or financial condition
of such party and its subsidiaries, taken as a whole. However, there will be no
material adverse effect to the extent that any state of facts, change,
development, event, effect, condition or occurrence relates to:

- the economy or securities markets in general;

- the industries in which Vivendi Universal or MP3.com operate in general
and not having a disproportionate effect on such party relative to most
industry participants;

- the announcement or existence of the merger agreement;

- any claim, suit, action, proceeding or other litigation in respect of
copyright infringement matters instituted or threatened against MP3.com
following the announcement of the merger agreement;

- any settlement or judgment with respect to litigation matters appearing
on MP3.com's disclosure schedule; or

- the failure by MP3.com to meet or exceed any third party or internal
revenue, earnings or other financial estimates or projections, in and of
itself.

TERMINATION

The merger agreement may be terminated at any time prior to completion of
the merger, even if the merger agreement has been adopted by MP3.com
stockholders:

- by mutual written consent of Vivendi Universal and MP3.com;

- by either Vivendi Universal or MP3.com, if the merger has not been
completed by November 30, 2001; provided that a party cannot terminate
for this reason if such party's failure to perform any of its obligations
under the merger agreement caused the delay;

- by either Vivendi Universal or MP3.com, if there exists a final and
nonappealable restraining order, injunction or other court order or
decree or other legal restraint or prohibition preventing completion of
the merger, provided that the party seeking to terminate shall have used
reasonable efforts to prevent and remove the restraint;

- by either Vivendi Universal or MP3.com, if MP3.com stockholders do not
adopt the merger agreement at the special meeting; or

- by either Vivendi Universal or MP3.com, if the other party has breached
in any material respect any of its representations, warranties or
covenants or other agreements contained in the merger agreement, which
breach would result in a failure of a condition to the merger and cannot
or has not been cured within 30 calendar days of notice.

EXPENSES

The merger agreement provides that all fees and expenses incurred in
connection with the merger agreement, the merger, the stockholder agreement and
the other transactions contemplated by the merger agreement and the stockholder
agreement will be paid by the party incurring those fees or expenses, except
that expenses incurred in connection with the filing, printing and mailing of
this proxy statement/ prospectus and the registration statement on Form F-4, of
which this proxy statement/prospectus forms a part, will be shared equally by
Vivendi Universal and MP3.com.

AMENDMENT AND WAIVER

The merger agreement provides that at any time prior to the completion of
the merger the parties may amend the merger agreement by an instrument in
writing signed by each party. In addition, the

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merger agreement provides that at any time prior to the completion of the
merger, a party may, by an instrument in writing signed by each party:

- extend the time for the performance of the obligations or other acts of
the other parties to the merger agreement;

- waive any inaccuracies in the representations and warranties of the other
parties contained in the merger agreement or in any document delivered
pursuant to the merger agreement; or

- waive compliance by the other parties with any of the agreements or
conditions contained in the merger agreement.

However, after any required stockholder approval has been obtained, no
amendment or waiver may be made which by law requires further approval or
adoption by the stockholders without such further approval or adoption. Under
Section 251(d) of the General Corporation Law of the State of Delaware, no
amendment to the merger agreement made after the adoption of the merger
agreement by stockholders of a corporation may, without further approval by the
stockholders, alter or change the merger consideration to be received by those
stockholders, alter or change any term of the certificate of incorporation of
the surviving corporation, or alter or change any terms and conditions of the
merger agreement if the alteration or change would adversely affect the holders
of any class or series of stock of the corporation.

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THE STOCKHOLDER AGREEMENT

On May 20, 2001, as an inducement to Vivendi Universal's entering into the
merger agreement, Vivendi Universal entered into a stockholder agreement with
some of MP3.com's principal stockholders, including Michael Robertson (Chairman
and CEO), Robin Richards (President and a director) and Sequoia Capital, under
which these stockholders agreed to vote shares representing more than 50% of the
outstanding MP3.com common stock as of July 23, 2001 in favor of the merger and
against any action that could impede the merger. A copy of the stockholder
agreement is attached to this proxy statement/ prospectus as Annex B and is
incorporated herein by reference.

AGREEMENT TO VOTE FOR THE MERGER

Pursuant to the stockholder agreement, the stockholders agreed:

- to vote their shares in favor of:

-- adoption of the merger agreement;

-- approval of the merger; and

-- approval of the other transactions contemplated by the merger
agreement,

- to vote their shares against:

-- any takeover proposal (as defined in the merger agreement); and

-- any amendment to the MP3.com certificate of incorporation or by-laws
or other proposal or transaction that would impede, frustrate,
prevent or nullify any provision of the merger agreement, the merger
or the other transactions contemplated by the merger agreement or
change the voting rights of the capital stock of MP3.com;

- not to sell, transfer, pledge, assign or otherwise dispose of their
shares other than pursuant to the merger;

- not to enter into any voting arrangement, whether by proxy, voting
agreement or otherwise, with respect to any of their shares; and

- not to directly or indirectly solicit, initiate or encourage or take any
other action that could facilitate any inquiries or the making of any
proposal that could lead to any takeover proposal, and not to enter into
or participate in any discussions or negotiations or furnish information
or cooperate in any way with any takeover proposal.

IRREVOCABLE PROXY

Each stockholder irrevocably granted to and appointed Vivendi Universal and
George E. Bushnell III, Philippe Germond and Gerard Ries, or any of them, and
any individual designated in writing by any of them, as his, her or its proxy
and attorney-in-fact to vote his, her or its shares:

- in favor of:

-- adoption of the merger agreement;

-- approval of the merger; and

-- approval of any other transactions contemplated by the merger
agreement;

- against any takeover proposal; and

- against any amendment to the MP3.com certificate of incorporation or
by-laws or any other proposal or transaction that would impede,
frustrate, prevent or nullify any provision of the merger agreement, the
merger or the other transactions contemplated by the merger agreement or
change in any manner the voting rights of the capital stock of MP3.com.

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OTHER AGREEMENTS

In addition, the stockholders:

- agreed to use all reasonable efforts to assist and cooperate with the
other parties in doing all things necessary, proper or advisable to
consummate the merger and the other transactions contemplated by the
merger agreement;

- agreed not to issue any press release relating to the merger agreement,
the merger or any other transaction contemplated by the merger agreement
without the prior consent of Vivendi Universal;

- consented to and approved the actions taken by the MP3.com board of
directors in approving the merger agreement, the stockholder agreement,
the merger and the other transactions contemplated by the merger
agreement;

- waived their appraisal rights under Delaware law; and

- agreed to deliver an "affiliate" letter to Vivendi Universal, if
applicable, prior to the closing date.

The stockholder agreement terminates upon the earlier to occur of the
effective time of the merger and the termination of the merger agreement.

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TAXATION

The following discussion sets forth the material United States federal
income and French tax consequences of the merger generally applicable to holders
of MP3.com common stock who participate in the merger. The following discussion
assumes that holders of MP3.com common stock hold their MP3.com common stock as
capital assets. This discussion does not address the tax consequences to holders
of MP3.com stock in particular circumstances, such as tax-exempt entities,
certain insurance companies, broker-dealers, traders in securities that elect to
mark to market, holders liable for alternative minimum tax, holders that hold
MP3.com stock as part of a straddle or a hedging or conversion transaction or
holders whose functional currency is not the U.S. dollar, or a non-U.S. holder
(as defined below). This discussion also does not apply to holders who acquired
their MP3.com common stock pursuant to the exercise of employee stock options or
otherwise as compensation or through a tax-qualified retirement plan. This
discussion is based on the tax laws of France and the United States, including
the Internal Revenue Code of 1986, as amended (the Code), published rulings and
court decisions, as in effect on the date of this document, as well as the
Convention Between the Government of the United States of America and the
Government of the French Republic, all of which are subject to change or change
in interpretation, possibly with retroactive effect.

For purposes of this discussion, a "U.S. holder" is any beneficial owner of
MP3.com common stock that is:

- a citizen or resident of the United States;

- a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any political
subdivision of the United States;

- an estate the income of which is subject to United States federal income
tax without regard to its source; or

- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust.

For purposes of this discussion, an "eligible MP3.com stockholder" is a
U.S. holder of MP3.com common stock that will not be a "five percent transferee
stockholder" as defined in United States Treasury Regulation Section
1.367(a)-3(c)(5)(ii) or who enters into a five-year gain recognition agreement
in the form provided in United States Treasury Regulation Section 1.367(a)-8(b).
A five percent transferee stockholder is a person that holds MP3.com common
stock and that will hold, immediately after the merger, directly or indirectly
through attribution, at least five percent of the outstanding shares of Vivendi
Universal capital stock by vote or by value.

The discussion does not address any aspects of United States taxation of
the merger other than federal income taxation or any aspects of French taxation
of the merger other than income and capital taxation. Certain material United
States federal income tax and French tax consequences of the ownership and
disposition of Vivendi Universal ADSs are discussed in "Vivendi
Universal -- Taxation." Holders of MP3.com common stock are urged to consult
their tax advisors regarding the United States federal, state and local and the
French and other tax consequences of the merger and of owning and disposing of
MP3.com common stock and Vivendi Universal ADSs.

THE MERGER -- FRENCH TAXATION

A U.S. holder that is not a resident of France will not be subject to
French tax on its transfer of MP3.com common stock in the merger, provided such
U.S. holder does not have a permanent establishment or a fixed base in France to
which the MP3.com common stock may be attributed.

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THE MERGER -- UNITED STATES FEDERAL INCOME TAXATION

It is a condition to the obligation of Vivendi Universal to consummate the
merger that Vivendi Universal receive an opinion from its counsel, Cravath,
Swaine & Moore, and it is a condition to the obligation of MP3.com to consummate
the merger that MP3.com receive an opinion from its tax advisor, Ernst & Young
LLP, in each case stating that the merger will be treated as a "reorganization"
within the meaning of Section 368(a) of the Code. The issuance of such opinions
is conditioned, among other things, on the receipt by Cravath, Swaine & Moore
and Ernst & Young LLP of representation letters from each of Vivendi Universal
and MP3.com, in each case, in form and substance reasonably satisfactory to
Cravath, Swaine & Moore and Ernst & Young LLP. Such opinions are not binding on
the Internal Revenue Service (IRS) or the courts, and no assurance can be given
that the IRS will not challenge the tax treatment of the merger. No ruling has
been or will be sought from the IRS with regard to any of the tax consequences
of the merger.

Based on the representation letters from each of Vivendi Universal and
MP3.com, which will be reconfirmed prior to the closing of the merger, it is the
opinion of Cravath, Swaine & Moore and Ernst & Young LLP that the merger will be
treated as a "reorganization" within the meaning of Section 368(a) of the Code.
The opinion is based on current law and assumes that the merger will be
consummated in accordance with the merger agreement in its current form and as
described in this proxy statement/prospectus, and that MP3.com will, and Vivendi
Universal will cause MP3.com to, comply with the reporting requirements set
forth in United States Treasury Regulation Section 1.367(a)-3(c)(6).

The following material United States federal income tax consequences result
from the treatment of the merger as a "reorganization" within the meaning of
Section 368(a) of the Code.

Eligible MP3.com Stockholders Who Receive Only Vivendi Universal ADSs

An eligible MP3.com stockholder that receives only Vivendi Universal ADSs
in the merger will not recognize gain or loss with respect to the receipt of
Vivendi Universal ADSs, except in respect of cash received in lieu of a
fractional share, as described below. Such stockholder's aggregate tax basis in
the Vivendi Universal ADSs received in the merger will be the same as its
aggregate tax basis in the surrendered MP3.com common stock. An eligible MP3.com
stockholder will include in its holding period of the Vivendi Universal ADSs its
holding period of the surrendered MP3.com common stock.

Eligible MP3.com Stockholders Who Receive Only Cash

An eligible MP3.com stockholder that receives only cash in the merger will
generally recognize gain to the extent the amount of cash received in the merger
exceeds such stockholder's tax basis in MP3.com common stock, or loss to the
extent such stockholder's tax basis in MP3.com common stock exceeds the amount
of cash received in exchange for MP3.com common stock.

Eligible MP3.com Stockholders Who Receive Vivendi Universal ADSs and Cash

An eligible MP3.com stockholder that receives both Vivendi Universal ADSs
and cash in the merger, without regard to any cash received in lieu of a
fractional Vivendi Universal ADS, will recognize any gain (but not loss)
realized but only to the extent of cash received in the merger. An eligible
MP3.com stockholder who owns different blocks of MP3.com common stock, each with
a different tax basis, must compute gain or loss separately for each block of
such stock. Any loss realized on one block of MP3.com common stock may not be
netted against gain realized on another block of such stock. Such stockholder's
aggregate tax basis in the Vivendi Universal ADSs received in the merger will be
the same as its aggregate tax basis in the surrendered MP3.com common stock,
decreased by the amount of cash received in the merger and increased by the
amount of gain recognized in the merger. An eligible MP3.com stockholder will
include in its holding period of the Vivendi Universal ADSs its holding period
of the surrendered MP3.com common stock. Cash received in lieu of a fractional
Vivendi Universal ADS is treated separately, as discussed below.

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Cash Received in Lieu of Fractional Vivendi Universal ADSs

An eligible MP3.com stockholder that receives cash in lieu of a fractional
Vivendi Universal ADS will be treated as first having received a fractional
Vivendi Universal ADS and then having exchanged the fractional Vivendi Universal
ADS for cash in a redemption by Vivendi Universal. An eligible MP3.com
stockholder will generally recognize gain (or loss) to the extent the cash
received in lieu of a fractional Vivendi Universal ADS exceeds (or is less than)
the ratable portion of its tax basis in the surrendered MP3.com common stock
that is allocated to the deemed-received fractional Vivendi Universal ADS taking
into account the adjustment in the tax basis, if any, resulting from the receipt
of cash other than for fractional Vivendi Universal ADSs, as described above.

Character of Gain or Loss

Generally, gain or loss recognized with respect to MP3.com common stock
surrendered in the merger will be capital gain or loss. Capital gain of a
noncorporate U.S. holder will generally be subject to United States federal
income tax at a maximum rate of 20% where the MP3.com common stock was held for
more than one year. The deduction of any capital loss is subject to limitations.
The gain or loss will generally be income or loss from sources within the United
States for foreign tax credit limitation purposes.

Information Reporting and Backup Withholding

In general, gain with respect to cash received in the merger by a U.S.
paying agent or other U.S. intermediary will be reported to the IRS and to you
as may be required under applicable United States Treasury Regulations. Backup
withholding at a maximum rate of 31% will apply to these payments if you fail to
provide an accurate taxpayer identification number or fail to report all
interest and dividends required to be shown on your federal income tax return.
Some persons, such as corporations, are not subject to backup withholding.
Depending on the type of person you are, you may qualify for exemption from
backup withholding provided you comply with the procedure for obtaining the
exemption.

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COMPARATIVE STOCK PRICES AND DIVIDENDS

Vivendi Universal ADSs are listed for trading on the New York Stock
Exchange under the symbol "V". MP3.com common stock is quoted on the Nasdaq
National Market under the symbol "MPPP". The following table sets forth, for the
periods indicated, the high and low sale prices per share of Vivendi Universal
ADSs and MP3.com common stock on the New York Stock Exchange Composite
Transaction Tape and the Nasdaq National Market, respectively. For current price
information, MP3.com stockholders are urged to consult publicly available
sources.

The table below presents the New York Stock Exchange closing market price
for Vivendi Universal ADSs, as reported on the New York Stock Exchange Composite
Transaction Tape, and the last reported sale price of MP3.com common stock, as
reported on the Nasdaq National Market. These prices are presented on two dates:

- May 18, 2001, the last trading day before the public announcement of the
signing of the merger agreement; and

- July 23, 2001, the latest practicable date before the printing of this
document.

MP3.COM EQUIVALENT PER
VIVENDI UNIVERSAL ADS COMMON STOCK SHARE
SHARE PRICE SHARE PRICE DATA(1)
--------------------- ------------ --------------

May 18, 2001................................. $68.15 $3.01 $5.00
July 23, 2001................................ $55.00 $4.92 $5.00

---------------
(1) Assuming, for purposes of calculating the exchange ratio, that the average
per share closing price of Vivendi Universal ADSs for the five trading days
ending the trading day before the special meeting equals the share price of
Vivendi Universal ADSs set forth in the column headed "Vivendi Universal ADS
Share Price".

MARKET PRICES

The following table sets forth, for the periods indicated, the high and low
per share sales prices of Vivendi Universal ordinary shares, Vivendi Universal
ADSs and MP3.com common stock on the Paris Bourse, the New York Stock Exchange
and the Nasdaq National Market, respectively. For periods before December 8,
2000, the columns headed "Vivendi Universal" set forth information for Vivendi,
S.A. ordinary shares and Vivendi, S.A. ADSs, and for periods before September
2000, the high and low bids for Vivendi, S.A. ADSs are on the over-the-counter
market. Each Vivendi, S.A. ADS represented one-fifth of a Vivendi, S.A. ordinary
share, but to facilitate comparison, price information is shown as if each
Vivendi, S.A. ADS represented one Vivendi, S.A. ordinary share. Prices are
rounded to the nearest cent.

VIVENDI
UNIVERSAL
ORDINARY VIVENDI MP3.COM
SHARES UNIVERSAL ADSs COMMON STOCK
----------------- ---------------- ----------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------- ------ ------- ------

1999
First Quarter*...................... E87.13 E72.33 $101.65 $76.05 NA NA
Second Quarter*..................... 81.10 69.60 88.35 71.90 NA NA
Third Quarter....................... 83.70 65.05 86.25 68.75 $105.00 $23.31
Fourth Quarter...................... 92.95 61.10 94.40 66.25 64.63 25.00

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2000
First Quarter....................... E150.00 E79.10 $142.50 $81.25 $40.13 $15.00
Second Quarter...................... 122.00 85.30 128.75 81.25 22.50 6.50
Third Quarter....................... 97.10 80.30 91.85 70.00 14.38 3.75
Fourth Quarter...................... 89.65 68.60 77.50 50.00 10.75 2.34
2001
First Quarter....................... E82.00 E61.20 $76.00 $54.30 $6.13 $1.56
Second Quarter...................... 79.70 61.60 69.73 54.85 5.00 1.50
Third Quarter (through July 23,
2001)............................ 71.50 60.45 61.01 50.50 4.95 4.82

---------------
* Restated for a 3 for 1 stock split on May 11, 1999.

DIVIDENDS

Vivendi Universal

The table below sets forth the total dividends paid per Vivendi, S.A.
ordinary share and Vivendi, S.A. ADS in respect of 1996 to 1999 and per Vivendi
Universal ordinary share and Vivendi Universal ADS in respect of 2000. The
amounts shown exclude the avoir fiscal, a French tax credit described under
"Vivendi Universal -- Taxation". Vivendi Universal pays annual dividends in
respect of its prior fiscal year. Amounts are rounded to the nearest cent.

DIVIDEND PER ORDINARY SHARE DIVIDEND PER ADS
--------------------------- ----------------
E (1) $ (2)

1996*................................................ 0.61 0.14
1997*................................................ 0.76 0.17
1998*................................................ 0.92 0.17
1999................................................. 1.00 0.22
2000**............................................... 1.00 0.89

---------------
* Restated for a 3 for 1 stock split which occurred on May 11, 1999.

** Prior to December 8, 2000, each Vivendi, S.A. ADS represented one-fifth of a
Vivendi, S.A. ordinary share, while each Vivendi Universal ADS now represents
one Vivendi Universal ordinary share.

(1) Until 1999 (until the dividend for the year ended December 31, 1998),
Vivendi, S.A. paid dividends in French francs. Amounts in French francs have
been translated at the official fixed exchange rate of E1.00 = FF6.55957.

(2) Translated solely for convenience into dollars at the noon buying rates on
the respective dividend payments date, or on the following business day if
such date was not a business day in the United States. The noon buying rate
may differ from the rate that may be used by the depositary to convert euros
to dollars for the purpose of making payments to holders of ADSs.

MP3.com

MP3.com has not paid cash dividends to its stockholders.

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DESCRIPTION OF VIVENDI UNIVERSAL ORDINARY SHARES

GENERAL

As of July 23, 2001, there were 1,085,675,856 Vivendi Universal authorized
and outstanding ordinary shares. 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.

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 societe
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 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
Universal generally does not, and it does not anticipate that it will, pay
interim dividends.

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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 State.

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.

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 maintains a share account with Sicovam for all Vivendi
Universal ordinary shares in registered form, which is administered by BNP
Paribas. In addition, Vivendi Universal maintains separate accounts in the name
of each shareholder either directly, or, at a shareholder's request, through the
shareholder's accredited intermediary (for example, 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

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Paribas, as a matter of course, issues 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 are held on the
shareholder's behalf in an account maintained by an accredited intermediary and
are recorded in an account that the accredited intermediary maintains with
Sicovam, as no other company is authorized to act as central depositary. That
account is separate from Vivendi Universal's share account for pure registered
Vivendi Universal ordinary shares with Sicovam. Each accredited intermediary
maintains a record of Vivendi Universal ordinary shares held through it and
issues 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 E152,449.02 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.

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 is
required to publish in the BALO no later than 15 calendar days after the annual
ordinary general meeting of shareholders information with
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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 is
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.

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DESCRIPTION OF VIVENDI UNIVERSAL ADSS

AMERICAN DEPOSITARY SHARES

As of July 23, 2001, there were 122,254,859 Vivendi Universal authorized
and outstanding ADSs. 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 the deposit agreement dated as of April 19, 1995, as
amended and restated as of September 11, 2000, and as amended and restated as of
December 8, 2000, among Vivendi Universal, The Bank of New York, as depositary,
and you as a Vivendi Universal ADR holder. Each Vivendi Universal ADS will
represent one Vivendi Universal ordinary share. Each Vivendi Universal ADS also
will 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 actually will 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
also will 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

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DEPOSITARY CANNOT CONVERT THE FOREIGN CURRENCY, YOU MAY LOSE SOME OR ALL OF
THE VALUE OF THE DISTRIBUTION.

- 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. If
the depositary cannot make such rights available to you, it will dispose
of such rights on your behalf and make the net proceeds available to you,
unless the depositary cannot dispose of such rights, in which case the
rights will be allowed to lapse.

- 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 and any rights can be exercised by you on
substantially the same terms as rights offered to holders of ordinary shares 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 CANCELATION

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, 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
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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
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 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 (it is 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 carries the right to cast one vote
on matters on which holders of Vivendi Universal ordinary shares may vote.
However, in the case where a quorum of less than 60% is present at a
shareholders' meeting, Vivendi Universal's statuts 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 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.
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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 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, Vivendi Universal 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.

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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 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, 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 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 "Vivendi Universal -- Taxation".

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.

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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 respect to
specified provisions of the deposit agreement, any amendment that is adverse to
them. Notwithstanding the foregoing, ADS holders do not have the right to
approve:

- 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;

- amendments to increase the fees or charges that the depositary may charge
to you; and

- 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 ADS 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:

- enter into a successor depositary agreement having terms no less
favorable to the holders of Vivendi Universal ADSs than the previous
depositary agreement; or

- 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 cancelation 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.

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LIMITATIONS ON OBLIGATIONS AND LIABILITY TO VIVENDI UNIVERSAL ADS 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.

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 Shareholder
Rights -- 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.

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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 Cancelation".

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 cancelation of pre-released Vivendi Universal ADRs (even if
the Vivendi Universal ADRs are canceled 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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COMPARISON OF SHAREHOLDER RIGHTS

The rights of MP3.com stockholders are governed by the General Corporation
Law of the State of Delaware, which we refer to as "Delaware law", and the
provisions of MP3.com's amended and restated certificate of incorporation
(charter) and amended and restated by-laws. The rights of Vivendi Universal
shareholders are governed by the French commercial code and by the provisions of
Vivendi Universal's statuts. The following is a summary of the material
differences between the rights of MP3.com stockholders and Vivendi Universal
shareholders. These differences arise from differences between Delaware law and
the French commercial code and between MP3.com's charter and by-laws and the
statuts of Vivendi Universal. Upon completion of the merger, the rights of
MP3.com stockholders who become holders of Vivendi Universal ADSs will be
governed by the French commercial code and Vivendi Universal's statuts. For more
complete information, you should read MP3.com's charter and by-laws and the
Vivendi Universal statuts, as well as Delaware law and the French commercial
code.

MP3.com's charter and by-laws may be obtained without charge by following
the instructions in the section entitled "Where You Can Find More Information"
on page 192. You should refer to "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

MP3.com

Under Delaware law, the charter document or by-laws of a corporation may
specify the number of directors.

The MP3.com board has six members. MP3.com's charter and by-laws provide
that the number of directors will be set by the board of directors. The MP3.com
by-laws provide that the directors will be divided into three classes,
designated as Class I, Class II and Class III, respectively. At each annual
meeting of stockholders, directors are elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.

Vivendi Universal

Vivendi Universal's statuts 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

- subject to certain conditions, one additional director who represents the
employee-shareholders of the company and its affiliates.

Vivendi Universal'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.

Vivendi Universal's statuts fix the term of reappointment of directors at
four years. However, Vivendi Universal's statuts 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 is elected by the
directors and must be a natural person. The chairman serves for the term
determined by the board when the chairman is elected. Vivendi Universal's
statuts also provide for a vice chairman, who may be elected by the board of
directors upon proposal of the chairman.

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REMOVAL OF DIRECTORS AND VACANCIES

MP3.com

Pursuant to MP3.com's charter, any director or the entire Board may be
removed, with or without cause, by a majority of the shares then entitled to
vote at an election of directors.

The MP3.com by-laws provide that subject to applicable law and the rights
of the holders of any series of preferred stock, and unless the board otherwise
determines, vacancies from any cause, including removal, and newly created
directorships resulting from an increase in the number of directors may be
filled only by a majority vote of the remaining directors then in office,
although less than a quorum. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the board shall be
deemed to exist in the case of the death, removal or resignation of any
director.

If at the time of filling any vacancy or any newly created directorship,
the directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Delaware
Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by Section 211 of the Delaware law.

Vivendi Universal

The members of the board of directors of Vivendi Universal may be removed
prior to the expiration of their terms by a majority vote of the 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 or, as the case may be, if he or she ceases to be a shareholder. The
vacancy of the employee-shareholder representative may be filled by the board of
directors subject to ratification by the shareholders.

SHAREHOLDER NOMINATIONS AND PROPOSALS

MP3.com

The MP3.com by-laws provide that nominations of persons for election to the
board and the proposal of business to be considered by the stockholders may be
made at any annual meeting of the stockholders only:

- pursuant to MP3.com's notice of meetings;

- by or at the direction of the board; or

- by any stockholder of record entitled to vote at such meeting who
complies with the notice procedures described below.

For nominations or other business to be properly brought before the annual
meeting, a stockholder must deliver to the corporate secretary of MP3.com at the
principal executive officers of MP3.com a written notice of the nomination or
proposal not less than 90 days nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting. If the annual meeting is to
be held more than 30 days prior to or after this anniversary date, notice must
be so delivered not earlier than the close of business on

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the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made.

The MP3.com by-laws further provide that any such notice by a stockholder
must set forth:

- all information relating to each nominee required to be disclosed in a
solicitation for proxies pursuant to the Exchange Act (including such
person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected);

- a brief description of any other business desired to be brought before a
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and

- the stockholder's name and address as it appears on MP3.com's books, the
class and number of shares beneficially owned by such stockholder and a
representation that such stockholder or beneficial owner intends to
deliver a proxy statement and form of proxy to holders of, in the case of
the proposal, at least the percentage of the corporation's voting shares
required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the
corporation's voting shares to elect such nominee or nominees.

In the event that the number of directors to be elected to the board is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased board made by MP3.com at least
100 days prior to the first anniversary of the preceding year's annual meeting,
a stockholder's notice required hereunder shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the corporate secretary at the principal executive
offices of MP3.com not later than the close of business on the 10th day
following the day on which such public announcement is first made by MP3.com.

In order to include information with respect to a stockholder proposal in
the proxy statement and form of proxy for a stockholder's meeting, stockholders
must provide notice as required by the regulations promulgated under the
Exchange Act.

Vivendi Universal

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. In any
case, the nomination must contain the name, age, professional references and
professional activity of the nominee for the past five years, if any, the
occupation within the Company, 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.

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 resolution they propose for
adoption at a shareholder meeting be included in the agenda. This request must
be made within 10 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.

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SHAREHOLDERS' MEETINGS AND QUORUM

MP3.com

The MP3.com by-laws provide that annual meetings of stockholders shall be
held on the date and time fixed by the board in the notice of such meeting, and
that special meetings of the stockholders may be called only by the Chairman of
the Board, the Chief Executive Officer or a majority of the directors
(regardless of vacancies). The board determines the time and place of such
special meetings.

The MP3.com by-laws provide that written notice of the date, time, place
and purposes of each meeting of the stockholders must be mailed not less than
ten days nor more than 60 days before the date of such meeting to each
stockholder entitled to vote at such meeting. The by-laws also provide that
special meetings shall be held not less than 35 nor more than 120 days after the
date of the receipt of the proper request for such a meeting. Upon determination
of the time and place of the meeting, the officer receiving the request shall
cause notice to be given to the stockholders entitled to vote as outlined above.
If the notice is not given within 100 days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice.

The MP3.com by-laws provide that, except as otherwise provided by
applicable law, at each meeting of the stockholders the presence in person or by
proxy of the holders of a majority of the outstanding shares of stock entitled
to vote at such meeting shall constitute a quorum for such meeting.

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 Universal is required to hold an ordinary shareholders' meeting
within six months of the end of the company's 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 initial 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 registered
shareholder and to the auditors of the company. If you will be a Vivendi
Universal ADS 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 5% of the
company's capital, in the case of a general meeting, or 5% of a specific
category of shares, in the case of a special meeting;

- the Employee Committee in cases of emergency;

- any interested party in cases of emergency;

- so long as the company remains listed on the Paris Bourse, certain duly
qualified associations of shareholders who have held their shares in
registered form for at least two years and who together hold at least 2%
of the voting rights of the Company; or

- in a bankruptcy, the liquidator or court appointed agent may also call a
shareholders' meeting in some instances.

Shareholders holding more than 50% of share capital or voting rights may also
convene a shareholders' meeting after a public offer or a sale of a controlling
stake of the share capital.

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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 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 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. Notwithstanding the foregoing, this limitation does not
apply if a quorum equal or superior to 60% exists at a general meeting.

APPROVAL OF EXTRAORDINARY ACTIONS

MP3.com

Under Delaware law, fundamental corporate transactions (such as mergers,
sales of all or substantially all of the corporation's assets and dissolutions)
require the approval of the holders of a majority of the shares entitled to
vote. Under the MP3.com charter and by-laws, amendments to the by-laws and
certain provisions of the certificate of incorporation require the approval of
66 2/3% of all outstanding shares.

Vivendi Universal

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' pre-emptive 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.

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SHAREHOLDER ACTION BY WRITTEN CONSENT

MP3.com

Under the MP3.com charter, no action of stockholders may be taken by
written consent.

Vivendi Universal

The French commercial code does not permit shareholders to act by written
consent outside a general shareholders' meeting.

PAYMENT OF DIVIDENDS

MP3.com

Delaware law generally permits dividends to be paid out of any surplus,
defined as the excess of the net assets of the corporation over the amount
determined to be the capital of the corporation by the board of directors, which
cannot be less than the aggregate par value of all issued shares of capital
stock. Delaware law also permits a dividend to be paid out of the net profits of
the current or the preceding fiscal year, or both, unless net assets are less
than the capital represented by any outstanding preferred shares.

Vivendi Universal

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.

PREFERENTIAL SUBSCRIPTION RIGHTS

MP3.com

Under Delaware law, stockholders have no pre-emptive rights to subscribe
for additional issues of stock or for any security convertible into such stock
unless, and except to the extent that, such rights are expressly provided for in
the certificate of incorporation. The MP3.com charter does not provide for pre-
emptive rights.

Vivendi Universal

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

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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.

APPRAISAL RIGHTS

MP3.com

Delaware law provides for appraisal rights on the part of the stockholders
of a corporation only in the case of specified mergers or consolidations.
Moreover, unless the certificate of incorporation so provides, Delaware law does
not provide for appraisal rights in connection with sales or transfers of all or
substantially all of a corporation's assets, amendments to a corporation's
certificate of incorporation or a merger or consolidation for stock listed on a
national securities exchange or designated as a national market system security
on The Nasdaq Stock Market or held of record by more than 2,000 stockholders,
unless the agreement of merger or consolidation requires the holders of the
stock to receive, in exchange for their shares, any property other than shares
of stock of the surviving corporation, shares of stock of any other corporation
listed on a national securities exchange or designated as a national market
system security on The Nasdaq Stock Market or held of record by more than 2,000
holders, cash instead of fractional shares or any combination of the foregoing.
MP3.com's charter does not provide for appraisal rights in these circumstances.

In addition, Delaware law denies appraisal rights to the stockholders of
the surviving corporation in a merger if the merger did not require the approval
of the stockholders of the surviving corporation. See "-- Approval of
Extraordinary Actions".

Vivendi Universal

The French commercial code does not provide for appraisal 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.

DUTIES OF THE BOARD OF DIRECTORS

MP3.com

Delaware law provides that the board of directors of a corporation has the
ultimate responsibility for managing the corporations business and affairs. In
discharging this function, directors of Delaware corporations owe fiduciary
duties of care and loyalty to the corporations for which they serve as
directors. Directors of Delaware corporations also owe fiduciary duties of care
and loyalty to stockholders. Delaware courts have held that the directors of a
Delaware corporation are required to exercise an informed business judgment in
the performance of their duties. An informed business judgment means that the
directors have informed themselves of all material information reasonably
available to them.

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A director of a Delaware corporation, in the performance of such director's
duties, is fully protected in relying, in good faith, upon the records of the
corporation and upon such information, opinions, reports or statements presented
to the corporation by any of the corporation's officers or employees, or
committees of the board of directors, or by any other person as to matters the
director reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the corporation.

Delaware law does not contain any statutory provision permitting the board
of directors, committees of the board and individual directors, when discharging
the duties of their respective positions, to consider the interests of any
constituencies other than the corporation or its stockholders. It is unclear
under the current state of development of the Delaware law whether or the extent
to which the board of directors, committees of the board and individual
directors of a Delaware corporation may, in considering what is in the
corporation's best interests or the effects of any action on the corporation,
take into account the interests of any constituency other than the stockholders
of the corporation. In addition, the duty of the board of directors, committees
of the board and individual directors of a Delaware corporation may be enforced
directly by the corporation or may be enforced by a stockholder, as such, by an
action in the right of the corporation, or may, in certain circumstances, be
enforced directly by a stockholder or by any other person or group.

Vivendi Universal

Vivendi Universal's statuts 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. In accordance with the amendments of the French Commercial Code
dated May 16, 2001, Vivendi Universal's statuts may be amended in order to
provide that the board of directors determines the main orientations given in
the activities of the Company.

Vivendi Universal's statuts provide that the chairman of the board of
directors also serves as its president. Vivendi Universal's statuts further
provide 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 Universal's directors owe a duty of loyalty and care to the
company. Members of 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.

ANTI-TAKEOVER PROVISIONS

MP3.com

MP3.com is subject to the provisions of Delaware law described below
regarding business combinations with interested stockholders because there is no
opt-out provision in its charter with respect to these provisions.

Section 203 of the Delaware law applies to a broad range of business
combinations between a Delaware corporation and an interested stockholder. The
Delaware law definition of "business combination" includes mergers, sales of
assets, issuance of voting stock and certain other transactions. An "interested
stockholder" is defined as any person who owns, directly or indirectly, 15% or
more of the outstanding voting stock of a corporation.

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Section 203 prohibits a corporation from engaging in a business combination
with an interested stockholder for a period of three years following the time
that the stockholder became an interested stockholder, unless:

- before the stockholder became an interested stockholder, the board of
directors approved the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;

- upon completion of the transaction which resulted in the stockholder
becoming an interested stockholder, such stockholder owned at least 85%
of the voting stock outstanding when the transaction began other than
shares held by directors who are also officers and other than shares held
by certain employee stock plans; or

- the board of directors approved the business combination after the
stockholder became an interested stockholder and the business combination
was approved at a meeting by at least two-thirds of the outstanding
voting stock not owned by such stockholder.

Vivendi Universal

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.

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Vivendi Universal's statuts contain provisions that could diminish the
likelihood that a potential acquiror will gain control of the company. In
particular, under 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, if a quorum of less than 60% is
present at a shareholders' meeting; 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, voting rights or securities convertible into shares may be
deprived of voting rights for those shares in excess of the unreported
fraction.

Holders of Vivendi Universal ADSs 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.

SHAREHOLDER SUITS

MP3.com

Under Delaware law, a stockholder may bring a derivative action on behalf
of the corporation to enforce the rights of the corporation. An individual also
may commence a class action suit on his or her own behalf and other similarly
situated stockholders where the requirements for maintaining a class action
under Delaware law have been met. A person may institute and maintain such a
suit only if such person was a stockholder at the time of the transaction which
is the subject of the suit or his or her stock thereafter devolved upon him or
her by operation of law. Additionally, under Delaware case law, the plaintiff
generally must be a stockholder not only at the time of the transaction which is
the subject of the suit, but also through the duration of the derivative suit.
Delaware law also requires that the derivative plaintiff make a demand on the
directors of the corporation to assert the corporate claim before the suit may
be prosecuted by the derivative plaintiff, unless such demand would be futile.

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.

INSPECTION OF BOOKS AND RECORDS

MP3.com

Under Delaware law, every stockholder, upon proper written demand stating
the purpose, may inspect the corporate books and records as long as the
inspection is for a "proper purpose" and during normal business hours. A "proper
purpose" is any purpose reasonably related to the interest of the inspecting
person as a stockholder.

Vivendi Universal

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;

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- 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 a
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.

TRANSACTIONS WITH INTERESTED DIRECTORS

MP3.com

Delaware law generally permits transactions involving a Delaware
corporation and an interested director of that corporation if:

- the material facts as to the director's relationship or interest are
disclosed and a majority of disinterested directors consent;

- the material facts are disclosed as to the director's relationship or
interest and holders of a majority of shares entitled to vote thereon
consent; or

- the transaction is fair to the corporation at the time it is authorized
by the board of directors, a committee of the board of directors or the
stockholders.

Vivendi Universal

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 or one of its shareholders holding more than 5% of the total voting
power of the Company (or, if such shareholder is a legal entity, the entity's

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parent), 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

MP3.com

The MP3.com by-laws require indemnification of its directors and officers
to the fullest extent permitted under Delaware or any other applicable law, and
permit indemnification of its employees and agents as set forth in Delaware law
or any other applicable law. Delaware law permits a corporation to indemnify any
person involved in a third party action by reason of his agreeing to serve,
serving or formerly serving as an officer or director of the corporation,
against expenses, judgments, fines and settlement amounts paid in such third
party action (and against expenses incurred in any derivative action), if such
person acted in good faith and reasonably believed that his actions were in, or
not opposed to, the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. Furthermore, Delaware law provides that a corporation may advance
expenses incurred by officers and directors in defending any action upon receipt
of an undertaking by the person to repay the amount advanced if it is ultimately
determined that such person is not entitled to indemnification. In general, no
indemnification for expenses in derivative actions is permitted under Delaware
law where the person has been adjudged liable to the corporation, unless a court
finds him entitled to such indemnification. If, however, the person has been
successful in defending a third party or derivative action, indemnification for
expenses incurred is mandatory under Delaware law. Under Delaware law, the
statutory provisions for indemnification are nonexclusive with respect to any
other rights, such as contractual rights, to which a person seeking
indemnification may be entitled. Delaware law does not expressly permit such
contractual or other rights to provide for indemnification against judgments and
settlements paid in a derivative action.

Vivendi Universal

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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MP3.COM

Description of MP3.com's Business

MP3.com has created a unique and robust technology infrastructure designed
to facilitate the storage, management, promotion, and delivery of digital music.
As the Internet's premier Music Service Provider (MSP), MP3.com is dedicated to
providing consumers access to music when they want it, where they want it, using
any web-enabled device. MP3.com's web site hosts what it believes is the largest
collection of digital music available on the Internet, with more than one
million songs and audio files posted from over 150,000 digital artists and
record labels. Dedicated to growing the digital music space, MP3.com's products
and services include on-demand Subscription Music Channels, an innovative
Business Music Services program, a Radio Services program and others.
Additionally, through MP3.com's MSP technology initiative and Music
InterOperating System, MP3.com is partnering with a variety of forward-looking
businesses to expand its digital music strategy.

MP3.com devoted much of 2000 and the first half of 2001 to enhancing and
improving the MP3.com web site and its technology infrastructure. In January
2000, MP3.com unveiled its upgraded My.MP3 service, a unique and robust service
designed to facilitate the storage, management, promotion and delivery of
digital music, and to enable users to listen to their music when they want,
where they want by accessing any web-enabled device. The My.MP3 service allows
users to create online music lockers where they can store, organize and manage
their favorite songs from music posted by digital artists on the MP3.com web
site, and receive personalized music services. In addition, with the
introduction of the Beam-It(TM) and Instant Listening(TM) features of the My.MP3
service in January 2000, MP3.com began providing consumers the ability to
access, add to and manage their existing music CD collections online without
having to encode and store tracks themselves. Under this system, once MP3.com
was able to determine that a consumer purchased a CD (through the Instant
Listening feature), or was already in possession of a CD (through the
proprietary Beam-It software), MP3.com made music from that CD available in the
consumer's music locker.

During the first quarter of 2000, several major recording and publishing
companies led by the Recording Industry Association of America and the Harry Fox
Agency, Inc. commenced separate lawsuits against MP3.com alleging that the
inclusion of their respective content in the My.MP3 service infringed their
copyrights. In May 2000, pending resolution of these legal proceedings, MP3.com
began limiting consumers' use of the My.MP3 service so they could only access
and manage the music that was posted on the MP3.com web site by artists.
Following several legal battles, MP3.com entered into license agreements with
BMG Entertainment, Time Warner, Inc., EMI Recorded Music, Sony Music, and
Universal Music Group covering the use of their master recordings in the My.MP3
service. MP3.com also entered into a license agreement with the Harry Fox
Agency, Inc. covering certain uses of musical compositions in the My.MP3
service. In December 2000, MP3.com again began to allow consumers to place music
from their existing music CD collections in their My.MP3 music lockers. In this
current format, My.MP3 is offered as both a free and premium subscription-based
service.

MP3.com believes it has developed core competencies and created a
technology infrastructure system that will enable it to provide a wide variety
of data management and infrastructure services to other businesses. Through
MP3.com's ongoing efforts to develop, maintain and improve the MP3.com web site,
MP3.com has amassed a significant amount of expertise in data storage, delivery
and management; server-side security; and royalty tracking and payment systems.
MP3.com has also created a technology infrastructure system that stores,
manages, tracks and provides statistical analyses on a real-time basis for
digital data for over 150,000 artists and more than 14.5 million registered
users. In March 2001, MP3.com's technology infrastructure system managed an
average of over 5.5 terabytes of data each day.

Leveraging these core competencies and MP3.com's backbone technology
infrastructure system, MP3.com has developed a number of unique products and
services designed to further its primary mission to help grow the digital music
space. These products and services include the first-ever, on-demand Internet
subscription music channels, innovative business music services, a syndicated
radio program, a

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music promotions business, and business-to-business content management and
marketing services. MP3.com intends to continue working to develop innovative
products and services that leverage its core competencies and build upon this
powerful and robust backbone technology infrastructure system.

In order to maintain MP3.com's leadership position in the digital music
industry, MP3.com intends to leverage its technology and strategic partnerships
with leading web sites, broadband application developers, device manufacturers,
record labels, software and hardware developers, wireless carriers, retailers
and connectivity providers to (1) give consumers worldwide access to their
music, whenever they want it, wherever they want it, on any web-enabled device
or application; (2) provide artists with the greatest potential for promotion
and distribution of their music; and (3) expand the potential commercial
applications of MP3.com's technology.

MP3.com generates revenue from advertising, infrastructure products,
merchandising products, subscription products, music licensing products and
business music services. For the quarters ended March 31, 2001 and 2000, 92.0%
and 83.4%, respectively, of MP3.com's revenues were from advertising.

MP3.com was incorporated in March 1998. During 1998, MP3.com's operations
consisted largely of developing the infrastructure necessary to download and
stream music from the Internet. Although MP3.com has experienced a slight drop
in headcount during the first quarter of 2001, since the beginning of 1999
MP3.com's growth has been dramatic. The number of employees increased from eight
on December 31, 1998 to 274 on December 31, 1999 to 308 on December 31, 2000 and
decreased to 303 on March 31, 2001. In March 2001, MP3.com added over 200
artists and over 1,300 new song and audio files on average each day, which is an
increase from over 100 artists and over 1,000 new song and audio files that were
added on average each day in March 2000. During March 2001, visitors to
MP3.com's web site viewed over 165 million web pages and listened to or
downloaded over 59 million songs, which is an increase from March 2000 when
visitors viewed over 142 million web pages and listened to or downloaded over
27.7 million songs.

Litigation

MP3.com is currently involved in several lawsuits related to the
availability of content on its My.MP3 service, as well as several shareholder
class action and derivative suits. See "Consolidated Financial Statements of
MP3.com -- Notes to Condensed Consolidated Financial Statements -- Note
2 -- Legal Proceedings" beginning on page F-135.

Further Information About MP3.com

For further information about MP3.com, please see the documents
incorporated by reference into this document, as described under "Where You Can
Find More Information" beginning on page 192.

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VIVENDI UNIVERSAL

HISTORY AND DEVELOPMENT OF VIVENDI UNIVERSAL

GENERAL

The legal and commercial name of the company is Vivendi Universal, S.A.
Vivendi Universal is a societe anonyme, a form of limited liability company,
incorporated on December 11, 1987 pursuant to the French commercial code for a
term of 99 years. The registered office is located at 42, avenue de Friedland,
75380 Paris Cedex 08, France, and the phone number of that office is 01 71 71
1000. Vivendi Universal's agent in the United States is Vivendi Universal U.S.
Holding Co. located at 800 Third Avenue, 7th Floor, New York, New York 10022,
Attention: President. When used in the business description that follows,
"Vivendi Universal" refers to the company on a consolidated basis, or to its
direct and indirect subsidiaries, as applicable. Unless otherwise indicated, all
references to Vivendi Universal's competitive position made in this document are
in terms of revenue generated.

Vivendi Universal is the surviving entity of the merger transactions among
Vivendi, S.A. (or Vivendi), The Seagram Company Ltd. (or Seagram) and Canal Plus
S.A. (or Canal Plus) which were completed on December 8, 2000.

The Vivendi/Seagram/Canal Plus merger included the following:

- The merger of Vivendi into its wholly owned subsidiary, Vivendi
Universal. Prior to the Vivendi/ Seagram/Canal Plus merger, the entity
now known as Vivendi Universal functioned as a non-operating holding
company;

- Vivendi Universal's acquisition of all of the businesses of Canal Plus
not subject to a French law that prohibits any person from owning more
than 49% of a French television broadcaster. Accordingly, Canal Plus's
French premium pay television channel was retained by Canal Plus. Public
Canal Plus shareholders retained their 51% interest in Canal Plus and
Vivendi Universal now holds the remaining 49%. The businesses that
Vivendi Universal acquired from Canal Plus are now operated collectively
as Groupe Canal S.A. (referred to herein as CANAL+); and

- Vivendi Universal's combination, through its subsidiaries, with Seagram
in accordance with a plan of arrangement under Canadian law.

Vivendi, S.A.

Prior to the Vivendi/Seagram/Canal Plus merger, Vivendi was one of Europe's
largest companies. In May 1998, Vivendi's shareholders approved its name change
from Compagnie Generale des Eaux to "Vivendi" 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 (or US
Filter) to Vivendi Environnement. These transactions, along with the
consolidation of all of its water businesses into Vivendi Water, were designed
to focus each of its environmental operations on the goal of maintaining its
position as the world's leading provider of environmental management services.
In July 2000, Vivendi issued approximately 37% of the share capital of Vivendi
Environnement in a public offering in Europe and a private placement in the
United States.

At the time of the Vivendi/Seagram/Canal Plus merger, Vivendi's businesses
were focused primarily on two core areas: communications and environmental
management services. Its communications business operated a number of leading
and integrated businesses in the telecommunications, multimedia and publishing,
pay television and Internet industries. Its environment business, operated
primarily through its subsidiary Vivendi Environnement, included world-class
water, waste management, transportation and energy services operations. Each of
these businesses now forms part of Vivendi Universal.

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The Seagram Company Ltd.

Prior to the Vivendi/Seagram/Canal Plus merger, Seagram operated in four
business segments:

- Music, through Universal Music Group, the world's largest recorded music
company, which developed, acquired, produced, marketed and distributed
recorded music globally, produced, sold and distributed music videos
globally, and engaged in music publishing;

- Filmed Entertainment, primarily through Universal Pictures, produced and
distributed motion picture, television and home video productions
worldwide, owned and operated a number of international television
channels, and licensed merchandising and filmed property rights;

- Recreation and Other, which owned and operated theme parks, entertainment
complexes and specialty retail stores in the U.S. and elsewhere; and

- Spirits and Wine, which produced, marketed and distributed distilled
spirits, wines, coolers, beers and mixers in more than 190 countries and
territories worldwide. Vivendi Universal has entered into an agreement to
sell the Spirits and Wine business.

Each of these businesses now forms a part of Vivendi Universal.

Canal Plus S.A.

Prior to the Vivendi/Seagram/Canal Plus merger, Canal Plus was Europe's
leading pay television company with approximately 14 million subscribers in 11
countries at the end of 1999. Forty percent of Canal Plus's subscribers were
enrolled in digital television services at the end of 1999. Canal Plus also
produced more than 25 theme channels for cable and satellite television
distribution in 14 countries and was 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 Plus was
Europe's leading supplier of software technologies that enabled network
operators to deliver secure interactive services over digital television
networks. Each of these businesses now forms a part of Vivendi Universal.

As a result of the Vivendi/Seagram/Canal Plus merger, Vivendi Universal is
one of the world's leading media and communications companies, with assets that
include the world's largest recorded music company, one of the largest motion
picture studios and film libraries in the world and leading businesses in the
global telecommunications, television, theme park, publishing and Internet
industries. Vivendi Universal believes that it will become 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.

See "Business Overview" below for a complete description of Vivendi
Universal's businesses.

CERTAIN DEVELOPMENTS IN 2000

In 2000, Vivendi Universal's total capital expenditures were E5.8 billion,
primarily in connection with its Telecoms (E1.1 billion), TV & Film (E0.8
billion) and Environmental Services (E2.6 billion) businesses.

Total proceeds from the sale of assets in the year were E2.8 billion,
principally related to the sale by Sithe Energy, Inc. (or Sithe) of the assets
previously purchased from G.P.U. (E2.3 billion).

Acquisitions of investments in the year were E32.5 billion, principally
related to the merger of Vivendi, Seagram and Canal Plus (non-cash transaction
of E29.5 billion). Vivendi Universal's cash investments in other Media and
Communication businesses were E1.9 billion and international expansion in its
Environmental Services businesses represented E0.7 billion.

Total dispositions of investments in the year were E4.1 billion. In Vivendi
Universal's Media and Communications businesses, these primarily related to the
sale of part of its interest in Canal Satellite and MultiThematiques to
Lagardere (E1.0 billion). Dispositions of other investments principally relate
to the

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sale of certain operations of Dalkia (E0.8 billion), Kinetics (E0.6 billion),
Vinci (E0.6 billion) and Sithe (E0.4 billion).

No third parties have made public takeover offers with respect to Vivendi
Universal since it began operations, and Vivendi Universal has not made any
public takeover offers with respect to other companies, except as described
below under "Business Overview". For important events occurring since January 1,
2001, see "Operating and Financial Review and Prospects -- Other Matters and
Recent Developments", and the "Recent Developments" sections contained under
"Business Overview" below.

OTHER ACQUISITIONS AND DIVESTITURES

Acquisitions

Over the 1998-99 period, Vivendi Universal supplemented the growth in its
Media and Communications businesses and its Environmental Services businesses by
entering into joint ventures and acquisitions that significantly expanded its
assets. The following is a summary of some of the material acquisitions and
dispositions during the 1998-99 period in each of its core businesses.

Media and Communications. Vivendi Universal completed the acquisition of
Havas S.A. effective January 1, 1998, having acquired 29.3% of Havas, now known
as Vivendi Universal Publishing, in February 1997. In 1998 and 1999, Vivendi
Universal significantly expanded Havas' international presence through a number
of acquisitions, including (1) Cendant Software, the world's second leading
developer of educational and games computer software, for E678 million, (2)
Anaya, a Spanish publishing firm, for E199.7 million, and (3) Medi-Media, a
company specializing in the publication of medical information, for E237
million.

Cegetel Group (defined below) acquired a 49.9% ownership interest in
Telecom Developpement through investments made in July 1997 and December 1998
totaling E518.2 million.

In September 1999, Vivendi Universal purchased an additional 15% interest
in CANAL+ for E1,374 million (bringing the total at the time to 49%), and
acquired a 24.4% equity interest in BSkyB, the leading pay-television company in
the United Kingdom and Ireland, for E1,258.8 million.

In December 1999, Vivendi Universal purchased a 49% interest in a company
that controls the leading Polish mobile telephony operator and the Polish cable
operator Bresnam for E1,198.8 million.

Environmental Services. In October 1998, Vivendi Universal acquired a 49%
interest in the holding company that owns 56.5% of Fomento De Constructiones y
Contratas, or FCC, for E794.2 million.

In March 1999, Vivendi Universal purchased E103.5 million of hazardous
waste-related assets from Waste Management, Inc.

In April 1999, Vivendi Universal acquired US Filter, the world's leading
manufacturer of water equipment and water treatment systems, for E5,801 million.

In June 1999, Vivendi Environnement acquired a controlling stake in
Superior Services, a U.S. waste management company, for E932.2 million.

Divestitures

In an effort to focus Havas on its multimedia and publishing operations,
during 1998 and 1999 Vivendi Universal sold: (1) Havas' yellow pages businesses
to France Telecom for E411 million, (2) Information et Publicite, an advertising
management agency, to Compagnie Luxembourgeoise de Telediffusion for E207
million, (3) Havas Voyages, a travel agency, to American Express Voyages, for
E167 million, (4) Havas' billboard advertising operations to the Decaux group
for E877 million and (5) 9% of Havas Advertising to a group of investors for
E198.4 million.

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In June 1998, Vivendi Universal sold 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 late 1999, Vivendi Universal sold its interest in Audiofina to Groupe
Bruxelles Lambert for E704.1 million.

In 1999, Vivendi Universal disposed of a substantial number of non-core
real estate assets, including E1.2 billion of real estate assets to Unibail,
Accor, Blackstone and Colony.

BUSINESS OVERVIEW

GENERAL

Vivendi Universal operates in two global core businesses: Media and
Communications, and Environmental Services. The Media and Communications
business is divided into five business segments: Music, Publishing and TV &
Film, which constitute Vivendi Universal's content businesses, and Telecoms and
Internet, Vivendi Universal's access businesses. The Music business produces,
markets and distributes recorded music throughout the world in all major genres,
manufactures, sells and distributes video products in the United States and
internationally, and licenses music copyrights. The Publishing business provides
content across multiple platforms including print, multimedia, on the wired
Internet and to PDAs (Personal Digital Assistants) via WAP (Wireless Application
Protocol) technology. The Publishing business provides content in five markets:
Games, Education, Literature, Health and Information. The TV & Film business
produces and distributes motion picture, television and home video/DVD products
worldwide, operates and has ownership interests in a number of cable and pay
television channels, engages in the licensing of merchandising and film property
rights, and operates theme parks and retail stores around the world. The
Telecoms business provides a broad range of telecommunications services,
including mobile and fixed telephony, Internet access and data services and
transmission, principally in Europe. The Internet business manages strategic
Internet initiatives and new online ventures for Vivendi Universal. Utilizing
advanced digital distribution technology, the Internet business develops
e-commerce, e-services and thematic portals that offer access to the Internet
through a variety of devices, including mobile phones, PDAs, interactive TV and
computers. Vivendi Environnement, a 63% effectively owned subsidiary of Vivendi
Universal, operates the Environmental Services business, with operations around
the globe. Vivendi Environnement provides environmental management services,
including water treatment and system operation, waste management, energy
services (excluding the sale, production and trading of electricity) and
transportation services, to a wide range of public authorities and industrial,
commercial and residential customers.

SEGMENT DATA

The contribution of Vivendi Universal's business segments to its
consolidated revenue for 1998, 1999 and 2000, in each case after the elimination
of intersegment transactions, follows:

TOTAL MEDIA &
MUSIC PUBLISHING TV & FILM TELECOMS INTERNET COMMUNICATIONS
----- ---------- --------- -------- -------- --------------
(IN MILLIONS OF EUROS)

REVENUE
DECEMBER 31, 2000............. 494.6 3,539.8 4,248.3 5,270.1 47.8 13,600.6
DECEMBER 31, 1999............. -- 3,316.9 1,151.8 4,102.2 2.0 8,572.9
DECEMBER 31, 1998............. -- 2,876.3 200.6 2,875.2 -- 5,952.1

TOTAL
ENVIRONMENTAL NON- VIVENDI
SERVICES CORE UNIVERSAL
------------- -------- ---------
(IN MILLIONS OF EUROS)

REVENUE
DECEMBER 31, 2000............. 26,512.0 1,685.0 41,797.6
DECEMBER 31, 1999............. 22,428.2 10,621.4 41,622.5
DECEMBER 31, 1998............. 16,047.2 9,737.8 31,737.1

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GEOGRAPHIC DATA

The contribution of selected geographic markets to Vivendi Universal's
consolidated revenue for 1998, 1999 and 2000 follows:

AT DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(MILLIONS OF EUROS)

France............................................... 21,173.8 23,785.2 21,424.0
United Kingdom....................................... 2,969.1 3,465.0 2,947.4
Rest of Europe....................................... 7,420.9 7,369.7 4,793.3
United States of America............................. 7,009.1 5,014.1 1,267.8
Rest of the World.................................... 3,224.7 1,988.5 1,304.6
-------- -------- --------
Total................................................ 41,797.6 41,622.5 31,737.1
======== ======== ========

SEGMENT AND GEOGRAPHIC DATA FOR 2000

The contribution of selected geographic markets to the revenue of Vivendi
Universal's business segments and to Vivendi Universal's consolidated revenue
for 2000, in each case after the elimination of intersegment transactions,
follows:

TOTAL MEDIA
& TOTAL
COMMUNICA- ENVIRONMENTAL VIVENDI
MUSIC PUBLISHING TV & FILM TELECOMS INTERNET TIONS SERVICES NON-CORE UNIVERSAL
----- ---------- --------- -------- -------- ----------- ------------- -------- ---------
(MILLIONS OF EUROS)

Europe................ 228.6 2,575.3 3,896.0 5,263.0 30.5 11,993.4 19,311.1 259.3 31,563.8
of which France..... 67.3 1,918.9 2,724.4 5,106.1 29.4 9,846.1 11,111.9 215.8 21,173.8
Americas.............. 196.5 862.6 232.5 0.0 17.3 1,308.9 5,953.6 1,214.5 8,477.0
Rest of the World..... 69.5 101.9 119.8 7.1 0.0 298.3 1,247.3 211.2 1,756.8
----- ------- ------- ------- ---- -------- -------- -------- --------
Total................. 494.6 3,539.8 4,248.3 5,270.1 47.8 13,600.6 26,512.0 1,685.0 41,797.6
===== ======= ======= ======= ==== ======== ======== ======== ========

STRATEGY

Vivendi Universal's overall goal is to take advantage of the strong
internal and external growth opportunities available in the areas of its core
operations -- Media and Communications, and Environmental Services. Vivendi
Universal 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,
Vivendi Universal 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 these businesses to
meet what it believes to be a growing demand for customized, comprehensive
packages of environmental management services on a worldwide basis.

MEDIA AND COMMUNICATIONS SERVICES

Music

Vivendi Universal's music business is operated through Universal Music
Group, the largest recorded music business in the world, which develops,
acquires, manufactures, markets and distributes recorded music through a network
of subsidiaries, joint ventures and licensees in 63 countries. Universal Music
Group also manufactures, sells and distributes music video products, licenses
music copyrights, publishes music and owns mail order music/video clubs
throughout the world.

In 2000, Vivendi Universal held the number one market position in North
America, Europe and Latin America. Vivendi Universal is the market leader in 75%
of the countries in which it operates. In 2000, 67 albums reached worldwide
sales in excess of one million units and five albums sold over five million
units.

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Vivendi Universal has the largest music catalogue in the world and holds the
leading position in jazz and classical music, with its classical music sales
representing 40% of worldwide classical music sales for the industry. Vivendi
Universal's labels include:

- popular labels such as Barclay, Interscope Geffen A&M, Island Def Jam
Music Group, MCA Nashville, MCA Records, Mercury Nashville, Mercury
Records, Motor Music, Motown, Polydor and Universal Records;

- leading classical labels such as Decca, Deutsche Grammophone and Philips;
and

- leading jazz labels such as Verve, GRP and Impulse! Records.

Artists

The success of a music company depends to a significant degree on its
ability to sign and retain artists that will appeal to popular tastes over a
period of time. Vivendi Universal believes that the scope and diversity of its
popular music labels, repertoire and catalogues allow it to respond to shifts in
audience tastes. The United States and the United Kingdom continue to be the
source of approximately 60% of international popular repertoire. Including the
United States and the United Kingdom, sales of locally-signed artists in their
home territories represent 70% of worldwide recorded music sales. Increasingly,
certain national acts, such as Andrea Bocelli from Italy, Aqua from Denmark and
Modjo from France, are attracting a wider international audience. Vivendi
Universal's leading local market position in almost every major region provides
a critical competitive advantage.

Artists who are currently under contract with Vivendi Universal, directly
or through third parties, for one or more important territories include, among
others:

Bryan Adams, Aqua, A*Teens, Erykah Badu, Cecilia Bartoli, Bee Gees, George
Benson, Mary J. Blige, Blink 182, Andrea Bocelli, Bon Jovi, Boyzone, Jacky
Cheung, Sheryl Crow, DMX, Dr. Dre, Eminem, ERA, Mylene Farmer, Lara Fabian,
Masaharu Fukuyama, Luis Fonsi, Johnny Hallyday, Herbie Hancock, Enrique
Iglesias, Al Jarreau, Jay-Z, Elton John, Ronan Keating, B.B. King, Diana
Krall, Lighthouse Family, Limp Bizkit, Live, Los Tucanes de Tijuana, Reba
McEntire, Brian McKnight, Metallica (outside North America), Modjo, 98
Degrees, No Doubt, Padre Marcelo Rossi, Anne-Sophie Mutter, Florent Pagny,
Luciano Pavarotti, Rammstein, Andre Rieu, Rosana, Paulina Rubio, David
Sanborn, Sandy & Junior, S Club 7, Shaggy, Spitz, Sisqo, Sting, George
Strait, Tarkan, Texas, Shania Twain, Caetano Veloso, The Wallflowers,
Stevie Wonder and U2.

In addition to recently released recordings, Vivendi Universal also markets
and sells recordings from its library of prior releases. Sales from this library
account for a significant and stable part of its recorded music revenue each
year. Vivendi Universal owns the largest catalogue of recorded music in the
world, with performers from the United States, the United Kingdom and around the
world, such as:

ABBA, Louis Armstrong, Chuck Berry, James Brown, Eric Clapton, Patsy Cline,
John Coltrane, Count Basie, Bill Evans, Ella Fitzgerald, The Four Tops,
Marvin Gaye, Jimi Hendrix, Billie Holiday, Buddy Holly, The Jackson Five,
Antonio Carlos Jobim, Herbert von Karajan, Bob Marley, Nirvana, The Police,
Smokey Robinson, Diana Ross & The Supremes, Rod Stewart, Caetano Veloso,
Muddy Waters, Hank Williams and The Who.

Artist Contracts, Production, Marketing and Distribution

Vivendi Universal seeks to contract with its popular artists on an
exclusive basis for the marketing of their recordings (both audio and
audio-visual) in return for a percentage royalty on the wholesale or retail
selling price of the recording. Vivendi Universal generally seeks to obtain
rights on a worldwide basis, although certain of its artists have licensed
rights for certain countries or regions to other record companies. While
exclusive classical artist contracts are common, and can extend over a long
period, many classical artists and orchestral contracts are short in duration
and refer only to specific recordings.

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Established artists command higher advances and royalties. Therefore, it is not
unusual for a recording company to renegotiate contract terms with a successful
artist.

A contract either provides for the artist to deliver completed recordings
to Vivendi Universal or for Universal Music Group to undertake the recording
with the artist. For artists without a recording history, Vivendi Universal is
often involved in selecting producers, recording studios, additional musicians
and songs to be recorded, and Vivendi Universal may supervise the output of
recording sessions. For established artists, Vivendi Universal is usually less
involved in the recording process.

Marketing involves advertising and otherwise gaining exposure for its
recordings and artists through magazines, radio, television, Internet, other
media and point-of-sale material. Public performances are also considered an
important element in the marketing process, and Vivendi Universal provides
financing for concert tours by certain artists. Television marketing of both
specially compiled products and new albums is becoming increasingly important.
Marketing is carried out on a territory-by-territory basis, although global
priorities and strategies for certain artists are set centrally.

Vivendi Universal employs sales representatives who obtain orders from
wholesalers and retailers. In all major territories except Japan and Brazil,
Vivendi Universal has its own distribution services for the storage and delivery
of finished product to wholesalers and retailers. In certain territories, it has
entered into distribution joint ventures with other record companies.

Vivendi Universal also sells music product directly to the consumer,
principally through two direct mail club organizations: Britannia Music in the
United Kingdom and D.I.A.L. in France.

E-Commerce and Electronic Delivery

Vivendi Universal is at the forefront of the development of new methods to
distribute, market, sell, program and syndicate music and music-related
programming by exploiting the potential of new technological platforms. The
Internet now permits consumers to sample music on the web, order it, receive it
(physically and/or electronically), pay for it, and even store it so that it can
be accessed anywhere. It also allows consumers to customize their radio stations
in order to create their own distinctive programming. In fiscal 2000, Vivendi
Universal launched its music download business and became the first major music
company to offer viewers a slate of customizable premium music programs designed
exclusively for high-speed broadband access.

Vivendi Universal believes that emerging technologies will be strategically
important to the future of the music business. Evolving technology will allow
current customers to sample and purchase music in a variety of new ways and will
expose potential consumers to new music. Through a variety of independent
initiatives and strategic alliances, Vivendi Universal continues to invest
resources in the technology and electronic commerce areas that will allow the
music business to be conducted over the Internet, cellular networks, cable and
satellite. Its investments and initiatives include Bluematter(TM), DataPlay,
InterTrust, Jimmy and Doug's Farmclub.com, GetMusic as well as pressplay
(formerly known as Duet), its joint venture with Sony Music Entertainment to
develop and launch an on-demand subscription-based music service. The joint
venture pressplay has entered into an alliance with Yahoo! Inc. to present and
market the pressplay subscription service which is expected to launch in the
U.S. in the summer of 2001. Vivendi Universal has recently purchased EMusic.com
Inc. and entered into an agreement to purchase MP3.com, Inc. See "Recent
Developments" below.

Music Publishing

Music publishing involves the acquisition of rights to, and licensing of,
musical compositions (as compared to recordings). Vivendi Universal enters into
agreements with composers and authors of musical compositions for the purpose of
licensing the compositions for use in sound recordings, films, videos and by way
of live performances and broadcasting. In addition, Vivendi Universal licenses
compositions for use in printed sheet music and song folios. Vivendi Universal
also licenses and acquires catalogues of musical compositions from third parties
such as other music publishers and composers and authors who have

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retained or re-acquired rights. In August 2000, Vivendi Universal purchased
Rondor Music International, Inc., a major independent music publishing company,
and Forerunner Music Catalogue, a classic contemporary country music catalogue.

Vivendi Universal is one of the world's largest music publishers. Its
publishing catalogue includes more than 800,000 titles that it owns or controls,
including songs such as : "I Wanna Hold Your Hand", "Candle in the Wind", "I
Will Survive" and "Sittin' on the Dock of the Bay". Among the artists and
songwriters represented are ABBA, George Brassens, Bon Jovi, Eddy Mitchell,
Andre Rieu, Shania Twain, Andrew Lloyd Weber and U2; composers represented
include Leonard Bernstein, Elton John, Bernie Taupin and Henry Mancini.

Manufacturing and Other Facilities

In connection with its music entertainment activities, Vivendi Universal
owns manufacturing facilities in the United States, Germany and the United
Kingdom and office buildings and warehouse facilities in various countries. In
addition to its wholly owned facilities, it also owns a manufacturing facility
in the United States through a joint venture. Where Vivendi Universal does not
own property, it leases warehouses and office space.

Recent Developments

On April 6, 2001, Vivendi Universal entered into an agreement to acquire
all the outstanding shares of EMusic.com Inc. pursuant to a cash tender offer at
$.57 per share. EMusic sells music downloads, both individually and via
subscription, and operates a family of music-oriented web sites, including
Rollingstone.com, EMusic.com and DownBeat.com. The acquisition was completed on
June 14, 2001.

On May 20, 2001, Vivendi Universal entered into an Agreement and Plan of
Merger with MP3.com, Inc., the Internet's premier music service provider,
pursuant to which it will acquire MP3.com, Inc. for $372 million in a combined
cash and stock transaction. The acquisition is subject to customary closing
conditions, including regulatory approval.

TV & Film

Vivendi Universal's TV & Film division is comprised of CANAL+ and Universal
Studios Group. Vivendi Universal's TV & Film division:

- produces and distributes films worldwide in the theatrical, home video
and television markets;

- produces and distributes episodic television and made-for-television
programming;

- operates pay television channels and services;

- develops digital television technology;

- develops Internet services and interactive services;

- licenses merchandising rights and film property publishing rights;

- owns and operates theme parks, entertainment complexes and specialty
retail stores; and

- engages in certain other activities through its ownership of the joint
venture and equity interests described below.

Motion Picture and Television Production and Distribution

Production, Marketing and Distribution. Through CANAL+, Universal Studios,
Inc. and StudioCanal (a majority owned subsidiary of CANAL+), Vivendi Universal
is one of the leading film production studios in Europe and the United States.
Vivendi Universal produces feature-length motion pictures intended for initial
theatrical exhibition, videocassette and DVD distribution and television
programming. Major motion pictures produced over the past several years include
Erin Brockovich, Gladiator, Dr. Seuss'
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How the Grinch Stole Christmas, The Boy's Room, The Mummy, The Mummy Returns,
Billy Elliot, U-571, Meet the Parents and Notting Hill. In addition, Vivendi
Universal produces animated and live action children's and family programming
for networks, basic cable and local television stations as well as home video.

The production/distribution cycle represents the period of time from
acquisition of a property through distribution. The length of the cycle varies
depending upon such factors as type of product and release pattern. Production
generally includes four steps: acquisition of story rights, pre-production,
principal photography and post-production. Production activities for theatrical
films produced by Universal Pictures (a division of Universal City Studios,
Inc., a wholly owned subsidiary of Universal Studios) are generally based at
Universal City, California, or on location. The production facilities in
Universal City are also leased to third parties. Some motion pictures and
television products are produced, in whole or in part, at other locations both
inside and outside the United States and Europe.

The arrangements under which Vivendi Universal produces, distributes and
owns motion pictures vary widely. Other parties may participate in varying
degrees in revenue or other contractually defined amounts. Vivendi Universal
generally controls worldwide distribution or specified rights with respect to
its motion pictures. Pursuant to contractual arrangements, Vivendi Universal
distributes for, or services distribution for, third parties.

Generally, Vivendi Universal distributes motion pictures in the theatrical,
home video and pay television markets. It then makes motion pictures available
for broadcast on free television and basic cable distribution throughout the
world. The theatrical license agreements with theater operators are on a
theater-by-theater, picture-by-picture basis, and fees under these agreements
are generally a percentage of the theater's receipts with, in some instances, a
minimum guaranteed amount.

Universal Studios, through wholly owned subsidiaries, distributes its
theatrical product in the United States and Canada to motion picture theaters.
Its theatrical distribution throughout the rest of the world is primarily
conducted through United International Pictures, or UIP, which is equally owned
by Universal Studios International B.V., an indirect wholly owned subsidiary of
Universal Studios, or USIBV, and Paramount Pictures International. Television
distribution of its approximately 24,000 episode library in the United States is
handled by USANi LLC, a subsidiary of USA Networks, Inc., and throughout the
rest of the world primarily by USIBV. USIBV licenses television products
produced by USANi LLC in international markets. Videocassettes and DVDs are
distributed in the United States and Canada by wholly owned subsidiaries of
Universal Studios. Outside the United States and Canada, Universal Studios'
videocassettes are primarily distributed by Universal Pictures International
B.V., an operating unit of Universal Studios, while its DVDs are primarily
distributed by Columbia/Tri-Star Home Video under a short term sub-distribution
arrangement that ends in 2002. Some DVD rights revert to Universal Studios
before then.

StudioCanal distributes its theatrical products throughout Europe.
StudioCanal has a pan European network in theater distribution with a presence
in Spain with Sogepaq, in Germany with Tobis-StudioCanal, in France with BAC
Distribution (and its subsidiary Mars Distribution), in the United Kingdom with
Pathe UK, in Holland with FU Works and in Italy with RAI Cinema. StudioCanal
distributes its motion pictures in the home video, free and pay television
markets using both its own sales force and third party distributors. StudioCanal
also distributes newly released home video and DVD products in France through
Universal Pictures Video. Outside France, StudioCanal contracts with video
distribution partners.

Film Rights Management. Vivendi Universal sells television rights to
feature films in its extensive library of 8,600 titles, the second largest
catalogue in the world. StudioCanal has a filmed entertainment library of 5,000
movies of a variety of genres, broken down evenly among French, European and
American productions. Some of the titles in the StudioCanal library include
Terminator 2, La Grande Vadrouille, Basic Instinct, Total Recall, La Grande
Illusion, The Graduate and This Is Spinal Tap. Universal Studios controls rights
to films in its extensive library of approximately 3,600 titles. These rights
include recent films such as The Mummy Returns, Bridget Jones's Diary, Hannibal,
Gladiator and Erin Brockovich, and
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many Oscar-winning library titles, including To Kill A Mockingbird and
Schindler's List. Universal Studios' television library includes Columbo, Magnum
PI, Murder She Wrote, Miami Vice, Rockford Files, Knight Rider, Incredible Hulk,
Quantum Leap and Quincy.

Pay Television Channels and Services

Channel Production. CANAL+ is Europe's leading pay television company with
over 15.3 million subscribers. It is number one in Europe in digital television
with 5.3 million subscribers to its digital services. CANAL+ is also a leading
supplier of technology for digital television, such as software that encrypts
television signals to provide conditional access (MediaGuard) and an operating
system for managing multimedia applications for television (MediaHighway).

- Premium Channels. CANAL+'s premium channels offer programming with a
unique mix of recently-released feature films (300 first-run movies each
year) and sports events such as the French First Division soccer
championship and the English Premier League soccer championship. CANAL+
provides locally tailored versions of its French premium channels in 11
other countries.

- Theme Channels. CANAL+ is the number one European publisher of theme
channels broadcast via cable and satellite. It owns a 27.4% interest in
MultiThematiques, Europe's leading producer of "theme channels", channels
aimed at niche viewers. Vivendi Universal indirectly owns an additional
9.1% of MultiThematiques. MultiThematiques has 30 channels in 14
countries with a total of over 20 million subscriptions. MultiThematiques
produces such successful channels as Planete, Canal Jimmy, Cinecinemas,
Cinecinefil, Cine Classics and Seasons. In addition, the CANAL+ thematic
offerings encompass Universal Studios' branded channels which reach
almost 24 million subscribers in 30 countries. Universal Studios' branded
channels include: The Sci-Fi Channel U.K., USA Network Latin America,
13th Street and Studio Universal.

- Multi-Channel Package Distribution. CANAL+ began offering channels via
satellite in 1992. These channels, some of which are affiliated with
CANAL+ and some with other producers, are today part of the
CANALSATELLITE digital package. This package, which features over 60
French-language channels, radio stations and interactive services, had
1.8 million subscriptions in France at the end of 2000. CANAL+ also has
over 3.1 million subscribers for the digital multiple-channel packages it
provides outside of France. It offers digital direct-to-home services
with partners in Spain, Italy, Poland and Scandinavia.

- Sports Rights and Management. CANAL+ operates a dedicated subsidiary
called SPORT+ through which it acquires and markets international rights
to major sporting events. SPORT+ holds international rights to the French
First Division soccer championship, the English Premier League soccer
championship, the Spanish First Division soccer championship and "Coppa
del Rey", the Portuguese soccer championship and "Taca de Portugal",
games from the Italian Class A soccer league and "Coppa Italiana",
qualifying rounds for the 2002 World Cup for South American countries and
the "Coppa Libertadores". SPORT+ also holds worldwide rights to all
International Handball Federation matches, European rights to
International Basketball Federation matches and international rights to
the French Elite 1 rugby championships. SPORT+ has no other material
broadcasting rights.

Digital Television Technology. Vivendi Universal has developed
leading-edge technology for digital television, including MediaGuard, a software
program used to encrypt television signals to provide conditional access, and
MediaHighway, an operating system used to manage interactive and multimedia
applications through television set-top boxes. Vivendi Universal's technology is
used in 8.6 million digital set-top boxes in over 15 countries, making it the
European leader in digital television technology.

On-line Services and Internet Access. CANAL+ formed CanalNumedia in
January 2000 to develop and leverage synergies among the various CANAL+ web
sites in Europe. CanalNumedia is responsible for producing entertainment sites
in Europe and sports and cinema content for the dedicated portals.

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Merchandising. The rights to use the characters, titles and other material
and rights from television and theatrical films and other sources are licensed
to manufacturers, retailers and others by Universal Studios.

USA Networks, Other Equity Interests and Certain Joint Ventures. Universal
Studios holds an effective 43% equity interest in USA Networks through its
ownership of common stock and Class B common stock of USA Networks and shares of
USANi LLC, which Universal Studios can exchange for common stock and Class B
common stock of USA Networks. USA Networks primarily engages in electronic and
online retailing, network and first-run syndication television production,
domestic distribution of its and Universal Studios' television productions and
the operation of the USA Network and Sci-Fi Channel Cable Networks.

Universal Studios had an approximate 26% interest in Loews Cineplex
Entertainment Corporation, which exhibits theatrical films principally in the
United States and Canada. On February 15, 2001, Loews Cineplex and all of its
wholly owned U.S. subsidiaries filed voluntary petitions to reorganize under
Chapter 11 of the U.S. Bankruptcy Code. On June 28, 2001, Universal Studios and
USIBV sold their interests in Loews Cineplex to Goldman, Sachs & Co. for an
aggregate purchase price of $1.00. Vivendi Universal intends to use the tax loss
from the sale to offset gains on other capital transactions.

Universal Studios also has a 49% interest in United Cinemas International
Multiplex B.V. and Cinema International Corporation N.V., which both operate
motion picture theaters outside of the United States and Canada, and also has a
49% interest in UIP, which distributes theatrical motion pictures outside of the
U.S. and Canada.

Vivendi Universal owns 39.34% of UGC, one of the leaders of the movie
industry in Europe. UGC operates in three business segments: ownership and
operation of movie theaters, big-screen advertising and the production and
distribution of films.

In addition to the wholly owned themed channels discussed above, Universal
Studios has equity interests in a number of international joint venture
channels, including, among others:

- USA Network Brazil, a joint venture with Globosat in Brazil. This basic
service channel reaches approximately 2.5 million subscribers and
features primarily the same programming as USA Network Latin America;

- HBO Asia, a pan-regional joint venture in Asia with AOL Time Warner, Sony
and Paramount. The channels included under this joint venture reach
approximately six million subscribers and feature the current theatrical
releases from the joint venture partners;

- Latin America Pay TV, a pan-regional joint venture in Latin America with
Paramount, Fox, MGM and Sacsa (an Argentinean holding company). The
channels included under this joint venture reach approximately 10 million
subscribers and feature current theatrical releases of the joint venture
partners; and

- Premiere Movies Partnership, an Australian joint venture with Fox, Sony,
Paramount and TCI.

Recreation

Universal Studios owns and operates Universal Studios Hollywood, the
world's largest combined movie studio and movie theme park, located in Universal
City, California. Adjacent to Universal Studios Hollywood is Universal Studios
CityWalk, an integrated retail/entertainment complex that offers shopping,
dining, cinemas and entertainment.

Universal Studios has a 50% interest in Universal City Development
Partners, LP, a Delaware limited partnership based in Orlando, Florida, which
resulted from the January 6, 2000 merger of Universal City Florida Partners,
Universal City Florida, Ltd. and Universal City Development Partners. The joint
venture limited partnership owns Universal Studios Florida, a combined movie
studio and movie theme park, Universal's Islands of Adventure, a second theme
park with five unique islands, and Universal Studios

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CityWalk, a complex that offers shopping, dining, cinemas and entertainment.
Universal City Development Partners also has an indirect 25% interest in a joint
venture (UCF Hotel Venture, a Florida general partnership) that has developed or
is developing three hotels adjacent to the Orlando theme parks. The first hotel,
the Portofino Bay Hotel, a Loews hotel, opened in September 1999. The second
hotel, the Hard Rock Hotel, opened in January 2001 and the Royal Pacific Resort,
a Loews hotel, is expected to open in Summer 2002. The two theme parks,
Universal Studios CityWalk, and these hotels together comprise Universal
Orlando, the newest Orlando multi-day entertainment resort. Universal Orlando
owns and is developed on approximately 800 acres. Universal Studios also owns
Wet n' Wild, a water park located near Universal Orlando.

On March 31, 2001, Vivendi Universal opened Universal Studios Japan in
Osaka. Universal Studios Japan is owned by USJ Co. Ltd., in which Universal
Studios holds a 24% interest, and is located on 133 acres of land leased by
certain USJ Co. Ltd. shareholders.

Universal Studios also owns a 37% interest in, and manages, Universal
Studios Port Aventura, a theme park located on the Mediterranean coast of Spain
near Barcelona.

Publishing

Vivendi Universal Publishing (formerly Havas), Vivendi Universal's wholly
owned subsidiary, is one of the leading publishers providing content across
multiple platforms, including print, multimedia, on the wired Internet and to
PDAs via WAP technology. Vivendi Universal Publishing operates through five
divisions: Games, Education, Literature, Health and Information. In addition,
Vivendi Universal Publishing Services provides logistics and distribution
support to all of Vivendi Universal's businesses and operates as a book sales
company.

Games Division

Vivendi Universal Games is fast becoming one of the world leaders in the
multimedia games market on all platforms (PC, consoles such as Playstation 2,
X-Box and Game Boy Advanced, and on the Internet). Vivendi Universal develops
its games under the Sierra, Blizzard and Universal Interactive Studios brands,
including Diablo II, Starcraft, Half-Life, King's Quest, Crash Bandicoot,
Gladiator and Spyro the Dragon. Its games division also includes Flipside.com.

Education Division

Vivendi Universal Education is a major global educational publisher in all
media (academic and semi-academic books, CD-ROM, the Internet and WAP). Its
education division ranks among the leading companies in the education market and
operates in four areas:

Schools. Vivendi Universal holds leading positions in Spanish-speaking
countries with Anaya in Spain and Aique in Argentina, and in Portuguese-speaking
areas with Atica and Scipione in Brazil. In France, through Bordas, Nathan and
Retz, it offers a full range of pedagogical methods to teachers. Their academic
and semi-academic manuals are designed to be used by students throughout their
education and cover substantially all fields of knowledge. In the area of
multimedia, Vivendi Universal has played a pioneering role in digitalizing
content. Vivendi Universal recently launched the first prototype of an
"electronic schoolbag" in France through Nathan and Bordas. This innovation
provides the benefits of the latest technologies (sound, images and videos) and
a direct link between schoolbooks and reference tools. Schoolbooks can be
customized, thereby encouraging a different approach to education. Trials for
the electronic schoolbag were started in December 2000 in collaboration with the
French Department of Education in two classrooms (using content from history and
geography manuals, life and earth sciences and the Larousse dictionary) and are
continuing with other classes.

Youth. Vivendi Universal publishes educational materials for children and
adolescents both in printed form and on multimedia. It is the leading provider
of interactive educational products in Europe with brands that include Knowledge
Adventure and Coktel and titles including Jumpstart.

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Life-long Learning. Vivendi Universal is a leader in adult education in
France, especially in human and social sciences with Nathan University and
Armand Colin, and it is also very active in Spain. The company has plans to
strengthen its positions in the global market, in particular through Syracuse, a
brand developed in the United States.

Reference. Vivendi Universal is one of the leading reference publishing
companies in the world. It publishes a wide range of dictionaries and
encyclopedias, published in France by prestigious publishers such as Larousse,
one of the best known publishing brands in the world, or Le Robert, and outside
France by Harrap and Chambers. In the area of multimedia, Larousse Multimedia
offers Kleio, available on CD-ROM and DVD-ROM, which now represents the largest
volume of encyclopedic content on the Internet through the web site Kleio.fr.

In February 2001, Vivendi Universal launched Education.com. This Internet
portal targets children, parents and teachers worldwide and offers a rich and
varied content which is exciting, informative, entertaining and educational and
includes most of the company's educational activities.

Literature Division

In France, Vivendi Universal is the leading publisher of literature
addressed to the general public. It publishes works through a variety of well
known publishing houses including Robert Laffont, Plon-Perrin,
Presses-Solar-Belfond, La Decouverte-Syros and Presses de la Renaissance.

Vivendi Universal 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, it has a strong presence in French,
Spanish and English language books geared to children and adolescents, both in
fiction and nonfiction. It holds the exclusive right to publish Star
Wars-related books in France until 2006.

Vivendi Universal ranks second in France in the paperback market with four
well-known brands including: Pocket and its catalog of 2,500 titles including
some 350 new titles per year; Pocket Jeunesse with over 440 titles; 10/18 which
covers foreign literature; and Fleuve Noir (detective novels). Its authors
include San-Antonio, Lilian Jackson Braun, Armistead Maupin and Isabelle Wolff.

Health Division

With brands like Le Quotidien du Medecin, Vidal, MIMS, Masson, Doyma and
Staywell, Vivendi Universal is one of the leaders worldwide for healthcare
information. Its Health Division offers a full range of products to health care
professionals and patients using a variety of media.

Vivendi Universal provides healthcare users with quality information
updated on a continuous basis in five areas: journals and customized
communication, consumer healthcare media, drug information systems, practice
management services (planners, organizers and prescription software), and
academic and scientific publishing products.

In January 2001, in an effort to enter the large English health market,
Vivendi Universal acquired the Medicine Publishing Group in the United Kingdom
which has various publications aimed at almost 25,000 subscribers.

Information Division

Vivendi Universal's Information Division holds leading positions in three
business areas:

B2B. Vivendi Universal offers professionals a complete range of
services and products such as magazines, books, trade fairs and online
services. In this business area it is one of Europe's major players.
Vivendi Universal brings together Exposium, one of France's leaders in
trade exhibitions, and four press groups: Group Moniteur, which specializes
in the building industry, local authorities and energy; Groupe Tests, which
specializes in computers, electronics and new technologies; Groupe

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Industrie Services Info, which covers the manufacturing, distribution,
tourism and catering industries; and France Agricole, a company
specializing in agri-business trade magazines.

Consumer. Vivendi Universal is a major competitor in the consumer
information business sector with three press groups in France: Group
Express, one of the two leading news magazines in France; Group L'Etudiant
which offers publishing, exhibitions and multimedia built around its
magazine L'Etudiant; and Groupe Expansion, one of the leading companies in
France for financial news. Its recruitment site, Cadres Online, was the
number one recruitment site in 2000, offering 75,000 jobs from 23 important
press publications.

Local Transactions. Vivendi Universal Publishing's subsidiary,
Comareg, publishes 220 newspapers and magazines in Europe which focus on
local transactions. Comareg is one of France's leading companies both for
free sheets (155 publications representing a total circulation of 15
million per week) and for classified advertisements. Its web site,
bonjour.fr, had over 11 million pages viewed in March 2001.

In connection with Vivendi Universal's pending acquisition of Houghton
Mifflin Company, it intends to sell each of the units in its B2B and local
transactions areas. See "Recent Developments" below in this subsection.

Vivendi Universal Publishing Services

Vivendi Universal Publishing Services provides sales, marketing, promotion
and distribution services to Vivendi Universal's publishing divisions and
subsidiaries. It also provides Vivendi Universal Publishing services for
centralized purchasing of such items as computer equipment and paper, implements
group information technology policies, and manages cross-division projects such
as the euro.

Marketing Channels

Vivendi Universal Publishing markets through both retail channels and
public administration channels. In the field of education, Vivendi Universal
Publishing interacts with national and local authorities. In the field of
literature and games, Vivendi Universal Publishing markets through all major
retail channels.

Recent Developments

On June 1, 2001, Vivendi Universal announced that it had reached an
agreement in principle to acquire all the outstanding shares of Houghton Mifflin
Company, a leading U.S. educational publisher, pursuant to a cash tender offer
at $60 per share. The total consideration approximates $2.2 billion, including
the assumption of Houghton Mifflin's average net debt of $500 million. The
tender offer expired on July 6, 2001, and approximately 90% of the outstanding
shares of Houghton Mifflin were tendered. Vivendi Universal accepted, and has
paid for, all tendered shares. Vivendi Universal expects to complete its
acquisition of Houghton Mifflin in August 2001.

Telecommunications

Vivendi Universal provides a broad range of telecommunications services,
including mobile and fixed telephony, Internet access and data services
transmission.

Through Cegetel Group, a company in which Vivendi Universal holds a 44%
interest, it is the leading private operator of fixed and mobile telephony in
France. Through its wholly owned subsidiary, Vivendi Telecom International, or
VTI, Vivendi Universal develops telecommunications activities outside France.

Cegetel Group

Vivendi Universal founded Cegetel Group in 1996. The original name of the
company, Cegetel, was changed to Cegetel Group on March 31, 2001. Vivendi
Universal currently owns 44% of Cegetel Group's

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outstanding equity: 9% of the shares directly and 35% of the shares indirectly
through its 70% ownership interest in Compagnie Transatlantique de
Telecommunications, or Transtel, which owns 50% plus one of Cegetel Group's
shares. SBC International, Inc., or SBCI, and SBCI International-Societe de
Radiotelephonie Cellulaire, Inc., or SBCI-SRC, together own the remaining 30% of
Transtel.

Vivendi Universal appoints five of Cegetel Group's nine directors. In
addition to SBCI and SBCI-SRC, which together hold a 15% interest in Cegetel
Group through Transtel, Vivendi Universal's current partners in Cegetel Group
are British Telecom, or BT, which has a 26% stake in the company, and
Mannesmann, a wholly owned subsidiary of Vodafone, which owns 15%. Vivendi
Universal describes below the shareholders' agreement that governs its
participation in Cegetel Group. See "Shareholders' Agreement" below in this
subsection.

In late 2000, Cegetel Group began restructuring its organization to prepare
for anticipated radical changes in the telecommunications market, such as
high-speed transmission via fixed lines (ADSL technology) and mobile lines (GPRS
and UMTS), deregulation and access to local traffic through the unbundling of
the local loop and more widespread use of mobile phones. On January 1, 2001, two
new business divisions -- "Fixed Telephony" and "Mobile Telephony" -- were
formed to replace the "professional and consumer" and "business" divisions. The
"Network and Information Systems" division was retained. Cegetel Group divides
its activities into the following divisions:

Fixed Telephony Division and Internet Services.

- Cegetel 7. During 2000, Cegetel Group offered long distance and
international fixed telephone service through Cegetel 7, a company 80%
owned by Cegetel Group and 20% owned by Telecom Development, or TD, a
company that is, in turn, owned 49.9% by Cegetel Group and 50.1% by
Societe Nationale des Chemins de Fer Francais, or SNCF, the state-owned
French railway company.

- Cegetel Entreprises. During 2000, Cegetel Group operated its business
marketing division through Cegetel Entreprises, a company with the same
ownership structure as Cegetel 7. 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, web site hosting services, development of e-commerce
sites and intranet management; and

-- local telephony access through fiber optic loops.

On March 31, 2001, Cegetel 7 was merged with Cegetel Entreprises and
renamed "Cegetel", a company 80% owned by Cegetel Group and 20% by TD.

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, in 2000, in preparation for the
unbundling of telecommunications services in 2001 and 2002, Cegetel conducted
pilot projects in Monaco and Paris to provide high speed Internet Access via the
traditional telephone network (Asymetric Digital Subscriber Line).

The backbone of all Cegetel Group telecommunications services is TD's
long-distance telecommunications network. TD owns, operates and maintains an
entirely digital telecommunications network throughout France, consisting of
18,000 kilometers of high capacity fiber optic cables. The TD Network is now
connected to more than 300 local France Telecom switches located throughout
France, versus 176 at the end of 1999, and to the various Cegetel Group networks
(mobile telecommunications, data network and fiber optic local loops).

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Mobile Telephony Division. Cegetel Group offers mobile telephone services
through its 80% owned subsidiary Societe Francaise de Radiotelephone, or 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 more than 100 countries.

SFR operates a dense, high-quality mobile telecommunications network based
on the Global System for Mobile Communications, or 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. In addition, since December 2000, SFR has been operating
telecommunications on its General Packet Radio System, or GPRS network, which
permits greater bandwidth communications. This technology is expected to
increase the speed of SFR's network by a factor of 10 by the end of 2001.

Network and Information Systems Division. Cegetel Group's communication
networks (GPRS) are operated through its Network and Information Systems
Division.

Shareholders' Agreement. The governance of Cegetel Group is subject to a
shareholders' agreement to which Vivendi Universal is a party, along with BT,
Mannesmann (Vodafone Group), SBCI and Transtel. Among other things, the
shareholders' agreement provides that:

- None of the Cegetel Group shareholders can conduct telecommunications
business in France or its overseas departments and territories other than
through Cegetel Group. This provision does not apply to the operation of
Internet web sites.

- Cegetel Group's board of directors has nine members, five of whom are
nominated by Vivendi Universal, 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 Universal and two by SBCI.

- Cegetel Group can take certain actions only if representatives of each of
the Cegetel Group shareholders consent. These actions include:

-- making any change in the scope of its business;

-- changing any provision of its by-laws or amending any shareholders'
agreement between it, on the one hand, and any of the Cegetel Group
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
Group or selling Cegetel Group 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 Transtel or
Vivendi Universal obtaining a greater interest in Cegetel Group than that
held by BT.

- If all of BT, Mannesmann and Transtel dissent, Vivendi Universal cannot
cause Cegetel Group to:

-- create or acquire shares in any entity in which Cegetel Group 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.

- The Cegetel Group shareholders' agreement contains a number of
limitations on the transfer of Cegetel Group shares.

Vivendi Telecom International

In addition to Vivendi Universal's investment in Cegetel Group, it has also
invested in a number of telecommunications companies outside of France through
VTI. These companies have a total of 4.7 million clients of which 3.9 million
are for mobile telephone activity.

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Egypt. Vivendi Universal holds a 7% interest in Misrfone, an international
consortium with a 45% share of Egypt's telecommunications mobile market.

Hungary. Vivendi Universal operates several regional companies in Hungary
through its wholly owned subsidiary, Vivendi Telecom Hungary, that have
monopolies for voice telephony on fixed networks.

Kenya. Vivendi Universal holds a 40% interest in KenCell, a consortium
formed with Sameer Group that was awarded Kenya's second GSM license.

Kosovo. Monaco Telecom has successfully installed and is now operating
Kosovo's GSM system.

Monaco. Vivendi Universal holds a 51% interest in Monaco Telecom, the
Principality's dominate telecommunications operator.

Morocco. Vivendi Universal holds a 35% interest in Maroc Telecom.

Poland. Vivendi Universal holds a 49% interest in Elektrim
Telekomunikacja, or Elektrim, a company that owns 51% of Polska Telefonia
Cyfrowa, Poland's largest GSM mobile operator and 100% of El Viv Telecom
(formerly Bresnan), a Polish cable television operator and a high-speed Internet
access provider.

Spain. Vivendi Universal is a major shareholder in Xfera, a consortium
which obtained a 30 year Universal Mobile Telecommunications Standard, or UMTS,
license in Spain.

Recent Developments

In March 2001, Cegetel Group finalized the terms of the disposition of its
interest in AOL CompuServe France, in which it owned a 55% interest with CANAL+
(66% of the stake being owned by Cegetel and 34% by CANAL+), pursuant to an
agreement under which the companies will exchange their stake in the AOL France
joint venture for junior preferred shares in AOL Europe. The agreement provides
that AOL Time Warner will be able either to redeem the preferred shares with
cash, or to exchange them for publicly traded AOL Europe common stock or AOL
Time Warner stock by April 2003.

On January 31, 2001, SFR applied for a third generation mobile UMTS
license. This license will permit SFR to provide mobile broadband and Internet
services to its customers.

On May 31, 2001, the Autorite de Regulation des Telecommunications, or ART,
the French regulator, decided that SFR could be awarded a UMTS license by the
French government.

In the course of the partial privatization of Maroc Telecom, Vivendi
Universal has been designated strategic partner to purchase 35% of the national
telecommunication operator in Morocco for 2.3 million euros. The closing took
place in February 2001 and Vivendi Telecom International now holds a stake of
35% in Maroc Telecom. As a leader in telecommunication in Morocco, Maroc Telecom
operates 1.4 million fixed lines and owns 2.6 million GSM clients.

On June 28, 2001, Vivendi Universal announced that it had signed a
Memorandum of Understanding that will result in it increasing its stake in
Elektrim from 49% to 51%.

Marketing Channels

To market its services, Cegetel Group operates different sales and
distribution channels for its targeted customers, consisting of indirect
distribution (for example, retail and large distributors) for mobile services to
the residential customers, direct marketing for fixed services to residential
customers, specialized indirect distribution for both fixed and mobile services
to small business customers, and direct sales forces for services to corporate
customers.

Internet

Vivendi Universal's Internet business includes its strategic Internet
initiatives and new online ventures. Utilizing advanced digital distribution
technology, it develops e-commerce, e-services and thematic portals

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that offer access to the Internet through a variety of devices, including mobile
phones, PDAs, interactive TV and computers.

Vivendi Universal Net, a wholly owned subsidiary, manages Vivendi
Universal's Internet business and focuses on four major objectives:

- to establish Vizzavi as the leading European portal;

- to develop thematic portals leveraging content, technology, brand equity
and subscriber bases of the Vivendi Universal group;

- to launch Internet service providers which exploit Vivendi Universal's
critical mass; and

- to invest in and develop promising new ventures which relate to and
enhance the value of Vivendi Universal's businesses.

Vivendi Universal Net manages Vivendi Universal Group Internet-related
technological, investment and business development activities, including
defining group Internet strategy and serving as the bridge between Vivendi
Universal's content and new digital technologies.

Vizzavi

Vizzavi, Vivendi Universal's 50/50 joint venture with Vodafone, is a
multi-access Internet portal designed to provide services and content to
customers in a consistent format throughout Europe, across all Internet
platforms, including mobile phones, personal computers, television and PDAs. It
combines Vivendi Universal's content and reach in pay-TV access with Vodafone's
reach in mobile telephone access. Vizzavi is the default home page for Vivendi
Universal and Vodafone's subscriber base of over 80 million. Vizzavi's existing
services include e-mail, address book and calendar, as well as theme channels
covering news, sports, weather, games and general information. The mobile and PC
portal has been launched in the U.K., France and the Netherlands and will expand
to other European markets in 2001. Access through interactive TV will follow.

I-France

I-France, Vivendi Universal's wholly owned subsidiary, has a complementary
positioning with Vizzavi. It creates portals targeting advanced Internet users,
offering services (including multi-platform e-mail, web site creation and
hosting, and shared virtual office tools) and themed content. It has portals in
France, Switzerland, Belgium, Canada and Spain.

Thematic Portals

Vivendi Universal creates leading Internet portals based on thematic
categories by leveraging its content-related assets, brands and know-how. Each
branded category of web-based content and services has been 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 these thematic
portals is enhanced by Vizzavi, which features these portals on a preferred, but
not exclusive, basis.

Flipside. Vivendi Universal's subsidiary, Flipside, Inc., is a leading
worldwide interactive entertainment company. In February 2001, following its
acquisition of Uproar Inc., a company specializing in interactive entertainment,
Flipside became a world leader in free, multi-platform online games providing
both single and multi-player PC content as well as wireless games. Flipside is
among the top 10 U.S. web sites, all categories combined, in total time spent
online and among the top 20 worldwide.

Scoot.com plc. Vivendi Universal holds a 22.4% interest in Scoot, a
multi-platform "infomediary" offering location-specific directory services and
enabling transactions between businesses and customers. Vivendi Universal has
also formed a 50/50 joint-venture with Scoot to expand Scoot's business model in
Europe. Scoot operates in the U.K., the Netherlands, Belgium and, since early
2001, in France. Scoot is expected to launch across the rest of Europe over the
next three years.

Canal Numedia. Canal Numedia develops and leverages synergies among
various CANAL+ web sites in Europe. It is responsible for producing
entertainment sites in Europe and sports and cinema content for dedicated
portals. Canal Numedia has created or acquired, and manages about 20 sites to
date.
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A strong brand policy is being developed around the leading CANAL+
themes -- sports (zidane.fr and fcna.fr), film (allocine.fr) and news
(itelevision.fr).

Divento. Vivendi Universal owns 75% of Divento, a European cultural portal
providing editorial coverage and ticketing for major events and institutions.

Internet Support Services

e-Brands. This wholly owned company offers a variety of services to its
customers that commercialize their brand names over the Internet and mobile
telephony. These include connectivity solutions (Internet access, SMS and WAP),
third-party billing services (flat or metered), customer relationship management
solutions and database analysis. In addition, e-Brands offers turnkey solutions.
The seven market segments that e-Brands is currently addressing are: finance,
media, service, distribution, industry, communities and dot-coms. The company
operates in Europe.

Ad 2-One. Ad 2-One operates in Europe and leverages its customers' web
site traffic and user databases through customized, multi-platform
online-marketing tools ranging from enhanced banners to sponsored,
direct-marketing solutions.

Venture Capital Activities

Viventures. Vivendi Universal has invested in two Viventure funds. The
first, Viventures 1, is a venture capital fund that provides financing in the
United States, Europe and Asia and strategic and financial guidance to promising
information technology and telecommunications start-up companies. The second,
Viventures 2, has over 30 corporate and financial investors around the world
including SG Asset Management, British Telecom, Siemens Venture Capital, Cisco
Systems, IBM, GE Capital, Goldman Sachs, Singapore Power Telecom, China
Development Industrial Bank and Marubeni.

SoftBank Capital Partners (SBCP). Vivendi Universal has invested in SBCP,
a $1.5 billion late-stage Internet venture capital fund managed by Softbank
(49.6%). SBCP's investments are mainly concentrated in the business to consumer
sector.

Vivendi Universal is the fund's largest minority shareholder with an
investment commitment of $240 million, which constitutes 16% of the fund. As of
December 31, 2000, $216 million has been called by SBCP, out of which $200
million is already invested.

@viso. @viso is Vivendi Universal's joint venture with Softbank created to
support Internet companies already established in the U.S. to launch and gain
rapid presence in Europe. @viso aims to provide these incubated companies with
business services, financing and access to strategic partnerships. @viso's
investments in U.S. companies have stopped due to the difficult economic
environment for Internet companies. Some portfolio companies have been rolled up
or shut down after the decision made by their U.S. parent companies to refocus
their activity in the U.S.

Marketing Channels

Vivendi Universal Net markets its web sites together in order to increase
the efficiency of acquisition and retention of customers and to reduce costs. It
operates in various marketing fields, such as media buying, marketing research,
customer relationship management and performance reporting.

Competition

Music

The music entertainment industry is highly competitive. The profitability
of a company's recorded music business depends on its ability to attract,
develop and promote recording artists, the public acceptance of those artists
and the recordings released in a particular period. Universal Music Group
competes for creative talent both for new artists and those artists who have
already established themselves through another label. Universal Music's
competitors are mainly the following major record companies:

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EMI, Bertelsmann Music Group, Warner Music Group and Sony Music Entertainment.
Universal Music also faces the competition from independents such as Zomba.
Following a pattern established in the United States, European retailers have
begun to consolidate, and in Europe increasing quantities of product is being
sold through multinational retailers and buying groups and other discount
chains. This has increased competition for shelf space among the recorded music
companies. The recorded music business continues to be adversely affected by
counterfeiting, piracy and parallel imports, primarily in Eastern Europe, Asia
and Latin America, and may be adversely affected by the ability to download
quality sound reproductions from the Internet without authorization. As part of
its response to these developments, Vivendi Universal, through its subsidiary
Universal Music Group, allied with Sony Music Entertainment to create a 50/50
joint venture named pressplay (formerly known as Duet). The joint venture
pressplay will develop and implement an on-demand music subscription service
that will offer customers a broad range of online music while respecting
artists' rights.

TV & Film

As a diversified entertainment company involved in all aspects of the film
and television industry, Vivendi Universal offers movie audiences around the
world a wide array of films, and provides its customers and subscribers the very
best in sports and film programming on all media (movie theaters, TV, PC and
fixed and cellular telephones).

CANAL+. CANAL+ is a leader in the production of pay television channels,
both stand-alone branded channels and theme channels, despite intense
competition in all of these markets. The success of CANAL+ along with theme
channels produced by other U.S. major studios, including MTV and Fox Kids,
indicates that this market will remain highly competitive.

The European multichannel 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). In
Spain, CANAL+ (through Sogecable) competes with Telefonica's subsidiary Via
Digital, Quiero -- the DTT offer -- and various cable operators. 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 sector to compete vigorously. Generally,
competition is country-by-country due to national differences in viewer
preferences.

StudioCanal. StudioCanal is a key European player in production and
distribution of feature films and television programming. Primary competitors in
this market are the U.S. major studios and local production companies and
distributors.

Universal Studios Group. There are eight major competitors in the U.S. and
several independents that compete aggressively against each other in all aspects
of the production, acquisition and distribution of motion pictures
internationally. These companies include Universal Pictures, The Walt Disney
Company, Warner Bros., DreamWorks SKG, Paramount Pictures Corporation,
Metro-Goldwyn-Mayer Studios, Inc., Twentieth-Century Fox Film Corporation and
Sony (through Columbia/Tri-Star and Sony Pictures). The majors and independents
compete against each other for product, talent and revenue from all distribution
markets including theatrical, home video/DVD, pay television, video-on-demand,
pay-per-view, free television, basic cable television and developing new media
for the distribution of film and television content. Given the rapidly changing
marketplace for consumer tastes, year-to-year market share in the U.S. and
non-U.S. territories varies widely by film and distribution markets. Outside of
the U.S. and Canada, Universal Studios distributes its feature films
theatrically through UIP, a joint venture between USIBV and Paramount Pictures
International, and competes with other distributors in the international
theatrical distribution markets. In the year 2000, Universal Pictures ranked
number 2 in U.S. theatrical market share.

Through its Recreation Group, Universal Studios is a leader in themed
entertainment. Universal Studios competes aggressively against other major theme
park operators including The Walt Disney Company, Anheuser Busch Companies,
Paramount Parks (owned by Viacom), Six Flags Theme Parks,
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Inc. and Cedar Fair, L.P., and is third both in the U.S. and internationally
(behind Disney and Six Flags) in annual attendance.

Telecommunications

The consumer telecommunications industry in France is currently very
competitive. Vivendi Universal competes in this industry primarily through SFR,
an 80% owned subsidiary of Cegetel Group. As of March 31, 2001, SFR had 10.6
million mobile customers, giving it a 33.9% share of the French mobile market
measured by volume. SFR's competitors include Orange (France Telecom), which had
a market share of 48.2% in March 2001, and Bouygues Telecom, which had a 17.9%
share. Cegetel 7 had 2.5 million customer lines at the end of 2000, which
Vivendi Universal estimates to represent approximately 6.9% 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 to business customers, Cegetel has
developed a strategy of installing fiber optic and of providing ADSL services
through a beatstream access agreement with the French incumbent operator; ADSL
services will also be provided by local loop unbundling (full access and shared
access). The French business telecommunications sector is highly competitive as
well.

Publishing

Vivendi Universal 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 its biggest single competitor, because it
is, like Vivendi Universal, present in a wide variety of publishing and
multimedia markets around the world. Vivendi Universal's business and
professional division also faces strong competition from Reed Elsevier and
Wolters Kluwer. With regard to Vivendi Universal's scientific and trade
activities, its primary competitors are The Thomson Corporation and Harcourt
Brace. In the educational, reference, general literature and multimedia sectors,
Vivendi Universal competes principally with Hachette, Pearson and Harcourt
Brace.

Internet

The market for web-based services is rapidly evolving and highly
competitive. A number of U.S. market participants such as Yahoo! and AOL have
succeeded in establishing a strong European presence. Vivendi Universal believes
the principal competitive factors in the European market are customer base,
brand recognition, performance, ease of use, value-added services,
functionality, 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.

Research and Development

Research and development in technology plays a critical role in developing
Vivendi Universal's Media and Communications businesses. Mass media and
communications are constantly changing and one must be at the cutting edge of
new technologies to satisfy consumers and remain competitive. Vivendi
Universal's research, development and innovation, or RDI, strategy targets two
main objectives: better performance and lower prices of its products, and the
multiple-access distribution of digitized content.

Vivendi Universal's technologies may be divided into two core categories:

- Network technologies. Network technologies include all of the hardware
and software resources used to interconnect content consumers, producers
and distributors, such as terminals, telecommunications networks and
processing and storage servers.

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- Information system technologies. Information system technologies provide
its content creators, publishers and distributors with the means to
interact with consumers.

Vivendi Universal's current principal RDI projects in the various Media and
Communications business lines include the following:

Content development and publishing

Music. Development of enhanced CD players that allow users to read song
lyrics and provide information about artists -- the "content reference offering
management and architecture" project, or Croma, for music organization and
delivery.

TV & Film. The creation of complementary content and services specifically
for DVD format films.

Publishing. Online delivery of increasingly interactive and networked
games, and the development of e-books and e-school bag.

Interfaces

The design and choice of WAP and multi-device interfaces (for example,
television, Internet, CD and DVD) that will allow Vivendi Universal's content
and services to be accessed on a broad range of computers, mobile phones, PDAs,
televisions and other terminals.

Digital production and distribution

Digital encoding and multimedia formatting and structuring of content,
including: Croma and "content authoring and rendering audio format" (Caraf)
projects, Audio Advanced Coding (AAC) digital encoding and DVD as a music
medium; and image-compression technologies on DVD, audiovisual catalogue
encoding and delivery, and digital cinema.

Digital distribution and rights management, including: Blue Matter project
for distributing protected music over the Internet; image watermarking
technologies; CANAL+ Technologies' encryption and decryption technology; Cegetel
and CANAL+ smart-card protection technologies; active participation in the
Secure Distribution of Music Initiative (SDMI) in collaboration with major
record labels and multimedia device manufacturers; and super-distribution
project for tracking copyright payments when purchasers redistribute purchased
content themselves, as well as setting up and testing of a rights payment
clearinghouse.

Distribution

Physical distribution and logistics, including: mobile networks (setting up
high-bandwidth GPRS networks and preparing and deploying UMTS networks), cable,
fibre-optic, satellite and new media (for example, mini CD-dataplay, e-books and
memory cards); information systems, such as supply chain management, Enterprise
Resources Planning (ERP) and workflow; and terminals, such as mobile telephones,
set-top boxes, televisions, PDAs and computers.

Commercial aspects, including: customer relationship management; payment
systems, such as e-wallet (Magex) and secure Cegetel and CANAL+ payment systems;
relationship marketing and data mining; and activation and delivery of
interfaces used to provide content to end-users. WAP site, web site access,
CANAL+ interface to access programs and services.

Regulation

Music

The recorded music, music publishing, manufacturing and distribution
businesses comprising the Universal Music Group are subject to applicable
national statutes, common law and regulations in each

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territory in which it operates including, without limitation, copyright,
trademark, patent, antitrust, taxation, corporate law and governance,
employment, environmental and health and safety laws and regulations.

In addition, many governmental agencies exercise some degree of oversight
and, at times, may initiate investigations and enforcement proceedings with
regard to industry practices. In the U.S., these agencies include, without
limitation, the United States Department of Justice, the Federal Trade
Commission, the Environmental Protection Agency, or EPA, and the Occupational
Health and Safety Administration, and in the various states, they include the
Attorney General and other labor, health and safety agencies. In other
territories where the Universal Music Group operates, equivalent agencies cover
some or all of the same areas.

In the European Union, Universal Music Group is subject to additional
pan-territorial regulatory controls, in particular relating to merger control
and antitrust regulation.

In a few limited areas, a consent decree or undertaking further regulates
the operation of the Universal Music Group. Specifically, in the United States,
some companies in the Universal Music Group entered into a Consent Agreement in
2000 with the Federal Trade Commission wherein they agreed for seven years that
they will not make the receipt of any co-operative advertising funds for their
pre-recorded music product contingent on the price or price level at which such
product is advertised or promoted.

The Universal Music Group is subject to an undertaking given to the
European Commission arising out of Vivendi's purchase of Seagram, which, for a
limited period, requires that the Universal Music Group shall not discriminate
in favor of Vizzavi (a joint venture between Vivendi Universal and Vodafone) in
the supply of music for downloading and streaming online in the European
Economic Area. An undertaking given in connection with Vivendi's purchase of
Seagram to the Canadian Department of Heritage also requires the Universal Music
Group to continue its investments in Canada's domestic music industry.
Continuing compliance with the consent decree and undertakings mentioned above
do not have a material effect on the business of the Universal Music Group.

TV & Film

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, or 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
audiovisual laws which mandate that (1) no more than 49% of its equity may be
held by any one person and (2) 60% of the films it broadcasts in France must be
European in origin and 40% must be French language films. 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.

The European Community has adopted a variety of Directives that address
television without frontier, intellectual property, advertisement, e-commerce,
mail order and telemarketing. Vivendi Universal does not believe that the
transposition of any of these Directives into French law has had a negative
impact on its business.

Film Production and Distribution. In the United States, the motion picture
production and distribution businesses are not regulated due to protections
given to expressive works under the United States Constitution. There are,
however, many federal, state and local statutes and regulations that are
integral to the businesses and under which the businesses operate including,
without limitation, the copyright, trademark, antitrust, discrimination and
environmental, health and safety laws and regulations. In addition, many federal
and state agencies exercise some degree of oversight and, at times, may initiate
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investigations and enforcement proceedings with regard to industry practices.
These agencies include, without limitation, the United States Department of
Justice, the Federal Trade Commission, the Department of Labor, the Equal
Employment Opportunity Commission, the EPA and the Occupational Health and
Safety Administration and, in the State of California, the Attorney General, the
Department of Toxic Substances and the California Division of Industrial
Relations. In a few limited areas, a consent decree and undertakings further
regulate the operations of Universal Studios. In the United States, the motion
picture distribution and exhibition industries are regulated by the consent
decree in U.S. v. Paramount Pictures, Inc. This consent decree, affirmed in
1950, prohibits certain conduct by film distributors, including price fixing and
product tying, and requires film distributors to license product on a
film-by-film and theater-by-theater basis.

In the European Union, Universal Studios is regulated by an undertaking in
the pay television area which, for a limited period of time, will regulate
certain business with CANAL+. Additionally, it is regulated in the film
distribution area through an undertaking given by UIP, the joint venture through
which Universal Studios distributes its feature films theatrically outside of
the United States and Canada. An undertaking with the Canadian Department of
Heritage also regulates certain operations of Universal Studios Canada Ltd.
Continuing compliance with the laws, regulations, consent decree and
undertakings mentioned in this paragraph do not have a material effect on the
business of Universal Studios.

Theme Parks. Universal Studios operates theme parks around the world in
accordance with applicable health, safety and environmental standards. In the
State of California, recent legislation (effective January 2001) and
implementing regulations, currently under development, will regulate the manner
in which Universal Studios records and reports certain incidents which occur on
permanent amusement rides which result in the death or serious injury of a
guest. It is not anticipated that the full implementation of these new
requirements will have a material effect on the business of Universal Studios.

Telecommunications

The French telecommunications market was largely deregulated in July 1996
under the Loi de Reglementation des Telecommunications, or LRT, and its
supplemental legislation (known as decrets d'application). The LRT is a
"transposition" of European Community directives regarding deregulation into
French law. It does not, however, currently provide companies like Cegetel
and/or SFR equal access to local telephone loops.

The National Regulatory Authority 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, Cegetel Group holds national and global
licenses (such as public network and voice telephony and fixed and mobile
telephony services). Each license carries certain obligations. The terms of its
long-distance license, for example, requires TD to make investments in network
infrastructure. Similarly, SFR's license obligates it to provide nationwide
coverage.

Third generation mobile UMTS licenses have been awarded by most European
governments. On May 31, 2001, the ART decided that SFR could be awarded a UMTS
license by the French government for 32.5 billion francs, barring a drop in the
price decided by the French government.

Except for the way by which the unbundling of the local loop will be
effectively provided by the incumbent French government, Vivendi Universal is
not aware of any other material legislative or regulatory development that is
likely to have a material effect on its telecommunications business.

Seasonality

Because of the nature of its operations and worldwide presence, Vivendi
Universal's business is typically not subject to material seasonal variations.

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Raw Materials

As for Vivendi Universal's music and film businesses, it purchases raw
materials on a worldwide basis from numerous suppliers. It seeks to accumulate
and maintain appropriate inventory levels, qualify new suppliers and develop
production processes that maximize its efficient use of raw materials. Vivendi
Universal undertakes to secure strategic materials through medium-term and
long-term contracts and it has not experienced difficulties in obtaining
sufficient amounts of raw materials in recent years. It does not anticipate such
difficulties in the future. The base raw material of many of its products is
oil, and as such, the price of its raw materials is subject to major
fluctuations in the price of oil. Such fluctuations in the price of its raw
materials, however, does not materially affect the overall cost of its products.
As for its publishing business, Vivendi Universal Publishing is mainly a
publisher of books, magazines and CD-ROMs. In all markets where Vivendi
Universal Publishing operates, it obtains its supply of paper from local
suppliers. The market for paper is global and subject to well-known cycles of
volatility. Vivendi Universal Publishing does not anticipate that the
globalization of its raw material suppliers will significantly impact its
businesses.

ENVIRONMENTAL SERVICES

General

Vivendi Universal effectively owns 63% of the share capital of Vivendi
Environnement. Vivendi Environnement is divided into four major divisions, each
with its own brand identity and area of specialty. Vivendi Water, which is
comprised primarily of Compagnie Generale des Eaux, Vivendi Water Systems and US
Filter, specializes in water and wastewater treatment and systems operation;
Onyx specializes in waste management; Dalkia specializes in energy services
(excluding the sale, production and trading of electricity); and Connex
specializes in transportation services. Vivendi Environnement also owns 49% of
the holding company that controls FCC and thus jointly manages Spain's leading
environmental services company.

Traditionally, in the environmental management services industry, services
have been provided in an uncoordinated manner, each by a different entity. A
provider of energy services, for example, would not also offer water treatment
or waste disposal services, nor would it integrate its services with those of a
customer's other environmental service providers. Public authorities and
industrial companies, moreover, have typically met many of their own
environmental needs without looking to private firms that specialize in these
areas. This situation has changed fundamentally in recent years, however, as
private firms increasingly provide a wide range of integrated environmental
management services to both public and private customers. In addition, as
industrial companies have continued to expand their operations internationally,
their need for an environmental management services provider with global reach
has grown as well. Vivendi Environnement is leading an emerging trend toward the
creation of comprehensive packages of large-scale, customized, integrated
environmental management services to governmental and commercial clients.

Vivendi Environnement offers a wide variety of environmental services to
public authorities and industrial, commercial and residential customers around
the world. It is the leading global provider of these services, defined
collectively as environmental management services. In an increasingly global,
competitive and deregulated marketplace, Vivendi Environnement is one of the few
companies that can meet the needs of customers looking for a single provider to
manage all of their environmental services. Vivendi Environnement offers
tailored solutions and innovative, integrated packages customized to meet the
needs of its customers, most often in the form of long-term contracts. Vivendi
Environnement has been successfully anticipating new trends in a market that has
changed significantly over the past 10 years. Greater awareness of human impact
has led to stricter environmental standards. Both emerging and developed nations
are being forced to deal with the consequences of urbanization in a context of
limited public spending. Industrial customers are outsourcing their
environmental services functions in order to focus on their core businesses.

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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
and then 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 also has a track record of using its technological and
management expertise to deliver high quality service while reducing costs
and 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 Environnement 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 OF ITS BUSINESS
SEGMENTS BY INVESTING 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. Its world-wide presence also allows it to quickly seize
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. 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 ITS 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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Environmental Services Business Segments

Vivendi Environnement is the world's leading provider of environmental
management services in terms of revenue. It believes that it offers a more
comprehensive array of environmental services than any other company in the
world. Vivendi Environnement has the expertise, for example, to supply water to,
and recycle the water used in, a customer's facility, collect, sort and treat
waste generated in the facility, heat and cool it, optimize the industrial
processes used in it and maintain it, all in an integrated service package
designed to address the customer's unique circumstances. Vivendi Environnement
can provide these services to a customer in any combination it desires. Vivendi
Environnement can provide a similarly broad range of services, including
transportation network management, to public authorities.

Water

Vivendi Environnement, through its wholly owned subsidiary, Vivendi Water,
is the world's leading provider of outsourced and privatized water and waste
water treatment services and systems. Vivendi Water's three main subsidiaries
are Compagnie Generale des Eaux, which is the leading water and waste water
services company in Europe and has operations worldwide, US Filter, North
America's leading water services and equipment company, and Vivendi Water
Systems, a leading designer and provider of water systems.

Municipal and Industrial Outsourcing. The focus of Vivendi Water's water
business is on the management and operation of water and waste water treatment
and distribution systems for public authorities and industrial companies.
Vivendi Water provides integrated services that cover the entire water cycle,
from collection from natural sources 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. Vivendi Water's design and
construction services are provided by its water treatment systems and equipment
operations.

Vivendi Water and its predecessor have provided outsourced water services
in Europe for more than 150 years, and Vivendi Water uses this experience to
capitalize on the worldwide trend towards privatization of municipal water and
waste water services. In the public sector, Vivendi Water concentrates on
non-regulated outsourcing markets -- markets which better allow it to take
advantage of its expertise in improving the efficiency of water systems.

Through US Filter, Vivendi Water is also well-positioned to meet industrial
firms' rapidly growing demand for outsourced water services. It is leveraging
that position to grow its industrial outsourcing business in North America,
Europe and the Asia/Pacific region. For example, Vivendi Water recently entered
into contracts with General Motors pursuant to which it, together with Trigen
and Cinergy, will design, build and operate facilities that will provide
electricity, water, waste water and compressed air for several General Motors
factories in the United States over a fifteen-year period.

Water Treatment Systems and Equipment. Through US Filter and Vivendi Water
Systems, Vivendi Water is the world's leading designer and manufacturer of water
and waste water treatment equipment and 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/re-use 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. The large number of installations
Vivendi Water constructs and operates gives it a competitive advantage in terms
of costs, performance and reliability, especially for services to private firms.
For example, many manufacturing processes -- particularly those used in the food
and beverage, pharmaceutical, microelec-

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tronics, paper, chemical processing and oil/petrochemical 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.

Through Sade and Bonna Sabla, subsidiaries of Generale des Eaux, Vivendi
Water also constructs and repairs urban water distribution networks in France
and around the world.

Bottled Water and Household Filtration Products. Through US Filter,
Vivendi Water provides consumers in North America and Europe bottled water under
the "Culligan" brand. Vivendi Water 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. Vivendi Water 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.

Vivendi Water provides water services and products to three types of
customers: municipalities, industrial firms and consumers. Municipalities,
primarily in Europe, accounted for 72% of its 2000 water revenue (E9.1 billion).
Vivendi Water's significant contracts include ones to provide water-related
services in Paris, Berlin, Lyon, Marseille, Budapest, Bucharest and Adelide,
Australia. In 2000, it won 35 new contracts with public authorities in France.
It also won some of the largest contracts awarded in North America in 2000,
including one, expected to generate $150 million in revenue over 15 years, to
design, build and manage a water treatment plant in Tampa, Florida, and another,
expected to generate $220 million over 20 years, to operate the first privatized
wastewater treatment plant in Chicago. Vivendi Water also had 220 contracts with
public authorities renewed in 2000, primarily in France.

Vivendi Water has approximately 40,000 industrial clients. Its major
industrial clients include General Motors, Conoco, Hyundai and Danone. About
two-thirds of its consumer customers are in North America, and the remainder are
in Europe and Latin America.

Transactions and Developments. In August 2000, Vivendi Environnement sold
the Kinetics Group, a subsidiary of US Filter, to a group of investors for a
price of E0.5 billion, and used the proceeds of the sale to reduce its
indebtedness. Vivendi Environnement has won a number of major contracts since
the beginning of 2001, including one to design and build a chemical treatment
unit and a sludge treatment unit for Millennium, a leading chemicals company. It
has also won significant contracts to provide outsourced water services in
Prague and Tangiers, Morocco.

Waste Management

Through Onyx and its participation in FCC, Vivendi Environnement is a
global waste management leader -- the number one in Europe and the third largest
in the world. Vivendi Environnement provides waste management services to 70
million people with operations in 35 countries on five continents. It has waste
management contracts with approximately 4,000 municipalities and 250,000
industrial clients worldwide, the latter representing about 60% of its waste
revenue. Its principal markets are Europe and North America. It also provides
waste management services in the Asia/Pacific region and in Latin America. It
conducts its waste operations in Latin America through Proactiva Medio Ambiente,
a 50/50 joint venture with FCC.

Onyx is the only global operator present in all the major waste treatment
segments -- solid, liquid and hazardous waste, a unique multi-segment approach
that enables Onyx to offer solutions tailored to each customer's specific needs.
Onyx'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 and Transfer. Vivendi Environnement collects waste from
residences and communal depositories and from industrial sites. It
transports this waste to transfer stations, recycling and
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treatment centers or directly to disposal sites. 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. Onyx recycles approximately 4.8 million metric tons of solid
waste each year. It owns 151 sorting and recycling units. It sells
recyclable material to intermediaries or directly to industrial clients.
Sorting and recycling are becoming larger components of the environmental
management services provided to industrial companies. It is a European
leader in recycling waste paper and cardboard and has substantial waste
paper recycling operations in the United States as well.

- 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 shopping centers. 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.

- Street Cleaning. Vivendi Environnement provides mechanized street
cleaning services for public authorities, including authorities in
London, Paris, Madrid, Buenos Aires and Madras, India.

Waste Disposal and Treatment.

- Non-Hazardous Solid Waste. Onyx disposes of non-hazardous solid waste by
depositing it in landfills, by incinerating it at incineration plants or
through composting.

- Landfill Disposal. Onyx disposes of non-hazardous solid waste in 119
different landfills. 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. At some
landfills, Onyx recycles biogas by converting it into energy. It
primarily relies on landfill disposal for industrial solid waste. For
municipal waste, it uses landfill disposal, incineration and composting.

- Waste-to-Energy and Incineration. Onyx uses the 83 waste-to-energy and
incineration plants it operates to incinerate waste, the majority of
which is municipal waste. At its waste-to-energy plants, it uses the heat
created by incinerating waste to generate energy. It sells this energy
principally to district thermal networks or electricity providers. It
often uses incineration as its primary method of waste disposal in
densely populated areas where landfill space is scarce.

- Composting. Onyx composts waste at its 62 composting production units.
It then sells a portion of the composted waste for use as fertilizer.

- Hazardous Waste. Onyx also treats hazardous waste. Eighty percent of its
business in this category comes from the chemical, petrochemical and
metallurgy industries, primarily in the United States, France and the
United Kingdom. Onyx collects hazardous waste from customers and
transports it, usually in specially constructed containers, tankers or
semi-trailers, and treats it at one of 23 treatment facilities. Onyx's
principal methods for treating hazardous waste are: incineration for
organic liquid waste, solvents, salted water and sludge; solvent
recycling; stabilization of residues followed by disposal in
specially-designed landfills; and physical-chemical treatment for
inorganic liquid waste.

Contracts with industrial customers accounted for approximately 60% of
Onyx's 2000 waste revenue. Onyx provides integrated waste management services
which can include solid, liquid and hazardous waste management to companies
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Intel. It also designs, builds and operates integrated solid waste disposal,
treatment and recycling systems for governmental authorities.

Throughout the world, Onyx's multi-segment abilities are a significant
asset when dealing with local authorities seeking a service provider with
expertise in construction, operation and management to ensure quality public
service in household waste collection and treatment. Since the beginning of
2000, Onyx has won a number of major contracts with governmental authorities
around the world including contracts to provide waste services in central
Singapore, Alexandria, Egypt, Fort Myers, Florida and Tai-Tung, Taiwan. In
France, it won a contract in Saumur to construct and operate, for a 20-year
period, a waste-to-energy plant. In addition, it won contracts to provide waste
collection and sorting services in four of Paris' twenty districts.

Transactions and Developments. In 2000, Onyx continued its development in
the United States with the acquisition of landfills, transfer stations and
hauling routes from Allied Waste and the remaining 49% of Waste Management's
interests in their joint venture for hazardous waste and industrial services. It
also purchased from Waste Management waste operations in Mexico and Brazil, and
waste operating licenses in Hong Kong where it has now a leading position.

Energy

Through Dalkia, Vivendi Environnement is a leading energy management
services provider in the rapidly growing European energy services 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.

Formerly focused mainly on French local authorities, Dalkia's customer base
is now balanced between public and private-sector customers. Dalkia is becoming
increasingly international in scope. Dalkia's primary markets are France, the
U.K., and Central and Eastern Europe. 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 public, industrial, commercial
and residential customers.

Dalkia is also Europe's leading operator of large urban district
heating and cooling systems. 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, which is about half of those in existence. It is
expanding rapidly in Central Europe. 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 offers innovative multi-energy and remote management solutions
to ensure cost-effectiveness, reliability and environmental protection.
When practicable, it uses alternative energy sources such as geothermal
energy, biomass (organic material), heat recovered from household waste
incineration, process heat (heat produced by industrial processes) and
thermal energy produced by cogeneration projects.

Dalkia has become a European leader in cogeneration (the simultaneous
production of electricity and heat) and on-site power production. It offers
decentralized energy production, cogeneration, local
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mini-generation and renewable power generation using the heat and
electricity produced by biomass or gas emissions from household waste.
Dalkia leads the French market in cogeneration with a market share of
approximately 25% at the end of 2000. When the agreement with EDF (see
"-- Transactions and Developments" below) is fully implemented, it expects
its market share to rise approximately 40%.

Industrial Utilities. Dalkia is a leading provider of industrial
utilities services in France and the United Kingdom. It supplies complete,
customized services, integrating facilities construction, steam and
compressed air production and distribution, and site maintenance and
modernization and has also developed recognized expertise in the analysis
of industrial processes, productivity improvement 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, Lyon, Nice, 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. Dalkia 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.

Transactions and Developments. In December 2000, Vivendi Environnement
entered into an agreement with Electricite de France, or EDF, pursuant to which
Dalkia has begun to 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 can provide such integrated services, mainly to large
industrial firms. The partnership with EDF will allow Vivendi Environnement to
offer public and private-sector customers innovative, comprehensive solutions
drawing on the two companies' complementary expertise.

Pursuant to Vivendi Environnement's agreement with EDF, EDF acquired in
December 2000 and January 2001 a 28% stake in Dalkia Holding, Dalkia's direct
parent, in exchange for approximately E850 million. In early 2001, EDF acquired
an additional 6% interest in exchange for contributing one of its subsidiaries
to Dalkia Holding. In addition, Dalkia Holding purchased certain energy services
operations of EDF for E103 million, and EDF purchased interests in two Dalkia
Holding subsidiaries for a total of E627 million. As the deregulation process
continues and limits on EDF's ability to provide energy services are further
removed, Vivendi Environnement has agreed that EDF's stake in Dalkia Holding
will eventually rise to 50%.

Vivendi Environnement believes that the EDF agreement will give Dalkia the
resources it needs to become the European leader in energy and technical
services and gives it an improved set of assets with which to meet its
customers' needs, notably in industry, and thus gives the company a significant
lead over the competition.

In May 2001, Onyx and Dalkia won a 30-year contract to provide sanitation,
recycling and energy services for the city of Sheffield in the United Kingdom.
The contract is expected to generate total revenue of E2 billion.

Transportation

Through Connex, Vivendi Environnement is a leading European private
operator of local and regional passenger transportation services. With 40,000
employees serving over 4,000 communities worldwide, Connex and its subsidiaries
transport over one billion passengers per year by rail and by road. Connex
provides integrated transportation solutions involving bus, train, maritime,
tram and other networks. It
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expanded to new markets, for example in Spain, and reinforced its inter-city and
road transportation activities by acquiring a significant portion of Via GTI's
operations and assets.

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 that Connex operates and manages. The fares Connex charges
passengers on transportation networks are usually insufficient to cover its
costs; consequently, the public authority typically provides Connex a guaranteed
minimum payment or pays a subsidy. Connex 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. It also tries to reduce costs by rationalizing previously government-run
operations.

Urban Transportation. Connex operates a number of "right-of-way" transit
systems, which are systems in which vehicles travel on dedicated lines separated
from ordinary automobile traffic, and provides integrated transportation
products and services in urban areas. Connex is responsible for driving,
inspecting, cleaning and providing security on the vehicles it operates,
marketing, providing customer service and maintaining, cleaning and providing
security in the stations on its networks. Its urban transportation services fall
into three broad categories: right-of-way system operation, alternative services
and integrated services.

- Right-of-Way System Operation. Connex operates tram and light rail lines
in cities including Stockholm, Sydney and Rouen and Saint-Etienne in
France. Connex also operates a frequent-service bus system in Bogota,
Colombia and is developing innovative "tram-on-tires" system in Nancy,
France that combines the flexibility of buses with the high speed of
trams.

- Bus Networks. Connex also operates a number of bus networks that are not
part of right-of-way systems. It is the exclusive bus operator in cities
including Nice, Bordeaux, Nancy and Toulon, as well as 40 other cities in
France, and operates lines in cities including London, Stockholm,
Frankfurt and Warsaw.

- Alternative Services. In a number of cities, Connex provides innovative,
non-traditional transportation services in situations where conventional
services would be inefficient. For example, it provides
transportation-on-demand services such as "Creabus", a minibus tracked by
a global positioning system (GPS) that replaces large buses during
off-peak hours, and systems that use small electric cars to serve urban
areas that are otherwise restricted to pedestrians.

- Integrated Services. In many cities, Connex provides combinations of
bus, tram, metro and train services on an integrated basis using unified
ticketing systems. In Stockholm, for instance, it operates a metro, three
tram lines and 20% of the bus network, all as part of a single system. In
other cities, Connex provides unimodal services that are integrated into
a system served by multiple operators. Connex provides such integrated
services in areas including suburban Paris, London, Sydney and
Dusseldorf.

Regional Transportation. Connex provides regional transportation services
through the operation of road and rail networks. As with urban transportation
services, it is responsible for operating, maintaining and providing security on
the vehicles and stations it uses in regional networks, as well as for ticket
sales and customer service.

Connex's most significant rail networks are in the United Kingdom, Germany,
France and Australia. In the United Kingdom, it operates regional rail networks
serving the London suburbs and southern England through its subsidiaries Connex
South Central (under a contract that expires in May 2003) and Connex South
Eastern (under a contract that expires in October 2011). In 2000, its subsidiary
Connex Transport UK participated in the tender for the renewal and extension of
the franchise for the network operated by Connex South Central. Connex Transport
UK was short-listed, but was not awarded the contract. Connex Transport UK is
currently preparing offers for a number of other contracts in the United Kingdom
that are expected to be up for tender in the near future. In regional road
transportation, Connex operates networks including France, Norway, Sweden,
Finland, Belgium and the Czech Republic.

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Freight. Connex is also beginning to develop rail freight operations,
primarily in France and Germany. It intends to expand these operations
significantly in order to leverage its industrial client base for other
environmental services and to implement Vivendi Universal's strategy of
providing a comprehensive array of such services to industrial customers. Connex
provides rail freight services primarily through the following three activities:

- Regional Freight Networks. Connex operates a number of regional freight
trains for customers including the French national railroad, SNCF.

- Management of Private Branch Lines. Connex manages branch lines for
customers in the automobile, petrochemical and refining industries that
have plants connected to a national rail network. Facilities served
include the Eisenach Opel plant in Thuringia, Germany, the Bitterfeld
chemical complex in Saxony-Anhalt, Germany and approximately 40
industrial sites in France.

- Multimodal Transportation. In 2000, Connex began providing "multimodal"
shipping services, for example, shipment of freight in containers that
can be carried by either trains or trucks. Daily multimodal service
between Paris and Milan began in October 2000, following the acquisition
of an interest in multimodal operator TAB. Service between Stuttgart and
Mannheim, Germany began in February 2001.

In France, governmental authorities typically own the buses used on urban
networks and lease them to Connex under the applicable operating contract.
However, Connex usually owns the motorcoaches used on regional road networks. In
the other countries in which it operates, Connex typically owns the buses and
motorcoaches used in both urban and regional road networks. With regard to rail
networks, Connex usually rents, rather than owns, the trains it uses.

The vast majority of Connex transportation customers are the national,
regional and local public authorities responsible for providing public transit
services. Connex operates 26 rail networks, 236 road networks, 20 integrated
networks and four tram systems that carry, in the aggregate, more than one
billion passengers a year.

Transactions and Developments. In 2000, Connex purchased from Via GTI
Group, a leader in transportation in France, operations holding a number of
contracts in inter-urban transportation in France, Spain and Germany. This
acquisition provided it with additional revenue of E236 million in 2000. It also
sold its interest in the Barraqueiro Group, a Portugese passenger transportation
company, to its co-shareholder, Barraqueiro SGPS, for E50 million.

Vivendi Environnement has agreed to sell its operations associated with the
Connex South Central contract to Govia for 30 million British pounds and to
withdraw from the contract (which was scheduled to expire in May 2003). This
sale, which is subject to regulatory approval, would reduce Vivendi
Environnement's revenue, as it currently generates revenue of E500 million per
year from the contract. Vivendi Environnement agreed to the sale because it
believes its capital and the efforts of its management will be better employed
in connection with projects with which it expects to have a long-term
involvement. Moreover, it is possible that its capital expenditure requirements
will rise modestly in 2001, as there is a trend among some governmental
authorities toward requiring private operators to make some investments upon the
commencement of a new contract.

FCC

FCC, a public company listed on the Madrid Stock Exchange, is one of
Spain's largest companies. Its market capitalization was E3.376 billion as of
June 26, 2001. 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 Universal acquired a
49% interest in the holding company that owns 56.5% of FCC. In December 1999,
Vivendi Universal transferred its interest in this holding company to Vivendi
Environnement. Another shareholder owns the remaining 51% of the holding
company.

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FCC's main activities are:

- construction, which represented 46% of its overall 2000 revenue;

- waste and water services, which represented 31% of its 2000 revenue; and

- cement production, which represented 15% of its 2000 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, participates in the
industrial logistics and other services sectors. In July 2000, 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.

FCC's services include:

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 provides waste management services to approximately 1,500
municipalities and 21 million people in Spain. It also supplies drinking
water to six million people in Spain and treats waste water for nine
million.

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.

Cement Production. FCC produces cement through its 49% interest in
Portland Valderrivas which controls Cementos Portland, Spain's
second-largest cement maker. It began to expand internationally with its
1999 acquisition of Giant Cement in the United States. FCC's cement
production is now approximately 80% in Spain and 20% in the United States.

Under the terms of an option agreement dated October 6, 1998 between
Vivendi Universal and the other shareholder in the holding company through which
Vivendi Environnement holds its stake in FCC, the other shareholder has an
option, exercisable between April 18, 2000 and October 6, 2008, to sell Vivendi
Universal its 51% interest in the holding company. 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 Environnement owns its
interest in FCC that becomes exercisable in the event Vivendi Universal ceases
to hold a majority of the capital of Vivendi Environnement.

FCC is focusing on developing its core businesses in order to boost its
market share, particularly in services, which are not cyclical, for which FCC
has recognized references and capabilities. At the same time, FCC has been
making targeted investments in opportunities offering new technologies. In
conjunction with Vivendi Telecom International, Vivendi Universal's wholly owned
subsidiary, FCC owns 31.28% of Xfera Moviles, which has been awarded a UMTS
mobile phone license in Spain.

In 2000, Proactiva, which provides 29 million people with waste services
and 16 million with their entire water cycle, won a contract to manage Bogota's
waste storage center. It will also manage water systems for Catamarca, Argentina
for the next 30 years.

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Competition

General

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.

With regard to integrated, large-scale environmental management services in
particular, Vivendi Environnement's competitors include Suez 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
(through its water business Ondeo), RWE (through its U.K. subsidiary Thames
Water), Anglian Water, Severn Trent and Saur. 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. Vivendi
Water is a leading competitor in the rapidly growing industrial outsourcing
market. It also has a leading position in the highly fragmented water equipment
market.

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
competitor is Suez. It ranks among the top providers of household, commercial
and industrial waste management services in the United Kingdom, along with Suez,
Biffa, Cleanaway and Shanks. Onyx has strong market positions in Norway,
Ireland, Switzerland and Portugal. It has also expanded its presence in Israel,
where it now has a leading position and is the only provider of a full range of
services.

Vivendi Environnement has taken significant steps toward establishing its
competitive position in North America 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 Onyx
Environmental Services and Onyx Industrial Services, which provide hazardous
waste and industrial services, respectively, in the United States and Canada.
Vivendi Environnement's major competitors in the United States include Waste
Management, Allied Waste, Republic Services and Safety Kleen.

Vivendi Environnement's Latin American operations are concentrated in
Brazil, Venezuela, Mexico, Colombia, Argentina and Chile, where its primary
competition is from a variety of local companies and SITA (a subsidiary of
Suez). It plans to expand its activities in Latin America through Proactiva.
Vivendi Environnement is among the market leaders in the Asia/Pacific region
where its main competitors are various local companies, Cleanaway and Suez.

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Energy Services

Vivendi Environnement's traditional competitor in district thermal
management is Suez through its subsidiary Elyo. It increasingly faces
competition from large European gas and electricity companies such as RWE, E.on,
Texas Utilities and Power Gen, especially for large district heating contracts
in Eastern and Central Europe. Its competitors in cogeneration consist primarily
of large utilities companies such as RWE, E.on, Texas Utilities, Endesa,
National Power and Power Gen. It competes primarily with large firms such as
Honeywell and Johnson Control for facilities management business.

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, and 22% of the privately run passenger road transportation
market in Scandinavia.

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 European
competitor, National Express, First Group, Arriva and Go Ahead in the United
Kingdom and Kedis and Transdev in France. It anticipates that new competitors
may seek to enter the market, including civil engineering companies, rolling
stock manufacturers and government-owned 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 overall market (the public and privatized markets combined)
for waste management services of approximately 43% and a share of the privatized
market of approximately 70%. 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 15%.

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

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. Vivendi Environnement has 11 research facilities
throughout the world, staffed by a total of 500 scientists and other
researchers.

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 its
laboratories in Paris, Lyon and Rennes 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. In 2000, in
cooperation with a number of German universities and Berliner Wasser Betriebe,
it established a "competence center" in Berlin that is designed to develop
international research and technical support programs. Through Anjou Recherche,
approximately 350 researchers are involved in water-related research projects.
Current areas of research include membrane filtration, sea water desalination
and disinfection of municipal waste water. Vivendi Environnement's researchers
have developed the technology necessary for large-scale nanofiltration, a
purification method that uses membranes with microscopic holes to remove

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impurities from water (at its Mery sur Oise water treatment plant near Paris)
and submerged membrane filtration, a method using underwater purification
filters (in the Adjaccio region of Corsica). 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 its Centre de Recherches pour
l'Environnement, l'Energie et les Dechets, or CREED, research and testing center
in Limay, France. With 65 engineers and researchers, and affiliated centers in
the United Kingdom and Taiwan, CREED conducts approximately 60 research programs
geared towards developing services for industrial firms and municipalities.
Current areas of research include the development of new uses for recycled
products, advanced sorting and recycling processes for municipal waste, improved
techniques for treating land contaminated by heavy metals and other pollutants,
new methods of detecting, measuring and removing dioxins and other pollutants
released by incineration plants, more efficient waste-to-energy processes and
the exploitation of energy created during effluent treatment and recycling
processes. It has been awarded more than 60 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 through the use of alternative energy sources
such as fuel cells and wind-powered and photovoltaic generators. Other research
projects in this area include the development of low-power cogeneration systems
to heat public buildings and advanced heat storage systems.

Vivendi Environnement's research and development in passenger
transportation includes the development of traffic management systems and new
forms of local transportation to improve passenger service, GPS technology and
real-time information transmission to improve transportation efficiency and
security and new techniques to reduce vehicle emissions. Approximately 20 people
are involved in its research efforts in the transportation services field.

Vivendi Environnement conducts a number of 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 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

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,
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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 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 numerous countries, 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 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, Vivendi

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Universal 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 "Risk Factors" beginning on page 20.

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 a date that is to be determined. 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 Environnement 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 Environnement 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 vehicle.

Contracts

General

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 vary widely in terms of size,
duration and the degree of responsibility and/or risk they impose. Some require
Vivendi Environnement to provide specific services on a one-time basis in
exchange for a set fee; others give broad responsibility for the implementation
of large, long-term projects. Some require Vivendi Environnement to make
substantial capital expenditures, in which case Vivendi Environnement generally
bears considerable risks. Some of these contracts provide mechanisms through
which particular risks -- for example, the risk that passengers on a
transportation network will fall to an uneconomic level -- will be shared by the
counterparty. Others provide for renegotiation of terms in the event of a
material change in circumstances. The duration of a contract, which tends to
increase with the level of responsibility and risk Vivendi Environnement
assumes, is generally based on the time needed to depreciate the investment
made, set in place an efficient organization and achieve the expected
improvements in the service provided.

Contracts with Governmental Authorities

Vivendi Environnement has a number of contracts with governmental
authorities, particularly in France. Contracts with governmental authorities
often differ in a number of respects from contracts with private parties,
especially in civil law countries. Governmental contracts for essential
community services such as water supply, waste water treatment and household
waste treatment typically obligate the private operator to provide a service to
a given population, often on an exclusive basis, in accordance with operating
conditions, including fees, that are defined by the governmental authority. The
private operator

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also has a contractual relationship with services users, such as members of the
public, but that relationship is defined by contractual terms established by the
governmental authority.

There are a number of features common to French governmental contracts,
including provisions that (1) entitle the governmental authority to modify or
terminate the contract unilaterally if the public interest so requires (in case
of termination or modification, the governmental authority must fully compensate
the private operator), (2) allow, in long-term contracts, periodic review to
ensure the contract remains fair for both sides, and (3) grant the governmental
authority the right to supervise how the public service is provided.

In Europe, most of the contracts with governmental authorities can be
awarded only after a competitive bidding, where the selection criteria generally
are price, the investment a candidate offers to make, the candidate's experience
and ability to provide high quality service while complying with applicable
regulatory standards, and the candidates' ability to adapt to new regulatory
standards.

Seasonality

Because of the nature of its operations and its worldwide presence, Vivendi
Environnement's business is typically not subject to seasonal variations.

Raw Materials

Vivendi Environnement purchases raw materials on a worldwide basis from
numerous suppliers. It seeks to accumulate and maintain a reserve inventory of
raw materials and supplies, qualify new suppliers, and develop production
processes in its own facilities. Vivendi Environnement undertakes to secure
strategic materials through medium-term and long-term contracts and has not
experienced difficulties in obtaining sufficient amounts of raw materials and
supplies in recent years. It anticipates that it will be able to do so in the
future. For example, the price of fuel has, in recent years, exhibited
considerable volatility. Significant increases in fuel prices are possible in
the future as a result of increased demand, greater coordination among
oil-producing nations and other factors. Vivendi Environnement's operations
historically have not been, and are not expected to be in the future, materially
affected by changes in the price or availability of fuel or other raw materials,
as its contracts typically contain provisions designed to compensate it for
increases in the cost of providing its services.

Marketing Channels

Vivendi Environnement markets its products and services primarily to take
advantage of its strong brands and reputation, and it offers a comprehensive
range of environmental services to existing clients. It analyzes the
environmental services needs of prospective and existing industrial and
commercial customers and demonstrates to them how its services could improve the
efficiency of their operations. The marketing efforts Vivendi Environnement
directs toward public authorities come primarily in the form of bids it submits
for contracts to provide public services. For more information regarding
marketing channels used by each of Vivendi Environnement's business segments,
see "Environmental Services Business Segments" above.

OTHER BUSINESSES

Real Estate

As part of its strategy of focusing on its core Media and Communications
and Environmental Services businesses, Vivendi Universal has decided to withdraw
from the real estate business. In order to facilitate this withdrawal, Vivendi
Universal restructured Compagnie Generale d'Immobilier et de Services, or CGIS,
its wholly owned real estate subsidiary, into two principal groups of companies:
Nexity and Vivendi Valorisation. In July 2000, Vivendi Universal sold 100% of
Nexity.

Vivendi Valorisation holds its remaining property assets, which include
land and land development rights, commercial property (owned and leased) and
loans extended to finance commercial property sales.

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Vivendi Universal holds these assets on its balance sheet at their current
market value. The majority of these assets are associated with its past
involvement in long-term residential and commercial property development
projects. Given the complexity and the long-term nature of Vivendi Universal's
contractual obligations in these projects, these assets cannot easily be sold.
Vivendi Universal intends to divest these assets as and when opportunities
arise. Nexity will manage the assets of Vivendi Valorisation pending their sale,
pursuant to a services agreement.

Paris St.-Germain Club

Since 1991, CANAL+ has managed the Paris Saint-Germain (PSG) club, a
leading French soccer club with over 30,000 season ticket holders. In 1997,
CANAL+ acquired Geneva's Servette soccer team. CANAL+ believes that direct
involvement in club management enables it quickly to identify and exploit
emerging trends in sports rights management.

Retail Stores and Development of Entertainment Software

Universal Studios is involved in other businesses including the operation
of retail gift stores and the development of entertainment software. It owns
Spencer Gifts, Inc. which operates through three groups of stores: Spencer, DAPY
and Glow gift shops. Spencer, DAPY and Glow sell novelties, electronics,
accessories, books and trend driven products. In connection with the activities
of Spencer Gifts, Inc., Universal Studios owns a building in New Jersey and
leases approximately 715 stores in various cities in the U.S., Canada and the
U.K. and a warehouse in North Carolina. The Spencer, DAPY and Glow stores
compete with numerous retail firms of various sizes throughout the U.S., Canada
and the U.K., including department and specialty niche-oriented gift stores.

Universal Studios owns approximately 27% of SEGA GameWorks L.L.C., which
designs, develops and operates location-based entertainment centers. SEGA
GameWorks currently owns and operates 12 such centers throughout the United
States.

Universal Studios New Media, Inc. develops entertainment software including
the Crash Bandicoot and Spyro game series, is responsible for the development
and maintenance of Universal Studios' web sites and manages its minority
interest in Interplay Entertainment Corp., an entertainment software developer.

Spirits and Wine

In connection with the Vivendi/Seagram/Canal Plus merger, Vivendi Universal
acquired Seagram's spirits and wine business. Seagram's spirits and wine
business has global responsibility for all production, brand management and
marketing, sales and distribution of Seagram beverage alcohol brands throughout
more than 190 countries and territories. The portfolio includes Chivas Regal,
Royal Salute and The Glenlivet Scotch Whiskies, Crown Royal and Seagram's V.O.
Canadian Whiskies, Captain Morgan Rum, Seagram's 7 Crown American Blended
Whiskey, Don Julio Tequila, Martell Cognacs, Seagram's Extra Dry Gin and
Sterling Vineyards Wines. In December 2000, Vivendi Universal entered into an
agreement with Diageo plc and Pernod Ricard S.A. to sell its spirits and wine
business for $8.15 billion, an amount that is expected to result in approximate
after-tax proceeds of $7.7 billion. See "Operating and Financial Review and
Prospects -- Significant Transactions -- Merger of Vivendi, Seagram and Canal
Plus".

Production

Seagram's spirits and wine business operates distilleries and bottling
facilities in 18 countries in North America, Latin America, Europe and Asia.
Seagram's spirits aggregate daily distillation capacity approximates 253,000
U.S. proof gallons and aggregate daily bottling capacity approximates 275,000
standard cases. Seagram maintains large inventories of aging spirits in
warehousing facilities located primarily in Canada, France, the United Kingdom
and the United States. Such inventories aggregated approximately 500 million
U.S. proof gallons at December 31, 2000. Additionally, Seagram's bulk wine
inventory aggregated approximately 25 million wine gallons at the end of June
2001.

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Seagram purchases commodity raw materials, such as molasses and base wine
for German sparkling wines on the open market at prices determined by market
conditions. Grains (corn, rye and malt) are sourced from a variety of channels,
including annual contracts with a number of third-party providers. Seagram also
participates in the bulk supply market as a buyer and seller of malt and grain
spirits. Seagram's wines and cognacs are produced primarily from grapes grown by
others. Cognac grapes are purchased based on a multi-year contract with
flexibility for wines and new distillates. Grapes are, from time to time,
adversely affected by weather and other forces, which occasionally limit
production. Rolling contracts to secure a continued supply of oak casks also
exist. Seagram acquires substantially all of its American white oak barrels
(used for the storage of whisky during the aging period) from one supplier in
the United States. Key packaging components such as glassware are purchased
based on long-term agreements with strategic suppliers. Other packaging
components are generally based on annual contracts with key suppliers.
Fluctuations in the prices of these commodities have not had a material effect
upon operating results. Seagram believes that its relationships with its various
suppliers are good.

Marketing and Distribution

Spirits and wine has developed sales and distribution networks appropriate
for each of its markets, including affiliate and joint venture distribution
operations in 38 countries and territories and third-party distribution
arrangements in other key markets.

In the United States, Seagram generally sells spirits, wines, coolers,
beers and other low-alcohol beverages to two categories of customers. In 32
states and the District of Columbia, sales are made to approximately 335
wholesale distributors who also purchase and market other brands of distilled
spirits, wines, coolers, beers and other low-alcohol beverages. In 18 "control"
states (where the state government engages in distribution), sales are made to
state and local liquor boards and commissions; in some of these states, sales of
wines, coolers, beers and other low-alcohol beverages are also made to
approximately 275 wholesale distributors. In Canada, sales are made exclusively
to ten provincial and three territorial government liquor boards and
commissions.

In addition to the United States and Canada, Seagram's affiliates and joint
ventures are located in: Argentina, Belgium, Brazil, Chile, the People's
Republic of China, Colombia, Costa Rica, the Czech Republic, the Dominican
Republic, France, Germany, Greece, Hong Kong, Hungary, India, Israel, Italy,
Jamaica, Japan, Mexico, the Netherlands, Poland, Portugal, Romania, Singapore,
the Slovak Republic, South Africa, South Korea, Spain, Switzerland, Thailand,
Turkey, the Ukraine, the United Kingdom, Uruguay and Venezuela. A significant
portion of spirits and wine revenue comes from sales outside of North America.
In addition to economic and currency risks, Seagram's foreign operations involve
risks including governmental regulation, embargoes, expropriation, export
controls, burdensome taxes, government price restraints and exchange controls.

Competition

The spirits and wine industry is highly competitive. Due to ongoing
formation of multinational retailers and buying groups in Europe, all marketers
in the industry have confronted severe pricing pressure across Europe. This has
been heightened as a result of Wal-Mart's acquisitions in Germany and the United
Kingdom. Euro-based multinational retailers and buying groups have also expanded
into certain markets in Asia and Latin America. Additionally, the expansion of
non-traditional distribution channels, such as eBusiness, has added a new
dimension to the global marketplace. Diageo plc, which resulted from the merger
of two of the largest spirits and wine companies, Grand Metropolitan plc and
Guinness plc, continues to be the largest global player. However, the spirits
and wine industry has continued to evolve through mergers and the formation of
alliances, such as Maxxium, and with the reemergence of strong local and
regional brand owners.

Seagram continues to address these competitive challenges by investing in
brand equity building behind Seagram's core brands in key established and
development markets. Seagram uses magazine, newspaper and outdoor advertising,
as well as interactive marketing, to maintain and improve its brands'

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market position. Seagram also utilizes radio and television advertising,
although the use of such advertising in connection with the sale of beverage
alcohol is restricted by law or commercial practice in certain countries,
including the U.S.

Regulation and Taxes

Seagram's beverage alcohol business is subject to strict governmental
regulation covering virtually every aspect of operations, including production,
marketing, pricing, labeling, packaging and advertising. In the U.S., Seagram
must file or publish prices for its beverage alcohol products in some states as
much as three months before they go into effect.

In the U.S., Canada and many other countries, beverage alcohol products are
subject to substantial excise taxes or custom duties and additional taxation by
governmental subdivisions.

Interest in Dupont

At December 31, 2000, Seagram owned approximately 16.4 million shares of
common stock of E.I. du Pont de Nemours and Company which had a market value of
approximately $719 million as of such date.

ORGANIZATIONAL STRUCTURE

The following table shows the subsidiaries through which Vivendi Universal
conducted the majority of its operations as of December 31, 2000:

OUR OUR
COUNTRY OF OWNERSHIP CONTROLLING
NAME INCORPORATION INTEREST INTEREST
---- ------------- --------- -----------

UNIVERSAL STUDIOS, INC. USA 92% 92%
Polygram Holding, Inc. USA * *
Interscope Records USA * *
Def Jam Records, Inc. USA * *
Universal City Studios, Inc. USA * *
USANi LLC USA 49% 0%
CENTENARY HOLDING N.V. Holland 92% 92%
Universal Music (UK) Holdings Ltd. UK * *
Universal Holding GmbH Germany * *
Universal Music K.K. Japan * *
Universal Music S.A. France France * *
UNIVERSAL PICTURES INTERNATIONAL B.V. Holland 92% 92%
GROUPE CANAL S.A. France 100% 100%
Canal Satellite France 66% 66%
StudioCanal S.A. France 85% 85%
CEGETEL France 44% 59%
Cegetel 7 France 40% 80%
SFR France 35% 80%
Cegetel Entreprises France 40% 80%
AOL France France 35% 55%
VIVENDI TELECOM INTERNATIONAL France 100% 100%
Mattel Hungary * *
Monaco Telecom Monaco 51% 51%
VIVENDI UNIVERSAL NET France 100% 100%
Vizzavi Europe France 50% 50%
Scoot.com plc UK 22% 22%
I France France * *
Ad-2-One France * *

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OUR OUR
COUNTRY OF OWNERSHIP CONTROLLING
NAME INCORPORATION INTEREST INTEREST
---- ------------- --------- -----------

VIVENDI UNIVERSAL PUBLISHING France 100% 100%
Comareg France * *
Group Expansion France * *
Group Moniteur France * *
Editions Robert Laffont France * *
Group Anaya Spain * *
Havas Interactive Inc. USA * *
Larousse-Bordas France * *
Group Tests France * *
France Loisirs France 50% 50%
VIVENDI ENVIRONNEMENT France 63% 63%
Vivendi Water France * *
CGEA Onyx France * *
CGEA Connex France * *
US Filter USA * *
Dalkia France 46% 73%
FCC Spain 18% 28%

---------------

* Indicates 100% ownership of the relevant Vivendi Universal subsidiary.

PROPERTY, PLANTS AND EQUIPMENT

In connection with its music entertainment activities, Vivendi Universal
owns manufacturing facilities in the United States, Germany and the United
Kingdom and office buildings and warehouse facilities in various countries. In
addition to its wholly owned facilities, Vivendi Universal also owns a
manufacturing facility in the United States. Where it does not own property, it
leases warehouses and office space around the world.

Universal Studios owns, develops and manages commercial buildings with
approximately 3.3 million rentable square feet of office space in Universal
City, including: Universal Studios CityWalk, an integrated retail/entertainment
complex that offers shopping, cinemas and entertainment; the 10 Universal City
Plaza office building, which is occupied by Universal Studios or leased to
outside tenants; and the Sheraton-Universal Hotel.

Vivendi Universal owns or has interests in hotels and other property and
equipment in connection with its theme parks businesses as further described
under "Business Overview -- TV & Film -- Recreation".

In connection with its environmental services businesses, Vivendi
Environnement generally conducts its water, energy services and transportation
operations at premises owned by its customers; as a result, Vivendi
Environnement does not own any significant physical properties in connection
with those operations. With regard to its waste management services, Vivendi
Environnement owns or operates approximately 120 sorting, recycling and transfer
facilities (not including waste paper facilities), 119 solid waste landfill
sites and 83 incineration and waste-to-energy transformation facilities
worldwide.

Vivendi Environnement is currently in the process of renovating a building
located at 36-38 avenue Kleber, 75116, Paris, France for use as its headquarters
building. Vivendi Environnement will lease the building for approximately E10.4
million per year. It expects to spend an additional E9 to E10 million renovating
the building. The renovations are expected to be completed by May 2002. Vivendi
Environnement will occupy approximately 15,000 square meters of the building,
using it for offices for members of its management and senior managers of its
principal subsidiaries.

Vivendi Universal has various commitments for the purchase of property,
plant and equipment, materials, supplies and items of investment related to the
ordinary conduct of business.

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INTELLECTUAL PROPERTY

Vivendi Universal currently owns a significant number of patents in France,
the United States and in various countries worldwide. Although Vivendi Universal
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, copyrights and brand recognition are important to Vivendi
Universal's businesses, particularly the Music, Publishing, TV & Film, Telecoms
and Internet segments as well as trademarks related to the spirits and wine
business. Vivendi Universal has registered its trademarks and copyrights with
appropriate governmental authorities, and it believes that there is significant
value associated with them. It is Vivendi Universal's practice to defend
vigorously its intellectual property interests against infringement by third
parties. With respect to trademarks in the waste management business, Vivendi
Environnement arranged for protection of the "ONYX" trademark (the word and
logo) in many countries around the world and has signed trademark licenses with
a number of its subsidiaries.

INSURANCE

Each of Vivendi Universal's segments (Music, TV & Film, Publishing,
Telecoms, Internet and Environmental Services) are afforded protection by
various types of property damage, business loss and civil liability insurance
programs. These insurance programs are structured to address risks specific to
each business segment and comply with legal regulations, requirements of
customer contracts, public authorities and institutions providing financing. In
addition to the insurance programs maintained for each business segment, Vivendi
Universal maintains civil liability insurance programs of $400 million which
provide protection for all segments.

Vivendi Universal also has directors and officers liability insurance that
provides $200 million of protection for its officers and directors.

ENVIRONMENTAL POLICIES

While Vivendi Universal'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 Universal
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, focuses on the following
goals:

- reducing direct carbon dioxide emissions of its world wide operations;

- 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;

- 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 impacts of Vivendi Universal's operations on the natural
environment;

- increasing the research and development budget for environmental
services;

- improving environmental management by increasing the number of employees
certified under ISO 14001 and increasing spending on vocational training;
and

- developing and implementing a global environmental management system to
track and manage environmental impacts of its global operations.

LEGAL PROCEEDINGS

In the ordinary course of its business, Vivendi Universal and its
subsidiaries and affiliates are, from time to time, named as a defendant in
various legal proceedings. Vivendi Universal 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 Universal.

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BT filed a request for arbitration against Vivendi Universal with the
International Court of Arbitration on March 8, 2000, alleging, among other
things, that Vivendi Universal breached the Cegetel shareholders' agreement by
agreeing with Vodafone to establish a joint venture to develop and market
Vizzavi. On November 9, 2000, the court issued a ruling rejecting that claim.
The court also ruled, however, that if BT proves that the creation of Vizzavi
harmed SFR, BT will be entitled, in its capacity as indirect shareholder of SFR,
to compensation from Vivendi Universal. Vivendi Universal believes that there
was no such harm and is vigorously defending the claim BT is pursuing upon that
ground before the court.

On June 21, 2000, the French competition commission opened an investigation
into the state of competition in drinking water and waste water treatment
markets in France. On February 27, 2001, Compagnie Generale des Eaux was served
with a complaint alleging that it had illicitly cooperated with its competitors
in the course of bidding for certain water services contracts. In particular,
the complaint alleged that, in order unlawfully to limit competition, Compagnie
Generale des Eaux declined to bid for contracts that were also subject to bids
by joint ventures Compagnie Generale des Eaux had formed with other water
companies. Compagnie Generale des Eaux intends to respond to the complaint by
explaining, on a case-by-case basis, its lawful reasons for declining to bid for
the contracts in question. At this time, it is impossible to predict what
financial penalties, if any, will be imposed in connection with this proceeding.

In December 1999, Vivendi entered into an investment agreement with
Elektrim SA by which it acquired 49% of Elektrim Telekomunikacja Sp. Zoo, or
Telco. Telco in turn holds 51% of PTC and 100% of Bresnam following the transfer
of these stakes to Telco by Elektrim. In October 1999, Deutsche Telecom, or DT,
commenced arbitration proceedings in Vienna alleging that Elektrim's purchase on
August 26, 1999 of 13.9% of the PTC shares from four minority PTC shareholders
(which gave it a 51% controlling interest in PTC) violated the PTC shares that
were part of those shares transferred to Elektrim on August 26, 1999. DT is
seeking (1) a declaration that the transfer to Elektrim on August 26, 1999 was
ineffective; (2) alternatively, an order requiring the transfer of 3.126% of PTC
shares to DT; and/or (3) damages in an amount of $135 million. Under the terms
of the investment agreement, Vivendi Universal may be liable for the first $100
million of any damages awarded against Elektrim. The hearing date for the
arbitration has been set down for November 5, 2001.

CANAL+ is involved in two proceedings before the French competition
commission in the field of film broadcasting rights. The first one was initiated
by the French authorities in order to control that CANAL+ fully complied with
the order pronounced against them in 1999 regarding pay-per-view rights. The
second one was introduced by competitors alleging that CANAL+ and its pay per
view subsidiary Kiosque restrict competition by acquiring film broadcasting
rights on an exclusive basis.

On February 4, 1999, the Antitrust Division of the United States Department
of Justice issued a civil investigative demand to Universal Studios, Inc. as
well as to a number of other motion picture film distributors and exhibitors as
part of a civil investigation into compliance with the consent decrees entered
in U.S. v. Paramount Pictures, et al. and various other practices in the motion
picture distribution and exhibition industry. The civil investigative demand
required the distributors and exhibitors to provide documents and other
information to the Antitrust Division. The scope of the investigation and the
extent, if any, to which it may relate to Universal is not known at this time.
Universal responded to the government's demand in February 2000. The Antitrust
Division has taken no further action in this matter.

On December 15, 1999, an action was filed in the Superior Court for the
County of Los Angeles entitled KirchMedia GmbH & Co. KgaA v. Universal Studios,
Inc. and Universal Studios International B.V., case No. BC 221645. The plaintiff
is a German company that entered into several agreements with Universal in 1996
involving the licensing of film and television programming. The agreements also
required the plaintiff to allocate to Universal two channels on its German pay
television service. Plaintiff alleges that it is entitled to terminate its
agreements with Universal on the ground that certain decisions by European
regulatory authorities have materially impaired its business and constitute
events of "force majeure". Plaintiff also alleges that Universal has breached
its obligations under the parties' licensing agreements by allegedly failing to
provide plaintiff with the quality and/or quantity of film and television
programming anticipated by plaintiff. Plaintiff asserted claims for declaratory
relief, breach of contract,

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breach of the implied covenant of good faith and fair dealing and breach of
fiduciary duty. Plaintiff sought an order requiring the return of all monies
paid by plaintiff under the parties agreements, as well as purported damages in
excess of $500,000,000. Plaintiff also sought punitive damages on its breach of
fiduciary duty claims. On February 3, 2000, Universal filed a cross-complaint in
this action alleging that KirchMedia had breached certain of its obligations
under the parties' Channel Carriage Agreement and that certain entities related
to KirchMedia were obligated to indemnify Universal for all damages sustained as
a result of KirchMedia's breach of that agreement. On August 11, 2000, the Court
granted Universal's motion for judgment on the pleadings on the ground that
plaintiff's complaint did not state facts sufficient to constitute a claim.
KirchMedia later filed an amended complaint, which Universal moved to dismiss.
The Court granted Universal's motion to dismiss and KirchMedia's complaint has
now been dismissed in its entirety. Universal has amended its cross-complaint to
seek payments that KirchMedia has failed to make.

In July 1999, a small video retailer located in San Antonio, Texas, filed a
lawsuit in the federal district court in San Antonio, entitled Cleveland, et al.
v. Viacom, et al., Civil Action No. SA-99-CA-0783-EP, in the United States
District Court for the Western District of Texas, San Antonio Division. The
action alleges that the home video divisions of the major movie studios,
including Universal Studios Home Video, Inc., have conspired with one another
and with Blockbuster Inc., a video rental retailer, and with Viacom, Inc., in
violation of the federal antitrust laws. The action was filed on behalf of a
proposed class of all "independent" video retailers that compete with
Blockbuster. Since its original filing, the complaint has gone through several
substantive changes, including the substitution of new proposed class
representatives, and the addition of claims arising under California law. The
core allegation, however, has remained the same: plaintiffs allege that the
studios have entered direct revenue sharing agreements with Blockbuster that
include terms that are unavailable to independent video retailers, and that give
Blockbuster an unfair competitive advantage. Plaintiffs seek monetary and
injunctive relief. Plaintiffs filed a motion asking that the court certify the
proposed class. Universal and the other defendants opposed the motion, arguing
that the case is not amenable to class treatment. The Court denied plaintiffs'
motion for class certification and the case is now proceeding as an individual,
not a class, action.

Some of the same plaintiffs in the Texas case, along with others, filed, on
January 31, 2001, a similar case in California, entitled Merchant, et al. v.
Redstone, et al., a purported class action complaint, Case No. BC244270 in the
Superior Court of the State of California for the County of Los Angeles. This
action makes essentially the same claims as are made in the Texas action, but
seeks relief solely under California state law. Defendants have not yet
responded to the complaint.

In June 2001, the European Commission served an Article 11 letter on each
of the major motion picture distributors, including Universal Studios, Inc. The
request for information is based upon complaints from consumers regarding DVD
prices. As a result of these complaints, the Commission is undertaking an
industry-wide assessment of pricing policies for DVDs. Universal Studios has not
yet responded to the request.

On May 30, 1995, a purported retailer class action was filed in the United
States District Court for the Central District of California, entitled Digital
Distribution Inc. d/b/a Compact Disc Warehouse v. CEMA Distribution, Sony Music
Entertainment, Inc., Warner Electra Atlantic Corporation, Universal Music &
Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann
Music Group, Inc. and PolyGram Group Distribution, Inc., No. 95-3596 JSL. The
plaintiffs brought the action on behalf of direct purchasers of compact discs
alleging that defendants, including Universal Music & Video Distribution, Inc.
(formerly known as UNI Distribution Corp.) and Polygram Group Distribution,
Inc., violated the federal and/or state antitrust laws and unfair competition
laws by engaging in a conspiracy to fix prices of compact discs, and seek an
injunction and treble damages. The defendants' motion to dismiss the amended
complaint was granted and the action was dismissed, with prejudice, on January
9, 1996. Plaintiffs filed a notice of appeal on February 12, 1996. By an order
filed July 3, 1997, the Ninth Circuit reversed the District Court and remanded
the action. Upon reinstatement of this litigation by the Ninth Circuit, a number
of related actions were filed, which all arise out of the same claims and
subject matter. These related actions are captioned: Chandu Dani d/b/a Compact
Disc Warehouse and Record
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Revolution, et al., v. EMI Music Distribution (formerly known as CEMA
Distribution), Sony Music Entertainment, Inc.; Warner Elektra Atlantic
Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI
Distribution Corp.), Bertelsmann Music Group, Inc., and Polygram Group
Distribution, Inc, No. CV 97-7226 (JSL), filed on September 30, 1997 in the U.S.
District Court for the Central District of California; Third Street Jazz and
Rock Holding Corporation, et al., v. EMI Music Distribution (formerly known as
CEMA Distribution), Sony Music Entertainment, Inc., Warner Elektra Atlantic
Corporation, Universal Music & Video Distribution, Inc., and Polygram Group
Distribution, Inc., No. 97 Civ. 7764 LMM, filed on October 21, 1997 in the U.S.
District Court for the Southern District of New York; Nathan Muchnick, Inc., et
al., v. Sony Music Entertainment, Inc., Polygram Group Distribution, Inc.,
Bertelsmann Music Group, Inc., Universal Music & Video Distribution, Inc.
(formerly known as UNI Distribution Corp.), Warner Elektra Atlantic Corporation,
and EMI Music Distribution, Inc., Capitol Records, Inc., No. 98 Civ. 0612, filed
on January 28, 1998 in the U.S. District Court for the Southern District of New
York. The Digital Distribution, Chandu Dani, and Third Street Jazz matters had
been set for trial on February 15, 2000. The trial date has been vacated and no
new trial has been set.

On February 17, 1998, a purported consumer class action was filed in the
Circuit Court for Cocke County, Tennessee, Civil Action NO., 24855 II, entitled
Doris D; Ottinger, et al., V. Emi Music Distribution, Inc., Sony Music
Entertainment, Inc., Warner Elektra Atlantic Corp., Universal Music & Video
Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music
Group, Inc., and PolyGram Group Distribution, Inc. A motion to dismiss was filed
on May 11, 1998 but was denied. The trial date of July 2, 2001 was vacated, and
no new trial date has been set. In addition, a motion to limit the case to the
residents of one state (Tennessee), rather than 17 has been filed. That motion
was set for hearing March 30 and was granted. The judge set a date for a July
hearing on the question of whether class certification is appropriate.

On or about July 25, 1996, Universal Music & Video Distribution, Inc. and
PolyGram Group Distribution, Inc., or PGDI, were served with an antitrust civil
investigation demand from the Office of the Attorney General of the State of
Florida that calls for the production of documents in connection with an
investigation to determine whether there "is, has been or may be" a "conspiracy
to fix the prices" of compact discs or conduct consisting of "unfair methods of
competition" or "unfair trade practices" in the sale and marketing of compact
discs. No allegations of unlawful conduct have been made against Universal
Musical & Video Distribution, Inc. or UMVD.

By letter dated April 11, 1997, the Federal Trade Commission, or FTC,
advised Universal Music and Video Distribution Corp. (formerly Universal Music &
Video Distribution, Inc.), or UMVD, and PGDI that it is conducting a preliminary
investigation to determine whether the minimum advertised pricing (MAP) policy
used by major record distributors constitutes an unfair method of competition in
violation of Section 5 of the Federal Trade Commission Act. UMVD and PGDI
received a subpoena dated September 19, 1997 for the production of documents. No
allegations of unlawful conduct have been made against UMVD or PGDI. On May 1,
2000, UMVD and UMG Recordings, Inc., or UMGR, agreed that (1) for seven years
they shall not make the receipt of any cooperative advertising funds for their
prerecorded music product contingent upon the price or price level at which such
product is advertised or promoted, (2) for twenty years they shall not make the
receipt of any cooperative advertising funds for their prerecorded music product
contingent upon the price or price level at which such product is advertised or
promoted where the dealer does not seek any contribution from UMVD or UMGR for
the cost of the advertisement or promotion, and (3) for five years they shall
not announce resale or minimum advertised prices of their prerecorded music
product and unilaterally terminate those who fail to comply because of such
failure.

Following a change to Australian copyright law in 1998 to permit parallel
import of CDs into Australia, the Australian Competition and Consumer
Commission, or ACCC, commenced proceedings against Universal Music Australia Pty
Limited (formerly PolyGram Pty Limited), alleging violations of the Australian
Trade Practices Act, the statute which governs competition law in Australia. The
ACCC alleges that Universal took steps to restrict parallel imports into
Australia. Separate proceedings making

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similar allegations have also been commenced against another record company in
Australia. The hearings began in April 2001. The case has been adjourned and is
to resume in September 2001.

In May, June and July of 2000, ninety-four purported consumer class action
law suits were filed in various state and federal courts across the country
against UMVD, UMGR and PGDI, as well as Sony Music Entertainment Inc., Time
Warner Inc., Bertelsmann Music Group and Capitol Records Inc. (along with
companies affiliated with these defendants). Certain recorded music retailers
are also named as defendants in some of these actions. Plaintiffs in each of
these actions allege that the defendants violated the federal and/or state
antitrust laws and unfair competition laws by conspiring to fix the wholesale
and/or retail prices of compact discs. Plaintiffs in each of these actions
further allege that the purported conspiracy was related in some fashion to the
MAP policies adopted by each of the record distributor defendants, including
UMVD and PGDI. Plaintiffs in these cases seek treble damages and/or restitution
as well as attorney's fees and costs. With respect to the federal cases, there
is currently pending before the Judicial Panel for Multi-District Litigation a
motion to consolidate and transfer. The Judicial Panel heard the motion on
September 22, 2000 and subsequently ruled that the federal cases should be
consolidated in Portland, Maine. With respect to the eighteen state cases
pending in California, on September 11, 2000, the Court ordered that these cases
be coordinated for pretrial proceedings. With respect to the five state cases
pending in Florida, on August 31, 2000, the Circuit Court of the 11th Judicial
Circuit dismissed them with leave to amend for failure to state a claim upon
which relief may be granted.

In addition to the consumer actions, on August 8, 2000, the Attorneys
General for 42 states and territories filed parens patriae action in the federal
district court in the Southern District of New York against several recorded
music companies, including UMVD and UMGR. The Attorneys General brought this
suit on behalf of consumers in their respective states or territories, and they
allege that the defendants violated the federal and state antitrust laws and
unfair competition laws by conspiring to fix the retail prices of compact discs.
The Attorneys General seek treble damages, civil penalties, attorney's fees and
costs.

In January 2001, the European Commission served an Article 11 letter on
each of the major record companies including Universal Music International
Limited investigating the relationship between the record companies and
retailers in four key European territories (France, Germany, the United Kingdom
and Spain). Universal Music International Limited submitted its written reply to
the inquiries on March 9, 2001 and responded to further inquiries in relation to
all European Economic Area Member states on June 1, 2001. Universal awaits a
response from the Commission.

In February 2001, the Office of Fair Trading in the U.K., or OFT, submitted
a request for information to each of the major U.K. record companies including
Universal Music (UK) Limited relating to the record companies' policies in
respect of parallel imports of CDs into the U.K. Universal responded to a
detailed inquiry on February 23, 2001. On June 4, 2001, Universal received a
request for further information from the OFT and is in the process of responding
to this request.

In April 2001, Universal Music International Limited received an Article 11
letter from the European Commission requesting certain information in relation
to the pressplay joint venture between UMG Duet Holdings, Inc. and SMEI Duet
Holdings, Inc. Universal Music International Limited responded to the inquiry on
May 8, 2001. The Commission has since sent a subsequent response to which
Universal Music International Limited will respond.

On December 4, 2000, Destileria Serralles, Inc., or Serralles, commenced a
litigation against JES and Seagram in Puerto Rico Superior Court seeking
declaratory judgment and injunctive relief relating to whether a right of first
refusal over certain Captain Morgan trademarks owned by JES contained in a
supply agreement between Serralles and JES would be triggered by the sale of
Seagram's Spirits and Wine business. JES and Seagram removed the case to the
United States District Court for the District of Puerto Rico and answered the
complaint and filed a motion for summary judgment. On December 27, 2000,
Serralles filed a request for expedited discovery and to postpone adjudication
of JES and Seagram's motion for summary judgment. On February 8, 2001, Serralles
filed a request for 30 days' notice of the closing of the sale of Seagram's
Spirits and Wine business. The court required Seagram only to notify Serralles
when
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all regulatory approvals are obtained. On April 23, 2001, the Court ordered that
the parties engage in limited expedited discovery for a period of 30 days and
that Serralles respond in 30 days to the motion by JES and Seagram for summary
judgment. That period of discovery is now completed, Serralles filed its
opposition to the summary judgment motion, and JES and Seagram filed a reply
submission. The summary judgment motion is currently pending for decision. On
June 27, 2001, Serralles filed a motion seeking a temporary restraining order
and preliminary injunction, temporarily enjoining JES and Seagram from taking
certain actions pending the outcome of the case. JES and Seagram are opposing
that motion. However, the motion does not seek to enjoin the sale of Seagram's
Spirits and Wine business or any portion thereof. Vivendi Universal believes
this litigation is without merit and is defending it vigorously.

EXCHANGE CONTROLS

The 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 French
authorities in connection with the acquisition of a controlling interest in
Vivendi Universal. Under existing administrative rulings, ownership of 20% or
more of Vivendi Universal'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;

- the acquiring party's ability to elect directors; and

- financial reliance by Vivendi Universal on the acquiring party.

French exchange control regulations currently do not limit the amount of
payments that Vivendi Universal 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.

TAXATION

On August 31, 1994, the United States and France entered into the
Convention Between the United States of America and France for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on
Income and Capital, or the Treaty. The following is a general summary of the
principal tax effects that may apply to you as a holder of Vivendi Universal
ordinary shares or ADSs for purposes of U.S. federal income tax and French tax,
if all of the following apply to you:

- you own, directly or indirectly, less than 10% of its share capital;

- you are:

- an individual who is a citizen or resident of the United States for
United States federal income tax purposes;

- a corporation or other entity taxable as a corporation that is created
or organized in or under the laws of the United States or any
political subdivision thereof;

- an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or

- a trust, if a court within the United States is able to exercise
primary supervision over its administration and one or more U.S.
persons have the authority to control all of the substantial decisions
of the trust;

- you are entitled to the benefits of the Treaty under the "Limitations of
Benefits" article of the Treaty;

- you hold your Vivendi Universal ordinary shares or ADSs as capital
assets; and
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- your functional currency is the U.S. dollar.

This summary is based in part upon the representations of the depositary,
and the assumption that each obligation in the deposit agreement and any related
agreement will be performed in accordance with its terms. In general, and taking
into account these assumptions, holders of ADSs will be treated as the owners of
the ordinary shares represented by such ADSs, and exchanges of ordinary shares
for ADSs, and ADSs for ordinary shares, will not be subject to United States
federal income or French tax.

YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE
CONSEQUENCES TO YOU OF ACQUIRING, OWNING OR DISPOSING OF VIVENDI UNIVERSAL
ORDINARY SHARES OR ADSs, rather than relying on this summary. The summary may
not apply to you or may not completely or accurately describe tax consequences
to you. For example, special rules may apply to U.S. expatriates, insurance
companies, tax-exempt organizations, financial institutions, persons subject to
the alternative minimum tax, securities broker-dealers, traders in securities
that elect to mark-to-market and persons holding their ordinary shares or ADSs
as parties to a conversion transaction, among others. Those special rules are
not discussed in this proxy statement/prospectus. The summary is based on the
laws, conventions and treaties in force as of the date of this proxy
statement/prospectus, all of which are subject to changes, possibly with
retroactive effect. Also, this summary does not discuss any tax rules other than
U.S. federal income tax and French tax rules. Further, the U.S. and French tax
authorities and courts are not bound by this summary and may disagree with its
conclusions.

TAXATION OF DIVIDENDS

Withholding Tax and Avoir Fiscal

Vivendi Universal will withhold tax from your dividend at the reduced rate
of 15%, provided that you have complied with the following procedures:

- You must complete French Treasury Form RF1 A EU-No. 5052, "Application
for Refund", and send it to the 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
ordinary shares or ADSs, including, among other things, the dividend
rights, at the Centre des Impots des Non Residents, 9 rue d'Uzes, 75094
Paris Cedex 2, France.

- If you cannot complete 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 United States for purposes of the Treaty;

- your ownership of Vivendi Universal ordinary shares or ADSs 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 ordinary
shares or ADSs, including, among other things, the dividend rights;

- you meet all the requirements of the Treaty for the reduced rate of
withholding tax; and

- you claim the reduced rate of withholding tax.

If you have not completed Form RF1 A EU-No. 5052 or the simplified
certificate before the dividend payment date, Vivendi Universal will deduct
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 Form RF1 A EU-No. 5052 before December 31 of the calendar year
following the year during which the dividend is paid.

The Application for Refund, together with instructions, can be obtained
from the U.S. Internal Revenue Service or from the Centre des Impots des Non
Residents upon request. After completing it, you send it to the Centre des
Impots des Non Residents.

Under the Treaty, you may be entitled, in certain circumstances, to a
French tax credit called the avoir fiscal. Effective January 1, 2001, under
French law, a resident of France is entitled to an avoir fiscal
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or a tax credit, in respect of a dividend received from a French corporation
equal to 50% of the amount of the dividend for individuals, 50% for companies
owning more than 5% of the Company's capital and 25% for other shareholders (15%
for such other shareholders who will use the avoir fiscal as of January 1,
2002). 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 United States for purposes of the Treaty;

- you are a U.S. corporation, other than a regulated investment company
that owns less than 10% of Vivendi Universal share capital;

- 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
the company, provided that less than 20% of your ordinary shares or ADSs
are beneficially owned by persons who are neither citizens nor residents
of the United States; or

- you are a partnership or trust that is a resident of the United States
for purposes of the 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 payment of the avoir fiscal.

If you are eligible, you may claim the avoir fiscal by completing Form RF1
A EU-No. 5052 and sending it to the French tax authorities at the Centre des
Impots des Non Residents before December 31 of the year following the year in
which the dividend is paid. 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. federal income taxes on
the payment of the avoir fiscal and the related dividend. For partnerships or
trusts, the partners, beneficiaries or grantors, as applicable, must make this
attestation.

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 (qualified
retirement plans), Section 403 of the Internal Revenue Code (tax deferred
annuity contracts) or Section 457 of the Internal Revenue Code (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 of the gross avoir fiscal, provided that they own,
directly or indirectly, less than 10% of the company's capital and that they
satisfy the filing formalities specified in 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
ordinary shares or ADSs files Form RF1 A EU-No. 5052. However, they will not be
paid before January 15 following the end of the calendar year in which the
dividend is paid.

For U.S. federal income tax purposes, the gross amount of a dividend and
any avoir fiscal, including any French withholding tax, will be included in your
gross income as dividend income when payment is actually or constructively
received by the shareholder in the case of ordinary shares or the depositary in
the case of ADSs, to the extent they are paid out of Vivendi Universal's current
or accumulated earnings and profits as calculated for U.S. federal income tax
purposes. Dividends paid by Vivendi Universal will

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not give rise to any U.S. dividends received deduction. Dividends will generally
constitute foreign source "passive" income for foreign tax credit purposes. For
recipients predominantly engaged in the active conduct of a banking, insurance,
financing or similar business, dividends paid by Vivendi Universal will
generally constitute foreign source "financial services" income for foreign tax
credit purposes.

Also for U.S. federal income tax purposes, the amount of any dividend paid
in euros or French francs, including any French withholding taxes, will be equal
to the U.S. dollar value of the euros or French francs on the date the dividend
is included in income, regardless of whether the payment is in fact converted
into U.S. dollars. You will generally be required to recognize U.S. source
ordinary income or loss when you sell or dispose of euros or French francs. You
may also be required to recognize foreign currency gain or loss if you receive a
refund under the Treaty of tax withheld in excess of the Treaty rate. This
foreign currency gain or loss will generally be U.S. source ordinary income or
loss.

To the extent that any dividends paid exceed Vivendi Universal's current
and accumulated earnings and profits as calculated for U.S. federal income tax
purposes, the distribution will be treated as follows:

- first, as a tax-free return of capital, which will cause a reduction in
the adjusted tax basis of your ordinary shares or ADSs in the company.
This adjustment will increase the amount of gain, or decrease the amount
of loss, that you will recognize if you later dispose of those ordinary
shares or ADSs; and

- second, the balance of the dividend in excess of the adjusted tax basis
in your ordinary shares or ADSs will be taxed as capital gain recognized
on a sale or exchange.

French withholding tax imposed on the dividends you receive and on any
avoir fiscal at 15% under the Treaty is treated as payment of a foreign income
tax. You may take this amount as a credit against your U.S. federal income tax
liability, subject to specific conditions and limitations.

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.

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 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. The form and its
instructions are available from the Internal Revenue Service in the United
States or from the Centre des Impots des Non Residents.

For U.S. federal income tax purposes, the amount of the precompte will be
included in your gross income as dividend income in the year you receive it. It
will generally constitute foreign source passive income for foreign tax credit
purposes. For recipients predominantly engaged in the active conduct of a
banking, insurance, financing or similar business, the precompte will generally
constitute foreign source financial services income for foreign tax credit
purposes. The amount of any precompte paid in euros or French francs, including
any French withholding taxes, will be equal to the U.S. dollar value of the
euros or French francs on the date the precompte is included in income,
regardless of whether the payment is in fact converted into U.S. dollars. You
will generally be required to recognize a U.S. source ordinary income or loss
when you sell or dispose of the euros or French francs.

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TAXATION OF CAPITAL GAINS

If you are a resident of the United States for purposes of the Treaty, you
will not be subject to French tax on any capital gain if you sell or exchange
your ordinary shares or ADSs, unless you have a permanent establishment or fixed
base in France and the ordinary shares or ADSs 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.

In general, for U.S. federal income tax purposes, you will recognize
capital gain or loss if you sell or exchange your ordinary shares or ADSs. Any
gain or loss will generally be U.S. source gain or loss. If you are an
individual, any capital gain will generally be subject to U.S. federal income
tax at preferential rates if you meet the specified minimum holding periods.

PASSIVE FOREIGN INVESTMENT COMPANY RULES

Vivendi Universal believes that it will not be treated as a passive foreign
investment company, or 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 Universal will be a
PFIC for any taxable year in which either:

- 75% or more of Vivendi Universal's 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 its
total assets on average.

For purposes of this test, Vivendi Universal will be treated as directly owning
its proportionate share of the assets, and directly receiving its proportionate
share of the gross income, of each corporation in which it owns, directly or
indirectly, at least 25% of the value of the shares of such corporation.

If Vivendi Universal were to become a PFIC, the tax applicable to
distributions on Vivendi Universal ordinary shares or ADSs and any gains you
realize when you dispose of the ordinary shares or ADSs may be less favorable to
you. You should consult your own tax advisors regarding the PFIC rules and their
effect on you if you purchase Vivendi Universal ordinary shares or ADSs.

FRENCH ESTATE AND GIFT TAXES

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 ordinary shares or 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 shares in conducting a business through a permanent
establishment or fixed base in France, or you held the ordinary shares or
ADSs for that use.

FRENCH WEALTH TAX

The French wealth tax does not generally apply to Vivendi Universal
ordinary shares or ADSs if the holder is a resident of the United States for
purposes of the Treaty.

UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING

Dividend payments on the ordinary shares or ADSs and proceeds from the
sale, exchange or other disposition of the ordinary shares or ADSs may be
subject to information reporting to the Internal Revenue Service and possible
U.S. backup withholding. U.S. federal backup withholding generally is imposed,
at a maximum rate of 31%, on specified payments to persons that fail to furnish
required
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information. Backup withholding will not apply to a holder who furnishes a
correct taxpayer identification number or certificate of foreign status and
makes any other required certification, or who is otherwise exempt from backup
withholding. Any U.S. persons 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
have generally expanded the circumstances under which information reporting and
backup withholding may apply.

Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against your U.S. federal income tax liability. You
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.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of Vivendi Universal's operations should be read
in conjunction with its financial statements and related notes included
elsewhere in this document. The following discussion contains forward-looking
statements that involve risks and uncertainties, including, but not limited to,
those described under "Risk Factors". Vivendi Universal's results may differ
materially from those anticipated in the forward-looking statements.

Since the introduction of the euro on January 1, 1999, Vivendi Universal's
functional and reporting currency has been the euro. Accordingly, Vivendi
Universal prepared its 2000 and 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. (see Note 2 to Vivendi Universal's consolidated financial statements).

OVERVIEW

Vivendi Universal was created through the merger of Vivendi, Seagram and
Canal Plus that was completed in December 2000. Vivendi Universal operates in
two global core businesses: Media and Communications, and Environmental
Services. The Media and Communications business is divided into five business
segments: Music, Publishing and TV & Film, which constitute its content
businesses, and Telecoms and Internet, which constitute its access businesses.
Integration and partnering of the Media and Communications business segments
enables Vivendi Universal to provide a diverse array of entertainment and
information content to an international customer and subscriber base over wired
and wireless access devices using cable, Internet, satellite and broadcast
networks.

Content

- The Music business is conducted through Universal Music Group, which
produces, markets and distributes recorded music throughout the world in
all major genres. Universal Music Group also manufactures, sells and
distributes video products in the United States and internationally, and
licenses music copyrights.

- The Publishing business is one of Europe's leading publishers of
information providing content across multiple platforms, including print,
multimedia, on the wired Internet and to PDAs via WAP technology. The
Publishing business is a content leader in five markets: education,
games, healthcare information, local services and business and general
information.

- The TV & Film business produces and distributes motion picture,
television and home video/DVD products worldwide, operates and has
ownership interests in a number of cable and pay TV channels, engages in
the licensing of merchandising and film property rights and operates
theme parks and retail stores around the world.

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Access

- The Telecoms business provides a broad range of telecommunications
services, including mobile and fixed telephony, Internet access and data
services and transmission, principally in Europe.

- The Internet business manages the strategic Internet initiatives and new
online ventures for Vivendi Universal. Utilizing advanced digital
distribution technology, the Internet business develops e-commerce,
e-services and thematic portals that offer access to the Internet via a
variety of devices, including mobile phones, PDAs, interactive TV and
computers.

Vivendi Environnement, a 63% effectively owned subsidiary of Vivendi
Universal, operates the Environmental Services business, with operations around
the globe. Vivendi Environnement provides environmental management services,
including as water treatment and system operation, waste management, energy
services and transportation services, to a wide range of public authorities and
industrial, commercial and residential customers.

SIGNIFICANT TRANSACTIONS

During the last year, Vivendi Universal entered into several significant
transactions that have realigned its businesses and have impacted the
comparability of its financial statements.

Merger of Vivendi, Seagram and Canal Plus

On December 8, 2000, Vivendi, Seagram and Canal Plus completed a series of
transactions in which the three companies combined to create Vivendi Universal.
The terms of the Vivendi/Seagram/Canal Plus merger included:

- The merger of Vivendi into its wholly owned subsidiary Vivendi Universal.

- Vivendi Universal's combination, through its subsidiaries, with Seagram
in accordance with a plan of arrangement under Canadian law. In Vivendi
Universal's combination with Seagram, holders of Seagram common shares
(other than those exercising dissenters' rights) received .80 Vivendi
Universal American Depositary Shares (ADSs), or .80 non-voting
exchangeable shares of Vivendi Universal's Canadian subsidiary Vivendi
Universal Exchangeco Inc. (exchangeable shares) and an equal number of
related voting rights in Vivendi Universal, for each Seagram common share
held.

- In connection with the business combination of Vivendi Universal and
Seagram, Vivendi entered into a series of transactions involving Canal
Plus, an entity approximately 49% owned by Vivendi before the
Vivendi/Seagram/Canal Plus merger and included in its consolidated
financial statements. Vivendi Universal acquired all the businesses of
Canal Plus other than the French premium pay television channel business,
which was subject to a French law that prohibits any person from owning
more than 49% of a French television broadcaster. Canal Plus shareholders
received two Vivendi Universal ordinary shares for each Canal Plus
ordinary share they held and retained their existing shares in Canal
Plus, which retained the French premium pay television channel business.
Vivendi Universal remains a 49% shareholder in Canal Plus and continues
to consolidate it.

In connection with the Vivendi/Seagram/Canal Plus merger, on December 19,
2000, Vivendi Universal entered into an agreement with Diageo plc and Pernod
Ricard S.A. to sell its spirits and wine business for $8.15 billion, an amount
that is expected to result in approximate after-tax proceeds of $7.7 billion.
The sale is expected to close during 2001 and is subject to regulatory approvals
and customary closing conditions. It accounts for the spirits and wine business
net operations as an exceptional item in the income statement and the expected
proceeds from the sale as an investment on the balance sheet.

In connection with the European Commission's approval of the
Vivendi/Seagram/Canal Plus merger pursuant to the relevant European merger
regulations, Vivendi Universal committed to divest almost all of its stake in
British Sky Broadcasting Group (BSkyB), the leading pay television broadcasting
service in the United Kingdom and Ireland, within a period of two years from the
completion of the Vivendi/Seagram/Canal Plus merger.

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Purchase of Interest in Maroc Telecom

In December 2000, Vivendi Universal announced that it had acquired a 35%
stake in Moroccan telecommunications operator Maroc Telecom for approximately
E2.3 billion. Maroc Telecom, which operates fixed-line and mobile telephone
networks in Morocco, is estimated to have generated revenue of approximately
E1.3 billion in 2000. In cooperation with Maroc Telecom, Vivendi Universal
intends to contribute its telecoms experience to the modernization of the
telecommunications industry in Morocco.

Disposition of Sithe

In December 2000, Vivendi Universal, along with other shareholders of Sithe
Energies, Inc. finalized the sale of 49.9% of its stake in Sithe to Exelon
(Fossil) Holdings, Inc., for approximately $696 million. The net proceeds of the
transaction to Vivendi Universal were approximately $475 million. Following the
transaction, Exelon is the controlling shareholder of Sithe; Vivendi Universal
retains an interest of approximately 34%. For a period of three years beginning
in 2002, Vivendi Universal can put to Exelon, or Exelon can call from Vivendi
Universal, Vivendi Universal's remaining interest. As a result of the
transaction, it ceased to consolidate Sithe's results of operations for
accounting purposes effective December 31, 2000. In April 2000, Sithe sold 21
independent power production plants to Reliant Energy Power Generation for E2.13
billion. This transaction generated a capital gain of E415 million.

Disposition of Non-Core Construction and Real Estate Businesses

As part of its strategy of focusing on its core Media and Communications
and Environmental Services businesses, Vivendi Universal has decided to withdraw
from its non-core construction and real estate businesses. In order to
facilitate this withdrawal, it restructured Compagnie Generale d'Immobilier et
de Services, its wholly owned real estate subsidiary, into two principal groups
of companies: Nexity and Vivendi Valorisation. In July 2000, Vivendi Universal
sold 100% of Nexity to a group of investors and to Nexity's senior management
for E42 million, an amount that approximated book value of these operations.
Vivendi Valorisation holds its remaining property assets, which consist
primarily of investments arising out of past property development projects.
These assets are managed by Nexity pending their sale. In February 2000, Vivendi
Universal reduced its interest in Vinci (Europe's leading construction company)
from 49.3% to 16.9%, receiving in exchange E572 million, which resulted in a
capital gain of approximately E374 million. Subsequently, Vinci merged with the
construction company, Groupe GTM, which reduced its interest in the combined
entity to 8.67%. As a result of these transactions Vivendi Universal ceased to
consolidate Vinci's results effective July 1, 2000. Vivendi Universal has
committed not to engage in further sales of Vinci shares until 2001, except to
Vinci itself. Vivendi Universal intends to dispose of its remaining stake in
2001.

Lagardere Alliance

In July 2000, pursuant to an alliance between Canal Plus and Lagardere, a
French media company, Lagardere acquired a 34% stake in CanalSatellite and a
27.4% stake in MultiThematiques. Canal Plus reduced its stake in
MultiThematiques to 27.4%. Canal Plus and Lagardere also set up three joint
ventures. The first, 51% owned by Lagardere and 49% by Canal Plus, will own and
operate existing theme channels and intends 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 joint venture between Lagardere and MultiThematiques, will create and
distribute new theme-based channels based on Lagardere's international brands
such as Elle.

Expansion of Vizzavi

In May 2000, Vivendi Universal signed an agreement with Vodafone pursuant
to which it will participate in a venture to operate and promote Vizzavi, a
multi-access Internet portal that 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. Vizzavi was introduced

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in France in June 2000. Together with Vodafone, Vivendi Universal plans to
introduce it in a number of European countries by the end of 2001.

Other Acquisitions

In addition to the above, Vivendi Universal invested approximately E3
billion in the acquisition of other companies during 2000. This amount
corresponds to the cash and non-cash investments made by it and does not take
into account cash held by the acquired companies. The most significant
acquisitions in the period can be categorized as follows:

- Internet -- E780.1 million, principally used to acquire i-France for
E149.3 million and Scoot for E443.4 million;

- Telecoms -- E441.5 million relating to the acquisition of United Telecom
Investment in Hungary for E130.3 million, Kencell in Kenya for E35.9
million, Xfera in Spain for E96.2 million and Vendi Telecom Espana SL for
E90.2 million;

- TV & Film -- E520.0 million in connection with financing the development
of subsidiaries, including CANAL+ Belgium, Eurosport and Sogecable;

- Publishing -- E219.1 million, including E93.3 million in Staywell, a
medical publishing company;

- Environmental Services -- E920.3 million, including E700.6 million
dedicated to international expansion; and

- Other of E123.2 million.

Formation/IPO of Vivendi Environnement

Vivendi Environnement was formed at the end of 1999. It brought together
the majority of Vivendi Universal's water, waste management, energy services and
transportation businesses, as well as its interest in FCC. Vivendi
Environnement's formation was achieved by either the contribution of existing
businesses and companies or the purchase of shares. Generale des Eaux, Dalkia
and Companie Generale d'Entreprises Automobiles were transferred at book value
in accordance with tax provisions applicable to certain mergers. US Filter and
Vivendi Universal's interest in FCC were acquired by Vivendi Environnement in
December 1999. In July 2000, Vivendi Environnement sold approximately 37% of its
shares to the French public and to institutional investors in France and
elsewhere in an initial public offering. Vivendi Universal currently holds an
effective 63% interest in Vivendi Environnement, and intends to maintain
majority control at this level for the long term.

RECENT DEVELOPMENTS

On July 23, 2001, Vivendi Universal announced second quarter and first half
2001 revenue and EBITDA results for its Media and Communications business. For
the second quarter of 2001 ended June 30, EBITDA increased to E1.3 billion, and
revenue growth was 16% (excluding Universal Studios Group Filmed Entertainment)
versus the pro forma results of the comparable period in 2000. Excluding Maroc
Telecom, which was consolidated for the first time in the second quarter of
2001, revenue growth was 8% (excluding Universal Studios Group Filmed
Entertainment) and EBITDA growth was 35%. For the first half of 2001, the Media
and Communications business generated EBITDA growth of 77% to E2.2 billion
versus pro forma results for the first half of 2000 (62% excluding Maroc
Telecom). Revenues for the first half of 2001 were E12.4 billion, reflecting a
15% increase over the pro forma first half 2000 (excluding Universal Studios
Group Filmed Entertainment) and 11% overall excluding Maroc Telecom and
Universal Studios Group Filmed Entertainment.

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MEDIA AND COMMUNICATIONS(a)
(MILLIONS OF EUROS, UNAUDITED)

QUARTER ENDED JUNE 30, FIRST HALF ENDED JUNE 30,
---------------------- --------------------------
2001 2000 2001 2000
ACTUAL PRO FORMA(B) ACTUAL PRO FORMA(B)
------ ------------ -------- --------------

REVENUE
Music......................................... 1,540 1,533 2,986 2,933
Publishing.................................... 794 846 1,611 1,569
TV & Film..................................... 2,248 2,084 4,325 4,092
Telecoms...................................... 1,983 1,312 3,478 2,465
Internet...................................... 27 13 46 15
----- ----- ------ ------
MEDIA AND COMMUNICATIONS...................... 6,592 5,788 12,446 11,074
Holding and Corporate......................... -- (2) -- --
----- ----- ------ ------
TOTAL MEDIA AND COMMUNICATIONS........ 6,592 5,786 12,446 11,074
===== ===== ====== ======
EBITDA(c)
Music......................................... 271 232 451 389
Publishing.................................... 120 119 223 201
TV & Film..................................... 314 171 598 292
Telecoms...................................... 703 414 1,136 554
Internet...................................... (39) (42) (88) (60)
----- ----- ------ ------
MEDIA AND COMMUNICATIONS...................... 1,369 894 2,320 1,376
Holding and Corporate......................... (64) (64) (115) (127)
----- ----- ------ ------
TOTAL MEDIA AND COMMUNICATIONS........ 1,305 830 2,205 1,249
===== ===== ====== ======

---------------
(a)U.S. GAAP based, with exception of certain TV & Film operations, which are
stated in French GAAP.

(b)Pro forma results include the acquisition of Seagram and exclude France
Loisirs (which is not consolidated in 2001).

(c)EBITDA is defined as operating income before amortization and depreciation,
expenses of replacement and repair of installation and equipment owned by
local authorities. EBITDA should not be considered an alternative to
operating or net income as an indicator of Vivendi Universal'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. Vivendi Universal EBITDA may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.

Business Units Highlights

Music. In the second quarter, Universal Music Group, or UMG, generated
double-digit EBITDA growth of 17% to E271 million, reflecting strong
performances in the U.S. and Japan, and in UMG's music publishing business. This
was primarily due to improved margins in the product mix and increased sales of
catalog product, a slight decline in overall artist and repertoire costs and the
increased contribution from music publishing. Revenues were flat in the second
quarter, versus a very strong comparable quarter in 2000, in spite of an adverse
business environment, including overall market declines since the beginning of
the year in the U.S. and in two of the group's larger international markets:
Brazil and Germany. UMG recorded first half 2001 revenue growth of 2% and EBITDA
growth of 16%. UMG market share in the first half of 2001 versus the comparable
period in 2000 increased in Japan and the U.K. and essentially remained constant
in the U.S.

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Publishing. In the second quarter of 2001, Vivendi Universal Publishing,
or VUP (formerly Havas), reported a 6% decrease in revenues and a 1% increase in
EBITDA versus pro forma results for the comparable period in 2000, due to the
timing associated with its games division release schedule and seasonality
impacts. The second quarter of 2000 included the very successful release of
Diablo II, partially offset in the second quarter of 2001 by the success of the
Diablo II expansion pack which ranked VUP first in June 2001 in the U.S. for the
PC game market. The impact of trade fair activity, which primarily occurs on a
bi-annual basis, also weakened second quarter 2001 results.

In the second quarter of 2001 Vivendi Universal's education and literature
divisions recorded a 12% increase in revenues and almost a three-fold increase
in EBITDA, primarily due to Jumpstart leading in market share, the launch of
Adi5 and Adiboudchou, and a successful back-to-school program in Brazil which
occurs in the first half of the calendar year. The Business-to-Business division
sustained its performance in a weak advertising market, with EBITDA stable
versus 2000. The successful integration of Staywell and 3V (a U.S. patient
education business) generated a good performance for the Health division.

Vivendi Universal Publishing's first half 2001 revenues increased 3%, and
EBITDA growth was 11% versus 2000 pro forma results for the comparable period.
Vivendi Universal is evaluating the disposal of certain non-core businesses and
focusing its activities in areas where Vivendi Universal is a market leader.

On July 6, 2001, Vivendi Universal successfully completed its cash tender
offer for Houghton Mifflin Company, a leading U.S. educational publisher. To
date, Vivendi Universal has acquired approximately 90% of Houghton Mifflin's
outstanding shares. The total consideration approximates $2.2 billion, including
the assumption of Houghton Mifflin's average net debt of $500 million. With this
acquisition, VUP -- already a leader in France, Spain and Brazil and with a very
strong market share throughout Europe and Latin America -- is expected to be in
the number two position worldwide in education publishing. The Houghton Mifflin
acquisition is expected to significantly enhance VUP's position in the U.S.
textbook market and allow the immediate undertaking of synergies in
production/logistics and corporate restructuring with other U.S. operations of
VUP.

TV & Film. In the second quarter of 2001, EBITDA from the TV & Film
business increased 84% to E314 million. Revenues increased 11%, excluding the
results of Universal Studios Group Filmed Entertainment, which increased 4%. In
the first half of 2001, TV & Film EBITDA more than doubled to E598 million, and
revenues, excluding Universal Studios Group Filmed Entertainment, increased 12%.

At Universal Studios, EBITDA increased 193% to E169 million in the second
quarter of 2001 from E58 million in the second quarter of 2000. The significant
improvement in EBITDA primarily reflects the performance of the motion picture
business. Universal Studios also extended its distribution agreement with
DreamWorks SKG for five additional years.

Universal Studios' recreation business reported improved earnings,
primarily due to management fees earned from the new park, Universal Studios
Japan, that opened on March 31, 2001.

At CANAL+, second quarter 2001 revenues increased 11% from the comparable
period in 2000, primarily due to distribution activities (CanalSatellite and
Telepiu), a growing subscriber base, higher ARPU (average revenue per user) and
a continuous move from analog to digital subscriptions. Second quarter EBITDA
increased 26% to E139 million, primarily reflecting distribution activities and
StudioCanal. CANAL+ digital subscribers increased 30% to 5.8 million year over
year.

The TV & Film division continued the reorganization of its different
businesses to ensure growth and profitability:

Vivendi Universal and News Corp. agreed to merge their pay television and
digital distribution activities in Italy. In the Nordic countries, CANAL+ sold
its stake in the regional satellite platform Canal Digital, while securing a
long-term exclusive distribution agreement for its Nordic premium channels.
CANAL+ also reorganized its French premium channel by implementing a
restructuring process to reduce

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overheads and maximizing its attractiveness and the cost effectiveness of its
unscrambled programming grid in order to compensate for an expected increase in
sports rights costs.

In movie and television production and distribution, Universal Pictures and
StudioCanal were combined. StudioCanal acquired a controlling interest in
Expand, France's leading and Europe's third-ranked producer of TV programming.
The expected acquisition of the remaining publicly owned shares of StudioCanal
is expected to facilitate the continued implementation of synergies with
Universal Pictures.

Telecoms. In the second quarter of 2001, revenues in Telecoms increased by
51%, and EBITDA grew by 70% versus the second quarter of 2000. Excluding Maroc
Telecom, which was consolidated for the first time in the second quarter of
2001, revenue growth was 23%, and EBITDA increased 24% versus the second quarter
of 2000. In the first half of 2001, Telecoms reported revenue growth of 41% to
E3.5 billion and EBITDA growth doubled to E1.1 billion versus the first half of
2000. Excluding Maroc Telecom, EBITDA increased 71% on revenue growth of 26% in
the first half of 2001 compared to the same period last year.

Telecoms achieved these results primarily through its largest subsidiary,
SFR. In the second quarter of 2001, SFR increased market share to 34%, reduced
churn to 2.0%, decreased acquisition costs by 21% and stabilized ARPU. SFR's
customer base increased by 640,000 customers in the second quarter of 2001 to
11.2 million customers. In the first half of 2001, SFR increased its EBITDA
margin to 39% from 29% for the comparable period in 2000. In May 2001, the
French regulator awarded SFR a third generation UMTS (Universal Mobile
Telecommunications System) license. The definitive award by the French
authorities is in progress.

Cegetel's fixed telephone service had over 2.7 million lines (including 35%
of pre-selected lines) in operation by June 30, 2001, compared with 2.0 million
lines (including 2% of pre-selected lines) by June 30, 2000. Total voice volume
in millions of minutes increased 62% versus the second quarter of 2000.

Vivendi Universal acquired an interest in Maroc Telecom, which it began
consolidating in the second quarter of 2001, and obtained controlling influence
through board representation. The Moroccan telephone market offers significant
growth potential for Vivendi Universal's international Telecoms business.

Internet. In the second quarter of 2001, EBITDA losses declined to E39
million. First half 2001 EBITDA losses were E88 million, of which E19 million
relate to sites Vivendi Universal plans to divest. Through Vivendi Universal
Net, Internet-based activities are focused on achieving growth, primarily
through selective investments, the strong internal growth of its subsidiaries
and the development of applications with multiple sources of revenue.

COMPARABILITY

Basis of Presentation

The discussion presented below includes an analysis of total Vivendi
Universal and business segment results prepared in accordance with French GAAP,
which differs in certain significant respects from U.S. GAAP.

For the years ended December 31, 2000, 1999 and 1998, Vivendi Universal had
a net income under U.S. GAAP of E1,907.8 million, E246.1 million and E565.2
million, respectively, compared to E2,229.0 million, E1,431.4 million and
E1,120.8 million under French GAAP. Under U.S. GAAP, shareholders' equity was
E64,729.4 million and E16,954.5 million for 2000 and 1999, respectively,
compared to E56,671.1 million and E10,892.2 million under French GAAP.

The most significant reconciling item relates to business combination
accounting as described in Note 16 to Vivendi Universal's consolidated financial
statements. Under French GAAP, goodwill may be recorded as a reduction of
shareholders' equity when the acquisition has been paid for with equity
securities, whereas goodwill is recognized 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 Universal's consolidated financial statements
using a method pursuant to which goodwill is computed as the difference between
the

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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 Universal's consolidated financial
statements prepared under French GAAP:

- an increase of its equity by E8,782.6 million and E7,876.3 million for
the years ended December 31, 2000 and 1999, respectively, and

- a decrease in its net income by E263.4 million, E1,052.7 million and
E191.0 million for the years ended December 31, 2000, 1999 and 1998.

Other significant items in reconciling French GAAP and U.S. GAAP, as they
apply to the company, are described in Note 16 to Vivendi Universal's
consolidated financial statements.

Change in Accounting Principles

As of January 1, 2000, the following new accounting principles were
adopted:

- Revenue and expenses of subsidiaries financial statements denominated in
a currency different from euros, which were previously translated at the
year end exchange rate, are now translated at the average exchange rate
during the period. The cumulative effect of this change in accounting
principle would have decreased net income as of December 31, 1999 by
E16.3 million.

- Gains on foreign currency transactions, which were previously deferred,
are now recorded in current period earnings. The cumulative effect of
this change in accounting principle would have increased net income as of
December 31, 1999 by E107.4 million.

- Subscriber acquisition costs, which were previously spread over 12 months
from the date the line was put into service, are now charged to expense.
The cumulative effect of this change in accounting principle would have
decreased net income as of December 31, 1999 by E87.7 million.

- Sports broadcasting rights acquired by Canal Plus are now capitalized as
intangible assets and are amortized over the period of the agreement. The
cumulative effect of this change had no impact on net income in 2000 and
1999. Total assets increased by E2.0 billion (most of which related to
intangible assets) and total liabilities and shareholders' equity
increased by the same amount.

In order to facilitate comparability of financial statements, Vivendi
Universal has presented the 1999 financial statements on a restated basis. See
"Consolidated Financial Statements of Vivendi Universal -- Note 2 Summary of
Significant Accounting Policies" for a description of some of the policies used
in preparing its financial statements.

Pro Forma

To further enhance comparability, financial information for 2000 and 1999
is also presented on a pro forma basis which illustrates the effect of the
Vivendi/Seagram/Canal Plus merger, the consolidation of CANAL+ on a twelve month
basis in both periods and the divestiture of Vinci, as if the transactions had
occurred at the beginning of 1999. Vivendi Universal believes that pro forma
results represent meaningful comparative information for assessing earnings
trends because the pro forma results include comparable operations in each year
presented. The discussion of the Telecoms, Internet and Environmental Services
businesses do not include pro forma comparisons, since the pro forma adjustments
did not impact those segments. The pro forma results are not necessarily
indicative of the combined results that would have occurred had the events
actually occurred at the beginning of 1999. Vivendi Universal believes this
information will help to better understand its business results.

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RESULTS OF OPERATIONS

Earnings Summary

ACTUAL PRO FORMA
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------------- -------------------
2000 1999(1) 1999 1998 2000 1999
-------- -------- -------- -------- -------- --------
(EUROS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Revenue.......................... 41,797.6 40,854.5 41,622.5 31,737.1 52,521.2 44,000.5
EBITDA(2)........................ 5,980.9 4,300.6 5,235.0 3,453.0 7,213.2 4,862.5
Depreciation and
amortization................ (3,131.3) (2,186.3) (2,678.3) (1,831.7) (3,791.6) (2,718.9)
Expenses of replacement and
repair of installation...... (278.2) (278.8) (276.2) (289.9) (278.2) (274.5)
-------- -------- -------- -------- -------- --------
Operating income................. 2,571.4 1,835.5 2,280.5 1,331.4 3,143.4 1,869.1
======== ========
Financial (expense)/income....... (541.2) 75.9 (57.2) 307.3
Financial provisions............. (91.7) (163.0) (162.9) (298.0)
Exceptional items................ 2,755.2 (922.7) (914.3) 42.7
Depreciation, amortization and
provisions on exceptional
items.......................... 191.6 76.9 76.5 206.6
Goodwill amortization............ (634.2) (606.4) (612.0) (209.5)
-------- -------- -------- --------
Income before income taxes,
equity interest and minority
interest....................... 4,251.1 296.2 610.6 1,380.5
Income taxes and deferred tax.... (1,020.9) 946.1 793.2 (90.0)
Equity in net income of
affiliates..................... (306.3) 32.9 32.9 42.5
Minority interest................ (624.9) 159.4 (5.3) (212.2)
-------- -------- -------- --------
Net income....................... 2,299.0 1,434.6 1,431.4 1,120.8
======== ======== ======== ========
Earnings per share -- basic...... 3.6 2.7 2.7 2.5
======== ======== ======== ========

---------------
(1) Restated to reflect change in accounting policies.

(2)EBITDA is defined as operating income before amortization and depreciation,
expenses of replacement and repair of installation and equipment owned by
local authorities. EBITDA should not be considered an alternative to
operating or net income as an indicator of Vivendi Universal'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. Vivendi Universal EBITDA may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.

2000 Versus 1999 (Restated)

The actual 2000 results discussed below include the results of Seagram's
operations for the twenty-three day period since the completion of the merger on
December 8, 2000. The spirits and wine operations have been presented on a
single line as a component of exceptional items.

Revenue

Vivendi Universal's consolidated revenue totaled E41.8 billion in 2000 with
Media and Communications and Environmental Services accounting for E40.1
billion, a global increase of 37% over 1999. Almost 20% of the revenue growth
resulted from acquisitions and the impact of consolidating the results of CANAL+
for the full twelve-month period in 2000 (compared to three months in 1999),
3.7% resulted from favorable foreign currency exchange rates and 13.6% was due
to internal growth (growth on a comparable basis at constant exchange rates
excluding the impact of acquisitions and dispositions).

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Vivendi Universal's Media and Communications businesses earned revenue of
E13.6 billion in 2000, an increase of 63% over 1999, primarily due to the
consolidation of CANAL+, as discussed above. Revenue from Universal Studios and
Universal Music Group for the twenty-three day period included in the above was
E0.2 and E0.5 billion, respectively. Internal growth in Vivendi Universal's
Media and Communications businesses was 19% with growth in all business
segments. The Media and Communications businesses represented 33% of Vivendi
Universal's revenue in 2000, compared to 20% in 1999.

Vivendi Universal's Environmental Services businesses generated revenue of
E26.5 billion in 2000, an increase of 26% compared to 1999. The increase was the
result of internal growth of 11% and the full-year effect of acquisitions made
in 1999, principally US Filter which was consolidated for twelve months in 2000
compared to eight months in 1999. Internal growth was generated by new contracts
in the water, waste management and transportation divisions, increases in
volumes and the price of paper in the waste management division and cogeneration
facilities in France combined with expansion in Northern and Eastern Europe in
the energy division. The Environmental Services businesses represented 63% of
Vivendi Universal's revenue, compared to 51% in 1999.

Revenue from non-core businesses declined to E1.7 billion in 2000 from
E11.6 billion in 1999, reflecting Vivendi Universal's withdrawal from
construction and real estate operations. The disposition of Vinci and Nexity,
with revenue of E8.8 and E1.5 billion respectively in 1999, account for the
revenue decline. Of the E1.7 billion in revenue from non-core businesses, E1.4
billion were earned by Sithe, in which Vivendi Universal now has a reduced
interest.

In 2000, E21.2 billion or 51% of total revenue was generated in France,
compared to E23.6 billion or 58% in 1999. The revenue decline in France and
corresponding growth outside France reflected the impact of Vivendi Universal's
acquisitions and dispositions, discussed above. Of the revenue generated outside
of France, E5.6 billion was earned in the "euro zone" (includes 10 countries in
Western Europe) and E4.8 billion was earned in European countries outside the
euro zone, including E3.0 billion in the United Kingdom. In the Americas,
revenue increased 52% to E8.5 billion, in Asia/Pacific, revenue reached E1.3
billion, including E0.5 billion in Australia, an increase of 64%. In emerging
markets, revenue was approximately E0.5 billion.

Operating Income

Operating income was E2.6 billion in 2000, a 40% increase over 1999.
Vivendi Universal's Media and Communications businesses generated operating
income of E612.1 million, before holding and corporate expenses, more than
triple that of 1999. Including holding and corporate expenses, Media and
Communications operating income was E417.5 million, representing 16% of Vivendi
Universal's total operating income. This growth came primarily from its Telecoms
business. This increase was primarily a consequence of the increased
profitability of its French mobile business, which had operating income of
E659.9 million, up from E185 million in 1999. In addition, Cegetel's fixed
telephony business start-up losses were reduced, from E206.3 million in 1999 to
E148.9 in 2000.

Operating income generated by Vivendi Universal's Environmental Services
businesses reached E1.9 billion in 2000, up from E1.5 billion in 1999. This 28%
increase is attributable primarily to Vivendi Water and Onyx. Internal growth,
primarily resulting from new environmental contracts, was 10%. Vivendi
Universal's Environmental Services businesses contributed almost 74% to its
operating income in 2000, compared to 81% in 1999. Operating income from
non-core businesses, principally in construction and real estate amounted to
E257.4 million in 2000 versus E351.3 million in 1999.

On a pro forma basis, operating income increased 68% to E3.1 billion and
EBITDA increased 48% to E7.2 billion in 2000. These results reflect the strong
performance and growth in all business units with the exception of Internet, in
which development costs related to business expansion continued to have a
negative impact on earnings.

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Financial Expense/Income

Vivendi Universal's net financial expense increased significantly in 2000
to E632.9 million primarily due to increased financing costs associated with its
acquisitions. In addition to E1,288.4 million of financing costs, 2000 net
financial expense included E684.8 million of capital gains on the sale of
portfolio investments, primarily the sale of Alcatel and treasury shares and
E91.7 million of financial provisions. In 1999, its net financial expense was
comprised of E871.9 million in financing costs, E450.6 million of capital gains,
E163.0 million of financial provisions and E235.6 million of foreign exchange
gains. Its average cost of debt in 2000 was 5.15% compared to 5.13% in 1999.

Exceptional Items

In 2000, Vivendi Universal recorded net exceptional income of E2.9 billion,
compared to net exceptional expense of E0.8 billion in 1999. Significant items
included in the 2000 net exceptional income were:

- a net gain of E779.6 million on the dilution of Vivendi Universal's
interest in Vivendi Environnement due to the IPO of that subsidiary;

- E2,997 million in capital gains and gains on the dilution of Vivendi
Universal's interests in other companies, including Dalkia (E734.6
million), Vinci (E549.3 million), BSkyB (E473.4 million),
CanalSatellite/MultiThematiques (E408.1 million) and Sithe/GPU (E371.9
million)

- E270.9 million in restructuring costs including, E146.7 million for
Vivendi Universal's Publishing business and E124.2 million for its
Environmental Services business.

Goodwill Amortization

Goodwill amortization increased five percent to E634.2 million in 2000,
primarily due to the inclusion of twenty-three days of goodwill amortization
related to the merger with Seagram and Canal Plus, partially offset by the
impact of dispositions.

Income Taxes

Vivendi Universal's income and deferred tax provision was E1 billion in
2000, compared to a tax benefit of E946.1 million in 1999. The year-on-year
variance primarily results from a revaluation of tax loss carry forwards in 1999
of approximately E1 billion. Excluding exceptional items and goodwill
amortization, Vivendi Universal's effective tax rate in 2000 was 33.7%.

Equity in Earnings of Affiliates

The equity in earnings of affiliates decreased to a loss of E306.3 million
in 2000 from income of E32.9 million in 1999. The decrease is primarily due to
increased losses from TV & Film affiliates of E109.2 million in 2000 compared to
E20 million in 1999 and BSkyB of E118.9 million in 2000 compared to E13.7
million in 1999, combined with losses of E125.1 million from new Internet
affiliates, most of which did not exist in 1999.

Net Income

Net income of E2.3 billion or E3.6 per basic share was earned in 2000,
compared with net income of E1.4 billion or E2.7 per basic share in 1999.

1999 Versus 1998

Revenue

Vivendi Universal's consolidated revenue increased to E41.6 billion in 1999
from E31.7 billion in 1998. Of this 31.2% increase, 19.6% resulted from
acquisitions, primarily of US Filter, Superior Services and

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Havas Interactive, and the full year effect of Vivendi Universal's earlier
acquisition of FCC. A further 9.7% was due to internal growth, principally in
the Telecoms business. The impact of changes in exchange rates, particularly in
the U.S. dollar/euro exchange rate, accounted for the remaining two percent.

In 1999, Vivendi Universal's Media and Communications businesses earned
revenue of E8.6 billion compared to E5.9 billion in 1998. Of this 44% increase,
23% was the result of internal growth in the Telecoms segment, caused primarily
by a significant increase in demand for Vivendi Universal's mobile telephony
services. The remaining 21% resulted from acquisitions, principally of Havas
Interactive, Medi-Media and Canal Plus, in which Vivendi Universal acquired an
additional 15% ownership interest in September 1999. The Media and
Communications businesses represented 21% of Vivendi Universal's revenue in
1999, compared to 19% in 1998.

Vivendi Universal's Environmental Services businesses generated revenue of
E22.4 billion in 1999, compared to E16 billion in 1998. Of this 40% increase,
29% was attributable to external growth, principally Vivendi Universal's
acquisitions of US Filter and Superior Services. Approximately eight percent 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 Services businesses represented 54% of its
revenue, compared to 50.5% in 1998. Revenue from non-core businesses,
principally in construction and real estate amounted to E10.6 billion in 1999
versus E9.7 billion in 1998.

Geographically, revenue generated in France totaled E23.8 billion, an
increase of 11%, 10% of which came from internal growth. The majority of the
growth was in Telecoms due the continued strong performance of Vivendi
Universal's French telecommunications operations. Of the total revenue, 57% was
generated in France in 1999 compared to 67% in 1998. Revenue generated outside
France increased 73% to E17.8 billion in 1999, primarily as a result of Vivendi
Universal's acquisitions discussed above. Internal growth, principally due to
the impact of new environmental contracts, accounted for the remainder, or 10%.
In total, business outside France represented 43% of its total revenue, compared
to 33% in 1998. Of the revenue generated outside of France, E5.9 billion was
earned in the euro zone, an increase of 46.7% and E4.9 billion was earned in
European countries outside the euro zone, an increase of 29%, of which the
United Kingdom accounted for E3.5 billion. In the Americas, revenue increased
almost fourfold to E5.6 billion, in Asia/Pacific, revenue reached E0.8 billion,
including E0.3 billion in Australia, an increase of 71%. In emerging markets,
revenue was approximately E1 billion.

Operating Income

Operating income was E2.28 billion in 1999, a 71.3% increase over 1998, of
which 33.5% was due to internal growth. The increase in operating income
reflected a 1.3% improvement in operating margin and the impact of the
acquisitions described above. The improved operating margin reflected internal
growth in revenue of 9.7% compared to an 8.6% increase in operating expenses.
Operating income generated by Media and Communications businesses, before
holding and corporate expenses, doubled to E551.6 million (including internal
growth of a factor of 2.4), representing 24% of Vivendi Universal's total
operating income, compared to less than 20% in 1998. This growth came primarily
from its Telecoms business, where operating income rose from E22.5 million to
E350.6 million. This increase was primarily a consequence of the increased
profitability of its 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 Publishing business generated a 40% increase in operating income, a
gain that resulted equally from the integration of its 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 its Internet businesses.

Operating income generated by Vivendi Universal's Environmental Services
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 US Filter,
which contributed approximately E339.1 million to Vivendi Universal's 1999
operating income. Internal growth, primarily resulting from new environmental
contracts such as those

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described above, was 9.8%. Vivendi Universal's Environmental Services businesses
contributed 73% to its operating income in 1999, compared to slightly over 80%
in 1998. Operating income from non-core businesses, principally in construction
and real estate amounted to E225.8 million in 1999 versus an operating loss of
E113.4 million in 1998.

Financial Expense/Income

Vivendi Universal's net financial expense was E220.1 million in 1999
compared to net financial income of E9.3 million in 1998. This decline was
primarily due to an increase of E463.9 million in its financing costs, which
grew as a result of its 1999 acquisitions. As a result of a hedging policy that
was implemented at the end of 1998, its average cost of debt fell from 5.45% to
5.13% between 1998 and 1999 in spite of 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 cancelation of certain real estate risks. It 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. In 1999, it 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.

Exceptional Items

In 1999, Vivendi Universal recorded a net exceptional loss of E837.8
million, compared to a E249.3 million profit in 1998. Significant items included
in the 1999 net exceptional loss were:

- capital gains of E650.8 million (E575.4 million re: Havas' billboard
advertising business sale, E275.2 million re: the sale of Vivendi
Universal's 18.7% interest in Audiofina and E148.7 million re: the sale
of 9% of Havas Advertising), partially offset by a pre-tax capital loss
of E386.7 million incurred in connection with the sale of CGIS's real
estate assets;

- exceptional charges of E1.42 billion, of which almost E800 million
consisted of provisions related to real estate assets, (particularly the
multi-year construction programs which were revalued to facilitate the
process of selling them) and E318.5 million consisted of provisions
related to the accelerated write-off of CANAL+ digital set-top boxes
(which 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,
of which related primarily to the construction, water, and energy
services.

Goodwill Amortization

Goodwill amortization increased significantly in 1999. This increase is due
primarily to strategic acquisitions, particularly of US Filter (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 US Filter acquisition, and as part as of the
restructuring of its activities in the United States, Vivendi Universal wrote
down the goodwill related to Aqua Alliance (E92 million) and its subsidiaries
(E90 million).

Income Taxes

Vivendi Universal'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. The E0.8
billion profit is due to the fact that it recognized in 1999 a deferred tax
asset of E1 billion.

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Equity in Earnings of Affiliates

Vivendi Universal'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 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
Universal's net income, compared with a negative E9.6 million in 1998. BSkyB
contributed negative income of E13.7 million.

Net Income

Vivendi Universal'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
E2.5 in 1998, a 10% increase.

BUSINESS SEGMENT RESULTS

ACTUAL PRO FORMA
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------------------- --------------------
2000 1999(1) 1999 1998 2000 1999
-------- -------- -------- -------- -------- --------
(EUROS IN MILLIONS)

Revenue
Music..................... 494.6 -- -- -- 6,611.0 5,705.0
Publishing................ 3,539.8 3,278.4 3,316.9 2,876.3 3,599.8 3,352.4
TV & Film................. 4,248.3 1,150.6 1,151.8 200.6 8,795.5 7,345.2
Telecoms.................. 5,270.1 3,912.5 4,102.2 2,875.2 5,270.1 3,912.5
Internet.................. 47.8 2.1 2.0 -- 47.8 2.1
-------- -------- -------- -------- -------- --------
Media &
Communications....... 13,600.6 8,343.6 8,572.9 5,952.1 24,324.2 20,317.2
Environment............ 26,512.0 20,959.4 22,428.2 16,047.2 26,512.0 20,959.4
Non-Core Businesses.... 1,685.0 11,551.5 10,621.4 9,737.8 1,685.0 2,723.9
-------- -------- -------- -------- -------- --------
Total Vivendi Universal..... 41,797.6 40,854.5 41,622.5 31,737.1 52,521.2 44,000.5
======== ======== ======== ======== ======== ========
EBITDA(2)
Music..................... 94.2 -- -- -- 1,157.0 840.0
Publishing................ 493.4 410.7 417.0 355.0 531.0 442.7
TV & Film................. 526.0 84.8 86.0 13.0 770.9 325.7
Telecoms.................. 1,303.3 493.7 1,372.0 674.0 1,303.3 493.7
Internet.................. (183.7) (34.3) (51.0) (4.0) (183.7) (34.3)
-------- -------- -------- -------- -------- --------
2,233.2 954.9 1,824.0 1,038.0 3,578.5 2,067.8
Holding and Corporate..... (137.0) (75.9) (75.5) (43.0) (250.0) (174.4)
-------- -------- -------- -------- -------- --------
Media &
Communications....... 2,096.2 879.0 1,748.5 995.0 3,328.5 1,893.4
Environment............ 3,544.3 2,723.6 2,781.0 1,929.0 3,544.3 2,723.6
Non-Core Businesses.... 340.4 698.0 705.5 529.0 340.4 245.5
-------- -------- -------- -------- -------- --------
Total Vivendi Universal..... 5,980.9 4,300.6 5,235.0 3,453.0 7,213.2 4,862.5
======== ======== ======== ======== ======== ========

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Operating income (loss)
Music..................... 85.5 -- -- -- 726.0 513.0
Publishing................ 344.7 352.1 354.5 252.2 382.3 384.1
TV & Film................. (110.6) (103.2) (102.7) (4.7) (90.6) (307.0)
Telecoms.................. 486.1 (60.4) 350.6 22.5 486.1 (60.4)
Internet.................. (193.6) (35.1) (50.8) (6.4) (193.6) (35.1)
-------- -------- -------- -------- -------- --------
612.1 153.4 551.6 263.6 1,310.2 494.6
Holding and Corporate..... (194.6) (151.6) (151.1) (116.6) (320.6) (259.5)
-------- -------- -------- -------- -------- --------
Media &
Communications....... 417.5 1.8 400.5 147.0 989.6 235.1
Environment............ 1,896.5 1,482.4 1,654.2 1,071.0 1,896.5 1,482.4
Non-Core Businesses.... 257.4 351.3 225.8 113.4 257.3 151.6
-------- -------- -------- -------- -------- --------
Total Vivendi Universal..... 2,571.4 1,835.5 2,280.5 1,331.4 3,143.4 1,869.1
======== ======== ======== ======== ======== ========

---------------
(1) Restated to reflect change in accounting policies.

Music

The Music business is conducted though Universal Music Group, which
develops, acquires, produces, markets and distributes recorded music through a
network of subsidiaries, joint ventures and licensees in 63 countries around the
world. Universal Music Group also manufactures, sells and distributes music
videos in the United States and internationally, licenses music copyrights and
publishes music. Universal Music Group's record labels include A&M, Barclay,
Blue Thumb, Decca/London, Def Jam, Deutsche Grammophon, Geffen, GRP, Impulse,
Interscope, Island, Jimmy and Doug's Farmclub.com, MCA, MCA Nashville, Mercury,
Mercury Nashville, Motown, Philips, Polydor, Universal and Verve. Universal
Music Group owns the most extensive music catalog in the industry and is at the
forefront of the development of new methods to distribute, market, sell, program
and syndicate music and music-related programming by exploiting the potential of
new technological platforms, that will allow the music business to be conducted
over the Internet, cellular networks, cable and satellite.

2000 Versus 1999

Actual. The actual 2000 results include twenty-three days of Universal
Music Group operations since the completion of the merger on December 8, 2000.
Revenue for that period was E494.6 million, EBITDA and operating income were
E94.2 million and E85.5 million, respectively.

Pro forma. Revenue increased almost 16% to E6.6 billion in calendar year
2000. Excluding the impact of favorable foreign exchange, revenue would have
increased five percent. In 2000, 67 albums reached worldwide sales in excess of
one million units and 5 albums sold over five million units. Major album sales
included those by Eminem, Limp Bizkit, U2, Bon Jovi, Nelly, Dr. Dre, 3 Doors
Down, Sisqo, Sting, Texas, Ronan Keating and Aqua, among others. Vivendi
Universal continues to hold strong chart positions in all music genres and major
markets, including the United States, United Kingdom, France,
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Germany and Brazil. Internationally, it continues to maintain a strong local
repertoire presence. In calendar 2000, revenue generated in North America
accounted for 44% of the total music revenue. The European market accounted for
39%, Asia Pacific contributed 13% and Latin America accounted for the remaining
four percent. Operating income increased 42% and EBITDA increased 38%, or 24% on
a constant exchange rate basis, reflecting strong performances in North America
and Europe and worldwide cost savings achieved from the integration of PolyGram,
partially offset by investments in Vivendi Universal's electronic business
initiatives and weaker results in Latin America.

Vivendi Universal believes that emerging technologies will be strategically
important to the future of the music business. Evolving technology allows
current customers to sample and purchase music in more and different ways, and
it exposes potential consumers to music they otherwise would not know exists.
Through a variety of independent initiatives and strategic alliances, it
continues to invest resources in the technology and electronic commerce areas
that will allow the music business to be conducted over the Internet, cellular
networks, cable, satellite, wireless broadband and future networks. Its
investments and initiatives include the Bluematter(TM) music format, the
DataPlay physical format, InterTrust Technologies, Jimmy and Doug's Farm Club,
GetMusic (Vivendi Universal's joint venture with BMG Entertainment) as well as
its joint venture with Sony Music Entertainment to develop and launch pressplay,
an online subscription-based music service.

Publishing

Vivendi Universal Publishing (formerly Havas) focuses on worldwide
multi-platform content (press, publishing, multimedia and trade fairs) in five
divisions -- games, education, health, information and literature. The games
division is No. 1 worldwide in online games and No. 2 worldwide in PC-based
games. The education division is one of the world leaders in its field and the
European leader in PC-based educational CD-ROMs. Its market segments are school
textbooks, youth, adult training and reference books. The divisions brands
include Larousse, Nathan, Anaya and Coktel (Adibou). The health division
provides professionals with regularly updated, top quality information. The
information division has three branches: B2B, general information and local
information. The literature division is a French market leader in general
literature with well-known publishing houses including, Robert Laffont,
Plon-Perrin and Les Presses-Solar-Belfond. Vivendi Universal Publishing is
focused on developing interactive and digital content within all its divisions.

2000 Versus 1999 (Restated)

Actual. Revenue generated by Vivendi Universal's Publishing businesses
totaled E3.5 billion in 2000, an increase of eight percent over 1999,
approximately five percent of which was from internal growth. Internal revenue
growth at its games division was 27%, primarily due to the worldwide success of
Diablo II, which has sold over three million copies since its launch in 2000.
The education division, with revenue of approximately E1.0 billion in 2000, had
a successful year in textbooks (partly due to the turnaround of Anaya in Spain)
but faced a weak market for educational CD-ROM sales, primarily in the U.S.
Revenue generated by the health division at E419 million, increased in excess of
90% compared to 1999, due in part to the integration of Staywell-3V, a leading
provider of consumer health information. Internal revenue growth in the health
division was six percent. The information division contributed revenue in excess
of E1.2 billion, an increase of six percent compared to 1999, reflecting the
outstanding advertising market for B2B and consumer magazines. The literature
division (excluding France Loisirs) performed well with revenue of E184 million,
up 10% from 1999. Revenue generated outside France accounted for 46% of the
Publishing businesses compared to 40% in 1999. Operating income for Vivendi
Universal's Publishing businesses was E344.7 million in 2000. Excluding the
amortization of Havas Interactive acquired software, operating income was E381
million, eight percent higher than 1999.

Pro forma. Pro forma EBITDA increased 20%, of which seven percent was from
internal growth. In 2000, Universal Interactive Games, which is included in the
pro forma results, included revenue of E60 million or slightly below two percent
of the total business, and operating income was E37 million. In 1999, Universal
Interactive Games revenue was E74 million and operating income was E32 million.
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1999 Versus 1998

Revenue generated by the Publishing businesses increased 15% to E3.3
billion in 1999, primarily due to the acquisition of Havas Interactive, which
contributed revenue of E536 million. Internal revenue growth was three percent.
Revenue generated by the Business and Professional division was E1.3 billion, up
nine percent from 1998, primarily due to the advertising market for professional
publications in France and in the United Kingdom and the integration of
MediMedia, the world leader in drug information, for six months. Revenue
generated by the General Public division was E1.5 billion, up 60% on 1998,
primarily due to the integration of Havas Interactive. Of the Publishing
businesses total revenue, 17% was generated by electronic media (mostly
educational and game CD-ROMs) compared to five percent in 1998. Geographically,
40% of the revenue was generated outside France, compared to 27% in 1998. The
Publishing businesses contributed E354.5 million to operating income in 1999, an
increase of E102.3 million from 1998, primarily due to acquisitions described
above. Internal growth was three percent resulting largely from productivity
enhancements in Vivendi Universal's French operations.

TV & Film

Vivendi Universal's TV & Film businesses are a major global player in film
and television production and distribution, pay television channels and
services, digital television technology, Internet content and themed
entertainment. The TV & Film businesses own the world's second-largest film and
television library, totaling more than 8,600 feature films and more than 30,000
hours of TV programs. The TV business is comprised of CANAL+ and Universal
Television and Networks Group. CANAL+ is the leading European producer and
operator of pay television premium and theme channels, the number one in Europe
in digital television and also is an international provider of digital TV
solutions. Universal Television and Networks Group is a global television sales,
networks and production operation, with customers in over 180 countries. The
Film business is comprised of Universal Pictures and StudioCanal which produce
and distribute motion picture, television and home video/DVD, products worldwide
and engage in the licensing of merchandising and film property rights. Universal
Studios Recreation Group operates the themed entertainment business, which is a
natural extension of the core TV & Film businesses. Its "Universal Studios"
destination resorts, theme parks and entertainment centers provide exciting and
compelling attractions to visitors around the world.

Through Universal Studios, Vivendi Universal has an effective 43% equity
interest in USA Networks, Inc., which is focused on the new convergence of
entertainment, information and direct selling. Formed in February 1998, the
company is organized into three distinct but interrelated units: entertainment,
electronic retailing and information and services.

2000 Versus 1999 (Restated)

Actual. Revenue from the TV & Film segment totaled E4.2 billion in 2000,
of which E3.8 billion was generated by CANAL+ and E0.2 billion was generated by
Universal Studios in the twenty-three day period following the merger. Revenue
growth for CANAL+ was 17%, with 13% growth in pay TV. All divisions contributed
to the revenue growth. Of the total TV & Film revenue, E2.7 billion were
generated in France and E1.5 billion were generated outside France. At December
31, 2000, CANAL+ had 15.3 million subscriptions, an increase of nine percent
over the prior year. The number of digital subscribers increased 32% in 2000, to
5.3 million. In spite of increased subscriptions and digital subscribers and
several hits from StudioCanal, the CANAL+ operating loss increased to E98
million in 2000 from a E22 million loss in 1999 on a full year basis. The
increased loss was primarily due to investment in the Italian pay television
market, sports rights and competition in Europe, which increased expenses aimed
at reinforcing subscriber loyalty and the move towards digitalization. This was
partly offset by positive operating results at StudioCanal and CanalSatellite.

Pro forma. Pro forma results include the operations of Universal Studios
on a twelve-month calendar year basis and the consolidation of CANAL+ for twelve
months in 1999. Pro forma EBITDA more than doubled to E770.9 million, on revenue
of E8.8 billion, largely due to strong box office

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performance at Universal Studios and a solid subscriber base in the pay
television market. The performance of Universal Studios improved year-on-year.
In 2000, revenue increased 23% (six percent on a constant rate basis) to E4.7
billion, operating income was E7 million, an increase of E282 million, and
EBITDA was E241 million, an increase of E337 million. These results reflect
improvements in both the filmed entertainment and recreation and other
businesses. Within the filmed entertainment business, revenue increased 22%
(five percent on a constant rate basis), and EBITDA was E70 million, an
improvement of E281 million compared to 1999. These results primarily reflect
the solid performance of the motion picture business in 2000. The theatrical
success of Dr. Seuss' How The Grinch Stole Christmas, Gladiator, Meet the
Parents, Erin Brockovich and Nutty Professor II: The Klumps, combined with
strong DVD and video sales of The Mummy, Notting Hill and American Pie resulted
in improved earnings. Additionally, the development of programs designed to
manage production, marketing, participation and overhead and development costs
also contributed to filmed entertainment results. Results of the television and
networks business also improved in 2000, primarily due to improved operating
performance for channels launched in prior years and higher international
earnings on USA Networks product, partially offset by lower library sales.
Within the recreation and other business, revenue increased 26% (eight percent
on a constant rate basis), and EBITDA increased to E171 million an improvement
of E56 million compared to 1999. These results reflect improved earnings at
Universal Studios Hollywood principally due to the opening of the CityWalk
expansion in April 2000, increased management fees and earnings generated from
the expansion of Universal Orlando and increased retail sales at Spencer Gifts.

1999 Versus 1998

Vivendi Universal's TV & Film businesses contributed E1.15 billion to total
revenue in 1999 compared to E0.2 billion in 1998. The significant increase was
primarily due to the E951 million contribution from CANAL+ for the three-month
period starting October 1, 1999. Prior to that date, the results of CANAL+ were
accounted for using the equity method, however, after acquiring the 15% interest
held by Richemont, the results of CANAL+ were fully consolidated. Vivendi
Universal's TV & Film businesses incurred an operating loss of E102.7 million in
1999, compared to a E4.7 million loss in 1998. The increased loss was due to the
negative contribution of E92.8 million from CANAL+ for the fourth quarter.

Telecoms

Through Cegetel and VTI, Vivendi Universal provides a broad range of
telecommunications services, including fixed and mobile telephony, Internet
access and data services and transmission. Vivendi Universal currently owns,
directly and indirectly, 44% of Cegetel's outstanding equity. The results of
Cegetel are consolidated because, through a shareholders' agreement, Vivendi
Universal has a majority of the shareholder voting rights and thus effective
control. With 15% of the French telecommunications market at the end of 2000,
Cegetel is the leading private full-service telecoms operator in France. Cegetel
offers mobile telephone services through its subsidiary SFR, long distance and
international fixed telephone services through Cegetel 7 and various
telecommunications services to business customers through Cegetel Entreprises.
VTI, a wholly owned subsidiary of Vivendi Universal, develops its
telecommunications activities outside France. At the end of 2000, VTI was
operating in Spain, Monaco, Poland, Hungary, Kosovo, Egypt, Morocco and Kenya.

2000 Versus 1999 (Restated)

The Telecoms business generated revenue of E5.3 billion in 2000, an
increase of 35%, of which approximately 32% was generated from internal growth.
Cegetel's revenue increased to E5.1 billion in 2000, compared with E3.9 billion
in 1999, an increase of approximately 31%. This growth was linked to the
continuing development of SFR, whose revenue increased by 31% to E4.6 billion in
2000, due to a 38% increase in the user base, from 7.3 million customers at the
end of 1999 to 10.1 million at the end of 2000, which represented 35% of the
French mobile telephone market. The volume increase was in line with the French
mobile market growth, where penetration grew from 34% at the end of 1999 to 49%
at the end of 2000. Monthly average usage per customer increased from 240
minutes in 1999 to 290 minutes in 2000.

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SFR's revenue growth was achieved despite a 15% decrease of the average revenue
per user, from E53 to E45, which resulted primarily from increased share of
prepaid customers in the customer base, a general trend of the French market,
such customers representing significantly lower bills than postpaid customers.
Prepaid customers accounted for 43% of SFR's total customer base at the end of
2000, versus 33% at the end of 1999. Additionally, SFR's revenue suffered from
the decrease in incoming calls from fixed lines, which represented 30% of total
incoming calls in 2000 versus 37% in 1999, and from the full year effect over
2000 of fixed-to-mobile rates' reduction decided in September 1999 at the
request of the ART, the French telecommunications regulator. Revenue would have
been even higher in 2000 had certain mobile-to-mobile contracts not been
deferred until 2001. Vivendi Universal's fixed telephony business revenue
increased 43% to E455 million in 2000, compared to E318 million in 1999. Cegetel
7's revenue increased by 35% to E193 million. This growth is mainly due to an
increase of the user base, including over 800,000 new clients and reaching 2.4
million lines at the end of 2000 versus 1.5 million lines at the end of 1999.
Cegetel 7 has reached a market share of approximately nine percent at the end of
2000. Cegetel Entreprises' revenue increased by 50% to E262 million due, on the
one hand, to the significant growth of voice traffic (increase of 37% to 1.4
billion minutes), mitigated by significant price pressure on voice products. On
the other hand, Cegetel developed its data transmission services, which
represented 40% of 2000 revenue compared to 35% in 1999, reflecting 62% growth.

Operating income in 2000 was E486.1 million versus a operating loss of
E60.4 million in 1999. The 1999 restated operating income reflects the adoption
of a new accounting method related to mobile customers acquisition costs. These
costs, which were previously capitalized and depreciated over 12 months, are now
directly recorded as expenses. SFR's operating income increased to E634 million
in 2000 from E54 million in 1999. This performance resulted both from a slight
reduction in acquisition costs per user and from the scale effect linked to the
increased customer base. Cegetel 7 incurred an operating loss of E59 million in
2000, stable versus 1999, as a decrease in tariffs was balanced by an increase
in the client base and cost savings. Cegetel Entreprises' operating loss
decreased from E148 million in 1999 to E89 million in 2000, due to increased
revenue, a cost control program put in place in early 1999 and network
restructuring.

Telecoms consolidated EBITDA grew significantly on a pro forma basis, from
E494 million in 1999 to E1.3 billion in 2000. The EBITDA from SFR's mobile unit
grew 100% to E1.2 billion, whereas the fixed activities of Cegetel 7 and Cegetel
Entreprises both significantly reduced their EBITDA loss by 40% from E143
million in 1999 to E86 million in 2000.

1999 Versus 1998

In 1999, the Telecoms businesses generated revenue of E4.1 billion, an
increase of 43% compared to 1998, primarily due to the operations of Cegetel.
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 4.3 million
customers at the end of 1998 to 7.3 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 by the
increased popularity of prepaid, rather than contract, arrangements. Prepaid
customers represented 33% of SFR's total customer base at the end of 1999, up
from 15% at the end of 1998. Prepaid customers generated average monthly revenue
of E23, compared to E59 for the average 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 Universal's fixed telephony business revenue more
than doubled to E318 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

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competition in this segment of the French telecommunications market. Cegetel 7
was able to win a market share of approximately seven percent 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.

Operating income for Vivendi Universal'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. Within Cegetel, SFR's
operating income doubled to E550 million, 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.

Internet

The Internet business is conducted through Vivendi Universal Net which
brings together all of Vivendi Universal's Internet ventures alongside
Internet-related technological, investment and business development activities.
Vivendi Universal Net is an investor, incubator, technical service provider and
site operator that develops online content, technologies, brands and subscriber
bases in collaboration with all the other Media and Communications businesses.
Its focus is on selective investments, the strong internal growth of its
subsidiaries and the development of applications that are not dependent on
advertising as a revenue stream. Vivendi Universal Net's interactive operating
strategy allows it to identify and develop synergies throughout the company and
to benefit from economies of scale.

2000 Versus 1999 (Restated)

During 2000, many new Internet operations were launched or acquired
including, Ad-2One, an online advertising agency and i-France, a multiservice
portal that serves six European countries. Revenue in 2000 increased to E47.8
million, primarily as a result of these new businesses. The operating loss
incurred in 2000 was E193.6 million, primarily due to start-up and development
costs and marketing expenses. The planned European expansion of Ad-2One combined
with new development in the Education portal and Enablers will continue to have
a negative impact on earnings in 2001, however, the first launched vertical
portals such as Flipside and Bonjour are expected to break even by the end of
2001.

1999 Versus 1998

Vivendi Universal's Internet businesses expanded rapidly in 1999, however,
revenue was insignificant as many operations were in the developmental stage.
Due primarily to marketing costs and the undeveloped nature of the Internet
industry in general, these businesses generated an operating loss of E50.8
million in 1999 compared to a loss of E6.4 million in 1998. The year-on-year
increase resulted from additional development costs for new operations.

Environmental Services

Vivendi Universal's Environmental Services businesses are primarily
operated through Vivendi Environnement, a 63% effectively owned subsidiary.
Vivendi Environnement is a worldwide leader in environmental services, with
operations around the globe. It provides integrated services in four principal
sectors, including water treatment and systems operation (Vivendi Water), waste
management (Onyx), energy services (Dalkia) and transportation services
(Connex), to a wide range of public authorities and industrial, commercial and
residential customers. Vivendi Environnement also holds a 49% interest in and

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joint control of the holding company that owns FCC, one of the largest public
companies in Spain, that operates in the construction, public works and
environmental services sectors. Vivendi Environnement has been listed on the
Paris Bourse since July 2000.

2000 Versus 1999 (Restated)

Environmental Services' total revenue for 2000 was E26.5 billion, an
increase of 26% compared with 1999. Ten percent of the Environmental Services'
revenue growth resulted from the full-year impact of acquisitions made in 1999,
principally US Filter in water and Superior Services in waste management. Five
percent resulted from favorable currency exchange rates and 11% was the result
of internal growth. Revenue from Vivendi Environnement's water business was
E12.9 billion, an increase of 23%, including 10% internal growth. Internal
growth was generated by new contracts outside France and the steady development
of waterworks in France. Revenue from Vivendi Environnement's waste management
business was E5.3 billion, an increase of over 50% from 1999, of which internal
growth was in excess of 13%. Internal growth resulted from a number of new
contracts and increases in volumes and the price of paper. In the energy
business, revenue increased 14% in 2000 to E3.2 billion, including almost 10%
internal growth generated by cogeneration facilities in France and expansion in
Northern and Eastern Europe. The transportation business generated revenue of
E3.1 billion in 2000, up 29% from 1999, including internal growth of 13%, which
resulted primarily from the development of the Stockholm and Melbourne contracts
outside France and urban contracts within France. FCC generated revenue of in
excess of E4 billion in 2000, E2 billion of which was contributed to Vivendi
Environnement's consolidated revenue, reflecting its 49% interest. Revenue
generated outside of France represented E15.4 billion, approximately 58% of the
total.

Operating income generated by Environmental Services businesses increased
by 28% to E1.9 billion in 2000. Twelve percent of the operating income growth
resulted from 2000 acquisitions and full-year impact of the 1999 acquisitions,
primarily US Filter and Superior Services. Six percent resulted from favorable
currency exchange rates and 10% was the result of internal growth, principally
in the water, energy and transportation divisions. Operating income generated by
Vivendi Environnement's water division increased 35%, including over 11% from
internal growth. Internal growth resulted from new contracts acquired outside
France, steady activities in the United States and the benefits of a cost
management policy. The waste management division generated operating income of
E399 million, an increase of almost 45% over 1999, primarily as a result of
acquisitions. Operating income from the energy business increased approximately
13% to E191 million in 2000. The internal growth was 15.9%. The transportation
division generated operating income of E108 million in 2000, an increase of in
excess of 14% over 1999, due to the favorable evolution of Stockholm and British
contracts. FCC, generated an operating income of E208 million, an increase of
12% from 1999.

1999 Versus 1998

Total revenue in Vivendi Universal's Environmental Services sector amounted
to E22.4 billion in 1999, representing an increase of 40% 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. Revenue from Vivendi Environnement's water business was E10.7
billion, an increase of 59% from 1998, primarily due to the acquisition of US
Filter, which contributed E3.6 billion between May and December 1999. Internal
revenue growth in the water business was approximately five percent. Revenue
from Vivendi Environnement's waste management business was E3.5 billion, an
increase of 24% from 1998, including internal growth in excess of nine percent,
which resulted from a number of new contracts. Within the energy business,
services revenue (Dalkia) increased five percent in 1999 to E2.8 billion, of
which four percent was due to internal growth reflecting the ramp-up of
cogeneration contracts in France and Eastern Europe. The transportation business
generated revenue of E2.5 billion in revenue in 1999, up 23% from 1998, of which
internal growth was 15%, resulting primarily from new contracts such as the
Stockholm metro contract and the Melbourne contract. FCC generated revenue of
almost E4 billion in 1999, E1.9 billion of which was contributed to Vivendi
Environnement's consolidated revenue, reflecting its

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49% interest. Geographically, revenue generated in France increased six percent
to E9.9 billion. Outside France, revenue increased 88% to E12.5 billion, or 55%
of the total revenue of the division.

Operating income from Vivendi Universal's Environmental Services businesses
increased by 54% to E1.7 billion in 1999. This increase is primarily
attributable to the acquisitions of US Filter, Superior Services, hazardous
waste-related assets from Waste Management and Vivendi Universal's interest in
FCC. Internal growth was 10%, an increase attributable primarily to new
contracts in the water, waste management and transportation segments. The water
business contributed operating income of E793 million in 1999, an increase of
96%, largely due to US Filter. The performance was also improved due to
continued cost cutting efforts in the French water business. Operating margin in
the water business increased from six percent in 1998 to seven percent in 1999.
Within the energy business operating income increased 25% to E170 million in
1999, including 22% from internal growth. In the waste management business,
operating income totaled E277.7 million, an increase of 23%, primarily due to
the acquisition of Superior Services and Waste Management, which contributed E25
million and E13 million, respectively, to Vivendi Universal's operating income.
Internal growth was 11%. The transportation business generated operating income
of E96.1 million, an increase of 28% from 1998 (including 20% internal growth),
primarily resulting from increased passenger traffic in the United Kingdom,
which led to higher productivity in its operations there. FCC's contribution to
Vivendi Universal'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.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows

Vivendi Universal satisfied its needs for working capital, expenditures and
acquisitions over the last three years primarily through a combination of cash
generated from operations, cash received from the issue of debt in the capital
markets and committed bank facilities and disposition of non-core assets and
businesses.

2000 Versus 1999 (Restated)

Net cash flow from operating activities reflects funds generated from
operations and changes in operating assets and liabilities. Net cash flow from
operating activities was E2.5 billion in 2000, an improvement of E1.7 billion
over 1999. The improvement was mainly due to an increase in earnings primarily
generated by Vivendi Universal's Telecoms, Publishing and Environmental Services
businesses. Vivendi Universal expects operating cash flow to increase as a
result of the continuing development of its Media and Communications businesses
and from a reduction in interest costs resulting from planned disposals. In
addition, Vivendi Universal expects the array of Seagram content assets to
increase demand for its access services, and therefore to increase the net cash
generated by its access operations. Also, it believes that Seagram's
businesses -- particularly its recorded music business -- will generate strong
cash flow, consistent with their historical performance.

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 E1.5 billion in 2000 compared to E12.9 billion in 1999.
The significant decrease primarily reflects fewer strategic acquisitions paid
for in cash in 2000 compared to 1999. Purchase of investments were E3.1 billion
in 2000, E8.8 billion lower than in 1999. Capital expenditures were E5.8 billion
in 2000, E0.7 billion higher than 1999. Proceeds from the disposal of
investments and fixed assets were E6.9 billion in 2000 compared to E4.5 billion
in 1999, mainly attributable to the divestiture of non-core real estate,
construction assets and GPU power generation plants.

Net cash flow used for financing activities was E0.6 billion in 2000
compared to net cash provided by financing activities of E13.7 billion in 1999.
The year-on-year variance was primarily due to the merger

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with Seagram and Canal Plus. In July 2000, the sale of 37% of Vivendi
Environnement through an IPO contributed to an increase in financing
transactions of E3.8 billion.

1999 Versus 1998

Net cash flow from operating activities was E1.4 billion in 1999 compared
to E2.9 billion in 1998. The decrease from 1998 to 1999 was mainly due to rising
debt costs and sales of real estate assets, which more than offset increases in
cash generated by Vivendi Universal's Telecoms, TV & Film and Publishing
businesses.

Net cash used in investing activities was E13.6 billion in 1999 compared to
E2.9 billion in 1998. The significant increase in 1999 primarily reflects
several strategic acquisitions, including US Filter, Superior Services, Havas
Interactive, Elektrim, Medimedia and Sogeparc (representing, in the aggregate, a
total cash investment of E12 billion). An additional E5.7 billion was invested
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. 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.

Net cash flow provided by financing activities was E13.7 billion in 1999
compared to E0.2 billion in 1998. The significant increase in 1999 was primarily
due to increased proceeds from the issuance of common stock (principally in
connection with the US Filter acquisition), the issuance of two series of
convertible bonds that together generated proceeds in excess of E4.5 billion and
additional credit facilities of approximately E6.0 billion.

In connection with the sale of the spirits and wine business, Seagram and
Joseph E. Seagram & Sons, Inc. (or JES) have recently completed tender offers
and consent solicitations for all of their outstanding debt securities that
would have otherwise matured between April 2001 and December 2038 (excluding the
Adjustable Conversion-rate Equity Security Units (ACES)), representing an
aggregate of $6.175 billion principal amount of securities. Seagram and JES
purchased an aggregate of approximately $6 billion of securities pursuant to
these tender offers and consent solicitations. The aggregate purchase price,
dealer management fees and solicitation fees paid in relation to these tender
offers and consent solicitations totaled approximately $6.6 billion. On March 8,
2001, Vivendi Universal successfully completed an exchange offer and consent
solicitation for 97.9% of the ACES, representing a principal amount of
approximately $1 billion, issued by The Seagram Company Ltd. Vivendi Universal
arranged certain bridge financing facilities with various financial institutions
to provide funding for the tender offers and consent solicitations. Vivendi
Universal intends to repay amounts drawn under these bridge financing facilities
from the proceeds of the sale of the spirits and wine business.

Vivendi Universal expects that it will be able to satisfy its cash
requirements for the next 12 months without raising additional funds. As for its
Media and Communications businesses, and the company as a whole, it 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 Universal's Telecoms
and Internet segments, in which case it may incur some additional debt, likely
in the form of bank loans.

Capital resources

Vivendi Universal meets its long-term financing needs through the issuance
of bonds and convertible debt and adapt to changes in these needs through the
issuance of commercial paper and through short-term credit facilities. As at
December 31, 2000, its material capital resources included, E56.7 billion in
total shareholders' equity (up from E10.8 billion in 1999), E23.8 billion in
long-term debt (up from E19.1 billion in 1999) and E14.9 billion in short-term
debt (versus E15 billion in 1999). Vivendi Universal's net financial debt at
December 31, 2000 was E25.5 billion, of which E13.1 billion relates to its
Environmental Services businesses. The net financial debt was 91% denominated in
euros with an average interest cost of 4.82% versus 4.1% in 1999. The remaining
balance of the net financial debt was denominated in U.S.
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dollars, pounds sterling and Australian dollars with an average interest rate of
7.12%, 7.32% and 6.72%, respectively. Altogether, the average cost of debt in
2000 was 5.15% versus 5.13% in 1999. The maturity profile of the E23.8 billion
in long-term debt is: E7.3 billion will mature in one to two years, E12.6
billion will mature in more than two years but less than five years, and E3.9
billion will mature in more than five years. Vivendi Universal expects to
accelerate the retirement of the Media and Communications businesses net
financial debt with the anticipated proceeds from the sale of Seagram's spirits
and wine operations, completion of the ACES exchange offer and sale of its
investment in BSkyB. Its ratio of net financial debt to shareholders' equity and
minority interest was 38% in 2000 (versus 153% in 1999).

Capital Expenditures

Vivendi Universal's total capital expenditures for 2000 were E5.8 billion,
compared to E5.1 billion in 1999. Its 2000 capital expenditures were primarily
in connection with its Telecoms (E1.1 billion), TV & Film (E0.8 billion) and
Environmental Services (E2.6 billion) businesses. In addition, it invested E32.5
billion in the acquisition of other companies in 2000, principally related to
the merger of Vivendi, Seagram and Canal Plus (a non-cash transaction of E29.5
billion).

Capital expenditures are expected to remain at similar levels over the next
years in order to maintain existing facilities, continue research and
development and promote the launch of new products and services.

Vivendi Universal believes its access to external capital resources
together with internally generated liquidity will be sufficient to satisfy
existing commitments and plans, and to provide adequate financial flexibility.
Vivendi Universal expects to fund future capital requirements of its content
business from future cash flows generated by operations. Regarding Vivendi
Universal's Telecoms and Internet businesses, it expects to fund its future
substantial capital expenditure requirements (including its E4.95 billion bid
for a UMTS license in France) through additional incurrence of debt. Vivendi
Universal expects that Vivendi Environnement will finance its capital
requirements from its net cash flows and existing external financing and, if
necessary, a moderate increase in indebtedness.

EFFECT OF INFLATION

Inflation did not have a material effect on Vivendi Universal's revenue or
income from continuing operations in the 1998-2000 period.

UPDATE ON INTEGRATION AND SYNERGIES

Integration and cost-savings initiatives, along with the identification of
revenue- and EBITDA-generating opportunities, are proceeding well. Cost-saving
initiatives are well under way across all businesses and major progress has been
made in the first three months since the creation of Vivendi Universal toward
achieving the company's 2002 target of E420 million. Cost-savings have resulted
from consolidations in headquarters operations, real estate, logistics, IT
(Information Technology) and procurement. Additional cost savings are expected
in all these areas. Identification of revenue synergies are well advanced and
poised for delivery in 2002. Those synergies are projected to contribute E1
billion to the revenue line, resulting in an annual EBITDA contribution of E220
million. Synergies identified cut across the company's content and access
business units.

OTHER MATTERS AND RECENT DEVELOPMENTS

CANAL+'s Sale of Its Stake in Eurosport

On January 31, 2001, CANAL+ announced that it had sold its 49.5% interest
in European sports channel Eurosport International and its 39% interest in
Eurosport France to TF1. Proceeds from the sale amounted to E303.5 million for
CANAL+ and E345 million for Vivendi Universal as its subsidiary Havas Image also
sold its interest in Eurosport France. CANAL+ will remain a distribution channel
for

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Eurosport. CANAL+ had acquired its interest in Eurosport International and
Eurosport France from ESPN in May 2000.

Convertible Bond Issuance

On February 2, 2001, Vivendi Universal placed E457 million principal amount
of bonds exchangeable for shares of Vinci, a company in which Vivendi Universal
has an 8.67% stake. The 1% five-year bonds were issued at a price of E77.35, a
30% premium to Vinci's then-current stock price. Each bond is exchangeable for
one Vinci share. On February 5, 2001, the lead manager for the bonds, which
managed the offering of the bonds, exercised its over-allotment option to
purchase E70 million additional principal amount of the bonds, thus increasing
the overall amount of the issuance to E527 million. Conversion of all the bonds
into Vinci shares would result in the elimination of Vivendi Universal's stake
in Vinci.

Acquisition of Uproar Inc.

On February 5, 2001, Flipside Inc., a subsidiary of Vivendi Universal's
Publishing business, and Uproar Inc., a leading interactive entertainment
company, announced that they had entered into a definitive merger agreement
pursuant to which Flipside would acquire all of the outstanding stock of Uproar
for $3 per share, or a total consideration of $140 million. The transaction has
been approved by the Boards of both companies and will make the combined entity
an overall leader in interactive games on the Internet.

Exchangeable Bond Issuance

On February 8, 2001, Vivendi Universal placed E1.809 billion principal
amount of bonds exchangeable into Vivendi Environnement stock on a one for one
basis. The bonds correspond to 9.3% of the capital stock of Vivendi
Environnement. The 2%, five year bonds were issued at a price of E55.90, a 30%
premium over the previous day's weighted-average price. Excluding, the 9.3% now
allocated to the exchangeable bonds, Vivendi Universal holds 63% of Vivendi
Environnement, and intends to maintain its majority control at this level for
the long term.

Disposition of AOL CompuServe France

In March 2001, Vivendi Universal finalized the terms of the disposition of
its interest in AOL CompuServe France.

Acquisition of EMusic.com

On April 6, 2001, Vivendi Universal entered into an agreement to acquire
all of the outstanding shares of EMusic.com Inc. pursuant to a cash tender offer
at $.57 per share. The acquisition was completed on June 14, 2001.

Sale of Loews Cineplex

On June 28, 2001, Universal Studios and USIBV sold their interests to
Goldman, Sachs & Co. for an aggregate purchase price of $1.00. Vivendi Universal
intends to use the tax loss from the sale to offset gains on other capital
transactions.

Cancelation of Shares

On June 28, 2001, the Vivendi Universal board authorized the cancelation of
22 million shares, reducing the number of outstanding shares by approximately
2%.

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TRENDS

Vivendi Universal believes that it can continue to achieve substantial
growth in 2001 and beyond. The key industry factors that will enable it to
sustain significant internal growth in its two core businesses are:

- In the Media and Communications division, continuing advances in
technology and growth in the mobile telephony sector, particularly in
mobile data and wireless internet services, as well as increasing demand
for multimedia services, which it intends to exploit by leveraging
Vivendi Universal's key content assets, including those it acquired in
the Vivendi/Seagram/Canal Plus merger.

- In the Environmental Services division, the acceleration of the trend
towards privatization in the municipal market. Vivendi Universal believes
that the percentage of the worldwide operating and management, or O&M,
water market that is privatized will continue to grow. Similarly,
although only a very small portion of the O&M industrial water market is
privatized today, it is growing rapidly. It anticipates similar growth
trends in its other environmental businesses.

The factors that may cause its expectations not to be realized include, but are
not limited to, those described in "Risk Factors".

FINANCIAL OUTLOOK

The strong results that Vivendi Universal generated in 2000, combined with
its unique combination of content and distribution assets provide a solid
foundation for growth in 2001. For its Media and Communications businesses,
revenue growth (excluding Universal Studios Group Filmed Entertainment) is
targeted to be 10% and EBITDA growth is targeted to be 35% for the period
2000-2002.

DIRECTORS AND SENIOR MANAGEMENT

Directors

The table below shows the names, current principal occupations and recent
employment history of the directors of Vivendi Universal.

DATE
EXPIRATION INITIALLY
PRINCIPAL BUSINESS ACTIVITIES DATE OF APPOINTED
NAME OUTSIDE VIVENDI UNIVERSAL CURRENT TERM TO BOARD AGE
---- ----------------------------------------- ------------ --------- ---

Jean-Marie Messier........ Chairman and CEO of Vivendi Universal. 2004 1998 44
Chairman and CEO of Vivendi 1994 to 2000.
Mr. Messier is also a director of
Compagnie de Saint-Gobain, LVMH Moet
Hennessy Louis Vuitton, UGC Unipart Group
of Companies, BNP Paribas, Alcatel, USA
Networks, Inc. and The New York Stock
Exchange.
Edgar Bronfman, Jr.(1).... Executive Vice Chairman of Vivendi 2004 2000 46
Universal.
President and Chief Executive Officer of
Seagram from 1994 to 2000.
Mr. Bronfman is also a director of USA
Networks, Inc.

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Eric Licoys............... Co-COO of Vivendi Universal. 2004 2000 62
Chairman and CEO of Vivendi Universal
Publishing since 1998.
Advisor to Vivendi's Chairman from 1997
to 1999.
Chairman of Lazard Freres & Cie from 1996
to 1997.
Mr. Licoys is also a director of CGEA,
Media Overseas.
Pierre Lescure............ Co-COO of Vivendi Universal. 2004 2000 55
Chairman and CEO of CANAL+, and Chairman
of the Executive Board of CANAL+ Group.
Mr. Lescure is also the Vice Chairman of
Sogecable SA (Spain), Companie
Independiente de Television SL (Spain),
Sociedad General de Cine SA (Spain).
Bernard Arnault........... Chairman and CEO of Moet Hennessy Louis 2004 2000 52
Vuitton.
Mr. Arnault is also the Chairman of
Christian Dior, Groupe Arnault, Montaigne
Participations et Gestion SA and a
director of Financiere Jean Goujon,
Christian Dior Couture, Societe Civile du
Cheval Blanc, Saint Emilion.
Jean-Louis Beffa.......... Chairman and CEO of Compagnie de Saint- 2004 2000 59
Gobain.
Mr. Beffa is also Vice Chairman of BNP-
Paribas, and a director of Groupe
Bruxelles-Lambert (Belgium).
Edgar M. Bronfman(2)...... Former Chairman of the Board of Seagram 2004 2000 72
Richard H. Brown.......... Chairman and CEO of Electronic Data 2004 2000 54
Systems Co. since January 1, 1999.
From July 1996 to December 1998, Chief
Executive Officer of Cable and Wireless
plc.
From May 1995 to July 1996, President and
CEO of H&R Block, Inc.
Mr. Brown is also a director of Home
Depot Inc.
Jean-Marc Espalioux....... Chairman of the Executive Board of Accor 2004 2000 49
since 1997.
Previously a member of the Executive
Committee of Vivendi and then Deputy CEO
of Vivendi.
Mr. Espalioux is also a director of Fiat
France.
Philippe
Foriel-Destezet......... Chairman of CEO of Adecco. 2004 2000 65
Mr. Foriel-Destexet is also Chairman of
Akila S.A., Eco S.A., Idem France S.A.
Nescofin UK Limited and a director of
Carrefour S.A., Akila Finance S.A. and
Securitas A.B.

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Jacques Friedmann......... Retired Chairman of the Supervisory Board 2004 2000 68
of AXA-UPA (Chairman from 1993-2000).
Mr. Friedmann is also a director of
Alcatel, BNP Paribas, and Total Fina Elf
S.A.
Esther Koplowitz.......... Chairman and member of the Board of 2004 2000 48
Directors of Fomento de Constructiones y
Contratas (Spain)
Marie-Josee Kravis(3)..... Senior Fellow, Hudson Institute Inc. 2005 2001 51
Mrs. Kravis is also a director of The
Canadian Imperial Bank of Commerce,
Hollinger International Inc., The Ford
Motor Company, Hasbro Inc., StarMedia
Network, Inc. and USA Networks, Inc.
Henri Lachmann............ Chairman and CEO of Schneider Electric 2004 2000 62
since 1999.
Chairman and CEO of Strafor Facom from
1993 to 1998.
Samuel Minzberg(3)........ President of Claridge Inc. 2004 2001 51
Mr. Minzberg is also a director of Koor
Industries Ltd., ECI Telecom Ltd., Groupe
Expordev Inc., Reitmans (Canada) Limited
and HSBC Bank Canada.
Simon Murray.............. Chairman of Simon Murray & Associates. 2004 2000 61
Mr. Murray is also the Chairman of Gems
Ltd., Onyx Ltd. (Hong Kong) and a
director of Hermes International, Cheung
Kong Holdings Ltd., Hutchinson Whampoa
Ltd. and Tommy Hilfiger Corporation.
Serge Tchuruk............. Chairman and CEO of Alcatel. 2004 2000 63
Mr. Tchuruk is a director of Alstom,
Societe Generale, Thompson-CSF (Thales)
and Total Fina Elf S.A.
Rene Thomas............... Honorary Chairman and Director of BNP 2004 2000 72
Paribas.
Mr. Thomas is also a director of
Chargeurs Essilor and Usinor.
Marc Vienot............... Honorary Chairman and Director of Societe 2004 2000 72
Generale.
Chairman and CEO of Societe Generale from
1973 to 1997.
Mr. Vienot is also a director of Alcatel,
Aventis, Societe Generale Marocaine de
Banque and Ciments Francais.

---------------
(1) Son of Edgar M. Bronfman.

(2) Father of Edgar Bronfman, Jr.

(3) Mrs. Marie-Josee Kravis and Mr. Samuel Minzberg were elected as Director for
a four-year term by shareholders at a Meeting held on April 24, 2001. They
succeeded Messrs. Charles R. Bronfman and Andre Desmarais who resigned
effective April 24, 2001. Mr. Thomas Middelhof also resigned with the same
date of effect.

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Other than those described in footnotes (1) and (2), there are no familial
relationships among Vivendi Universal's directors and executive officers.

Vivendi Universal's directors are appointed for renewable terms of a
maximum of four years, subject to provisions of Vivendi Universal's statuts
relating to age limits.

Senior Management

The table below shows the names of Vivendi Universal's senior managers and
members of the Executive Committee (other than Jean-Marie Messier, Edgar
Bronfman, Jr., Eric Licoys and Pierre Lescure (listed in the table above under
"Directors")), their current positions and principal responsibilities:

NAME OTHER CURRENT RESPONSIBILITIES
---- ------------------------------------

John Borgia......................... Senior Executive Vice President
Human Resources of Vivendi Universal
Phillippe Germond................... Chairman and CEO of Cegetel Chairman
and CEO of Vivendi Universal Net
Guillaume Hannezo................... Senior Executive Vice President and
Chief Financial Officer of Vivendi
Universal
Doug Morris......................... Chairman and CEO of Universal Music
Group
Denis Olivennes..................... Member of the Executive Board of
CANAL+. Chief Operating Officer of
CANAL+.
Henri Proglio....................... Chairman of the Management Board and
CEO of Vivendi Environnement
Agnes Touraine...................... Vice Chairman and CEO of Vivendi
Universal Publishing

Compensation of Directors and Senior Management

The aggregate amount of compensation that Vivendi Universal paid to its
directors, officers and senior managers, which included approximately 30 persons
in all, for services to the company and its subsidiaries during the 2000 fiscal
year was 10.32 million euros.

The aggregate amount that Vivendi Universal set aside or accrued to provide
pension, retirement or similar benefits for its senior managers as a group,
which included 11 persons in all, was approximately E1.358 million during the
2000 fiscal year. Except as described below, none of these persons is party to a
service contract with Vivendi Universal pursuant to which he or she will receive
material employment termination benefits. In 2000, it awarded these persons
options to purchase 2,904,000 Vivendi Universal ordinary shares and options to
purchase 1,535,000 Vivendi Universal ADSs (of which 520,000 options are based on
an award made in 2000 by Seagram). The options on ordinary shares had an average
exercise price of E88.12 and an average expiration date of September 30, 2008.
The options on ADSs had an average exercise price of $70.83 and an average
expiration date of July 14, 2009.

In respect of Seagram's fiscal year ended June 30, 2000, Edgar M. Bronfman
received total compensation, including salary, bonus and other compensation, of
$2,439,744. In respect of the same period, Edgar Bronfman, Jr. received
compensation, including salary, bonus and other compensation of $7,046,431 and
options for 650,000 Seagram common shares. These options have been converted
into options for 520,000 Vivendi Universal ADSs, have an exercise price of
$76.80 and expire on February 14, 2010. Of these options, 260,000 are currently
exercisable, and the other 260,000 options become exercisable in equal
installments over a three year period beginning on February 15, 2001. The other
former Seagram directors on Vivendi Universal's board, Richard H. Brown,
Marie-Josee Kravis and

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188

Samuel Minzberg, received compensation from Seagram in respect of acting as
directors during Seagram's fiscal year ended June 30, 2000. Non-employee
directors of Seagram received a retainer of $42,500 per year plus a fee of
$1,500 for each board and committee meeting attended and were reimbursed for
travel expenses incurred in connection with meetings attended. In addition,
Marie-Josee Kravis received an additional $7,500 per year for acting as Chairman
of Seagram's Human Resources Committee. Under The Seagram Company Ltd. Stock
Plan for Non-Employee Directors, each non-employee director received at least
50% of his or her retainer in Seagram common shares or share equivalents and
could elect to receive his or her entire retainer in that form. Non-employee
directors could also receive their fees for attending board and committee
meetings in Seagram common shares or share equivalents. Seagram did not set
aside or accrue any material amounts to provide pension, retirement or similar
benefits for Edgar Bronfman, Edgar Bronfman, Jr., Richard H. Brown, Marie-Josee
Kravis or Samuel Minzberg in respect of Seagram's fiscal year ended June 30,
2000.

Bonus compensation paid to Edgar M. Bronfman and Edgar Bronfman, Jr. in
respect of Seagram's fiscal year ended June 30, 2000 was paid, in each case,
under Seagram's Senior Executive Short-Term Incentive Plan or Seagram's
Management Incentive Plan. For the 2000 fiscal year, target awards for executive
officers under both plans were based upon Seagram or its applicable operating
unit achieving prescribed objectives for earnings before interest, taxes,
depreciation and amortization. Awards under the Senior Executive Short-Term
Incentive Plan could be reduced for any reason, including the assessment by the
Human Resources Committee of Seagram's board of directors of the individual
executive's performance or of the financial performance of Seagram or its
operating units. Management Incentive Plan awards could be reduced or increased
based on an assessment of the individual executive's performance.

As previously disclosed by Vivendi Universal, the fixed component of the
remuneration of the Chairman and Chief Executive Officer in 2000 was 1.075
million euros gross, and 329,000 euros net after income tax and social charges.
The amount of the variable component of the Chairman's remuneration will be set
following approval of the financial statements at the Vivendi Universal
shareholders' meeting. It could total a maximum amount of 3.2 million euros
gross, and 1.1 million euros net after income tax and social charges.

Share Ownership

The total amount of Vivendi Universal's voting securities owned by its
directors and executive officers, other than those related to the Bronfman
family, is less than 1%.

The following table shows the number of Vivendi Universal ADSs beneficially
owned by each of the Seagram designees to the Vivendi Universal board of
directors, as of May 31 2001:

NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER VOTING SECURITIES VOTING SECURITIES
---------------- ----------------- -----------------

Edgar M. Bronfman............................. 33,441,416(1) 3.3%
Edgar Bronfman, Jr. .......................... 35,177,209(2) 3.5%
Richard H. Brown.............................. 750 *
Samuel Minzberg............................... 750 *

---------------
(*) Less than 1%

(1) Includes 31,541,219 ADSs owned indirectly by The Edgar Miles Bronfman Trust,
a trust established for the benefit of Edgar M. Bronfman and his descendants
(EMBT), and 1,189,212 ADSs 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), trusts for which Mr. Bronfman serves as a
trustee, 888 ADSs owned directly by Mr. Bronfman, 517,813 ADSs issuable upon
the exercise of options which are currently exercisable or become
exercisable within 60 days of May 31, 2001, and 192,284 ADSs owned by two
charitable foundations of which Mr. Bronfman is among the trustees or
directors. Mr. Bronfman disclaims beneficial ownership of the foregoing
ADSs, except to the extent of

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his beneficial interest in the EMBT and the PBBT/EMBFT and with respect to
ADSs owned directly by him.

(2) Includes 31,541,219 ADSs owned indirectly by the EMBT for which Mr. Bronfman
serves as a trustee, 792 ADSs owned directly by Mr. Bronfman, 3,442,666 ADSs
issuable upon exercise of options which are currently exercisable or become
exercisable within 60 days of May 31, 2001, 192,000 ADSs owned by a
charitable foundation of which Mr. Bronfman is among the trustees and 532
ADSs 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 December 4, 2000). Mr. Bronfman disclaims beneficial ownership of the
foregoing ADSs, except to the extent of his beneficial interest in the EMBT
and with respect to ADSs owned directly by him.

The Governance Agreement

Vivendi Universal is a party to a governance agreement with certain former
Seagram shareholders that are members or affiliates of the Bronfman family, or
the Bronfman shareholders. In addition to the provisions described below, the
governance agreement restricts the transfer of Vivendi Universal shares held by
the Bronfman shareholders and contains other provisions relating to the
ownership, holding, transfer and registration of Vivendi Universal shares. See
also "Major Shareholders and Related Party Transactions -- Related Party
Transactions -- Share Purchase From Members of the Bronfman Family".

Designees to Vivendi Universal's Board of Directors

Under the governance agreement, Vivendi Universal has elected to, and is
required to use best efforts to, cause the continuation for a four-year term on
its board of directors of four former members of Seagram's board of directors.
Two of the four designees are parties to the governance agreement (Edgar M.
Bronfman and Edgar Bronfman, Jr.), and the remaining two designees (Richard H.
Brown and Samuel Minzberg) are unaffiliated with the Bronfman family (the
non-Bronfman designees). Vivendi Universal's board of directors consists of 19
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:

NUMBER OF
PERCENTAGE OF INITIAL INVESTMENT BRONFMAN DESIGNEES
-------------------------------- ------------------

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

After the initial four-year term, the renomination of the non-Bronfman
designees will be Vivendi Universal's discretion.

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

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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.

Stock Option Plans

Two stock option plans were introduced in fiscal 2000, the first in May
2000, and the second in December 2000 following the merger of Vivendi, Seagram
and Canal Plus. The two plans involved a total of 13,670,458 options, or 1.3% of
Vivendi Universal's capital stock at the date of the merger. Under the plans,
1,047 optionees were granted 2,783,560 options to purchase stock at a
non-discounted exercise price of 111.44 euros, and 3,681 optionees were granted
10,886,898 options to purchase stock at a non-discounted exercise price of 78.64
euros or 67.85 U.S. dollars for options to purchase ADSs. The allocation of
stock options is made on the basis of three criteria: level of responsibility,
performance, and identification of high-potential managers or those who have
carried out significant business operations.

Following the merger of Vivendi, Seagram and Canal Plus, Vivendi Universal
also introduced an exceptional performance-related stock option plan in December
2000, known as the "out-performance" plan. The plan involved a maximum of
5,200,000 options (drawn from treasury stock) granted to Vivendi Universal's 91
principal managers. The stock options were granted at a non-discounted exercise
price of 78.64 euros or 67.85 U.S. dollars for options to purchase ADSs. The
accelerated exercise of these options is tied to Vivendi Universal outperforming
the MSCI Media index.

RELATED PARTY TRANSACTIONS

Share Purchase from Members of the Bronfman Family

On May 29, 2001, Vivendi Universal acquired an aggregate of 16,900,000 ADSs
from entities related to the Bronfman family. The purchase price for these
acquisitions was 74.9228 euros per ADS for 15,400,000 of the ADSs it purchased
and 76.9414 euros per ADS for 1,500,000 of the ADSs it purchased. In connection
with these sales, each of the sellers (other than a charitable foundation)
agreed with the company that, from May 29, 2001 until December 31, 2001, it will
not sell or otherwise transfer any ADSs that it holds (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise), subject to certain specified exceptions.

Esther Koplowitz and Fomento De Constructiones y Contratas

In October 1998, Vivendi acquired from Ms. Esther Koplowitz, a member of
Vivendi Universal'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.

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The same month, Vivendi and Ms. Koplowitz signed a shareholders' 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, which include 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 to 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.

Claridge Inc.

For the period July 1, 1998 through April 30, 2001, Claridge Inc.
reimbursed a subsidiary of Seagram for the use of aircraft owned by such
subsidiary in the amount of $438,293. The payment represented Claridge's pro
rata share of the applicable operating expenses of the aircraft. For the same
period, Seagram paid or accrued rent and reimbursed expenses to Claridge in the
amount of 1,047,072 Canadian dollars for the use by Seagram of office and
parking space and secretarial services. The Charles Rosner Bronfman Family
Trust, a trust established for the benefit of Charles R. Bronfman and his
descendants, owns all the shares of Claridge. Charles R. Bronfman is among the
directors and officers of Claridge.

The Andrea & Charles Bronfman Philanthropies, Inc.

For the period July 1, 1998 through April 30, 2001, The Andrea & Charles
Bronfman Philanthropies, Inc., a charitable organization, paid or accrued rent
and reimbursed Seagram in the amount of $190,876 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.

Frank Alcock

Since the beginning of Seagram's last fiscal year, Frank Alcock, the
father-in-law of Edgar Bronfman, Jr., has provided consulting services to
affiliates of Seagram for $6,250 per month.

USA Networks, Inc.

Universal Studios holds an effective 43% interest in USA Networks for the
period ended May 31, 2001 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 Studios can exchange for common stock and class B
common stock of USA Networks. Universal Studios is party to a governance
agreement among USA Networks, Universal Studios, Liberty Media and Barry Diller.
The governance agreement:

- limits Universal Studios from acquiring additional equity securities of
USA Networks;

- restricts Universal Studios from transferring USA Networks securities;

- provides for representation by Universal Studios and Liberty Media on USA
Networks' board of directors; and

- lists fundamental actions that require the consent of Universal Studios,
Liberty Media and Mr. Diller before USA Networks can take those actions.

In addition, Universal Studios has entered into a stockholders' agreement
among Universal Studios, 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

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- generally grants Mr. Diller voting control over all of the USA Networks
capital stock owned by Universal Studios and Liberty Media except with
respect to the fundamental actions discussed above.

Universal Studios is also party to a spin-off agreement among Universal
Studios, 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 Studios has entered
into agreements with USA Networks providing for various ongoing business
arrangements, including:

- an international distribution agreement granting Universal Studios the
right to distribute internationally, programs produced by USA Networks
for a fee;

- a domestic distribution agreement granting USA Networks the right to
distribute specific Universal Studios programming, including Universal
Studios' 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 Studios' 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 Studios' investment in USA Networks, at various times since
March 1998 Universal Studios and Liberty Media have exercised their pre-emptive
rights to purchase additional shares of USANi LLC shares following issuances of
common stock by USA Networks. Universal Studios and Liberty Media may continue
to exercise these pre-emptive 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., or 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 Studios acquired PFE in December 1998 as part of Seagram's
approximately $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 Studios and USA Networks
entered into agreements providing for various ongoing business arrangements
between Universal Studios and USA Networks, including, among others:

- a domestic theatrical distribution agreement, pursuant to which USA
Networks made a $200 million interest bearing loan to Universal Studios'
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 Studios 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
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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
enter into other agreements with USANi and its subsidiaries.

SHARE CAPITAL INFORMATION

GENERAL

As of July 23, 2001, Vivendi Universal had 1,085,675,856 ordinary shares
outstanding. Vivendi Universal estimates that as of that date, approximately
37.7% of its shares traded on the Paris Bourse were held by French residents and
approximately 24.5% by residents of the United States (including 6.2% held by
members of the Bronfman family and trusts controlled by them).

All of the outstanding ordinary shares are fully paid. As of July 23, 2001
Vivendi Universal had approximately 68,760,561 ordinary shares in treasury, with
an approximate book value of E4.9 billion. All of these ordinary shares were
issued to Vivendi Universal and were fully paid. Its ordinary shares have a
nominal value of E5.50 per share. Vivendi Universal's statuts provide that
ordinary shares may be held in registered or bearer form, at the option of the
shareholder.

As of July 23, 2001, there were 1,171 registered holders of ADSs holding a
total of 122,254,859 ADSs.

UNDERTAKINGS TO INCREASE VIVENDI UNIVERSAL'S SHARE CAPITAL

Vivendi Universal has undertaken to increase its capital in connection with
warrants, options, convertible bonds and exchangeable shares.

- Warrants -- In May 1997, Vivendi issued bonus subscription warrants to
its shareholders. As of December 31, 2000, 106,036,727 of the warrants
were outstanding and exercisable, at a price of E137.0 per 40 warrants,
for 3.05 Vivendi Universal ordinary shares per 40 warrants. On May 2,
2001, those warrants expired and no more warrants are outstanding and
exercisable;

- Convertible bonds -- In January 1999, Vivendi issued 6,028,369 bonds to
the public. Each bond is convertible into 3.047 Vivendi Universal
ordinary shares. As of December 31, 2000, 6,024,347 of these bonds were
outstanding and convertible into a total of 18,356,185 ordinary shares
(which may be treasury or newly-issued shares); and as of June 26, 2001,
6,024,329 of these bonds were outstanding and convertible into a total of
18,356,131 ordinary shares (which may be treasury or newly-issued
shares). The bonds are scheduled to be redeemed in 2003;

- Vivendi Environnement convertible bonds -- In April 1999, Vivendi
Environnement issued 10,516,606 bonds to the public. Each bond is
convertible into 3.047 ordinary shares of Vivendi Universal or Vivendi
Environnement. As of December 31, 2000, 5,331,135 of these bonds were
outstanding and convertible into a total of 16,243,969 shares (which may
be treasury or newly-issued shares); and as of June 26, 2001, 5,331,126
of these bonds were outstanding and convertible into a total of
16,243,941 shares (which may be treasury or newly-issued shares). The
bonds are scheduled to be redeemed in 2005;

- Options granted pursuant to Vivendi Universal share subscription
plans -- As of December 31, 2000, there were outstanding options to
subscribe for 2,804,857 Vivendi Universal ordinary shares; and as of June
26, 2001, there were outstanding options to subscribe for 2,644,772
Vivendi Universal ordinary shares, in each case granted to Vivendi
Universal's executive officers, management and employees pursuant to
Vivendi Universal's share subscription plans;

- Convertible bonds -- In connection with the Vivendi/Seagram/Canal Plus
merger, Vivendi Universal issued on December 8, 2000, bonds redeemable
into 401,582,689 Vivendi Universal ordinary shares. These bonds were or
are to be redeemed for (1) the ADSs of Vivendi Universal
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received by holders of Seagram common shares on closing of the merger,
(2) ADSs of Vivendi Universal to be issued to holders of exchangeable
shares of Vivendi Universal Exchangeco Inc. when such holders exchange
such shares from time to time, (3) ADSs of Vivendi Universal to be issued
to holders of stock options or stock appreciation rights of Seagram on
exercise of such options or rights, and (4) ADSs of Vivendi Universal to
be issued to holders of other convertible securities of Seagram, such as
the ACES, on conversion of such securities. As of December 31, 2000,
bonds redeemable into 82,051,273 Vivendi Universal ordinary shares were
outstanding. As of April 26, 2001, bonds redeemable into 57,839,934
Vivendi Universal ordinary shares were outstanding; and as of June 26,
2001, bonds redeemable into 53,725,827 Vivendi Universal ordinary shares
were outstanding. The number has decreased because Vivendi Universal has
repurchased most of the ACES, some of the exchangeable shares have been
exchanged and some of the options have been exercised.

Under the French commercial code, shareholders of French companies such as
Vivendi Universal have certain rights to purchase, on a pro rata basis,
securities issued by the company.

OPTIONS TO PURCHASE VIVENDI UNIVERSAL SECURITIES

Vivendi Universal has several share purchase option plans for the benefit
of its executive officers, management and other staff. As of January 19, 2001,
options to purchase approximately 42,653,190 Vivendi Universal ordinary shares
were outstanding pursuant to these plans; and as of June 26, 2001, options to
purchase approximately 42,563,725 Vivendi Universal ordinary shares were
outstanding pursuant to these plans. The average expiration date of these
options was July 2006 and the average exercise price was E51.24.

HISTORY OF SHARE CAPITAL

The table below sets forth the history of the share capital of Vivendi
Universal, S.A., formerly known as Sofiee S.A. Sofiee was a shell company
incorporated in 1987, and on December 8, 2000 it was the recipient of all the
assets in connection with the Vivendi/Seagram/Canal Plus merger.

NOMINAL NOMINAL VALUE TOTAL TOTAL
MEETING NUMBER OF VALUE OF OF THE AMOUNT OF NUMBER OF
DATE OPERATION SHARES ISSUED THE SHARES CAPITAL INCREASE CAPITAL STOCK SHARES
------- --------- ------------- ---------- ---------------- ---------------- -------------

12/17/87 Formation................. 2,500 FF100 FF250,000.00 250,000 2,500
5/14/98 Capital increase.......... 16,784,000 100 1,678,400,000.00 1,678,650.000 16,786,500
6/15/00 Conversion of the capital
to euros.................. 0 E16 E0.00 268,584,000 16,786,500
6/15/00 Capital increase.......... 0 16.5 0.00 276,977,250 16,786,500
6/15/00 Three-for-one stock
split..................... 0 5.5 0.00 276,977,250 50,359,500
12/08/00 Merger Transactions....... 1,029,666,247 5.5 5,663,164,358.50 5,940,141,609 1,080,025,747
1/18/01 Capital increase Group
savings Plan 1st block.... 343,127 5.5 1,887,198.50 5,946,333,635 1,081,151,570
1/26/01 Bonds redemption, warrants
conversion, exercise of
subscription option....... 782,696 5.5 4,304,828.00 5,944,446,437 1,080,808,443
4/24/01 Bonds redemption, warrants
conversion, exercise of
subscription option....... 25,026,898 5.5 137,647,939.00 6,083,981,574.00 1,106,178,468
4/26/01 Capital increase Group
savings Plan 2nd block.... 350,392 5.5 1,927,156.00 6,085,908,730.00 1,106,528,860

On June 28, 2001, the Vivendi Universal board authorized an increase of
11,448,920 shares in connection with exercises of options and warrants for
ordinary shares. On the same date, the Vivendi Universal board authorized the
cancelation of 22,000,000 treasury shares and 10,301,924 ordinary shares
originally set aside to satisfy exchange rights in connection with the
Vivendi/Seagram/Canal Plus merger, reducing overall the number of outstanding
shares by approximately 2%.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of Vivendi Universal'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. It follows a centrally managed risk management policy
approved by its board of directors.

EXPOSURE TO INTEREST RATE RISK

As part of this policy, Vivendi Universal uses derivative financial
instruments to manage interest rate risk, primarily related to long-term debt,
and foreign currency risk associated with foreign denominated assets. It
generally does not use derivative or other financial instruments for trading
purposes. As a result of Vivendi Universal's regular borrowing activities, its
operating results are exposed to fluctuations in interest rates. Vivendi
Universal has short-term and long-term debt with both fixed and variable
interest rates. Short-term debt is primarily comprised of 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. A hypothetical increase in average market rates of one percent
over the year 2001 would result in a decrease (before taxes) in Vivendi
Universal's annual net income of approximately E170 million.

EXPOSURE TO EQUITY MARKET RISK

Vivendi Universal's exposure to equity markets risk relates primarily to
its investments in the marketable securities of unconsolidated entities and
derivative equity instruments. It 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 2001 would result in a decrease in
its equity market portfolio of E869.3 million.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information concerning the beneficial
ownership of MP3.com common stock as of July 23, 2001 by:

- each stockholder that is known by MP3.com to own beneficially more than
5% of the outstanding shares of MP3.com common stock;

- each of MP3.com's current directors;

- some of MP3.com's executive officers; and

- all of MP3.com's executive officers and directors as a group.

Beneficial ownership includes both outstanding shares of MP3.com common stock
and shares issuable upon the exercise of options that are currently exercisable
or will become exercisable within 60 days of July 23, 2001.

NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY OF SHARES
NAME OF BENEFICIAL OWNER OWNED (1) OUTSTANDING
------------------------ ------------ -----------

Michael L. Robertson(2)..................................... 23,437,405 33.9%
Mark A. Stevens(3).......................................... 9,889,802 14.3%
Robin D. Richards(4)........................................ 3,806,361 5.5%
Paul L.H. Ouyang(5)......................................... 1,089,610 1.6%
Steven G. Sheiner(6)........................................ 446,071 *
Gregory P. Kostello(7)...................................... 292,972 *
Lawrence F. Probst III(8)................................... 240,103 *
Howard B. Wiener(9)......................................... 101,562 *
Thomas A. Heymann(10)....................................... 0 *
All directors and executive officers as a group (11
persons)(11).............................................. 37,093,087 52.7%

---------------
* Less than 1% beneficially owned.

(1) This table is based on information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the SEC. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, MP3.com believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares beneficially owned. Applicable percentages are based
on 69,127,762 shares outstanding on July 23, 2001, adjusted as required by
rules promulgated by the SEC. Except as otherwise indicated, each
individual named has a business address of c/o MP3.com, Inc., 4790 Eastgate
Mall, San Diego, California 92121-1970.

(2) Includes 740,753 shares held in a family trust with Mr. Robertson's spouse
as a co-trustee, 379,478 shares held in a separate property trust for the
benefit of Mr. Robertson's spouse, and 48,750 shares held in a trust for
the benefit of Mr. Robertson's children. Also includes 2,500,000 shares
held by Mr. Robertson that are subject to options granted by Mr. Robertson
to two individuals (as indicated below). Mr. Robertson disclaims beneficial
ownership of these shares held in trust.

(3) Includes 44,791 shares subject to options vesting within 60 days of July
23, 2001. Also includes 8,462,134 shares held by Sequoia Capital VIII,
560,221 shares held by Sequoia International Technology Partners VIII (Q),
450,000 shares held by Sequoia Capital Franchise Fund, 186,739 shares held
by CMS Partners LLC, 107,376 shares held by Sequoia International
Technology Partners VIII, 50,000 shares held by Sequoia Capital Franchise
Partners, 20,541 shares held by Sequoia 1997, and 8,000 shares held
personally by Mr. Stevens. SC VIII Management, LLC is the general partner
of Sequoia Capital VIII, Sequoia International Technology Partners VIII (Q)
and Sequoia International Technology Partners VIII. Mr. Stevens is a
managing member of the general

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partner, or a partner, of each of the above-listed investment funds, and
shares investment and voting power over these shares with the other
managing members or general partners of these funds, none of whom are
affiliated with MP3.com. Mr. Stevens disclaims beneficial ownership of the
shares listed except to the extent of his pecuniary interest in those
shares. The business address for Mr. Stevens is c/o Sequoia Capital, 3000
Sand Hill Road, Building 4, Suite 280, Menlo Park, California 94025.

(4) Includes 347,333 shares subject to MP3.com's right of repurchase at their
original purchase price. Also includes 141,665 shares subject to employee
stock options vesting within 60 days of July 23, 2001 and 2,000,000 shares
subject to a fully-vested option granted to Mr. Richards by Mr. Robertson.
Also includes 150,000 shares held in a family trust with Mr. Richards'
spouse as co-trustee and 161,250 shares held in a separate property trust
for the benefit of Mr. Richards' spouse. Mr. Richards disclaims beneficial
ownership of these shares held in trust.

(5) Includes 110,926 shares subject to MP3.com's right of repurchase at their
original purchase price. Also includes 141,665 shares subject to employee
stock options vesting within 60 days of July 23, 2001 and 500,000 shares
subject to a fully-vested option granted to Mr. Ouyang by Mr. Robertson.
All shares, with the exception of any unexercised options, are held by the
Ouyang 1990 Trust Dated 3/27/90 As Amended for which Mr. Ouyang exercises
shared voting control with his spouse.

(6) Includes 216,057 shares subject to options vesting within 60 days of July
23, 2001.

(7) Includes 292,543 shares subject to options vesting within 60 days of July
23, 2001.

(8) Includes 90,103 shares subject to options vesting within 60 days of July
23, 2001. The business address for Mr. Probst is c/o Electronic Arts, Inc.,
209 Redwood Shores Parkway, Redwood City, California 94065.

(9) Includes 101,562 shares subject to options vesting within 60 days of July
23, 2001.

(10) The business address for Mr. Heymann is c/o Digital Coast Ventures
Corporation, 233 Wilshire Boulevard, Suite 100, Santa Monica, California
90401.

(11) Includes the shares described in footnotes (2) - (10). Also includes
289,201 shares which MP3.com's other executive officers beneficially own
and have the right to acquire within 60 days after July 23, 2001 under
outstanding options.

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LEGAL AND TAX MATTERS

The validity of the Vivendi Universal ADSs (including the underlying
Vivendi Universal ordinary shares) offered by this proxy statement/prospectus
has been passed upon for Vivendi Universal by Jean-Francois Dubos, counsel to
Vivendi Universal, Paris, France. Cravath, Swaine & Moore, New York, New York,
has opined on certain United States federal income tax consequences of the
merger for Vivendi Universal. Cravath, Swaine & Moore acts as counsel for
Vivendi Universal and its subsidiaries from time to time. Ernst & Young LLP, tax
advisor to MP3.com, has opined on certain United States federal income tax
consequences of the merger for MP3.com.

EXPERTS

The consolidated financial statements of Vivendi Universal included herein
have been so included in reliance on the reports of Barbier Frinault & Cie, a
member firm of Arthur Andersen, and RSM Salustro Reydel, independent
accountants, given on the authority of said firms as experts in accounting and
auditing.

The consolidated financial statements (including the schedule incorporated
by reference) of MP3.com at December 31, 2000 and 1999, and for each of the two
years in the period ended December 31, 2000, and for the period from March 17,
1998 (inception) to December 31, 1998, included in the proxy
statement/prospectus of MP3.com, which is referred to and made part of this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.

The consolidated financial statements of Seagram as of June 30, 2000 and
1999 and for each of the three years in the period ended June 30, 2000 included
in this proxy statement/prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.

STOCKHOLDER PROPOSALS

In view of the expected timing of the merger, MP3.com does not expect to
hold an annual meeting of stockholders in 2002. In the event the merger is not
completed and MP3.com does hold an annual meeting in 2002, you would continue to
be entitled to attend and participate in the meeting if you are a stockholder as
of the record date for that meeting. In accordance with federal securities laws,
proposals to be submitted by stockholders for consideration at the next annual
meeting of MP3.com stockholders and inclusion in MP3.com's next annual proxy
statement must be received by MP3.com not later than December 24, 2001. SEC
rules establish standards as to which stockholder proposals are required to be
included in a proxy statement for an annual meeting. MP3.com will only consider
proposals for inclusion in its proxy statement for an annual meeting that
satisfy the requirements of applicable SEC rules.

OTHER MATTERS

As of the date of this proxy statement/prospectus, the MP3.com board of
directors knows of no matters that will be presented for consideration at the
special meeting other than as described in this proxy statement/prospectus. If
any other matter comes before the special meeting, the persons named as proxies
by a stockholder will vote in their discretion on the other matter unless:

- otherwise indicated on the proxy; or

- the other matter relates to the adjournment of the special meeting and
the shares represented by the proxy are to be voted against the proposal
to adopt the merger agreement.

191
199

WHERE YOU CAN FIND MORE INFORMATION

Vivendi Universal and MP3.com 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 Universal files
annual reports, current reports and other information with the SEC and MP3.com
files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information that Vivendi Universal or MP3.com filed with the SEC at the SEC's
public reference room at the following location:

Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549

Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. These SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at http://www.sec.gov. Reports, proxy statements and other information
concerning MP3.com may also be inspected at the offices of The Nasdaq Stock
Market at 1735 K Street, N.W., Washington, D.C. 20016.

Vivendi Universal filed a registration statement on Form F-4 on July 9,
2001, as amended, with the SEC to register the Vivendi Universal ordinary shares
that constitute the share consideration in the merger. This proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of Vivendi Universal in addition to being a proxy statement of
MP3.com. As allowed by SEC rules, this proxy statement/prospectus does not
contain all the information you can find in Vivendi Universal's registration
statement or the exhibits to the registration statement. The registration
statement and its exhibits are available for inspection and copying as set forth
above.

The SEC allows MP3.com to "incorporate by reference" information into this
proxy statement/prospectus, which means that MP3.com can disclose important
information to you by referring you to other documents filed separately with the
SEC. The information incorporated by reference is considered part of this proxy
statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/prospectus or in later filed
documents incorporated by reference in this proxy statement/prospectus. These
documents contain important business and financial information about MP3.com
that is not included in, or delivered with, this proxy statement/prospectus.

MP3.COM FILINGS
(FILE NO. 0-26697) PERIOD
------------------ ------

Annual Report on Form 10-K and Amendment No. 1
thereto.............................................. Fiscal Year ended December 31, 2000
Quarterly Report on Form 10-Q.......................... Fiscal Quarter ended March 31, 2001
Current Report on Form 8-K............................. Filed on May 22, 2001

MP3.com also incorporates by reference all additional documents that it
files with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of this proxy statement/prospectus and the date of the special
meeting, and these additional documents are deemed to be a part of this proxy
statement/prospectus from the date of filing. These include periodic reports,
such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, including any amendments thereto, as well as proxy
statements.

You may have received some of the documents incorporated by reference.
However, you can also obtain any of them through the companies, the SEC or the
SEC's Internet web site as described above. Documents incorporated by reference
are available from MP3.com without charge, excluding all exhibits, except that
if MP3.com has specifically incorporated by reference an exhibit in this proxy
statement/prospectus, the exhibit will also be provided without charge. You may
obtain documents

192
200

incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone at the following address:

MP3.com, Inc.
4790 Eastgate Mall
San Diego, CA 92121-1970
Attention: Investor Relations
Telephone: (858) 623-7222
Email: investor@mp3.com

Vivendi Universal has supplied all information contained in this proxy
statement/prospectus relating to Vivendi Universal and MP3.com has supplied all
information relating to MP3.com.

You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. Neither Vivendi Universal nor
MP3.com has authorized anyone to provide you with information that is different
from what is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated July 26, 2001. You should not assume that the
information contained in this proxy statement/prospectus is accurate as of any
date other than that date. Neither the mailing of this proxy
statement/prospectus nor the delivery of Vivendi Universal ADSs, cash or other
consideration pursuant to the merger creates any implication to the contrary.

193
201

INDEX TO FINANCIAL STATEMENTS

PAGE
-----

CONSOLIDATED FINANCIAL STATEMENTS OF VIVENDI UNIVERSAL
Reports of Independent Public Accountants................... F-3
Consolidated Statement of Income for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-5
Consolidated Balance Sheet as of December 31, 2000 and
1999...................................................... F-6
Consolidated Statement of Shareholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998.................... F-7
Consolidated Statement of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-8
Notes to Consolidated Financial Statements.................. F-9

CONSOLIDATED FINANCIAL STATEMENTS OF SEAGRAM
Consolidated Statement of Income for the Fiscal Years ended
June 30, 2000, 1999 and 1998.............................. F-60
Consolidated Balance Sheet at June 30, 2000 and June 30,
1999...................................................... F-61
Consolidated Statement of Cash Flows for the Fiscal Years
ended June 30, 2000, 1999 and 1998........................ F-62
Consolidated Statement of Shareholders' Equity for the
Fiscal Years ended June 30, 2000, 1999 and 1998........... F-63
Notes to Consolidated Financial Statements.................. F-64
Management's Report......................................... F-88
Report of Independent Accountants........................... F-89
Quarterly Data (Unaudited).................................. F-90
Schedule for The Seagram Company Ltd. and Subsidiary
Companies................................................. F-91
II. Valuation and Qualifying Accounts.................. F-91
Report of Independent Accountants on Financial Statement
Schedule.................................................. F-92
Unaudited Consolidated Statement of Income and Retained
Earnings -- Quarter Ended September 30, 2000 and 1999..... F-93
Unaudited Consolidated Balance Sheet -- September 30, 2000
and June 30, 2000......................................... F-94
Unaudited Consolidated Statement of Cash Flows -- Quarter
Ended September 30, 2000 and 1999......................... F-95
Notes to Unaudited Consolidated Financial Statements........ F-96

F-1
202

PAGE
-----

CONSOLIDATED FINANCIAL STATEMENTS OF MP3.COM
Report of Ernst & Young LLP, Independent Auditors........... F-101
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-102
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and the Period from March 17, 1998
(inception) to December 31, 1998.......................... F-103
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2000, 1999 and the period from
March 17, 1998 (inception) to December 31, 1998........... F-104
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and the period from March 17, 1998
(inception) to December 31, 1998.......................... F-105
Notes to Consolidated Financial Statements.................. F-106
Condensed Consolidated Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000......................... F-130
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2001 and 2000 (unaudited).... F-131
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000 (unaudited).... F-132
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-133

F-2
203

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Vivendi Universal:

We have audited the accompanying consolidated balance sheet of Vivendi
Universal (the successor company to Vivendi S.A. -- see Note 1) and subsidiaries
(together the "Company"), as of December 31, 2000 and December 31, 1999 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years then ended, expressed in Euros. We have also audited
the information presented in Note 16, 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 the
Company as of December 31, 2000, 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 16 that are based on accounting principles generally accepted in France, 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 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, the financial position of Vivendi Universal and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in France and the information with
respect to accounting principles generally accepted in the United States as of
and for the years ended December 31, 2000, 1999 and 1998 set forth in the Note
16.

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 three
years ended December 31, 2000 is set forth in Note 16 to the consolidated
financial statements.

Barbier Frinault & Cie, RSM Salustro Reydel
a member firm of Arthur Andersen

Paris, France
April 2, 2001
(Except with respect to the matters discussed in Note 16 as to which the date is
June 28, 2001)

F-3
204

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 statement of income, change in shareholders' equity and cash flow
for the year 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 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 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 Vivendi and subsidiaries as
of December 31, 1998, and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in France.

[RSM Salustro Reydel Signature]
RSM Salustro Reydel

Paris, France
March 10, 2000

F-4
205

VIVENDI UNIVERSAL

CONSOLIDATED STATEMENT OF INCOME

YEARS ENDED DECEMBER 31,
------------------------------------------------
2000 1999(1) 1999 1998
--------- --------- --------- ---------
(IN MILLIONS OF EUROS, EXCEPT PER SHARE AMOUNTS)

REVENUE....................................... 41,797.6 40,854.5 41,622.5 31,737.1
Other revenue................................. 821.2 1,171.1 1,951.3 1,516.8
Cost of revenue............................... (20,644.6) (23,246.8) (23,712.9) (18,575.3)
Personnel costs (including employee
profit-sharing)............................. (9,487.3) (10,299.5) (10,431.1) (8,225.1)
Taxes......................................... (629.2) (653.8) (659.2) (627.9)
Other operating expenses...................... (6,155.0) (3,803.7) (3,811.8) (2,662.5)
Depreciation and amortization................. (3,131.3) (2,186.3) (2,678.3) (1,831.7)
--------- --------- --------- ---------
OPERATING INCOME.............................. 2,571.4 1,835.5 2,280.5 1,331.4
Financial (expense) income.................... (541.2) 75.9 (57.2) 307.3
Financial provisions.......................... (91.7) (163.0) (162.9) (298.0)
--------- --------- --------- ---------
NET FINANCIAL (EXPENSE) INCOME................ (632.9) (87.1) (220.1) 9.3
--------- --------- --------- ---------
INCOME FROM OPERATIONS BEFORE EXCEPTIONAL
ITEMS AND INCOME TAXES...................... 1,938.5 1,748.4 2,060.4 1,340.7
Exceptional items............................. 2,755.2 (922.7) (914.3) 42.7
Depreciation, amortization and provisions on
exceptional items........................... 191.6 76.9 76.5 206.6
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES, GOODWILL
AMORTIZATION, EQUITY INTEREST AND MINORITY
INTEREST.................................... 4,885.3 902.6 1,222.6 1,590.0
Income taxes and deferred tax................. (1,020.9) 946.1 793.2 (90.0)
--------- --------- --------- ---------
INCOME BEFORE GOODWILL AMORTIZATION, EQUITY
INTEREST AND MINORITY INTEREST.............. 3,864.4 1,848.7 2,015.8 1,500.0
Goodwill amortization......................... (634.2) (606.4) (612.0) (209.5)
--------- --------- --------- ---------
INCOME BEFORE EQUITY INTEREST AND MINORITY
INTEREST.................................... 3,230.2 1,242.3 1,403.8 1,290.5
Equity in net income of affiliates............ (306.3) 32.9 32.9 42.5
Minority interest............................. (624.9) 159.4 (5.3) (212.2)
--------- --------- --------- ---------
NET INCOME.................................... 2,299.0 1,434.6 1,431.4 1,120.8
========= ========= ========= =========
EARNINGS PER SHARE:
Basic....................................... 3.6 2.7 2.7 2.5
Diluted..................................... 3.4 2.5 2.5 2.4

The accompanying notes are an integral part of these statements.

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).

(1) Restated to give effect to changes in accounting policies (see Note 2 to the
consolidated financial statements).

F-5
206

VIVENDI UNIVERSAL

CONSOLIDATED BALANCE SHEET

DECEMBER 31,
-----------------------------------
2000 1999(1) 1999
--------- --------- ---------
(IN MILLIONS OF EUROS)

ASSETS
GOODWILL, NET............................................. 47,132.5 10,388.6 10,388.6
OTHER INTANGIBLE ASSETS, NET.............................. 20,180.1 11,256.4 8,681.9
Property, plant and equipment............................. 25,670.8 26,569.1 26,569.1
Publicly-owned utility networks........................... 5,660.9 3,985.8 3,985.8
Accumulated depreciation.................................. (11,342.9) (10,577.5) (10,577.5)
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET........................ 19,988.8 19,977.4 19,977.4
Investments accounted for using the equity method......... 9,176.5 781.9 781.9
Investments accounted for using the cost method........... 1,000.3 2,415.6 2,415.6
Portfolio investments held as fixed assets (securities)... 3,264.2 534.4 534.4
Portfolio investments held as fixed assets (others)....... 11,836.9 2,561.1 2,561.1
--------- --------- ---------
FINANCIAL ASSETS.......................................... 25,277.9 6,293.0 6,293.0
--------- --------- ---------
TOTAL LONG-TERM ASSETS.................................... 112,579.3 47,915.4 45,340.9
Inventories and work-in-progress.......................... 3,219.5 4,348.3 4,900.3
Accounts receivable....................................... 23,149.7 22,164.1 22,391.7
Short-term loans.......................................... 1,170.6 3,041.2 3,035.6
Cash and cash equivalents................................. 3,271.4 2,861.8 2,861.8
Other marketable securities............................... 7,347.4 4,282.9 4,246.7
--------- --------- ---------
TOTAL CURRENT ASSETS...................................... 38,158.6 36,698.3 37,436.1
--------- --------- ---------
TOTAL ASSETS.............................................. 150,737.9 84,613.7 82,777.0
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Share capital............................................. 5,944.5 3,276.1 3,276.1
Additional paid-in capital................................ 27,913.4 4,350.8 4,350.8
Retained earnings......................................... 22,817.2 3,149.6 3,265.3
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY................................ 56,675.1 10,776.5 10,892.2
MINORITY INTEREST......................................... 9,787.4 3,754.5 4,052.4
DEFERRED INCOME........................................... 1,560.1 1,306.4 1,306.4
RESERVES AND ALLOWANCES................................... 5,945.8 6,704.2 6,883.3
SUBORDINATED DEBT......................................... 150.1 178.3 178.3
Non-recourse project financing............................ -- 1,193.0 1,193.0
Other financial long-term debt............................ 23,804.1 17,861.7 17,861.7
--------- --------- ---------
LONG-TERM DEBT............................................ 23,804.1 19,054.7 19,054.7
OTHER LONG-TERM LIABILITIES............................... 6,337.2 4,251.2 1,560.2
TOTAL LONG-TERM LIABILITIES............................... 104,259.8 46,025.8 43,927.5
Accounts payable.......................................... 31,626.6 23,565.6 23,832.1
Bank overdrafts and other short-term borrowings........... 14,851.5 15,022.3 15,017.4
TOTAL CURRENT LIABILITIES................................. 46,478.1 38,587.9 38,849.5
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ 150,737.9 84,613.7 82,777.0
========= ========= =========

The accompanying notes are an integral part of these statements.

(1) Restated to give effect to changes in accounting policies (see Note 2 to the
consolidated financial statements).

F-6
207

VIVENDI UNIVERSAL

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

ADDITIONAL
SHARE PAID-IN RETAINED NET SHAREHOLDERS'
CAPITAL CAPITAL EARNINGS INCOME EQUITY
------- ---------- -------- -------- -------------
(IN MILLIONS OF EUROS)

BALANCE AT DECEMBER 31, 1997............. 2,043.5 3,237.3 743.8 822.1 6,846.7
Changes in accounting methods............ (226.8) (226.8)
------- -------- -------- -------- --------
RESTATED BALANCE 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................................. (579.0) (579.0)
Capital increase......................... 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................................. (4,310.3) (4,310.3)
Capital increase......................... 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
Changes in accounting methods............ (115.7) (115.7)
------- -------- -------- -------- --------
RESTATED BALANCE AT DECEMBER 31, 1999.... 3,276.1 4,350.8 1,718.2 1,431.4 10,776.5
Net income for the year 2000............. 2,299.0 2,299.0
Foreign currency translation
adjustment............................. (735.3) (735.3)
Dividends paid and net income
appropriation.......................... 865.7 (1,431.4) (565.7)
Goodwill................................. 781.0 (44.0) 737.0
Capital increase......................... 2,668.4 22,781.6 18,792.0 44,242.0
Release of revaluation surplus and
other.................................. (78.4) (78.4)
------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 2000............. 5,944.5 27,913.4 20,518.2 2,299.0 56,675.1
======= ======== ======== ======== ========

The accompanying notes are an integral part of these statements.

F-7
208

VIVENDI UNIVERSAL

CONSOLIDATED STATEMENT OF CASH FLOWS

YEARS ENDED DECEMBER 31,
-----------------------------------------------
2000 1999(1) 1999 1998
--------- --------- --------- --------
(IN MILLIONS OF EUROS)

CASH FLOW FROM OPERATING ACTIVITIES:
Net income............................................. 2,299.0 1,434.6 1,431.4 1,120.8
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 4,038.3 2,988.5 3,489.7 2,125.0
Financial provisions................................. 91.7 163.0 162.9 298.0
Gain on sale of property and equipment and financial
assets, net........................................ (3,909.5) (670.0) (670.0) (297.9)
Undistributed earnings from affiliates, net.......... 342.8 50.8 50.8 38.8
Deferred taxes....................................... 231.1 (1,175.0) (1,022.1) (279.4)
Minority interest.................................... 624.9 170.0 5.3 212.2
Net changes in current assets and liabilities:
Prepaid, deferrals and accruals...................... (157.4) (1,094.3) (1,094.3) (536.1)
Other working capital................................ (1,046.7) (1,096.0) (944.3) 216.5
--------- --------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 2,514.2 771.6 1,409.4 2,897.9
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.............. (5,799.8) (5,059.4) (5,697.2) (3,942.2)
Proceeds from sale of property, plant and equipment.... 2,821.9 1,092.1 1,092.1 191.7
Purchase of investments................................ (3,132.7) (11,971.6) (11,971.6) (2,228.9)
Sale of investments.................................... 3,786.8 2,704.5 2,704.5 2,532.7
Purchase of portfolio investments...................... (69.3) (716.4) (716.4) (168.1)
Sale of portfolio investments.......................... 302.1 673.3 673.3 579.3
Disbursement on notes receivables...................... (253.7) (1,121.0) (1,121.0) (522.1)
Principal payment on notes receivables................. 793.5 1,841.8 1,841.8 192.1
Net decrease (increase)in short-term financial
receivables.......................................... 3,912.8 (120.7) (120.7) 1,421.2
Purchase of treasury shares held as marketable
securities........................................... (2,455.7) (1,401.8) (1,401.8) (288.7)
(Purchases) sales of other marketable securities....... (1,386.4) 1,161.0 1,161.0 (692.8)
--------- --------- --------- --------
NET CASH USED FOR INVESTING ACTIVITIES............... (1,480.5) (12,918.3) (13,556.2) (2,925.9)
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings....... 2,432.0 9,273.4 9,273.4 (1,384.2)
Proceeds from issuance of borrowings and other
long-term debt....................................... 16,369.9 11,695.6 11,695.6 2,850.7
Principal payment on borrowings and other long-term
debt................................................. (21,923.4) (9,899.6) (9,899.6) (1,042.4)
Net proceeds from issuance of common stock............. 3,396.5 3,295.5 3,295.5 146.8
Purchase of treasury stock............................. (106.4) (135.3) (135.3) --
Cash dividends paid.................................... (799.9) (483.8) (483.8) (348.3)
--------- --------- --------- --------
NET CASH (USED FOR) PROVIDED BY FINANCING
ACTIVITIES......................................... (631.3) 13,745.8 13,745.8 222.6
Effect of foreign currency exchange rate changes on cash
and cash equivalents................................... 7.3 (1.5) (1.5) 89.3
--------- --------- --------- --------
CHANGE IN CASH AND CASH EQUIVALENTS...................... 409.7 1,597.6 1,597.6 283.9
========= ========= ========= ========
CASH AND CASH EQUIVALENTS:
Beginning.............................................. 2,861.8 1,264.1 1,264.1 980.2
Ending................................................. 3,271.4 2,861.8 2,861.8 1,264.1
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest............................................. 1,288.4 871.9 871.9 408.0
Income taxes......................................... 228.9 369.5 369.5 140.8
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition:
Purchase of affiliates by issuance of common stock... 28,809.2 2,225.2 2,225.2 923.1
Issuance of common stock in settlement of note
payable............................................ 1,404.9 619.6 619.6 150.0

The accompanying notes are an integral part of these statements.

(1) Restated to give effect to changes in accounting policies (see Note 2 to the
consolidated financial statements).

F-8
209

VIVENDI UNIVERSAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 DESCRIPTION OF BUSINESS

Vivendi Universal, also referred to herein as the company, is a societe
anonyme organized under the laws of France. Vivendi Universal was created
through the merger of Vivendi, The Seagram Company Ltd. and Canal Plus, also
referred to herein as the Seagram/Canal Plus merger, that was completed in
December 2000, and is the successor company to Vivendi. The company operates in
two global core businesses: Media and Communications and Environmental Services.
The Media and Communications business is divided into five business segments:
Music, Publishing, and TV & Film, which constitute its content businesses, and
Telecoms and Internet, which constitute its access businesses. Integration and
partnering of the Media and Communications business segments enables Vivendi
Universal to provide a diverse array of entertainment and information content to
an international customer and subscriber base over wired and wireless access
devices using cable, Internet, satellite and broadcast networks.

Content

- The Publishing business is Europe's premier publisher of information
providing content across multiple platforms, including print, multimedia,
on the wired Internet and to personal data appliances (PDAs) via wireless
application protocol (WAP) technology. The Publishing business is a
content leader in five core markets: education, games, healthcare
information, local services, and business and general information.

- The TV & Film business produces and distributes motion picture,
television and home video/DVD products worldwide, operates and has
ownership interests in a number of cable and pay television channels,
engages in the licensing of merchandising and film property rights and
operates theme parks and retail stores around the world.

Access

- The Telecoms business provides a broad range of telecommunications
services, including mobile and fixed telephony, Internet access and data
services and transmission, principally in Europe.

Vivendi Environnement, a 63 percent effectively-owned subsidiary of Vivendi
Universal, operates the Environmental Services business, with operations around
the globe. Vivendi Environnement provides environmental management services,
including water treatment and system operation, waste management, energy
services and transportation services, to a wide range of public authorities and
industrial, commercial and residential customers.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation Vivendi Universal has prepared its consolidated
financial statements 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

F-9
210

States (U.S. GAAP). A description of these differences and their effects on net
income and shareholders' equity is discussed in Note 16. The consolidated
financial statements are presented in French GAAP format and incorporate certain
modifications and additional disclosures designed to conform more closely to
U.S. GAAP financial statements.

Principles of Consolidation and Accounting for Investments The
consolidated financial statements include the accounts of Vivendi Universal and
its subsidiaries. All companies in which Vivendi Universal has legal or
effective control are consolidated. The Company consolidates Cegetel and Canal
Plus, 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 Plus. With respect to Canal Plus, the Company's
control is derived from the facts that (i) Vivendi Universal has a majority of
the Board of Directors, and (ii) the operational risks and rewards of Canal Plus
are borne by Vivendi Universal. 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 Universal 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 Universal and outside shareholders
have agreed to exercise joint control over significant financial and operational
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. All material intercompany transactions have been eliminated.
In the case of proportionally consolidated companies, intercompany transactions
are eliminated on the basis of Vivendi Universal's interest in the company
involved.

Use of Estimates The preparation of the financial statements requires
management to make informed estimates, assumptions and judgments, with
consideration given to materiality, that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and
liabilities. For example, estimates are used in management's forecast of
anticipated revenues in the TV & Film and Music businesses and in determining
valuation allowances for long-lived assets and uncollectible accounts
receivable, pension liabilities and deferred taxes. Actual results could differ
significantly from these estimates.

Foreign Currency Translation

Introduction of the euro -- Since the introduction of the euro on
January 1, 1999, the functional and reporting currency of Vivendi Universal
has been the euro. Prior to this date, the functional and reporting
currency of the Company was the French franc. Periods prior to January 1,
1999, have been restated from French francs into euros using the official
fixed exchange rate of E1 = FF 6.55957. The restated financial statements
depict the same trends as the financial statements previously prepared
using the French franc. 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 other than the French
franc.

F-10
211

Translation of foreign subsidiaries' financial statements -- Financial
statements of foreign subsidiaries whose functional currency is not the
euro are translated into euros at applicable exchange rates. All assets and
liability accounts are translated at the appropriate year-end exchange rate
and all income and expense accounts are translated at the average exchange
rate for the year. The resulting translation gains and losses are recorded
in retained earnings. For subsidiaries operating in highly inflationary
economies, the financial statements are translated into the 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 euros at the applicable
exchange rates, and related translation gains or losses are recorded in
retained earnings. Financial statements of subsidiaries located in
countries that adopted the euro as their official currency are translated
from the former national currencies to the euro at the official fixed
exchange rates that were established on January 1, 1999, and are no longer
subject to fluctuation.

Foreign currency transactions -- Foreign currency transactions are
converted into euros at the exchange rate on the transaction date. The
resulting exchange losses are recorded in the current period earnings.
Exchange gains or losses on borrowings denominated in foreign currencies
that qualify as hedges of net investments in foreign subsidiaries are
recorded in retained earnings.

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 business segments
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 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 7 to 40
years in its Media and Communications businesses and from 20 to 40 years in its
Environmental Services businesses.

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 are not
amortized (see accounting policies specific to the Media and Communications
sector).

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.

Property, Plant and Equipment Property, plant and equipment are carried at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method, generally over the useful lives of 20 - 50 years for
buildings and 3 - 15 years for equipment and machinery.

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.

F-11
212

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.

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 Universal'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.

Deferred Taxes Deferred tax assets are recognized for deductible temporary
differences, net tax operating loss carryforwards and tax credit carryforwards.
Deferred tax liabilities are recognized for taxable temporary 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 Universal treasury shares and other
highly liquid investments. Vivendi Universal treasury shares are classified as
marketable securities when they are acquired in open market transactions 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 Universal has several pension plans that cover
substantially all employees. Vivendi Universal determines its pension
obligations using the projected unit credit method. This method considers the
probability of personnel remaining with Vivendi Universal until retirement, the
foreseeable changes in future compensation, and the appropriate discount rate
for each country in which Vivendi Universal 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 Universal's employees in France and most other European countries
are eligible for severance pay pursuant to applicable law immediately upon
termination. Vivendi Universal reserves for such employees' termination
liabilities using the projected unit credit method.

Stock Based Compensation Vivendi Universal has adopted stock option
incentive plans that grant options on its common shares to certain directors,
officers and other managers. 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 Universal 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 Universal and certain of its
subsidiaries to purchase shares of Vivendi Universal. 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.

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213

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
Universal 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.

Research and Development The Research and Development costs are expensed
as incurred.

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 Note.

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 the Company's
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 Media & Communications Businesses

TV & Film 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 the
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

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214

period's gross revenues to estimated total gross revenues from all sources on an
individual production basis. Revenue estimates are reviewed periodically and
amortization is adjusted accordingly. Film costs, net of amortization, are
classified as other intangible assets.

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 revenues and costs 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
and cost 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.

In order to effectively manage its capital needs and costs in the film
business, Vivendi Universal may utilize a variety of arrangements, including
co-production, insurance, contingent profit participation and the sale of
certain distribution rights. In connection with its review of capital needs and
costs, the Company has entered into an agreement with an independent third-party
to sell substantially all completed feature films produced over the period
1997 - 2000. Films under the agreement are sold at its cost and no revenue or
expense from the initial sale of the films is recognized. The company
distributes these films and maintains an option to reacquire the films at fair
value, based on a formula considering the remaining estimated total gross
revenues, net of costs, at the time of reacquisition. No films have been
reacquired as of December 31, 2000. Following the sale to the third-party,
Vivendi Universal accrues participations due to the third-party in the same
manner that the company has historically amortized film costs under Financial
Accounting Standard (SFAS) No. 53, Financial Reporting by Producers and
Distributors of Motion Picture Films. As a distributor, the company has
recorded, in its statement of income, the revenues received from and operating
expenses related to the films in all markets where Vivendi Universal bears
financial risk for film performance, and, in interest, net and other expense,
certain other costs relating to the agreement.

Revenues at theme parks are recognized at the time of visitor attendance.
Revenues for retail operations are recognized at point-of-sale.

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.

Music segment -- Revenues from the sale of recorded music, net of a
provision for estimated returns and allowances, are recognized upon shipment to
third parties. Advances to established recording artists and direct costs
associated with the creation of record masters are capitalized and are charged
to expense as the related royalties are earned, or when the amounts are
determined to be unrecoverable. The advances are expensed when past performance
or current popularity does not provide a sound basis for estimating that the
advance will be recovered from future royalties.

Telecoms 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 twelve months) and discounts on packs (mobile granted access
to Societe Francaise du Radiotelephone (or SFR) flat-rate tariff including
connection). These discounts are treated as a reduction in revenue, and are
spread over twelve months from the date the line is put into service.

Internet segment -- Website development costs are expensed as incurred.

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215

Accounting Policies Specific to the Environmental Services Business

Public Service Contracts -- Vivendi Universal holds public service
contracts according to which the company is granted the obligation to manage and
maintain facilities owned and financed by local authorities. Revenue relating to
these contracts is recognized when services are rendered.

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 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. Whenever 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.

Vivendi Universal 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 incurred to obtain a contract and paid upfront are capitalized and
amortized on a straight line basis over the duration of the contract.

Landfill Capitalization and Depletion

Landfill sites are carried 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 determined before
its final authorization, as it is the case in France and the United Kingdom,
these costs are expensed as incurred.

Landfill Closure and Post-closure Costs

Vivendi Universal has financial obligations relating to closure and
post-closure costs and the remediation of disposal facilities it operates or for
which it is otherwise responsible.

Landfill final closure and post-closure accruals consider estimates for
costs of the final cap and cover for the site, methane gas control, leachate
management, groundwater monitoring, and other monitoring and maintenance to be
incurred after the site discontinues accepting waste. The company accrues a
reserve for these estimated future costs pro rata over the estimated useful life
of the sites.

Accruals for environmental remediation obligations are recognized when such
costs are probable and reasonably estimable.

These liabilities are classified as reserves and allowances.

Change in Accounting Principles

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. Accordingly, Vivendi
Universal adopted the following new principles for fiscal year 2000:

- Revenues and expenses of subsidiaries' financial statements denominated
in a currency different from euros, which were previously translated at
the year-end exchange rate, are now translated at the average exchange
rate during the period. The cumulative effect of this change in
accounting principle would have decreased net income as of December 31,
1999 by E16.3 million.

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216

OTHER CHANGES

In addition, as of January 1, 2000, Vivendi Universal adopted the following
new accounting principles in order to more closely align the company's
accounting policies to U.S. GAAP:

- Broadcasting rights acquired by Canal Plus are now capitalized as
intangible assets and are amortized over the period of the agreement. The
cumulative effect of this change had no impact on net income in 2000 and
1999. Total assets increased by E2.0 billion (most of which related to
intangible assets) and total liabilities and shareholders' equity
increased by the same amount.

Restated 1999 financial statements have been presented in order to
facilitate comparability of annual financial statements.

Reclassifications Certain prior period amounts in the financial statement
notes have been reclassified to conform with the current year presentation.

NOTE 3 SIGNIFICANT TRANSACTIONS/BUSINESS COMBINATIONS

MERGER OF VIVENDI, SEAGRAM AND CANAL PLUS

- Vivendi Universal's combination, through its subsidiaries, with Seagram
in accordance with a plan of arrangement under Canadian law. In Vivendi
Universal's combination with Seagram, holders of Seagram common shares
(other than those exercising dissenters' rights) received 0.80 Vivendi
Universal American Depositary Shares (ADSs), or a combination of 0.80
non-voting exchangeable shares of Vivendi Universal's Canadian subsidiary
Vivendi Universal Exchangeco (exchangeable shares) and an equal number of
related voting rights in Vivendi Universal, for each Seagram common share
held.

- Vivendi merger with Canal Plus: Canal Plus shareholders received two
Vivendi Universal ordinary shares for each Canal Plus ordinary share they
held and kept their existing shares in Canal Plus, which retained the
French premium pay television channel business.

- Vivendi Universal accounted for the Vivendi/Seagram/Canal Plus merger
using the purchase method of accounting for business combinations.

Seagram

Allocation of Purchase Price Vivendi Universal has performed a preliminary
purchase price study related to the Vivendi/Seagram/Canal Plus merger in order
to assess and allocate the purchase price among tangible and intangible assets
acquired and liabilities assumed, based on fair values at the transaction date.
The final allocation of purchase price, which will be completed within one year
of the

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217

completion of the Vivendi/Seagram/Canal Plus merger, is not expected to differ
significantly from the following:

MILLIONS OF EUROS
-----------------

Identifiable intangible assets.............................. 8,785
Investment in USA Networks, Inc. ........................... 5,904
Net assets of spirits & wine................................ 8,759
Goodwill.................................................... 25,345
Net debt.................................................... (8,921)
Deferred taxes.............................................. (6,253)
All other, net.............................................. (1,054)
------
32,565
======

Intangible Assets Identifiable intangible assets consist of music
catalogs, artists' contracts, music publishing assets, distribution networks,
customer relationships and international television networks. Acquired music
catalogs, artists' contracts and music publishing assets are amortized over
periods ranging from 14 to 20 years and other intangibles are amortized over a
40-year period, on a straight-line basis. Goodwill is the excess of purchase
price over the fair value of assets acquired and liabilities assumed, and is
amortized on a straight-line basis over a 40-year period.

Accrual for Exit Activities In connection with the integration of Vivendi,
Seagram and Canal Plus, management developed a formal exit activity plan that
was committed to by management and communicated to employees shortly after the
merger was consummated. The accrual for exit activities consists principally of
facility elimination costs, including leasehold termination payments and
incremental facility closure costs, contract terminations, relocation costs and
the severance of approximately 100 employees, related to the acquired companies.

Plans to Dispose of Seagram's Spirits and Wine Business In connection with
the Vivendi/Seagram/ Canal Plus merger, on December 19, 2000, Vivendi Universal
entered into an agreement with Diageo and Pernod Ricard to sell its Spirits and
Wine business for U.S.$8.15 billion, an amount that is expected to result in
approximate after-tax proceeds of U.S.$7.7 billion. The sale is expected to
close during 2001 and is subject to regulatory approvals and customary closing
conditions. There is no assurance that such conditions will be satisfied.
Vivendi Universal accounts for the Spirits and Wine business on a single line as
a component of exceptional items.

CANAL+

The details of the acquisition of CANAL+ are as follows:

MILLIONS OF EUROS
-----------------

Fair value of net tangible and intangible assets acquired... (7)
Purchase price.............................................. 12,537
------
Goodwill.................................................... 12,544
------
Goodwill recorded as an asset............................... 12,544

Prior to the merger with Vivendi and Seagram, Vivendi Universal acquired
control of Canal Plus in September 1999, 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.

Goodwill arising from these transactions is amortized over a 40 year
period.

Plans to Dispose of Vivendi's Interest in BSkyB In connection with the
European Commission's approval of the Vivendi/Seagram/Canal Plus merger pursuant
to the relevant European merger regulations, Vivendi Universal has to divest its
investment in BSkyB within a period of two years from the

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218

completion of the merger transactions. Pursuant to the requirement, BSkyB has
been accounted for using the cost method since September 30, 2000.

Havas Interactive In January 1999, Vivendi Universal acquired 100% of the
outstanding shares of Cendant Software (renamed Havas Interactive), a U.S. based
software development company which produces games and educational CD-ROM. The
transaction was accounted for as a purchase. Vivendi Universal made a payment of
E678 million in exchange for the shares of Havas Interactive. The details of the
acquisition are as follows:

MILLIONS OF EUROS
-----------------

Fair value of net tangible and intangible assets acquired... 396
Purchase price.............................................. 678
---
Goodwill.................................................... 282
---
Goodwill recorded as an asset............................... 282

Goodwill recorded as an asset arising from this transaction is being
amortized over 10 years.

US Filter In April 1999, Vivendi Universal acquired 100% of the
outstanding shares of US Filter, a U.S. based water treatment and equipment
manufacturing company. The transaction was accounted for as a purchase. Vivendi
Universal paid E5,801 million in cash and financed the transaction through the
issuance of Vivendi Universal bonds and common shares. The details of the
acquisition are as follows:

MILLIONS OF EUROS
-----------------

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

Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.

Scoot.com In April and July 2000, Vivendi Universal acquired 22.4% of
Scoot.plc. The transaction was accounted for as a purchase, for an amount of
E443 million. The details of the acquisition are as follows:

MILLIONS OF EUROS
-----------------

Fair value of net tangible and intangible assets acquired... 84
Purchase price.............................................. 443
---
Goodwill.................................................... 359
---
Goodwill recorded as an asset............................... 359

I-France In March 2000, Vivendi Universal acquired 100% of I-France. The
transaction was accounted for as a purchase for an amount of E149 million. The
details of the acquisition are as follows:

MILLIONS OF EUROS
-----------------

Fair value of net tangible and intangible assets acquired... 3
Purchase price.............................................. 149
---
Goodwill.................................................... 146
---
Goodwill recorded as an asset............................... 146

UTI In January 2000, Vivendi Telecom International (or VTI) a wholly owned
direct subsidiary of Vivendi Universal, acquired 100% of the outstanding shares
of United Telecom International (or UTI), a

F-18
219

Hungarian Telecommunications Company. The transaction was accounted for as a
purchase, and the price paid was E130 million. The details of the acquisition
are as follows:

MILLIONS OF EUROS
-----------------

Fair value of net tangible and intangible assets acquired... 8
Purchase price.............................................. 130
---
Goodwill.................................................... 122
---
Goodwill recorded as an asset............................... 122

Pro Forma Financial Information The unaudited condensed pro forma income
statement data presented below illustrates the effect of the
Vivendi/Seagram/Canal Plus merger (excluding the results of the acquired Seagram
Spirits and Wine business which is held for sale), the consolidation of CANAL+
on a twelve month basis and the divestiture of Vinci, as if the transactions had
occurred at the beginning of 1999. The pro forma information is not necessarily
indicative of the combined results of operations of Vivendi Universal that would
have occurred if the transactions had occurred on the date previously indicated,
nor is it necessarily indicative of future operating results of the company.

YEAR ENDED DECEMBER 31,
------------------------
MILLIONS OF EUROS 2000 1999
----------------- ---------- ----------

Pro Forma Revenue....................................... 52,521.2 44,000.5
Pro Forma Operating income.............................. 3,143.4 1,869.1

NOTE 4 INVESTMENTS

Investments Accounted for Using the Equity Method

AT DECEMBER 31,
---------------------------------------------------------
PROPORTIONATE PROPORTIONATE SHARE
INTEREST SHARE OF EQUITY OF NET INCOME (LOSS)
------------- ---------------- ----------------------
2000 1999 2000 1999 2000 1999 1998
----- ----- ------- ------ ------ ----- -----
MILLIONS OF EUROS

USANi LLC............................ (10)(11) 48.60% 0.00% 5,310.0 -- -- -- --
Elecktrim Telekomunikacja SP......... (1) 49.00% 0.00% 1,148.7 -- (30.5) -- --
Sithe Energies....................... (2) 34.21% 0.00% 820.5 -- -- -- --
UC Development Partners.............. (11) 50.00% 0.00% 395.5 -- -- -- --
Telecom Developpement................ 49.90% 49.90% 268.6 241.4 27.2 (1.1) (17.1)
Universal Studios Florida............ (11) 50.00% 0.00% 141.9 -- -- -- --
Port Aventura........................ (11) 37.00% 0.00% 95.6 -- -- -- --
Realia Business SA................... (3) 23.31% 0.00% 89.8 -- 15.0 -- --
Xfera Moviles........................ 26.21% 0.00% 74.6 -- (6.2) -- --
UGC.................................. 39.34% 39.34% 73.4 71.1 (1.7) 0.4 0.6
Philadelphia Suburban................ (10) 17.02% 15.87% 73.1 55.0 10.5 5.4 3.2
Universal Studios Japan.............. (11) 24.00% 0.00% 69.9 -- -- -- --
Scoot Com PLC........................ 22.40% 0.00% 65.4 -- (15.0) -- --
UCG CineCite......................... 16.86% 19.44% 63.7 52.0 (2.5) 0.3 --
Domino............................... 30.00% 0.00% 57.4 -- 8.4 -- --
South Staffordshire.................. (10) 31.74% 32.71% 54.3 47.0 10.6 10.1 7.7
Vizzavi Europe....................... 50.00% 0.00% (43.8) -- (44.2) -- --
Societe Financiere de Distribution
(SFD).............................. 49.00% 0.00% (47.0) -- (37.1) -- --
Canal Plus........................... (4) N/A N/A N/A N/A N/A N/A (9.6)
Havas Advertising.................... (5) N/A 19.71% N/A 127.8 N/A 11.3 13.6
Cofiroute............................ (6) N/A 31.13% N/A 105.0 N/A 26.0 21.4
British Sky Broadcasting............. (7) N/A 23.36% N/A (250.0) N/A (13.7) --
Canal+ DA............................ (8) N/A N/A N/A N/A -- -- (0.2)
Magyar Telecom....................... (8) N/A N/A N/A N/A -- -- (1.5)

F-19
220

Consumers Water...................... N/A N/A N/A N/A -- -- 2.5
Audiofina............................ -- -- -- -- -- -- 10.4
Other................................ (9) N/A N/A 464.9 332.6 (152.7) (5.8) 11.5
------- ------ ------ ----- -----
Total per balance sheet.............. 9,176.5 781.9 (218.2) 32.9 42.5
======= ====== ====== ===== =====

Companies exiting consolidation scope
in 2000:(*)
British Sky Broadcasting........... (118.9)
Nexity............................. 17.5
Vinci.............................. 13.3
------
Total per income statement......... (306.3)
------

---------------
(*) These companies have been deconsolidated as of December 31, 2000.

(1) The main shareholder is Elecktrim.

(2) This company was consolidated during 2000 until December 31, 2000, at which
time Vivendi Universal's interest was reduced to 34.21%.

(3) Since the beginning of the year, FCC's Real Estate was consolidated by the
equity method due to the constitution of the new company Realia Business SA
(47.57 % FCC -- 52.43 % Caja Madrid). In 1999, this activity was
consolidated.

(4) Vivendi Universal acquired an additional 15% of the capital stock of Canal
Plus in September 1999, bringing Vivendi Universal's total equity interest
to 49%. Canal Plus was consolidated beginning October 1, 1999, due to the
acquisition of effective control.

(5) Due to operation on its capital stock (mainly issue of shares exchanged
against Snyder shares), Havas Advertising was accounted for using the cost
method; the company's interest rate at December 31, 2000 was 11.36%, versus
19.71% in 1999.

(6) During 2000, Cofiroute (a subsidiary of Vinci) is no longer consolidated by
the Equity method because of Vinci's exiting consolidation scope.

(7) British Sky Broadcasting has been accounted for using the cost method since
September 30, 2000. Proportionate share of net loss for the first nine
months was E118.9 million.

(8) Magyar Telecom and Canal + DA were consolidated in 1999.

(9) Other investments consists of various entities accounted for using the
equity method whose proportionate share of equity is under E40 million at
December 31, 2000.

(10) The December 31, 2000 quoted market price for these investments, which are
publicly listed, are as follows: USA Networks, Inc.: E5,894.2 million,
Philadelphia Suburban: E217.7 million, South Staffordshire: E128.8 million.

(11) Entities acquired in connection with the acquisition of Seagram in December
2000.

Dividends received from the equity affiliates amount to E36.5 million in
2000, E83.7 million in 1999, and E81.3 million in 1998.

F-20
221

Summarized financial information for equity method investees is as follows:

AT DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
MILLIONS OF EUROS

BALANCE SHEET DATA
Long-term assets............................................ 23,201.9 5,237.1
Current assets.............................................. 3,936.9 4,830.7
-------- --------
Total assets................................................ 27,138.8 10,067.8
-------- --------
Shareholders' equity........................................ 13,291.5 1,047.5
Current liabilities......................................... 5,286.9 4,937.0
Non current liabilities..................................... 8,560.4 4,083.3
-------- --------
Total liabilities and shareholders' equity.................. 27,138.8 10,067.8
-------- --------
INCOME STATEMENT DATA
Net revenue................................................. 2,643.7 8,242.2 11,232.2
Operating income............................................ 180.9 (284.7) 755.6
Net income (loss)........................................... (26.3) (446.2) 209.1

Investments accounted for using the cost method

AT DECEMBER 31,
------------------------------------------
2000 1999
------------------------------- -------
GROSS ALLOWANCE NET NET
------- --------- ------- -------
MILLIONS OF EUROS

Havas Advertising(1)................................. 340.4 340.4
Fovarosi Csatomazasi Muvek
Reszvenytarsasag(2)(3)(4).......................... 76.2 76.2 37.8
Genova Acque......................................... 38.3 38.3
Apa Nova Bucaresti(2)(3)............................. 35.0 35.0
People PC(2)......................................... 27.2 (15.0) 12.2
Misrfone............................................. 22.5 22.5 22.5
Generale de Transport et d'Industrie................. 21.5 21.5
Elektrim Telekomunikacja SP Zoo(5)................... 1,209.2
Canal Satellite(6)................................... 304.0
Mediaset SpA(7)...................................... 143.6
Television Holding SA................................ 85.7
Domino(5)............................................ 59.3
Csatorna Uzemeltetesi Holding Reszvenyta(5).......... 40.0
Mitteldeutsche Wasserversorgungsgeselt(5)............ 34.2
Norsk Gjenvinning(5)................................. 29.2
CGEA Bresil(5)....................................... 23.7
@viso(5)............................................. 20.1
Other(8)............................................. 708.6 (254.4) 454.2 406.3
------- ------ ------- -------
Total................................................ 1,269.7 (269.4) 1,000.3 2,415.6
------- ------ ------- -------

---------------
(1) The December 29, 2000 quoted market price for Havas Advertising is E461.1
million.

(2) Companies acquired or created at the end of 2000.

(3) Companies consolidated in 2001.

(4) 12.5% additional acquisition in 2000.

(5) Companies consolidated in 2000.

F-21
222

(6) Investment sales to Lagardere Group in 2000.

(7) During 2000, Mediaset SpA shares were exchanged against Mediaset obligation
debt for around E102 million, the remaining amount is accounted in
marketable securities.

(8) Other investments whose gross book value is under E20 million.

Portfolio investments

Other portfolio investments held as fixed assets are detailed as follows:

AT DECEMBER 31,
-------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------- -------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
------- ---------- ---------- --------- ----- ---------- ---------- ---------
MILLIONS OF EUROS

British Sky Broadcasting(1)...... 1,232.8 4,946.4 6,179.2
Dupont(2)........................ 853.3 853.3
USAi Common and class B
Shares(2)(3)................... 571.8 571.8
Saint-Gobain..................... 124.1 103.9 228.0 119.2 130.7 -- 249.9
Facic(4)......................... 181.2 4.3 185.5 185.1 -- -- 185.1
Alcatel.......................... -- 145.1 298.8 -- 443.9
Eiffage.......................... 56.6 (16.9) 39.7 56.6 -- (14.0) 42.6
Societe Generale................. -- -- -- -- --
Others (with unit book value of
under 40 million).............. 261.4 21.2 (93.2) 189.4 49.0 64.3 (6.6) 106.7
------- ------- ------ ------- ----- ----- ----- -------
Total gross amount............... 3,281.2 5,075.8 (110.1) 8,246.9 555.0 493.8 (20.6) 1,028.2
Valuation allowance.............. (17.0) 17.0 -- (20.6) -- 20.6 --
------- ------- ------ ------- ----- ----- ----- -------
Total net amount................. 3,264.2 5,075.8 (93.1) 8,246.9 534.4 493.8 -- 1,028.2
------- ------- ------ ------- ----- ----- ----- -------

---------------
(1) 4.17% of the BSkyB common shares outstanding is accounting in marketable
securities for the repayment of the convertible debts.

(2) The fair values of the investments in Dupont and USAi common stock
approximated their book values at December 31, 2000 due to the fair value
allocation of the purchase price to these assets related to the acquisition
of Seagram.

(3) 18.2 million shares of common stock of USAi which had a book value of E425.6
million and 13.4 million shares of USAi Class B common stock with a book
value of E146.2 million.

(4) One of the parent companies of Washington Baltimore.

AT DECEMBER 31,
-------------------
2000 1999
-------- -------
MILLIONS OF EUROS

Unlisted investments..................................... 9,064.8 417.8
Long term loans.......................................... 2,088.6 1,350.5
Other.................................................... 760.8 918.8
-------- -------
11,914.2 2,687.1
Valuation allowance...................................... (77.3) (126.0)
-------- -------
Total net amount......................................... 11,836.9 2,561.1
-------- -------

Unlisted investments consist mainly of net assets related to Seagram's
Spirit and Wine branch for an amount of E8,759 million, of bonds for an amount
of E120.5 million and of mutual fund shares for an amount of E27.7 million, at
December 31, 2000.

F-22
223

Long-term loans relate mainly to Vivendi Universal for an amount of E703
million, Real Estate operations for an amount of E455 million as of December 31,
2000 and to environment companies, for an amount of E356 million as of December
31, 2000.

Other investments consist mainly of loans by CANAL+ and US Filter and bond
discount related to Vivendi Environnement.

Investments Accounted for Using the Proportionate Consolidation Method

Investments accounted for using the proportionate consolidation method
represent companies in which Vivendi Universal 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:

AT DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
MILLIONS OF EUROS

BALANCE SHEET DATA
Non-current assets.......................................... 5,276.0 4,324.6
Current assets.............................................. 2,179.6 2,835.7
------- -------
Total assets................................................ 7,455.6 7,160.3
------- -------
Shareholders' equity........................................ 2,095.4 1,878.6
Minority interests.......................................... 278.5 244.1
Financial debt.............................................. 1,829.8 1,557.4
Reserves and other liabilities.............................. 3,251.9 3,480.2
------- -------
Total liabilities and shareholders' equity.................. 7,455.6 7,160.3
------- -------
INCOME STATEMENT DATA
Net sales................................................... 3,055.2 2,508.5 1,401.7
Operating income............................................ 354.0 222.8 103.8
Net income.................................................. 171.4 80.2 46.1

NOTE 5 SHAREHOLDERS' EQUITY

During 1998, Vivendi Universal 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, it
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, Vivendi Universal issued 45,505,197 shares for a total of
E2,681.0 million for the exercise of subscription options. In addition, it
issued 25,747,392 shares with a value of E522.0 million relating to the
acquisition of Pathe. Vivendi Universal 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
Plus 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-23
224

During 2000, Vivendi Universal issued 319,531,416 shares for a total of
E32,445.1 million in relation with the Seagram merger. In addition, the company
issued 130,638,208 shares with a value of E12,394.5 million relating to the
acquisition of CANAL+. The company also issued 36,391,248 shares due to the
conversion of Sofiee shares into Vivendi Universal shares. The company also
canceled 12,585,720 shares with a value of E(1,244.6) million relating to the
treasury stock. Vivendi Universal also issued 10,388,230 shares with a value of
E611.1 million in connection with its obligation under the employee stock
purchase plan and stock options plan; and issued 796,893 shares valued at E35.9
million relating to the conversion of bonds and warrants. Lastly, goodwill
totaling E737 million -- arising from business combinations and previously
recorded in additional paid-in capital-has been reversed following the
disposition of BSkyB, Vinci, Nexity and 34% of Multithematiques.

Vivendi Universal'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, 2000, the parent company
has reserved a total of E82.2 million, which represents 1.4% of the aggregate
share capital of E5,944.5 million.

On May 2, 1997, Vivendi Universal issued 130,359,688 warrants to its
shareholders. The warrants grant the holder the right to receive shares of
Vivendi Universal 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, 2000, 106,036,727 of these
warrants remain outstanding.

The share capital of Vivendi Universal consisted of 1,080,808,443 shares as
at December 31, 2000 and 595,648,168 as of December 31, 1999. All shares have
one voting right and may be registered upon request by the owners. The treasury
shares have no voting rights. The number of voting rights outstanding was
1,018,679,038 as of December 31, 2000 and 624,506,807 as of December 1999.

F-24
225

NOTE 6 DEBT

The table below presents an analysis of the consolidated long-term debt
balance by type of debt instrument (in millions of Euros):

AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS

Subordinated debt(a).................................... 150.1 178.3
Non-recourse project financing(b)....................... -- 1,193.0
Other financial long-term debt:
Capital leases........................................ 629.3 818.0
Vivendi Universal convertible 1.25%(c)................ 1,689.9 1,700.0
Vivendi Environnement 1.5%(d)......................... 1,535.4 3,028.8
BSkyB 3%(e)........................................... 154.9 155.1
Mediaset SpA 3,5%(f).................................. 52.3 181.9
BSkyB 1%(g)........................................... 1,440.0 --
Seagram Debt remaining(h)............................. 2,491.0 --
Bonds and Bank loans.................................... 15,811.3 11,977.9
-------- --------
Total................................................... 23,954.2 19,233.0
-------- --------

---------------
(a) Subordinated debt consist 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) Financing guaranteed by the related Sithe Energy project, which is now
accounted for by the equity method due to a reduction in Vivendi Universal's
interest.

(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 Universal shares at the conversion rate of 1 bond
to 3.407 shares.

(d) On April 1999, Vivendi Environnement, a then wholly owned subsidiary, issued
bonds that bear interest at 1.5% with maturity in January 2005, and that are
convertible, at the option of the bondholder, into Vivendi Universal shares
at the conversion rate of 1 bond to 3.047 shares.

In July 2000, Vivendi Environnement sold approximately 37 percent of its
shares to the French public and to institutional investors in France and
elsewhere in an initial public offering.

(e) In connection with the acquisition of Pathe in September 1999, Vivendi
Universal 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
Universal currently owns an adequate number of BSkyB shares to meet its
maximum conversion obligation.

(f) On April 1997, Canal Plus issued bonds that bear interest at 3.5%, with
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 obligation.

(g) In connection with the Vivendi Universal's intention to dispose of its BSkyB
shares, the company issued, on July 2000, bonds that bear interest at 1%
with maturity in July 2003. Each bond may be exchanged at the option of the
bondholder for 1 share per bond. Vivendi Universal currently owns an
adequate number of BSkyB shares to meet its maximum conversion obligation.

F-25
226

(h) In connection with the sale of the Spirits and Wine business, The Seagram
Company Ltd and Joseph E. Seagram & Sons, Inc. (or JES), wholly owned
subsidiaries of Vivendi Universal, have recently completed tender offers and
consent solicitations for all of their outstanding debt securities.

Long-term debt listed according to the currency in which it is denominated
is as follows (in millions of Euros):

AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS

Euros................................................... 20,004.4 15,032.4
US Dollar............................................... 3,421.9 3,604.8
Pound Sterling.......................................... 180.0 247.4
Australian Dollar....................................... 83.1 166.6
Korean Won.............................................. 86.9 --
Canadian Dollar......................................... -- 82.0
Other................................................... 177.9 99.8
-------- --------
Total................................................... 23,954.2 19,233.0
-------- --------

The table below presents a summary of the repayment schedules of the
long-term debt excluding subordinated securities (in millions of Euros):

AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS

Due between one and two years........................... 7,324.7 4,781.0
Due between two and five years.......................... 12,562.1 8,080.4
Due after five years.................................... 3,917.3 6,193.3
-------- --------
Total................................................... 23,804.1 19,054.7
-------- --------

At the end of 2000, E1.8 billion in bank borrowings was supported by
collateral guarantees, including E787 million for the financing of
"Cogeneration" of Bayerische Landesbank and E600 million for the financing of
the water treatment plants of C.G.E Deutschland in Berlin.

NOTE 7 RESERVES AND ALLOWANCES

AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS

Litigation including social and fiscal.................... 619.8 1,081.8
Warranties and customer care.............................. 312.2 376.7
Financial depreciation*................................... 567.8 525.8
Maintenance and repair costs accrued in advance........... 372.2 432.7
Reserves related to fixed assets.......................... 310.2 152.1
Valuation allowance on real estate........................ 809.6 1,255.7
Valuation allowance on work in progress and losses on long
term contracts.......................................... 717.6 684.8
Closure and post closure costs............................ 354.7 259.1
Pensions.................................................. 449.0 591.6
Restructuring costs....................................... 310.4 434.1
Losses on investments in unconsolidated companies......... 361.3 376.0
Others.................................................... 761.0 712.9
------- -------
Total reserves and allowances............................. 5,945.8 6,883.3
------- -------

---------------
* Financial depreciation of fixed assets relating to public service contracts.

F-26
227

The developments in the reserve for restructuring costs for the years ended
December 31, 2000 and 1999 are as follows:

AT DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
MILLIONS OF EUROS

Balance at beginning of period................... 434.1 267.0 244.7
Amount charged to expenses....................... 155.4 94.3 103.5
Deductions of reserve Utilization (cash)......... (105.1) (125.4) (114.1)
Reversal (change in estimate).................... (65.5) (39.6) (26.7)
Other adjustments*............................... (108.5) 237.8 59.6
------ ------ ------
Balance at end of period......................... 310.4 434.1 267.0
------ ------ ------

---------------
* Other adjustments reflect changes in the scope of consolidation.

Provisions for restructuring by segment analyses as follows:

AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS

TV & Film................................................... 31.3 37.3
Publishing.................................................. 86.4 53.5
Music....................................................... -- --
Telecoms.................................................... 8.6 19.1
Internet.................................................... -- --
----- -----
Total Media & Communications................................ 126.3 109.9
Environmental Services...................................... 184.1 209.1
Non-Core.................................................... -- 115.1
----- -----
Total Vivendi Universal..................................... 310.4 434.1
----- -----

The changes in the scope of consolidation in 2000 are mainly explained by
the merger of Vivendi with Seagram and Canal Plus, by the deconsolidation of
Vinci and the change in the method of consolidation of Sithe.

Changes in the scope of consolidation in 1999 were mainly explained by the
acquisition of US Filter and Medi-Media.

NOTE 8 INCOME TAXES

Analysis of income tax expense (benefit)

Components of the income tax provision (benefit) are as follows:

AT DECEMBER 31,
-----------------------------
2000 1999 1998
------- -------- ------
MILLIONS OF EUROS

France............................................... 394.5 56.8 96.6
Other countries...................................... 395.3 172.0 273.4
------- -------- ------
Current income tax expense............................. 789.8 228.8 370.0
------- -------- ------
France............................................... 224.3 (926.3) (394.5)
Other countries...................................... 6.8 (95.7) 114.5
------- -------- ------
Deferred income tax (benefit).......................... 231.1 (1,022.0) (280.0)
------- -------- ------
Total income tax expense (benefit)..................... 1,020.9 (793.2) 90.0
------- -------- ------

F-27
228

Deferred tax assets and liabilities

The temporary differences which give rise to significant deferred tax
assets and liabilities are as follows:

AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS

DEFERRED TAX ASSETS:
Employee benefits......................................... 81.4 118.1
Provisions for risks and liabilities...................... 747.1 931.1
Tax loss including Real Estate operations................. 3,901.8 3,645.0
Other temporary differences............................... 916.8 520.0
-------- --------
GROSS DEFERRED TAX ASSETS................................... 5,647.1 5,214.2
-------- --------
DEFERRED TAX ASSETS NOT RECORDED IN THE BOOKS(A)............ (1,739.2) (2,480.5)
Deferred tax assets recorded in the books................... 3,907.9 2,733.7
======== ========
Deferred tax liabilities:
Depreciation.............................................. 1,319.6 606.6
Reevaluation of assets.................................... 2,764.4 656.5
Dupont share redemption................................... 1,655.6 --
Spirit and Wine sale...................................... 1,769.1 --
Other taxable temporary differences....................... 620.7 318.0
-------- --------
Gross deferred tax liabilities.............................. 8,129.4 1,581.1
-------- --------

---------------
(a) The evolution of tax assets not recorded in the books between 2000 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.

Tax rate reconciliation

A reconciliation of the French statutory tax rate to the Company's
effective tax rate is as follows:

AT DECEMBER 31,
------------------------
2000 1999 1998
----- ------ -----

Statutory tax rate........................................ 37.8% 40.0% 41.6%
Goodwill amortization not deductible for tax purpose...... 6.1% 38.4% 7.2%
Permanent differences..................................... (17.7)% (79.1)% 7.1%
Lower tax rate on long-term capital gains and losses...... (5.7)% (22.3)% (6.1)%
Tax losses................................................ 6.0% (93.9)% (36.9)%
Other, net................................................ (0.6)% (7.4)% (5.5)%
----- ------ -----
Effective tax rate(a)..................................... 25.9% (124.3)% 7.4%
----- ------ -----

---------------
(a) The effective tax rate is computed by dividing "Income taxes and deferred
taxes" by "Net income before income taxes and deferred taxes".

F-28
229

Net operating tax loss savings

At December 31, 2000, the Company had tax LOSSES which represent a
potential tax saving of E3,901.8 million (computed with the enacted tax rate).

Tax losses expire as follows:

YEARS AMOUNT
----- -----------------
MILLIONS OF EUROS

2001.......................................... 462.5
2002.......................................... 101.8
2003.......................................... 70.6
2004.......................................... 393.4
2005.......................................... 1,064.3
2006 and thereafter........................... 1,695.4
Unlimited..................................... 113.8
-------
Total......................................... 3,901.8
-------

NOTE 9 BENEFIT 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. These 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.

Special termination benefits are recorded on an accrual basis at the time
the offer is accepted by the employees or their representatives.

NOTE 10 FINANCIAL INSTRUMENTS AND COUNTERPARTY RISKS

The Company uses various financial derivative instruments to manage its
exposure to fluctuations in interest rates and foreign currency rates.

The Company does not participate in any third-party default, which could
have a significant impact on its financial position and the results of its
transactions.

Interest rate and foreign currency agreements

The contractual amounts stated below are outstanding as of December 31,
2000 and 1999. These amounts represent the levels of involvement by the Company
and are not indicative of gains or losses. The amounts are in millions of euros.

AS OF DECEMBER 31, 2000
---------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------

INTEREST RATE HEDGING ACTIVITY
Interest Rate Swaps -- pay fix
Notional amount.................................... 7,290.1 466.2 3,219.6 3,604.3
Average received rate (as of 12.31.00).................. 4.87%
Average paid rate....................................... 4.78%

F-29
230

AS OF DECEMBER 31, 2000
---------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------

INTEREST RATE SWAPS -- PAY VARIABLE
Notional amount.................................... 2,847.2 1,833.4 922.6 91.2
Average received rate................................... 5.15%
Average paid rate (as of 12.31.00)...................... 5.00%
SWAP -- CROSS CURRENCY(A)
Notional amount.................................... 256.5 0 256.5 0
Average received rate................................... 4.90%
Average paid rate (as of 12.31.00)...................... 4.04%
Interest Cap, floors and collars
Notional amount.................................... 3,457.7 91.2 1,514.7 1,851.8
Guarantee rate.......................................... 4.74%
FOREIGN CURRENCY HEDGING ACTIVITY
Forward exchange contract
Notional amount.................................... 3,087.6 3,064.8 22.8 --
OTHERS
Specialized indexed swap(b)
Notional amount.................................... 377.3 -- 177.8 199.5

AS OF DECEMBER 31, 1999
---------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------

INTEREST RATE HEDGING ACTIVITY
Swap -- 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%
Swap -- 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%
Swap -- cross currency(a)
Notional amount.................................... 172.6 -- 172.6 --
Average received rate................................... 3.34%
Average paid rate (as of 12.31.99)...................... 2.29%
Interest Cap, floors and collars
Notional amount.................................... 4,705.2 1,042.4 1,810.9 1,851.9
Guarantee rate.......................................... 4.89%
FOREIGN CURRENCY HEDGING ACTIVITY
Forward exchange contract
Notional amount.................................... 1,626.0 1,626.0 -- --
OTHERS
Specialized indexed swap(b)
Notional amount.................................... 377.0 -- 177.8 199.2

---------------
(a) Cross Currency swaps

(b) Swaps covering Vivendi Universal against the Equity linked debts

F-30
231

NOTE 11 FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No 107 and No 119, issued by the FASB, require the disclosure of the
estimated fair value of all financial instruments other than specified items
such as lease contracts, subsidiary and affiliate investments and employers'
pension and benefit obligations. Except for publicly traded equity and
marketable securities for which market prices were used, these values have been
estimated for the majority of Vivendi Universal's financial instruments.
Accordingly, fair values are based on estimated values using various valuation
techniques, such as present value of future cash-flows. However, methods and
assumptions followed to disclose data presented herein are inherently judgmental
and involve various limitations.

As a consequence, the use of different estimations, methodologies and
assumptions may have a material effect on the estimated value amounts.

The methodologies used are as follows:

CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, BANK OVERDRAFTS,
SHORT-TERM BORROWINGS, ACCOUNTS AND NOTES PAYABLE.

The carrying amounts reflected in the consolidated statements are
reasonable estimates of the fair-value because of the relatively short period of
time between the origination of the instruments and their expected realization.

INVESTMENTS.

Estimated fair values for publicly traded equity securities are based on
quoted market prices as of December 31, 2000 and 1999. For other investments for
which there are no quoted price, a reasonable estimate of fair value could not
be made without incurring excessive costs.

LOANS AND ADVANCES.

The fair values for loans have been determined by discounting the estimated
future cash flows, using the zero coupon interest rate curves at year end taking
into account a spread that corresponds to the average risk classification of
Vivendi Universal. Loans to subsidiaries excluded from consolidation are not
fair valued.

LONG-TERM DEBT, CURRENT PORTION OF LONG-TERM DEBT, LONG-TERM INTEREST RATE AND
FOREIGN CURRENCY SWAPS.

The fair values of these financial instruments were determined by
estimating future cash flows on a borrowing-by-borrowing basis and discounting
these future cash flows using the zero coupon interest rate curves at year end
and taking into account a spread that corresponds to the average risk
classification of the Company.

All issue swaps (long-term interest rate and foreign currency swaps)
specifically hedge debenture loans. They were concluded under International Swap
and Derivative Association (ISDA) agreements, in order to create long-term debt
in US dollars on a Libor basis. Fair values of these swaps have to be considered
together with the fair values of hedged debenture loans, as set forth below.
Also, some long-term interest rate swaps were concluded to modify partially the
interest rate exposure. The corresponding fair value is set forth below and
should be considered together with the fair value of the long-term debt.

BANK GUARANTEES.

These instruments were fair valued based on average fees currently charged
for similar agreements, taking into accounts the average risk classification of
Vivendi Universal.

F-31
232

Other off-balance sheet financial instruments:

The fair value of the interest rate swaps is calculated by discounting
future cash flows on the basis of the zero coupon interest rate curves existing
at year end.

Forward exchange transactions (forward exchange rates and currency swaps)
are valued on the basis of a comparison of the forward rates negotiated with the
rates in effect on the financial markets at year end for similar maturities.

DECEMBER 31,
-------------------------------------------
2000 1999
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------

BALANCE SHEET
FINANCIAL ASSETS
Investments............................................. 1,000.3 1,121.0 2,415.6 2,896.7
Portfolio investments held as fixed assets
(securities).......................................... 3,264.2 8,246.9 534.4 1,028.2
Other investments and loans............................. 3,077.9 3,123.0 2,561.1 2,550.9
Treasury shares(a)...................................... 958.4 913.7 2,020.0 2,562.0
FINANCIAL LIABILITIES
Long-term debt.......................................... 23,954.2 24,427.0 19,233.0 20,020.6
OFF-BALANCE SHEET
TREASURY MANAGEMENT
Interest rate swaps..................................... -- 133.3 -- 171.0
Cross Currency interest rate swaps...................... -- 96.2 -- 86.6
Other specialized swaps................................. -- 166.2 -- 43.6
Forward exchange contacts............................... -- 165.9 -- 56.7
Interest caps, floors and collars....................... -- 65.5 -- 6.6
Calls and puts on marketable securities................. -- (257.1) -- (48.9)

---------------
(a) Treasury shares held for stock options purposes are excluded from this
table.

Financial instruments including cash and cash equivalents, accounts
receivables, 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.

F-32
233

NOTE 12 COMMITMENTS AND CONTINGENCIES

Commitments and contingent liabilities

Vivendi Universal's contingent liabilities relating to certain performance
guarantees by segments are as follows:

AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS

TV & Film................................................. 293.0 393.0
Publishing................................................ 132.1 164.0
Music..................................................... -- --
Telecoms.................................................. 310.0 243.0
Internet.................................................. -- --
------- -------
Total Media & Communications.............................. 735.1 800.0
Environmental Services.................................... 2,195.8 1,780.1
------- -------
Total Vivendi Universal "Core Business"................... 2,930.9 2,580.1
Non-Core.................................................. 1,851.8 2,021.4
------- -------
Total..................................................... 4,782.7 4,601.5
------- -------

Vivendi Universal had E4.78 billion in financial commitments on December
31, 2000. These included guarantees, collateral and other signature commitments.

The main ones are:

- E940 million surety contract applied to the Xfera joint venture which
obtained a third generation UMTS mobile telecommunications license in
Spain and in which Vivendi Universal has a 31% equity stake;

- Two guarantees capped at E250 million each extended when the group sold
its hotel business to a consortium composed of Accor, Blackstone and
Colony, and sold several office towers and housing complexes to Unibail;

- Under the Berlin water contract, Vivendi Universal may be obliged to pay
approximately E613 million to previous land owners, no indemnitified by
the Berlin government, who present claims for payments.

Vivendi Universal has given specific guarantees that cover both prepayments
received by the company and performance obligations relating to construction
contracts of Vivendi Universal. These guarantees typically represent 20-30% of
the value of a contract, and in some cases can be 100% of the contract amount.

Contingent liabilities in the real estate segment consist of pledges in the
amounts of E189.5 million, E211 million and E188 million, and guarantees to
banks in the amounts of E99.5 million, E52 million and E72 million as at
December 31, 2000, 1999 and 1998, respectively.

Capital leases and other long term leases

Vivendi Universal 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, 2000 and December 31, 1999 represent E842 million
and E1.1 billion.

In addition, the disposal of three office buildings in April 1996 was
accompanied by a 30-year lease back arrangement effective upon completion of the
building. In 1996, three buildings were sold in Berlin. The transaction
comprises lease back arrangements for periods ranging from ten to thirty years.
The

F-33
234

annual rental charge is E28.4 million. The difference between Vivendi
Universal's rental obligation under the leases and the market rent is reserved
when unfavorable.

Other commitments

Vivendi Universal 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, it has assumed fees obligation with local authorities. At December
31, 2000, the minimum future payments of these other commitments are summarized
as follows:

BROADCASTING PUBLIC SERVICE
RIGHTS CONTRACTS TOTAL
------------ -------------- -------
MILLIONS OF EUROS

2001............................................. 1,050.0 44.0 1,094.0
2002............................................. 637.0 36.0 673.0
2003............................................. 507.0 36.0 543.0
2004............................................. 462.0 32.0 494.0
2005............................................. 361.0 29.0 390.0
2006 and thereafter.............................. 529.0 119.0 648.0
------- ----- -------
Total minimum future payments.................... 3,546.0 296.0 3,842.0
======= ===== =======

Litigation

Vivendi Universal 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.

Environmental matters

Vivendi Universal's operations are subject to evolving and increasingly
stringent environmental regulations in a number of jurisdictions. Vivendi
Universal's operations are covered by insurance policies. At December 31, 2000,
there are no significant environmental losses.

NOTE 13 SEGMENT INFORMATION

Vivendi Universal operates in two global core businesses: Media and
Communications and Environmental Services. These businesses are divided into six
reportable segments: Music, Publishing, TV & Film, Telecoms, Internet and
Environmental Services. Each reportable segment defined by Vivendi Universal is
a strategic business unit that offers different products and services that are
marketed through different channels. Segments are managed separately because of
their unique customers, technology, marketing and distribution requirements. The
company evaluates the performance of its segments and allocates resources to
them based on several performance measures, including EBITDA. As defined by the
company, EBITDA consists of operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. EBITDA should not be considered an alternative to
operating or net income as an indicator of Vivendi Universal'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, EBITDA may not be strictly comparable to
similarly titled measures widely used in the United States or reported by other
companies. There are no intersegment revenues; however, corporate headquarters
allocates a portion of its costs to each of its operating segments. Vivendi
Universal does not allocate interest income, interest expense, income taxes or
unusual items to segments.

F-34
235

TV & HOLDING & TOTAL MEDIA &
MUSIC PUBLISHING FILM TELECOMS INTERNET CORPORATE COMMUNICATIONS
----- ---------- ------- -------- -------- --------- --------------
(IN MILLIONS OF EUROS)

INCOME STATEMENT DATA
DECEMBER 31, 2000
Revenue.................... 494.6 3,539.8 4,248.3 5,270.1 47.8 -- 13,600.6
EBITDA..................... 94.2 493.4 526.0 1,303.3 (183.7) (137.0) 2,096.2
Depreciation and
amortization............. (8.7) (148.7) (636.6) (817.2) (9.9) (57.6) (1,678.7)
Expenses of replacement and
repair of installation... -- -- -- -- -- -- --
----- ------- ------- -------- ------ ------ --------
Operating income (loss).... 85.5 344.7 (110.6) 486.1 (193.6) (194.6) 417.5
----- ------- ------- -------- ------ ------ --------
DECEMBER 31, 1999
Revenue.................... -- 3,316.9 1,151.8 4,102.2 2.0 -- 8,572.9
EBITDA..................... -- 417.0 86.0 1,372.0 (51.0) (75.5) 1,748.5
Depreciation and
amortization............. -- (62.5) (188.7) (1,021.4) 0.2 (75.6) (1,348.0)
Expenses of replacement and
repair of installation... -- -- -- -- -- -- --
----- ------- ------- -------- ------ ------ --------
Operating income (loss).... -- 354.5 (102.7) 350.6 (50.8) (151.1) 400.5
----- ------- ------- -------- ------ ------ --------
DECEMBER 31, 1998
Revenue.................... -- 2,876.3 200.6 2,875.2 -- -- 5,952.1
EBITDA..................... -- 355.0 13.0 674.0 (4.0) (43.0) 995.0
Depreciation and
amortization............. -- (102.8) (17.7) (651.5) (2.4) (73.6) (848.0)
Expenses of replacement and
repair of installation... -- -- -- -- -- -- --
----- ------- ------- -------- ------ ------ --------
Operating income (loss).... -- 252.2 (4.7) 22.5 (6.4) (116.6) 147.0
----- ------- ------- -------- ------ ------ --------

TOTAL
ENVIRONMENTAL NON- VIVENDI
SERVICES CORE UNIVERSAL
------------- -------- ---------
(IN MILLIONS OF EUROS)

INCOME STATEMENT DATA
DECEMBER 31, 2000
Revenue.................... 26,512.0 1,685.0 41,797.6
EBITDA..................... 3,544.3 340.4 5,980.9
Depreciation and
amortization............. (1,369.6) (83.0) (3,131.6)
Expenses of replacement and
repair of installation... (278.2) -- (278.2)
-------- -------- --------
Operating income (loss).... 1,896.5 257.4 2,571.4
-------- -------- --------
DECEMBER 31, 1999
Revenue.................... 22,428.2 10,621.4 41,622.5
EBITDA..................... 2,781.0 705.5 5,235.0
Depreciation and
amortization............. (850.6) (479.7) (2,678.3)
Expenses of replacement and
repair of installation... (276.2) -- (276.2)
-------- -------- --------
Operating income (loss).... 1,654.2 225.8 2,280.5
-------- -------- --------
DECEMBER 31, 1998
Revenue.................... 16,047.2 9,737.8 31,737.1
EBITDA..................... 1,929.0 529.0 3,453.0
Depreciation and
amortization............. (568.1) (415.6) (1,831.7)
Expenses of replacement and
repair of installation... (289.9) -- (289.9)
-------- -------- --------
Operating income (loss).... 1,071.0 113.4 1,331.4
-------- -------- --------

F-35
236

TOTAL MEDIA &
TV & COMMUNICATIONS
MUSIC PUBLISHING FILM TELECOMS INTERNET "CORE BUSINESS"
-------- ---------- -------- -------- -------- -----------------
(IN MILLIONS OF EUROS)

BALANCE SHEET STATEMENT DATA
DECEMBER 31, 2000
Goodwill, net................ 14,208.0 575.6 24,583.5 1,745.0 664.4 41,776.5
Other intangible assets,
net........................ 6,225.7 1,868.2 7,026.5 609.8 9.1 15,739.3
Property, plant and
equipment.................. 543.0 576.3 4,477.8 4,419.3 24.7 10,041.1
Publicly-owned utility
networks................... -- -- 0.8 7.8 0.2 8.8
Accumulated depreciation..... (22.1) (295.2) (1,828.8) (1,423.2) (8.7) (3,578.0)
-------- ------- -------- -------- -------- --------
Property, plant and
equipment, net........... 520.9 281.1 2,649.8 3,003.9 16.2 6,471.9
-------- ------- -------- -------- -------- --------
Equity method investments.... 15.0 4.1 6,207.9 1,459.5 25.2 7,711.7
Inventories and
work-in-progess............ 111.5 253.1 567.5 85.0 0.5 1,017.6
Total assets................. 23,745.4 5,090.1 47,751.7 9,885.4 1,076.3 87,548.9
Reserves and allowances...... 166.6 232.2 876.5 108.9 9.5 1,393.7
Long-term
debt -- beginning.......... -- 121.3 1,581.0 1,024.6 -- 2,726.9
New borrowings............... -- 6.5 83.3 446.6 38.1 574.5
Repayment.................... -- (31.9) (150.7) (205.6) (5.3) (393.5)
Changes in scope of
consolidation.............. -- 22.4 (3.6) 133.6 0.1 152.5
Other(1)..................... -- (27.5) (416.7) (6.2) 8.9 (441.5)
-------- ------- -------- -------- -------- --------
Long-term debt -- end...... -- 90.8 1,093.3 1,393.0 41.8 2,618.9
-------- ------- -------- -------- -------- --------
Expenditures for long-lived
assets..................... 49.0 135.7 787.9 1,104.3 72.7 2,149.6
-------- ------- -------- -------- -------- --------
DECEMBER 31, 1999
Goodwill, net................ -- 586.2 2,176.2 1,656.8 53.6 4,472.8
Other intangible assets,
net........................ -- 1,763.1 1,921.1 987.1 -- 4,671.3
Property, plant and
equipment.................. -- 577.2 2,272.6 3,642.3 -- 6,492.1
Publicly-owned utility net
works...................... -- 0.9 -- 7.2 -- 8.1
Accumulated depreciation..... -- (278.5) (1,664.8) (1,012.6) -- (2,955.9)
-------- ------- -------- -------- -------- --------
Property, plant and
equipment, net........... -- 299.6 607.8 2,636.9 -- 3,544.3
-------- ------- -------- -------- -------- --------
Equity method investments.... -- 134.6 (87.7) 237.8 28.0 312.7
Inventories and
work-in-progess............ -- 197.5 759.7 86.4 -- 1,043.6
Total assets................. -- 5,206.1 8,749.0 9,158.6 34.5 23,148.2
Reserves and allowances...... -- 303.7 400.2 128.3 -- 832.2
Long-term
debt -- beginning.......... -- 220.5 -- 461.1 -- 681.6
New borrowings............... -- 36.2 412.8 632.3 -- 1,081.3
Repayment.................... -- (61.2) (17.9) (203.6) -- (282.7)
Changes in scope of
consolidation.............. -- (65.4) 1,190.5 126.2 -- 1,251.3
Other(1)..................... -- (8.8) (4.4) 8.6 -- (4.6)
-------- ------- -------- -------- -------- --------
Long-term debt -- end...... -- 121.3 1,581.0 1,024.6 -- 2,726.9
-------- ------- -------- -------- -------- --------
Expenditures for long-lived
assets..................... -- 95.5 205.9 1,053.3 6.1 1,360.8
-------- ------- -------- -------- -------- --------

NON- TOTAL
ENVIRONMENTAL CORE/ VIVENDI
SERVICES CORPORATE UNIVERSAL
------------- --------- ---------
(IN MILLIONS OF EUROS)

BALANCE SHEET STATEMENT DATA
DECEMBER 31, 2000
Goodwill, net................ 5,332.4 23.6 47,132.5
Other intangible assets,
net........................ 4,245.1 195.7 20,180.1
Property, plant and
equipment.................. 14,333.2 1,296.5 25,670.8
Publicly-owned utility
networks................... 5,644.4 7.7 5,660.9
Accumulated depreciation..... (7,557.3) (207.6) (11,342.9)
--------- --------- ---------
Property, plant and
equipment, net........... 12,420.3 1,096.6 19,988.8
--------- --------- ---------
Equity method investments.... 526.6 938.2 9,176.5
Inventories and
work-in-progess............ 1,491.2 710.7 3,219.5
Total assets................. 38,056.6 25,132.4 150,737.9
Reserves and allowances...... 3,102.5 1,449.6 5,945.8
Long-term
debt -- beginning.......... 19,469.7 (3,141.9) 19,054.7
New borrowings............... 7,047.5 8,687.8 16,309.8
Repayment.................... (5,158.0) (7,824.0) (13,375.5)
Changes in scope of
consolidation.............. 554.3 1,610.4 2,317.2
Other(1)..................... (10,566.9) 10,506.2 (502.2)
--------- --------- ---------
Long-term debt -- end...... 11,346.6 9,838.5 23,804.0
--------- --------- ---------
Expenditures for long-lived
assets..................... 2,612.9 1,037.3 5,799.8
--------- --------- ---------
DECEMBER 31, 1999
Goodwill, net................ 4,685.9 1,229.9 10,388.6
Other intangible assets,
net........................ 3,792.0 218.6 8,681.9
Property, plant and
equipment.................. 16,383.1 3,693.9 26,569.1
Publicly-owned utility net
works...................... 3,4 4 0.5 5 3 7.2 3,9 8 5.8
Accumulated depreciation..... (5,696.7) (1,924.9) (10,577.5)
--------- --------- ---------
Property, plant and
equipment, net........... 14,126.9 2,306.2 19,977.4
--------- --------- ---------
Equity method investments.... 344.6 124.6 781.9
Inventories and
work-in-progess............ 2,102.7 1,754.0 4,900.3
Total assets................. 37,601.3 22,027.5 82,777.0
Reserves and allowances...... 2,775.1 3,276.1 6,883.3
Long-term
debt -- beginning.......... 2,197.4 6,903.5 9,782.5
New borrowings............... 7,658.8 2,719.9 11,460.0
Repayment.................... (4,782.0) (5,028.9) (10,093.6)
Changes in scope of
consolidation.............. 3,336.6 2,963.0 7,550.9
Other(1)..................... 11,058.9 (10,699.4) 354.9
--------- --------- ---------
Long-term debt -- end...... 19,469.7 (3,141.9) 19,054.7
--------- --------- ---------
Expenditures for long-lived
assets..................... 1,905.0 2,362.5 5,628.3
--------- --------- ---------

---------------
(1) Foreign currency translation adjustments, reclassifications and changes in
accounting policies.

F-36
237

Geographic Data

AT DECEMBER 31,
---------------------
REVENUE 2000 1999
------- --------- --------
MILLIONS OF EUROS

France................................................. 21,173.8 23,785.2
United Kingdom......................................... 2,969.1 3,465.0
Rest of Europe......................................... 7,420.9 7,369.7
United States of America............................... 7,009.1 5,014.1
Rest of the World...................................... 3,224.7 1,988.5
--------- --------
Total........................................ 41,797.6 41,622.5
========= ========

AT DECEMBER 31,
---------------------
LONG LIVED ASSETS 2000 1999
----------------- --------- --------
MILLIONS OF EUROS

France................................................. 38,605.0 18,994.8
United Kingdom......................................... 8,438.9 3,748.0
Rest of Europe......................................... 9,179.9 9,656.4
United States of America............................... 48,069.7 12,268.2
Rest of the World...................................... 8,285.8 673.5
--------- --------
Total........................................ 112,579.3 45,340.9
========= ========

NOTE 14 ADDITIONAL FINANCIAL INFORMATION

INTANGIBLE ASSETS OTHER THAN GOODWILL:

AT DECEMBER 31,
-------------------
2000 1999
-------- -------
MILLIONS OF EUROS

OTHER INTANGIBLE ASSETS (NET)
Fees paid to local authorities........................... 519.9 516.9
Trademarks, market share, editorial resources............ 5,296.0 5,395.7
Software................................................. 525.9 459.0
Prepaid expenses......................................... 1,330.8 1,192.0
Audiovisual and musical rights........................... 8,590.1 75.0
Film costs, net of amortization.......................... 2,764.8 709.0
Other.................................................... 1,152.6 334.3
-------- -------
Total.......................................... 20,180.1 8,681.9
======== =======

Fees paid to local authorities relating to public service contracts, which
are located primarily in France, amounted to E519.9 million and E516.9 million
for the years ending December 31, 2000 and 1999, respectively. These are
amortized over the term of the contracts.

Trademarks, market share and editorial resources mostly relate to
environmental services, publishing and audiovisual activities other than
Universal Studios Group, in the amounts of E2,477.5 million, E1,747 million, and
E1,067.7 million, respectively, at December 31, 2000 and E2,378 million,
E1,726.4 million and E1,067.7 million, respectively, at December 31, 1999. 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.

F-37
238

Prepaid expenses of E1,330.8 million at December 31, 2000 and E1,192
million at December 31, 1999, 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, 2000, 1999 and 1998 was E761,4 million, E367.2 million and E195.7
million, respectively.

Accumulated amortization amounted to E2,847 million and E2,563.4 million as
of December 31, 2000 and 1999, respectively.

AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS

PROPERTY, PLANT AND EQUIPMENT (NET)
Land.................................................... 2,029.5 1,773.2
Buildings............................................... 3,518.0 2,680.2
Equipment and machinery................................. 6,267.9 8,352.4
Construction in progress................................ 740.4 1,323.0
Other................................................... 3,533.1 2,253.6
-------- --------
Property, plant and equipment........................... 16,088.9 16,382.4
Publicly owned utility networks......................... 3,899.9 3,595.0
-------- --------
Total......................................... 19,988.8 19,977.4
======== ========

As of December 31, 2000 and 1999, property plant and equipment totaling
E1.8 billion and E2.1 billion were pledged as collateral for borrowings from
banks. See Note 6.

Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was E2,105.7 million, E1,898.1 million and E1,385.7 million, respectively.

AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS

INVENTORIES AND WORK IN PROGRESS
Inventories............................................... 3,797.6 5,558.1
Less valuation allowance.................................. (578.1) (657.8)
------- -------
Net Value................................................. 3,219.5 4,900.3
======= =======

AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS

ACCOUNTS RECEIVABLE
Trade accounts receivable............................... 17,439.8 18,082.4
Valuation allowance..................................... (1,124.5) (1,068.3)
-------- --------
Total trade accounts receivable............... 16,315.3 17,014.1
VAT and other taxes..................................... 2,926.5 2,644.0
Other including deferred tax............................ 3,907.9 2,733.6
-------- --------
Total accounts receivable..................... 23,149.7 22,391.7
-------- --------

F-38
239

AT DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- ------
MILLIONS OF EUROS

ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of period................ 1,068.3 706.2 472.4
Amount charged to expense..................... 447.9 514.3 290.2
Deductions of reserve......................... (172.7) (248.1) (137.2)
Other adjustments*............................ (219.0) 95.9 80.8
-------- -------- ------
Balance at end of period...................... 1,124.5 1,068.3 706.2
-------- -------- ------

---------------
* Other adjustments reflect changes in the scope of consolidation.

AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS

MINORITY INTEREST
MINORITY INTEREST AT JANUARY 1,........................... 4,052.4 2,423.0
Changes in consolidation.................................. 4,990.4 1,596.9
Minority interest in income of consolidated
subsidiaries............................................ 624.9 5.3
Dividends paid by consolidated subsidiaries............... (80.1) (70.3)
Impact of foreign currency fluctuations on minority
interest................................................ 189.8 84.1
Other changes............................................. 10.0 13.4
------- -------
MINORITY INTEREST AT DECEMBER 31,......................... 9,787.4 4,052.4
------- -------

Changes in consolidation in 2000 primarily result from the impact of
Vivendi Environnement's IPO and the Vivendi/Seagram/Canal Plus merger,
respectively E2,914.9 million and E2,415.0 million. The Vivendi/Seagram/Canal
Plus merger led to a reduction in minority interests by E(416) million. Sithe
partial disposition also reduces minority interests by E(303.7) million. Lastly
Cegetel's change in accounting method related to mobile customers acquisition
costs has lead to a decrease of E(296.8) millions on minority interests.

Changes in consolidation in 1999 primarily result from the impact of the
consolidation of Canal Plus 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.

AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS

ACCOUNTS PAYABLE
Trade accounts payable.................................. 19,144.6 17,637.6
Social costs payable.................................... 4,352.6 4,613.3
Other................................................... 8,129.4 1,581.2
-------- --------
Total accounts payable.................................. 31,626.6 23,832.1
-------- --------

F-39
240

NOTE 15 LISTING OF MAIN COMPANIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS
IN 2000

Vivendi Universal consolidated in 2000 more than 3,770 companies compared
with 4,600 in 1999. The principal companies are:

CONSOLIDATION INTEREST %
COMPANIES METHOD HELD
--------- ------------- -----------

VIVENDI UNIVERSAL........................................... (1) 100.00

MEDIA AND COMMUNICATIONS
Cegetel and its subsidiaries.............................. (1) 44.00
Of which
- Societe Francaise du Radiotelephone (S.F.R.)............
- Cegetel 7...............................................
- Cegetel Entreprises.....................................
Vivendi Telecom International and its subsidiaries..... (1) 100.00
Of which:
- Mattel (Hungary)........................................ (1) 100.00
- Monaco Telecom.......................................... (3) 51.00
Vivendi Universal Publishing and its subsidiaries...... (1) 100.00
Of which:
- Havas Interactive Inc................................... (1) 100.00
- Groupe Expansion........................................ (1) 100.00
- Groupe Moniteur......................................... (1) 100.00
- Editions Robert Laffont................................. (1) 100.00
- Groupe Anaya............................................ (1) 100.00
- Larousse-Bordas......................................... (1) 100.00
- France Loisirs.......................................... (2) 50.00
- Groupe Tests............................................ (1) 100.00
- Comareg................................................. (1) 100.00
Canal Plus and its subsidiaries........................ (1) 100.00
Of which:
- Canal Plus ............................................. (1) 49.00
- Canal Satellite......................................... (1) 66.00
- StudioCanal............................................. (1) 84.70
Vivendi Universal Net and its subsidiaries............. (1) 100.00
Of which:
- Scoot.com plc........................................... (3) 22.40
- i-France................................................ (1) 100.00
- Won USA (Flipside)...................................... (1) 80.00
- Vizzavi Europe.......................................... (3) 50.00
- Ad-2-One................................................ (1) 100.00
The Seagram Company Ltd. and its subsidiaries(b)....... (1) 100.00

F-40
241

CONSOLIDATION INTEREST %
COMPANIES METHOD HELD
--------- ------------- -----------

Of which:
- Centenary Holding N.V. ................................. (1) 92.30
- Universal Music (UK) Holding Ltd. ................... (1) 100.00
- Universal Holding GmbH............................... (1) 100.00
- Universal Music K.K. ................................ (1) 100.00
- Universal Music S.A. ................................ (1) 100.00
- Universal Pictures International B.V. .................. (1) 92.30
- Universal Studios, Inc.(c).............................. (1) 92.30
- Polygram Holding Inc. ............................... (1) 100.00
- Interscope Records................................... (1) 100.00
- Def Jam Records, Inc. ............................... (1) 100.00
- Universal City Studios, Inc. ........................ (1) 100.00
- USANi LLC............................................ (3) 48.60

VIVENDI ENVIRONNEMENT....................................... (1) 63.04
Of which:
Vivendi Water............................................. (1) 63.04
US Filter and its subsidiaries............................ (1) 63.04
Berliner Wasser Betriebe.................................. (2) 31.50
Dalkia and its subsidiaries............................... (1) 45.98
CGEA Onyx and its subsidiaries............................ (1) 63.04
CGEA Connex and its subsidiaries.......................... (1) 63.04
F.C.C. and its subsidiaries (F.C.C.)...................... (2) 17.60

MULTIPLE ACTIVITY AND HOLDING COMPANIES
Compagnie Transatlantique de Telecommunications
(Transtel)............................................ (1) 70.00
Vivendi North America Company Inc. ....................... (1) 63.04
Vivendi Asia Pacific Pte Ltd (Singapour).................. (1) 100.00
Vivendi U.K. ............................................. (1) 63.04
Gelgin Limited............................................ (1) 100.00
(1) = Consolidation
(2) = Proportionate consolidation
(3) = Equity method

---------------
(a) Vivendi Universal has majority voting rights and control of the Board of
Directors of Cegetel.

(b) Regarding the subsidiaries of the Seagram Company Ltd., percentages are
those of control.

NOTE 16 SUPPLEMENTAL DISCLOSURES

The following information has been prepared to present supplemental
disclosures required under U.S. GAAP and SEC regulations applicable to Vivendi
Universal.

NOTE 16A SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING POLICIES
GENERALLY ACCEPTED IN THE UNITED STATES AND FRANCE

The consolidated financial statements of Vivendi Universal have been
prepared in accordance with French GAAP, which differs in certain significant
respects from U.S. GAAP. The principal differences between French GAAP and U.S.
GAAP as they relate to Vivendi Universal are discussed in further detail below.

F-41
242

Use of the Proportionate Consolidation Method Under French GAAP, it is
appropriate to use the proportionate consolidation method for subsidiaries over
which Vivendi Universal 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 U.S. GAAP, when Vivendi Universal controls a subsidiary based on
majority ownership or voting or other rights, the subsidiary is fully
consolidated. When it 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.

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, Vivendi Universal
applies the criteria described in Note 2.

Under U.S. 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.

Business Combinations -- Goodwill Certain acquisitions, notably Havas and
Pathe, have been accounted for as mergers as permitted under French GAAP. Under
this method, assets and liabilities of the acquired company are accounted for at
historical cost. Any difference between the value of shares issued in such a
merger and the fair value of net assets acquired is recorded as goodwill. Prior
to fiscal year 2000, in certain other instances, where the acquisition paid for
in equity securities of the company, the excess of the purchase price over the
fair value of assets acquired may have been recorded as a reduction of
shareholders' equity. Under French GAAP, business trademarks acquired in a
purchase business combination and recognized for their fair value as intangible
assets are not required to be amortized. The Havas and Pathe acquisitions did
not meet the criteria for pooling in the U.S. and, therefore, were accounted for
as purchase business combinations. Accordingly, the assets acquired and
liabilities assumed are recorded at fair value, with the excess of consideration
paid over the fair value of net assets acquired being accounted for as goodwill.
Trademarks acquired in purchase business combination are amortized over their
estimated useful life. In addition, under U.S. GAAP, goodwill must be shown as
an asset and amortized over its useful life not to exceed 40 years.

Intangible Assets Under French GAAP, certain costs such as 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 U.S. GAAP, start-up and advertising costs are charged to expense in
the period they are incurred.

Lease Contracts Vivendi Universal 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 U.S. 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 provide a methodology
as detailed as under U.S. GAAP. The

F-42
243

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 U.S. GAAP, assets to be reviewed for impairment are grouped at an
appropriate level when groups of assets generate joint cash flows. U.S. 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.

Vivendi Universal'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 U.S. GAAP and
therefore are considered as financial arrangements. The related real estate
assets which, would have been recorded under U.S. GAAP must also be considered
for impairment. Accordingly, sales provisions were reversed.

Impairment/Decoders Replacement Under U.S. GAAP, changes in lives of
long-term assets held for use are reflected prospectively over the revised life
of the asset. Under French GAAP, for significant changes in lives, a write-down
is recorded currently as an expense.

Public Service Contracts

Under French GAAP, a few consolidated subsidiaries, being generally jointly
controlled, apply the accrue in advance method to account for repair costs.

Under U.S. GAAP, Vivendi Universal applies the expensed as incurred method
for maintenance and repair expenditures

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 U.S. GAAP, the present value of the obligation corresponding to debt
service payments is recognized as a liability.

Financial Instruments

Equity 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 U.S. GAAP, investments in debt and equity securities are classified
into three categories and accounted for as follows: Debt securities that Vivendi
Universal 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-

F-43
244

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 Vivendi Universal'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 U.S. 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 U.S. 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, Vivendi Universal 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 U.S. 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 or upon shares granted to employees and directors are
recorded as an increase to share capital at the cumulative exercise price.
Vivendi Universal 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 strike
price is accrued for.

Under U.S. GAAP plans that grant or sell common shares to employees are
qualified 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, the entire compensation cost
arising from such plans is recognized as of the grant date. If a plan is not
compensatory, its cost i) is recognized over the vesting period when the plan is
a stock option plan or, ii) is not expensed when the plan is a stock purchase
plan.

Pension Plans Under French GAAP, Vivendi Universal records since January
1998 its pension obligations, covering all eligible employees, using the
projected unit credit method.

Under U.S. 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.

F-44
245

Under U.S. GAAP, Vivendi Universal 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. Vivendi Universal is currently evaluating the impact of adopting SFAS
No. 133 on its financial statements.

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 application of
this bulletin does not have material effect on the company's policies or result
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. Management does
not believe that the adoption of this statement could have a material impact on
the company's results of operations and financial position.

NOTE 16B RECONCILIATION OF EQUITY AND NET INCOME TO U.S. 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, 2000, 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 U.S. GAAP for the periods ended December 31, 2000,
1999 and 1998.

AT DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
MILLIONS OF EUROS

SHAREHOLDERS' EQUITY AS REPORTED IN THE CONSOLIDATED
STATEMENT OF SHAREHOLDERS' EQUITY......................... 56,675.1 10,892.2 7,840.2
Adjustment to conform to U.S. GAAP:
Business combinations/Goodwill............................ 8,782.6 7,876.3 3,160.0
Intangible assets......................................... (329.1) (460.9) (269.4)
Leasing contracts......................................... (11.3) (14.2) (15.3)
Impairment/Real Estate.................................... (87.9) (64.9) (586.0)
Public service contracts.................................. 159.2 113.9 105.2
Reserves for restructuring liabilities.................... 25.0 146.2 104.5
Other reserves............................................ 51.4 33.5 42.8
Financial instruments..................................... 822.7 (1,532.8) (266.8)
Pension plans and stock-based compensation................ (22.7) (8.9) 11.6
Others.................................................... (32.1) (101.2) (35.4)
Tax effect on the above adjustments....................... (1,303.5) 75.3 174.0
-------- -------- --------
U.S. GAAP Shareholders' equity.............................. 64,729.4 16,954.5 10,265.4
-------- -------- --------

F-45
246

AT DECEMBER 31,
------------------------------
2000 1999 1998
------- -------- -------
MILLIONS OF EUROS

NET INCOME AS REPORTED IN THE CONSOLIDATED STATEMENTS OF
INCOME.................................................... 2,299.0 1,431.4 1,120.8
Adjustment to conform to U.S. GAAP:
Business combinations/Goodwill............................ (263.4) (1,052.7) (191.0)
Intangible assets......................................... (106.3) (191.5) (118.5)
Leasing contracts......................................... 2.9 1.1 1.4
Impairment/Real Estate.................................... (23.0) 521.1 74.9
Public service contracts.................................. 18.2 8.7 (8.7)
Reserves for restructuring liabilities.................... (102.0) 26.0 1.7
Other reserves............................................ 27.8 6.4 (31.6)
Financial instruments..................................... 105.5 (208.0) (325.8)
Pension plans and stock-based compensation................ (108.1) (240.5) (58.2)
Others.................................................... 7.1 (15.2) 11.4
Tax effect on the above adjustments....................... 50.1 (40.7) 88.8
------- -------- -------
U.S. GAAP Net income........................................ 1,907.8 246.1 565.2
------- -------- -------

Basic and diluted earnings per share

For U.S. 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 (see Note 6). Net
income represents the earnings of Vivendi Universal after minority interest. The
computation of diluted earnings per share is as follows:

YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
------- ----- -----
MILLIONS OF EUROS, EXCEPT
PER SHARE AMOUNTS

Net income.................................................. 1,907.8 246.1 565.2
------- ----- -----
Net income diluted.......................................... 1,941.9 275.9 565.2
------- ----- -----
Weighted average number of shares
Outstanding -- basic...................................... 588.8 511.3 438.3
Dilutive effect of:
Shares issuable on conversion of debt..................... 34.6 -- --
Shares issuable on exercise of dilutive options........... 10.4 2.3 2.9
Shares attributable to stock purchases plans.............. 2.0 2.7 1.0
Shares applicable to warrants............................. 4.2 8.9 9.3
------- ----- -----
Weighted average number of shares
Outstanding -- diluted.................................... 640.0 525.2 451.5
======= ===== =====
Earnings per share:
Basic..................................................... 3.24 0.48 1.29
======= ===== =====
Diluted................................................... 3.03 0.47 1.25
------- ----- -----

NOTE 16C PRESENTATION OF THE INCOME STATEMENT AND CONDENSED BALANCE SHEET IN
U.S. GAAP

For purposes of presenting a consolidated condensed balance sheet as of
December 31, 2000 and 1999 and consolidated condensed income statements for the
years ended December 31, 2000 and 1999 in a

F-46
247

format consistent with U.S. GAAP, Vivendi Universal has reflected the financial
statement impact of those reconciling differences between French GAAP and U.S.
GAAP presented in Note 16A and Note 16B.

Operating income

Under French GAAP, goodwill amortization is excluded from operating income,
while under U.S. GAAP, it is included as a component of operating income. In
addition, French GAAP defines exceptional items in a manner that differs from
the definition of extraordinary items under U.S. GAAP. As a consequence, items
classified as exceptional for French GAAP purposes have been reclassified to the
appropriate income statement captions determined under U.S. GAAP. With the
exception of gains and losses on sales of shares of affiliated companies,
exceptional items relating to the operations of the group have been included in
the determination of operating income.

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 U.S. GAAP purposes as other income (loss).

YEAR ENDED DECEMBER 31,
------------------------
2000 1999
----------- ---------
(MILLIONS OF EUROS)

REVENUE*.................................................... 34,275.8 36,542.9
Cost of sales............................................... (23,172.9) (26,718.6)
Selling, general and administrative costs................... (8,997.9) (8,293.1)
Goodwill amortization....................................... (760.1) (766.3)
Other operating expense and revenue......................... (166.7) (1,441.9)
----------- ---------
OPERATING INCOME............................................ 1,178.2 (677.0)
Financial income............................................ (393.8) (371.2)
Other income................................................ 3,007.4 532.8
----------- ---------
NET INCOME BEFORE TAXES, MINORITY INTERESTS AND EQUITY
INTEREST.................................................. 3,791.8 (515.4)
Taxes....................................................... (798.5) 716.3
----------- ---------
NET INCOME BEFORE MINORITY INTERESTS AND EQUITY INTEREST.... 2,993.3 200.9
Equity interest............................................. (546.1) 21.0
Minority interest........................................... (579.7) 24.2
----------- ---------
NET INCOME FROM CONTINUED OPERATIONS........................ 1,867.5 246.1
Net income from discontinued operations..................... 40.3 --
----------- ---------
NET INCOME.................................................. 1,907.8 246.1

---------------
(*) included excise taxes and contribution collected on behalf of local
authorities for an amount of E1,729 million and E2,112 million for 2000 and
1999, respectively.

F-47
248

DECEMBER 31,
-----------------
2000 1999
------- ------

Current Assets.............................................. 35,146 30,982
Non Current Assets.......................................... 116,672 43,515
TOTAL ASSETS........................................... 151,818 74,497
Current Liabilities......................................... 46,071 33,935
Long term liabilities....................................... 31,651 20,728
Minority interest........................................... 9,367 2,880
Total Shareholders' Equity.................................. 64,729 16,954
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. 151,818 74,497

NOTE 16D COMPREHENSIVE INCOME

The concept of comprehensive income does not exist under French GAAP. In
U.S. GAAP, SFAS 130, "Reporting comprehensive income", defines comprehensive
income to include, net of tax impact:

- minimum pension liability adjustments;

- unrealized gains and losses on investment securities classified as
"available for sale";

- foreign currency translation adjustments.

Net income for the year ended December 31, 1999............. 246.1
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... 332.3
Unrealized losses on equity securities.................... 110.0
-------
Other comprehensive income.................................. 442.3
-------
Comprehensive income for the year ended December 31, 1999... 688.4
Net income for the year ended December 31, 2000............. 1,907.8
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... (700.3)
Unrealized gains on equity securities..................... 3,158.0
Minimum liabilities adjustments............................. (5.1)
-------
Other comprehensive income.................................. 2,452.6
-------
Comprehensive income for the year ended December 31, 2000... 4,360.4
=======

NOTE 16E STOCK BASED COMPENSATION

STOCK BASED COMPENSATION

Vivendi Stock option plans

Beginning in 1997, Vivendi adopted stock options plans that are settled in
its own shares. Under Vivendi Universal's "classic" plans prior to December 31,
1999, options were granted to employees at a strike price discounted 12.5% to
20% from the fair market value of the stock at the date of grant.

For plans adopted prior to January 1, 1997, options that are exercised are
settled through the issuance of new shares. These options are granted with a
contractual life of eight to ten years and vest over a two year period from the
date of grant. For plans adopted in 1998 and later, options that are exercised
are settled with treasury shares. These options vest over a three or five year
period and are valid up to eight years from the date of grant.

Prior to the creation of Vivendi Universal, Vivendi adopted two fixed major
stock options plans in 2000, which grant options to a limited number of senior
managers. One of them replaces a stock option plan adopted by CANAL+ in 2000.

F-48
249

No compensation expense has been recorded in connection with the stock
options granted by Vivendi under French GAAP. Under U.S. GAAP, the compensation
cost recorded by the Company is respectively E85.8 million and E8.6 million for
the years ended December 31, 1999 and 2000. A gain of E9.5 million has been
recorded in 2000 in connection with a variable stock-option plan adopted in 1999
against a cost of E38.6 million in 1999.

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 fair market value
of the shares at the grant date.

Outstanding options at December 4, 2000 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 the 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.

No compensation expense has been recorded in connection with the stock
options granted by CANAL+ under French GAAP. Under U.S. GAAP, the compensation
cost recorded by Vivendi Universal is respectively E1.9 million and E1.5 million
for the years ended December 31, 1999 and 2000.

Vivendi Universal stock option plans

Since its creation, Vivendi Universal has adopted two fixed stock option
plans that grant options to a limited number of senior managers. Under these
plans, the stock price is not discounted from the fair market value of the stock
on the date of grant. The options are granted with a contractual life of eight
years. Under the first plan, one third of the options will vest each of the next
three years. Under the second one, the options vest after three years but the
exercise date depends on the performance of Vivendi Universal stock against the
performance of the MSC Media Index. No compensation cost has been recorded with
these plans under U.S. GAAP.

As of December 8, 2000, the stock options of CANAL+ stock options plans
were replaced by two stock option plans of Vivendi Universal (Strike divided by
two and same maturity and vesting period). The following table presents the
evolution of CANAL+ and Vivendi Universal stock options plans together.

WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES (IN EUROS)
---------- ----------------

December 31, 1997........................................... 12,241,569 23.8
---------- ----
Granted................................................... 6,085,560 33.3
Exercised................................................. (1,170,111) 20.6
Forfeited................................................. (36,232) 12.0
---------- ----
December 31, 1998........................................... 17,120,786 22.8
---------- ----
Granted................................................... 11,477,378 68.0
Exercised................................................. (2,652,681) 19.8
Forfeited................................................. (42,616) 19.7
---------- ----
December 31, 1999........................................... 25,902,867 46.2
---------- ----
Granted................................................... 15,131,761 85.7
Exercised................................................. (2,329,062) 17.3
Forfeited................................................. (126,216) 19.2
---------- ----
December 31, 2000........................................... 38,579,350 67.0
---------- ----

F-49
250

Havas Interactive and Medi-Media stock option plans

The stock option plans adopted by Havas Interactive on July 1, 1999 and the
stock option plans of Medi-Media were canceled in 2000 and exchanged against
options from the stock option plan adopted by Vivendi Universal on December 11,
2000.

Vivendi Environnement stock option plans

In July 2000, Vivendi Environnement granted 780,000 stock options on
Vivendi Environnement shares to its top management. The number of options to be
exercised depends of the performance of Vivendi Environnement. The strike is
E32.5. The compensation cost of this variable stock options plan recorded in
2000 is E1.9 million.

Seagram stock option plans

At December 7, 2000 there were 39,999,747 Seagram stock options which were
converted on December 8, 2000 into 32,061,549 Vivendi Universal stock options.
Compensation cost attributable to stock option and similar plans is recognized
based on the difference, if any, between the quoted market price of Vivendi
Universal's common shares on the date of grant over the exercise price of the
option. The company does not issue options at prices below market value at date
of grant. There is no compensation cost associated with Seagram stock option
plans.

WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
ADS (IN USD)
---------- ----------------

December 8, 2000............................................ 32,061,549 54.1
---------- ----
Granted................................................... 6,878,697 67.9
Exercised................................................. (116,257) 45.7
Forfeited................................................. (29,941) 56.1
---------- ----
December 31, 2000........................................... 38,794,048 56.6
---------- ----

At December 31, 2000, 10,130,571 stock options on treasury shares and
24,655,611 stock options on ADSs were exercisable at weighted average exercise
prices of E42.3 and $47.8, respectively. The options outstanding at December 31,
2000 expire in various years through 2010.

Information about 38,579,350 stock options on treasury shares and
38,794,048 stock options on ADSs outstanding at December 31, 2000 is summarized
as follows:

AVERAGE AVERAGE AVERAGE
EXERCISE PRICE NUMBER EXERCISE REMAINING NUMBER EXERCISE
(IN EUROS) OUTSTANDING PRICE LIFE VESTED PRICE
-------------- ----------- -------- --------- ---------- --------

< 20 237,176 19.3 1.80 237,176 19.3
20 - 30 1,493,315 22.9 2.53 1,492,315 22.9
30 - 40 2,190,234 34.2 4.59 2,190,234 34.2
40 - 50 2,691,223 40.3 2.50 800,663 40.4
50 - 60 5,409,183 52.4 4.20 5,409,183 52.3
60 - 70 5,697,221 64.0 5.70 2,202,900 62.6
70 - 80 14,937,438 76.5 7.33 -- --
80 - 90 3,135,000 83.7 7.90 -- --
90 - 110 5,000 106.4 7.20 -- --
110 - 120 2,783,560 111.4 7.40 -- --
---------- ----- ---- ---------- ----
TOTAL 38,579,350 67.0 6.17 12,333,471 46.0
========== ===== ==== ========== ====

F-50
251

AVERAGE AVERAGE AVERAGE
EXERCISE PRICE NUMBER EXERCISE REMAINING NUMBER EXERCISE
(IN USD) OUTSTANDING PRICE LIFE VESTED PRICE
-------------- ----------- -------- --------- ---------- --------

< 20 -- -- -- -- --
20 - 30 389,528 29.6 0.20 389,528 29.6
30 - 40 5,753,322 36.0 3.09 5,753,322 36.0
40 - 50 12,335,068 46.0 6.48 12,335,068 46.0
50 - 60 4,130,340 59.5 8.21 4,008,340 59.6
60 - 70 7,833,497 67.5 7.88 728,000 64.0
70 - 80 8,352,293 75.8 9.03 1,441,553 74.2
---------- ---- ---- ---------- ----
TOTAL 38,794,048 56.6 6.93 24,655,811 47.8
========== ==== ==== ========== ====

The fair value of Vivendi Universal option grants is estimated on the date
of grant using the Binomial Option Pricing Model with the following assumptions
for the grants:

DECEMBER 31,
--------------------
2000 1999 1998
---- ---- ----

Expected life (years)....................................... 7.9 6.5 5.6
Interest rate............................................... 4.8% 4.6% 4.7%
Volatility.................................................. 35% 6.5% 6.5%
Dividend yield.............................................. 1% 1.1% 1.1%

EMPLOYEE STOCK PURCHASE PLANS

Vivendi Universal maintains savings plans that allow substantially all full
time employees of Vivendi Universal and its subsidiaries to purchase shares of
Vivendi Universal. The shares were sold to employees at a discount of 20% from
the average market price of Vivendi Universal 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. The compensation cost
recorded by the company for the year ended December 31, 2000 is E85.9 million.

Vivendi Universal maintains a leveraged stock purchase plan named Pegasus,
which is available exclusively to the employees of the group's non-French
subsidiaries. At the end of a five-year period, the employees are given
assurance that they will receive the maximum amount of either their personal
contribution plus 6 times the performance of the Vivendi Universal share or
their personal contribution plus interest of five percent per year compounded
annually. The risk carried by Vivendi Universal is hedged through a trustee
based in Jersey by Societe Generale. The guarantee was paid through a reserved
capital increase with elimination of the preferential subscription rights
(decision of the Board of Directors of October 4, 1999). 6,000,000 shares were
issued in February 2000 with a value of E56.7 each, whereas the market value of
the Vivendi Universal share was around E110. The issue price corresponds in fact
to a 20% discount as compared to the average of the 20 opening stock market
prices prior to the meeting of the Board of Directors of October 4, 1999. The
compensation cost recorded by the company for the year ended December 31, 2000
is E9.8 million.

Shares sold to employee stock purchase plans are as follows:

2000 1999 1998 1997
--------- --------- --------- -------

Number of shares............................... 8,937,889 6,608,980 1,511,769 936,912
Proceeds on sales (in millions Euros).......... 554.6 480.1 156.4 72.9
Average cost of treasury stock sales (in
Euros)....................................... 62.1 72.6 103.5 77.8

Under U.S. GAAP, the total compensation cost recorded by the company for
period ended December 31, 2000 and 1999 is respectively E95.7 million and E160.8
million.

F-51
252

Had compensation cost for stock based compensation been awarded determined
based on the fair value at the dates of grant consistent with the methodology of
SFAS 123, Vivendi Universal's net income and basic earnings per share would have
reflected the following pro forma amounts (in millions of Euros):

AT DECEMBER 31,
----------------
2000 1999
------- -----

U.S. GAAP net income........................................ 1,907.8 246.1
Basic earnings per share.................................... 3.24 0.48
Impact of fair value method of stock option................. (57.8) (52.2)
Pro forma U.S. GAAP net income.............................. 1,850.0 193.9
Pro forma basic earnings per share.......................... 3.14 0.38

NOTE 16F BENEFITS PLAN

Disclosures, presented in accordance with SFAS 132, are as follows:

PENSION BENEFITS OTHER BENEFITS
------------------ --------------
2000 1999 2000 1999
------- ------- ------ ----
MILLIONS OF EUROS

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................ 1,645.6 1,334.2 7.3 9.0
Service cost........................................... 56.4 71.8 0.1 0.1
Interest cost.......................................... 65.7 91.3 0.4 0.4
Plan participants contributions........................ 10.8 11.9 -- --
Business combinations.................................. 971.2 100.2 179.4 --
Disposals.............................................. (580.7) (10.5) -- --
Curtailments........................................... (2.2) (2.8) -- --
Actuarial loss (gain).................................. 16.6 14.3 1.0 (1.5)
Benefits paid.......................................... (45.1) (71.8) (0.7) (0.7)
Special termination benefits........................... -- -- -- --
Others (foreign currency translation).................. (1.2) 107.0 --
------- ------- ------ ----
Benefit obligation at end of year...................... 2,137.1 1,645.6 187.5 7.3
======= ======= ====== ====
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year......... 1,533.5 1,155.9 -- --
Actual return on plan assets........................... (10.8) 232.5 -- --
Company contributions.................................. 25.9 45.7 -- 0.7
Plan participants contributions........................ 10.8 11.9 -- --
Business combinations.................................. 754.3 3.9 -- --
Disposals.............................................. (236.2) (2.0) -- --
Benefits paid.......................................... (2.7) (71.8) -- (0.7)
Others (foreign currency translation).................. (39.2) 157.4 -- --
------- ------- ------ ----
Fair value of plan assets at end of year............... 2,035.6 1,533.5 -- --
======= ======= ====== ====
FUNDED STATUS OF THE PLAN................................ (101.5) (112.1) (187.7) (7.4)
Unrecognized actuarial loss............................ (21.6) (154.6) (0.6) (1.6)
Unrecognized actuarial prior service cost.............. (137.7) (153.6) -- --
Unrecognized actuarial transition obligation........... (17.6) (26.1) -- --
------- ------- ------ ----
Accrued benefit cost................................... (278.4) (446.4) (188.3) (9.0)
======= ======= ====== ====
Write off of prepaid on multi-employer scheme
overtime(*)............................................ (45.2) (24.9) -- --
------- ------- ------ ----
Net (accrued) benefit cost under U.S. GAAP............... (323.6) (471.3) (188.3) (9.0)
------- ------- ------ ----

---------------
(*) 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.

F-52
253

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 E367 million, E299 million and E54 million,
respectively, as of December 31, 2000, E447 million, E356 million and E32
million, respectively, as of December 31, 1999.

Amounts recognized in the balance sheets consist of:

PENSION BENEFITS OTHER BENEFITS
------------------ ---------------
2000 1999 2000 1999
------- ------- ------- ----
MILLIONS OF EUROS}

Accrued benefit liability (including MLA)................ (439.0) (586.5) (188.3) (9.0)
Prepaid benefit cost..................................... 115.4 114.5 -- --
------- ------ ------ ----
Net amount accrued for under U.S. GAAP................... (323.6) (472.0) (188.3) (9.0)
======= ====== ====== ====
Intangible assets (MLA)(a)............................... (8.6) 0.7 -- --
------- ------ ------ ----
Net amount recognized under U.S. GAAP.................... (332.2) (471.3) (188.3) (9.0)
------- ------ ------ ----

---------------
(a) Adjustment for U.S. GAAP purpose: the benefit liability accrued under U.S.
GAAP has to be the minimum between the accumulated benefit obligation net of
fair value of plan assets and the net amount recognized under U.S. GAAP.

Net accruals in the accompanying consolidated balance sheet can be compared
with balances determined under U.S. GAAP as follows:

PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
2000 1999 2000 1999
------ ------- ------- ----
MILLIONS OF EUROS}

NET AMOUNT ACCRUED FOR UNDER U.S. GAAP.................... (323.6) (472.0) (188.3) (9.0)
Excess funding of plans recognized in income only when
paid back to the Company................................ (3.6) (3.4) -- --
Impacts of transition obligation, of prior service costs
and of actuarial gains recognized with a different
timing under local regulations.......................... (1.3) (29.7) (0.6) --
Minimum liability adjustments (MLA)....................... 8.6 0.7 -- --
------ ------ ------ ----
NET AMOUNT ACCRUED FOR UNDER FRENCH GAAP IN THE
ACCOMPANYING CONSOLIDATED BALANCE SHEET................. (319.9) (504.4) (188.9) (9.0)
====== ====== ====== ====
Accrued................................................... (458.9) (582.6) (188.9) (9.0)
Prepaid................................................... 139.0 78.2 -- --

F-53
254

Net periodic cost under U.S. GAAP is as follows:

PENSION BENEFITS OTHER BENEFITS
---------------- --------------
2000 1999 2000 1999
------ ------ ----- -----
MILLIONS OF EUROS

Service cost................................................ 56.4 71.8 0.1 --
Expected interest cost...................................... 65.7 91.3 0.4 0.1
Expected return on plan assets.............................. (90.6) (93.5) -- 0.5
Amortization of unrecognized prior service cost............. (8.7) (12.1) -- --
Amortization of actuarial net loss (gain)................... (12.5) 0.7 (0.1) --
Amortization of net transition obligation................... (1.8) (1.2) -- --
Curtailments/Settlements.................................... 0.5 (2.8) -- --
Special termination benefits................................ -- -- -- --
----- ----- ---- ---
Net periodic benefit cost................................... 9.0 54.2 0.4 0.6
===== ===== ==== ===
Write off of prepaid on multi-employer scheme overtime...... 21.6 8.2 -- --
----- ----- ---- ---
Net periodic benefit cost under U.S. GAAP................... 30.6 62.4 0.4 0.6
----- ----- ---- ---

Annual cost under French GAAP was E37.9 million and E80.9 million for the
years ended December 31, 2000 and 1999, respectively. The difference between
these amounts and the annual cost under U.S. GAAP primarily results from the
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:

PENSION BENEFITS OTHER BENEFITS
---------------- --------------
2000 1999 2000 1999
------ ------ ----- -----
MILLIONS OF EUROS

Discount rate............................................... 6.5% 5.8% 7.5% 5.0%
Rate of compensation increase............................... N/A N/A N/A N/A
Expected return on plan assets.............................. 8.3% 7.4% 6.0% 6.0%
Expected residual active life (in years).................... 13.5 13.7 15.0

Regarding the other benefits plans, a one-percentage-point change in
assumed health care cost trend rates would have the following effects:

1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
IN PERCENTAGE

Effect on total of service and interest
components..................................... 3.0% 3.0%
Effect on the postretirement benefit
obligation..................................... 3.0% 3.0%

F-54
255

NOTE 16G CAPITAL AND OPERATING LEASE

Vivendi Universal has entered into capital and operating leases. At
December 2000, the minimum future payments under these leases are as follows:

YEAR ENDING OPERATING CAPITAL
DECEMBER 31, 2000 LEASES LEASES
----------------- --------- -------
MILLIONS OF EUROS

2001............................................. 792.7 251.8
2002............................................. 731.3 207.9
2003............................................. 679.5 185.4
2004............................................. 630.6 181.7
2005............................................. 571.2 150.5
2006 and thereafter.............................. 1,893.9 1,339.2
Total minimum future capital lease payments...... 5,299.2 2,316.5
Less amounts representing interest............... -- (895.9)
------- -------
Present value of net minimum future capital lease
payments....................................... -- 1,420.7
------- -------

NOTE 16H RESTRUCTURING COSTS

Provisions for restructuring by segment details as follows:

ENVIRONMENTAL
EMPLOYEE TERMINATION COSTS PUBLISHING(A) SERVICES(B) NON-CORE(D) TOTAL
-------------------------- ------------- ------------- ----------- ------
MILLIONS OF EUROS

DECEMBER 31, 1997.......................... -- 21.1 40.1 61.2
Change in consolidation scope.............. 47.8 -- 1.7 49.5
Additions.................................. 26.0 2.1 64.4 92.5
Utilization................................ (34.6) (10.3) (53.3) (98.2)
Reversal................................... (0.8) -- (1.2) (2.0)
----- ----- ----- ------
DECEMBER 31, 1998.......................... 38.4 12.9 51.7 103.0
Change in consolidation scope.............. 14.6 54.2 (1.7) 67.1
Additions.................................. 18.0 2.0 50.2 70.2
Utilization................................ (42.6) (17.2) (56.5) (116.3)
Reversal................................... (1.4) -- (0.3) (1.7)
----- ----- ----- ------
DECEMBER 31, 1999.......................... 27.0 51.9 43.4 122.3
Change in consolidation scope.............. (4.2) -- (38.7) (42.9)
Additions.................................. 64.1 -- 0.2 64.3
Utilization................................ (9.8) (17.3) (3.5) (30.6)
Reversal................................... (4.0) -- -- (4.0)
----- ----- ------
DECEMBER 31, 2000.......................... 73.1 34.6 1.4 109.1

F-55
256

ENVIRONMENTAL
OTHER RESTRUCTURING COSTS TELECOMS(C) TV & FILMS(E) PUBLISHING(A) SERVICES(B) TOTAL
------------------------- ----------- ------------- ------------- ------------- -----
MILLIONS OF EUROS

DECEMBER 31, 1997............. 59.4 -- -- 30.2 89.6
Change in consolidation
scope....................... (3.3) -- -- (1.0) (4.3)
Additions..................... -- -- -- 9.5 9.5
Utilization................... (21.7) -- -- (13.3) (35.0)
Reversal...................... (0.3) -- -- -- (0.3)
----- ----- ---- ----- -----
DECEMBER 31, 1998............. 34.1 -- -- 25.4 59.5
Change in consolidation
scope....................... (4.1) -- 6.8 55.1 57.8
Additions..................... 1.4 -- -- 28.8 30.2
Utilization................... (12.4) -- (1.5) (34.5) (48.4)
Reversal...................... -- -- -- -- --
----- ----- ---- ----- -----
DECEMBER 31, 1999............. 19.0 -- 5.3 74.8 99.1
Change in consolidation
scope....................... 4.7 20.0 -- -- 24.7
Additions..................... -- -- 11.5 17.6 29.1
Utilization................... (11.6) -- (2.8) (42.8) (57.2)
Reversal...................... (3.5) -- (1.0) -- (4.5)
----- ----- ---- ----- -----
DECEMBER 31, 2000............. 8.6 20.0 13.0 49.6 91.2

As previously discussed, Vivendi Universal 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,
Vivendi Universal 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 Vivendi Universal, 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 its
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

Following the acquisitions of Grupo Anaya in September 1998 and Medi-Media
in August 1999, Vivendi Universal respectively established a termination plan
involving approximately 240 employees and a restructuring plan associated with
severance costs related to the termination of approximately 40 employees,
respectively.

The continuation of these plans in 2000 led to accumulated expenses of
E12.6 million.

In fiscal year 2000, the following plans have been implemented:

- HII is involved in a down sizing plan as well as in a process of
reorganization of shared services and a reallocation of business. As of
December 31, 2000, these plans involve the termination of approximately
570 employees which amounts to E23.6. Other related projects will
generate E6 million of expenses.

- The Education segment is involved in several plans which total E22.0
million, including E17.5 million allocated to the termination of
approximately 210 employees. The major plans concern the

F-56
257

downsizing of the French structure, the reorganization of the supply
chain in Brazil and Spain, and the closure of a site in Belgium.

- The Information segment is in the process of reorganizing its back office
department, mainly through mutualization and reallocation of services.
The expenses of this plan amount to E14 million and will lead to the
termination of approximately 220 employees.

- The Services department will close down a logistic site. This plan will
lead to the termination of 117 employees for E7.0 million. Other costs
associated to this closure will amount to E1 million.

- The headquarters is also involved in a restructuring plan that will lead
to the termination of 17 employees. The expenses of this plan amount to
E2 million.

(b) Environmental Services

Beginning in 1997, the Group 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 administrating 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 Group'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. As previously discussed, the Group acquired US
Filter in April 1999. In conjunction with the acquisition, the Group evaluated
US Filter's ongoing restructuring plans. This evaluation resulted in the
continuation of certain restructuring efforts and the implementation of
additional restructuring plans to streamline United States Filter Corporation's
resulting manufacturing and production base and to redesign its distribution
network. The revised restructuring plans identified certain manufacturing
facilities, distribution sites, sales and administration 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 originally
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 asset
write-downs, lease terminations and other exit costs. During 1999, the Group
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). During 2000 the Group used E9.5 million for various severance
programs. At December 31,2000, E33 million remained, mainly related to several
European severance programs which due to local social regulations require
extended periods to complete. As the severance programs will be completed the
Group anticipates the closure of several facilities and believes that the
remaining E48.6 million will be utilized as the consolidations are completed.

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 1997, in connection with
the phasing out of the subscriber base and associated technology. This plan is
almost completed at December 31, 2000. The remaining reserves of E8.6 million
relate to other technological changes accrued during the previous years.

(d) Non-core

Beginning in 1996, Vivendi Universal 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).

F-57
258

During 1997, it established additional restructuring plans, primarily
related to planned employee 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, Vivendi Universal 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, Vivendi Universal'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, Vivendi Universal established a restructuring plan as a result of
a general decline in construction demand in markets serviced by its German
subsidiaries. Additionally, it 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, it incurred E8.8 million
in connection with such plans and reduced its number of employees by 288 (49
management employees and 239 construction employees).

In 2000, Vivendi Universal reduced its Non-Core provision to ME1.4 mainly
due to the disposal of Vinci. The construction segment has been deconsolidated
at the beginning of 2000 following the Vinci/GTM operation.

(e) TV & Films:

CANAL+ was first consolidated with Vivendi Universal in December 8, 2000.
The E20 million of restructuring costs mainly concern future expenses planned
for the maintenance of terminal equipment and other materials (E15 million), and
a reserve due to future costs concerning the reparation of defective Thomson
digital decoder delivered in 1996 (E2 million).

NOTE 16I SUBSEQUENT EVENTS

SFR Submits Application for UMTS License. On January 30, 2001, SFR, an
indirect subsidiary of Vivendi Universal, officially submitted its application
for a license to provide third generation UMTS mobile telephony services in
France. UMTS is a high-speed standard for mobile telephony that would allow
Vivendi Universal, through SFR, to provide an extensive range of new services,
including video telephony and high-speed access to the Internet and to corporate
intranets. The licenses are expected to be awarded in 2002. The fee for each
license is currently expected to be E4.95 billion, with payments spread over a
15-year period. The French government may be considering proposals to alter the
terms of the license awards.

CANAL+'s Sale of Its Stake in Eurosport. On January 31, 2001, CANAL+
announced that it had sold its 49.5 percent interest in European sports channel
Eurosport International and its 39 percent interest in Eurosport France to TF1.
Proceeds from the sale amounted to E303.5 million for CANAL+ Group and E345
million for Vivendi Universal as its subsidiary Havas Image also sold its
interest in Eurosport France. CANAL+ will remain a distribution channel for
Eurosport. CANAL+ had acquired its interest in Eurosport International and
Eurosport France from ESPN in May 2000.

Convertible Bond Issuance. On February 2, 2001, Vivendi Universal placed
E457 million principal amount of bonds exchangeable for shares of Vinci, a
company in which Vivendi Universal has an

F-58
259

8.67 percent stake. The 1 percent five-year bonds were issued at a price of
E77.35, a 30 percent premium to Vinci's then-current stock price. Each bond is
exchangeable for one Vinci share. On February 5, 2001, the lead manager for the
bonds, which managed the offering of the bonds, exercised their over-allotment
option to purchase E70 million additional principal amount of the bonds, thus
increasing the overall amount of the issuance to E527 million. Conversion of all
the bonds into Vinci shares would result in the elimination of Vivendi
Universal's stake in Vinci.

Acquisition of Uproar Inc. On February 5, 2001, Flipside Inc., a
subsidiary of Vivendi Universal's Publishing business, and Uproar Inc., a
leading interactive entertainment company, announced that they had entered into
a definitive merger agreement pursuant to which Flipside would acquire all of
the outstanding stock of Uproar for U.S.$3 per share, or a total consideration
of U.S.$140 million. The transaction has been approved by the Boards of both
companies and will make the combined entity an overall leader in interactive
games on the Internet.

Exchangeable Bond Issuance. On February 8, 2001, Vivendi Universal placed
E1.809 billion principal amount of bonds exchangeable into Vivendi Environnement
stock on a one for one basis. The bonds correspond to 9.3 percent of the capital
stock of Vivendi Environnement. The 2 percent, five year bonds were issued at a
price of E55.90, a 30 percent premium over the previous day's weighted-average
price. Excluding, the 9.3 percent now allocated to the exchangeable bonds,
Vivendi Universal holds 63 percent of Vivendi Environnement, and intends to
maintain its majority control at this level for the long term.

Disposition of CompuServe France. In March 2001, Vivendi Universal
legalized the terms of the disposition of its interest in AOL CompuServe France.

Acquisition of EMusic.com. On April 6, 2001, Vivendi Universal entered
into an agreement to acquire all of the outstanding shares of EMusic.com Inc.
pursuant to a cash tender offer at $.57 per share. The acquisition was completed
on June 14, 2001.

Acquisition of MP3.com. On May 20, 2001, Vivendi Universal announced that
it had reached an agreement in principal to acquire MP3.com, Inc. for $372
million ($5 per share) in a combined cash and stock transaction. The acquisition
is subject to regulatory approval, shareholder approval, and customary closing
conditions.

Acquisition of Houghton Mifflin Company. On June 1, 2001, Vivendi
Universal announced that it had reached an agreement in principle to acquire
Houghton Mifflin through a cash tender offer for all of Houghton Mifflin's
common stock at a price of $60 per share. The total consideration approximates
$2.2 billion, including the assumption of Houghton Mifflin's average net debt of
$500 million. The tender offer expired on July 6, 2001, and approximately 90% of
the outstanding shares of Houghton Mifflin were tendered. Vivendi Universal
accepted, and has paid for, all tendered shares. Vivendi Universal expects to
complete its acquisition of Houghton Mifflin in August 2001. The acquisition is
subject to regulatory approval and customary closing conditions.

Sale of Loews Cineplex. On June 28, 2001, Universal Studios and USIBV sold
their interests in Loews Cineplex to Goldman, Sachs & Co. for an aggregate
purchase price of $1.00. Universal Studios intends to use the tax loss from the
sale to offset gains on other capital transactions.

Cancelation of shares. On June 28, 2001, the Vivendi Universal board
authorized the cancelation of 22 million shares, reducing the number of
outstanding shares by approximately 2%.

F-59
260

THE SEAGRAM COMPANY LTD.

CONSOLIDATED STATEMENT OF INCOME

FISCAL YEARS ENDED JUNE 30,
-------------------------------------
2000 1999 1998
---------- ---------- ---------
U.S. DOLLARS IN MILLIONS, EXCEPT PER
SHARE AMOUNTS

Revenues.................................................... $15,686 $12,312 $9,474
Cost of revenues............................................ 9,006 7,337 5,525
Selling, general and administrative expenses................ 5,986 4,820 3,396
Restructuring charge (credit)............................... (59) 405 --
------- ------- ------
Operating income (loss)..................................... 753 (250) 553
Interest, net and other expense............................. 661 457 228
Gain on sale of businesses.................................. 98 -- --
Gain on USA transactions.................................... -- 128 360
Gain on sale of Time Warner shares.......................... -- -- 926
------- ------- ------
190 (579) 1,611
Provision (benefit) for income taxes........................ 158 (33) 638
Minority interest........................................... 17 (26) 48
Equity earnings (losses) from unconsolidated companies...... 109 137 (45)
------- ------- ------
Income (loss) from continuing operations.................... 124 (383) 880
Income (loss) from discontinued Tropicana operations, after
tax....................................................... -- (3) 66
Gain on sale of discontinued Tropicana operations, after
tax....................................................... -- 1,072 --
Cumulative effect of change in accounting principle, after
tax....................................................... (84) -- --
------- ------- ------
Net income.................................................. $ 40 $ 686 $ 946
======= ======= ======
EARNINGS PER SHARE -- BASIC
Income (loss) from continuing operations.................. $ 0.28 $ (1.01) $ 2.51
Discontinued Tropicana operations, after tax.............. -- 2.82 0.19
Cumulative effect of change in accounting principle, after
tax.................................................... (0.19) -- --
------- ------- ------
Net income................................................ $ 0.09 $ 1.81 $ 2.70
======= ======= ======
EARNINGS PER SHARE -- DILUTED
Income (loss) from continuing operations.................. $ 0.28 $ (1.01) $ 2.49
Discontinued Tropicana operations, after tax.............. -- 2.82 0.19
Cumulative effect of change in accounting principle, after
tax.................................................... (0.19) -- --
------- ------- ------
Net income................................................ $ 0.09 $ 1.81 $ 2.68
======= ======= ======

The accompanying notes are an integral part of these statements.
U.S. GAAP
F-60
261
THE SEAGRAM COMPANY LTD.

CONSOLIDATED BALANCE SHEET

JUNE 30, 2000 JUNE 30, 1999
------------- -------------
U.S. DOLLARS IN MILLIONS

ASSETS
Cash and cash equivalents................................... $ 1,230 $ 1,533
Receivables, net of allowances.............................. 2,697 2,985
Inventories................................................. 2,422 2,627
Other current assets........................................ 1,450 1,736
------- -------
TOTAL CURRENT ASSETS.............................. 7,799 8,881
Investments................................................. 5,603 5,663
Film costs, net of amortization............................. 991 1,251
Music catalogs, artists' contracts and advances............. 2,803 3,348
Property, plant and equipment, net.......................... 3,099 3,158
Goodwill and other intangible assets........................ 11,814 11,871
Other assets................................................ 699 839
------- -------
$32,808 $35,011
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings and current portion of long-term
debt...................................................... $ 499 $ 1,053
Payables and accrued liabilities............................ 3,960 4,808
Accrued royalties and participations........................ 2,263 2,285
------- -------
TOTAL CURRENT LIABILITIES......................... 6,722 8,146
Long-term debt.............................................. 7,378 7,468
Accrued royalties and participations........................ 575 434
Deferred income taxes....................................... 2,696 2,698
Other liabilities........................................... 1,326 1,499
Minority interest........................................... 1,882 1,878
------- -------
TOTAL LIABILITIES................................. 20,579 22,123
------- -------
Shareholders' Equity
Shares without par value.................................. 4,762 4,575
Retained earnings......................................... 8,460 8,707
Accumulated other comprehensive income.................... (993) (394)
------- -------
TOTAL SHAREHOLDERS' EQUITY........................ 12,229 12,888
------- -------
$32,808 $35,011
======= =======

The accompanying notes are an integral part of these statements.

Approved by the Board

/s/ EDGAR M. BRONFMAN /s/ MATTHEW W. BARRETT
--------------------------------------------- ---------------------------------------------
Edgar M. Bronfman Matthew W. Barrett
Director Director

U.S. GAAP
F-61
262
THE SEAGRAM COMPANY LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS

FISCAL YEARS ENDED JUNE 30,
----------------------------
2000 1999 1998
------ ------- -------
U.S. DOLLARS IN MILLIONS

OPERATING ACTIVITIES
Income (loss) from continuing operations.................... $ 124 $ (383) $ 880
Adjustments to reconcile income (loss) from continuing
operations to net cash provided:
Depreciation and amortization of assets................... 720 527 289
Amortization of goodwill.................................. 347 246 127
Gain on sale of businesses................................ (98) -- --
Gain on sale of Time Warner shares........................ -- -- (926)
Gain on USA transactions.................................. -- (128) (360)
Minority interest in income (loss) of subsidiaries........ 17 (26) 48
Equity earnings from unconsolidated companies (in excess
of) less than dividends received....................... (35) (45) 101
Deferred income taxes..................................... 83 92 447
Other..................................................... 69 120 (69)
Changes in assets and liabilities, net of effect of
acquisitions and dispositions:
Receivables, net of allowances......................... (60) 952 (324)
Inventories............................................ (101) (85) 14
Other current assets................................... 390 6 (524)
Music catalogs, artists' contracts and advances........ 50 (2) (88)
Payables and accrued liabilities....................... (574) (69) (7)
Other liabilities...................................... (134) (270) 151
------ ------- -------
674 1,318 (1,121)
------ ------- -------
Net cash provided by (used for) operating activities........ 798 935 (241)
------ ------- -------
INVESTING ACTIVITIES
Acquisition of PolyGram..................................... -- (8,607) --
Sale of Tropicana........................................... -- 3,288 --
Sale of Champagne operations................................ 310 -- --
Sale of Universal Concerts.................................. 190 -- --
Sale of Time Warner shares.................................. -- -- 1,863
USA transactions............................................ (242) (243) (368)
Capital expenditures........................................ (607) (531) (410)
Other....................................................... 69 (43) (386)
------ ------- -------
Net cash (used for) provided by investing activities........ (280) (6,136) 699
------ ------- -------
FINANCING ACTIVITIES
Dividends paid.............................................. (287) (247) (231)
Issuance of shares.......................................... -- 1,417 --
Issuance of shares upon exercise of stock options and
conversion of LYONs....................................... 187 314 86
Issuance of Adjustable Conversion-rate Equity Security
Units..................................................... 75 900 --
Issuance of long-term debt.................................. 99 5,086 41
Repayment of long-term debt................................. (108) (1,066) (37)
Shares purchased and retired................................ -- -- (753)
(Decrease) increase in short-term borrowings and current
portion of long-term debt................................. (787) (841) 1,053
------ ------- -------
Net cash (used for) provided by financing activities........ (821) 5,563 159
------ ------- -------
Net cash (used for) provided by continuing operations....... (303) 362 617
------ ------- -------
Net cash (used for) provided by discontinued operations..... -- (3) 67
------ ------- -------
Net (decrease) increase in cash and cash equivalents........ (303) 359 684
Cash and cash equivalents at beginning of period............ 1,533 1,174 490
------ ------- -------
Cash and cash equivalents at end of period.................. $1,230 $ 1,533 $ 1,174
====== ======= =======

The accompanying notes are an integral part of these statements.
U.S. GAAP
F-62
263
THE SEAGRAM COMPANY LTD.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

COMMON SHARES
WITHOUT PAR VALUE ACCUMULATED
--------------------- OTHER TOTAL
NUMBER RETAINED COMPREHENSIVE SHAREHOLDERS'
(THOUSANDS) AMOUNT EARNINGS INCOME EQUITY
----------- ------ -------- ------------- -------------
U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

BALANCE AT JUNE 30, 1997................ 365,281 $ 809 $8,259 $ 354 $ 9,422
Components of comprehensive income:
Net income............................ 946 946
Currency translation adjustments...... (72) (72)
Unrealized holding loss in equity
securities, net of $44 tax
benefit............................. (82) (82)
-------
Total comprehensive income............ 792
-------
Dividends paid ($.66 per share)....... (231) (231)
Shares issued -- exercise of stock
options.............. 2,751 84 84
-- conversion of LYONs... 48 2 2
Shares purchases and retired.......... (20,948) (47) (706) (753)
------- ------ ------ ----- -------
BALANCE AT JUNE 30, 1998................ 347,132 848 8,268 200 9,316
Components of comprehensive income:
Net income............................ 686 686
Currency translation adjustments...... (599) (599)
Unrealized holding gain in equity
securities, net of $8 tax........... 5 5
-------
Total comprehensive income............ 92
-------
Dividends paid ($.66 per share)....... (247) (247)
Shares issued -- exercise of stock
options and other
compensation......... 8,493 312 312
-- conversion of LYONs... 26 2 2
-- issuance of common
shares................ 76,904 3,413 3,413
------- ------ ------ ----- -------
BALANCE AT JUNE 30, 1999................ 432,555 4,575 8,707 (394) 12,888
Components of comprehensive income:
Net income............................ 40 40
Currency translation adjustments...... (348) (348)
Unrealized holding loss in equity
securities, net of $140 tax
benefit............................. (251) (251)
-------
Total comprehensive income............ (559)
-------
Dividends paid ($.66 per share)....... (287) (287)
Shares issued -- exercise of stock
options and other
compensation......... 4,585 183 183

-- conversion of LYONs... 87 4 4
------- ------ ------ ----- -------
BALANCE AT JUNE 30, 2000................ 437,227 $4,762 $8,460 $(993) $12,229
======= ====== ====== ===== =======

The accompanying notes are an integral part of these statements.
U.S. GAAP
F-63
264

THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The Seagram Company Ltd. operates in four global business segments: music,
filmed entertainment, recreation and other, and spirits and wine. The music
business is conducted through Universal Music Group, which produces, markets and
distributes recorded music throughout the world in all major genres. Universal
Music Group also manufactures, sells and distributes video products in the
United States and internationally, and licenses music copyrights. The filmed
entertainment and recreation and other businesses are conducted through
Universal Studios Group. The filmed entertainment business produces and
distributes motion picture, television and home video products worldwide,
operates and has ownership interests in a number of international cable channels
and engages in the licensing of merchandising and film property rights. The
recreation and other business operates theme parks and retail stores and is also
involved in the development of entertainment software. The spirits and wine
business, directly and through affiliates and joint ventures, produces, markets
and distributes distilled spirits, wines, Ports and Sherries, coolers, beers,
mixers and other low-alcohol beverages. In addition to marketing owned brands,
the spirits and wine business also distributes distilled spirits, wine,
champagne and beer brands owned by others.

Summary of Significant Accounting Policies

BASIS OF PRESENTATION The Seagram Company Ltd. is headquartered in Canada,
and more than 50 percent of the Company's shares are held by U.S. residents. As
a result, the Company has prepared its consolidated financial statements in
accordance with U.S. generally accepted accounting principles (GAAP). U.S. GAAP
applicable to the Company conforms, in all material respects, to Canadian GAAP.
Differences between U.S. and Canadian GAAP affecting these financial statements
are discussed in Note 13. Should a material difference between the two
accounting principles arise in the future, financial statements would be
provided under both U.S. and Canadian GAAP.

PRINCIPLES OF CONSOLIDATION AND ACCOUNTING FOR INVESTMENTS The
consolidated financial statements include the accounts of The Seagram Company
Ltd. and its subsidiaries. All intercompany accounts, transactions and profits
have been eliminated. Investments in certain other companies in which Seagram
has significant influence, but less than a controlling interest, are accounted
for using the equity method. Investments in companies in which Seagram does not
have significant influence are accounted for at market value if the investments
are publicly traded, or at cost if not publicly traded.

USE OF ESTIMATES The preparation of the financial statements requires
management to make informed estimates, assumptions and judgments, with
consideration given to materiality, that affect the reported amounts of assets,
liabilities, revenues and expenses. For example, estimates are used in
management's forecast of anticipated revenues in the music and filmed
entertainment businesses and in determining valuation allowances for
uncollectible trade receivables and deferred income taxes. Actual results could
differ from those estimates.

REVENUES AND COSTS

Music Revenues from the sale of recorded music, net of a provision for
estimated returns and allowances, are recognized upon shipment to third parties.
Advances to established recording artists and direct costs associated with the
creation of record masters are capitalized and are charged to expense as the
related royalties are earned, or when the amounts are determined to be
unrecoverable. The advances

U.S. GAAP
F-64
265
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are expensed when past performance or current popularity does not provide a
sound basis for estimating that the advance will be recovered from future
royalties.

Filmed Entertainment Generally, theatrical films are first distributed in
the worldwide theatrical and home video markets. Subsequently, theatrical films
are made available for worldwide pay television, network exhibition, television
syndication and basic cable television. Television films from the Company's
library may be licensed for domestic and foreign syndication, cable or pay
television and home video. Theatrical revenues from the distribution of films
are recognized as the films are exhibited. Revenues from television and pay
television licensing agreements are recognized when the films are available for
telecast, and all other conditions of the sale have been met. Home video product
revenues, less a provision for estimated returns and allowances, are recognized
upon availability of product for retail sale. Film costs are stated at the lower
of cost, less accumulated amortization, or net realizable value. The estimated
total film production and participation costs are expensed based on the ratio of
the current period's gross revenues to estimated total gross revenues from all
sources on an individual production basis. Estimates of total gross revenues and
costs can change significantly due to a variety of factors, including the level
of market acceptance of film and television products. Accordingly, revenue and
cost estimates are reviewed quarterly and revisions to amortization rates or
write-downs to net realizable value may occur.

Film costs, net of amortization, for completed theatrical films intended
for distribution in the worldwide theatrical, home video and pay television
distribution markets are classified as other current assets. The portion of
released film costs expected to be realized from secondary markets such as
network exhibition, television syndication and basic cable television are
reported as noncurrent assets. Other costs relating to film production,
including the purchase price of literary properties and related film development
costs, and the film library are classified as noncurrent assets.

In order to effectively manage our capital needs and costs in the film
business, we may utilize a variety of arrangements, including co-production,
insurance, contingent profit participation and the sale of certain distribution
rights. In connection with our review of capital needs and costs, the Company
has entered into an agreement with an independent third-party to sell
substantially all completed feature films produced over the period 1997 - 2000.
Films under the agreement are sold at our cost and no revenue or expense from
the initial sale of the films is recognized. The Company distributes these films
and maintains an option to reacquire the films at fair value, based on a formula
considering the remaining estimated total gross revenues, net of costs, at the
time of reacquisition. No films have been reacquired as of June 30, 2000.
Following the sale to the third-party, we accrue participations due to the
third-party in the same manner that the Company has historically amortized film
costs under Financial Accounting Standard (SFAS) No. 53, Financial Reporting by
Producers and Distributors of Motion Picture Films. As a distributor, the
Company has recorded, in its statement of income, the revenues received from and
operating expenses related to the films in all markets where we bear financial
risk for film performance, and, in interest, net and other expense, certain
other costs relating to the agreement.

Recreation and Other Revenues at theme parks are recognized at the time of
visitor attendance. Revenues for retail operations are recognized at
point-of-sale.

Spirits and Wine Revenues from the sale of spirits and wines are
recognized when products are shipped. The Company establishes provisions for
estimated returns and allowances at the time of shipment. Accruals for customer
discounts and rebates are recorded when revenues are recognized.

FOREIGN CURRENCY TRANSLATION For operations in highly inflationary
economies the U.S. dollar is utilized as the functional currency. Affiliates
outside the U.S. generally use the local currency as the functional currency.
For affiliates in countries considered to have a highly inflationary economy,
inventories and property, plant and equipment are translated at historical
exchange rates and

U.S. GAAP
F-65
266
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

translation effects are included in net income. The cumulative currency
translation adjustment balance was $(1,446) million, $(1,098) million and $(499)
million at June 30, 2000, 1999 and 1998, respectively.

CASH AND CASH EQUIVALENTS Cash equivalents include time deposits and
highly liquid investments with original maturities of three months or less.

INVENTORIES Inventories consist principally of spirits and wines and are
stated at cost, which is not in excess of market. The cost of spirits and wines
inventories is determined by either the last-in, first-out (LIFO) method or the
identified cost method. In accordance with industry practice, current assets
include spirits and wines inventories which are aged for varying periods of
years. The cost of music, retail and home video inventories is determined by the
first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at
cost. Depreciation is determined using the straight-line method based on the
estimated useful lives of the assets, generally at annual rates of 2 1/2 - 10
percent for buildings, 4 - 33 percent for machinery and equipment and 10 - 50
percent for other assets.

GOODWILL AND INTANGIBLE ASSETS The Company has significant acquired
intangible assets, including goodwill, music catalogs, artists' contracts, music
publishing assets, film libraries, copyrights and trademarks. Artists' contracts
and music catalogs are amortized on an accelerated basis over 14 and 20 years,
respectively. From the date of acquisition, the acceleration results in 80
percent of artists' contracts being amortized within the first eight years and
50 percent of music catalogs being amortized within the first five years. Music
publishing assets, film libraries and copyrights are amortized on a
straight-line basis over 20 years. Goodwill is amortized on a straight-line
basis over periods up to 40 years. The Company reviews the carrying value of
goodwill and intangible assets for impairment at least annually or whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. Measurement of any impairment would include a comparison of
discounted estimated future operating cash flows anticipated to be generated
during the remaining amortization period to the net carrying value. Music
catalogs, artists' contracts, music publishing assets and copyrights includes
$400 million of the cost of the 1995 Universal acquisition and approximately
$2.8 billion of the cost of the December 1998 PolyGram acquisition. A film
library acquired in connection with the Universal acquisition was valued at $300
million.

STOCK-BASED COMPENSATION Compensation cost attributable to stock option
and similar plans is recognized based on the difference, if any, between the
quoted market price of the Company's common shares on the date of grant over the
exercise price of the option. The Company does not issue options at prices below
market value at date of grant.

DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into foreign currency
and interest rate derivative contracts for the purpose of minimizing risk. The
Company uses currency forwards and options to hedge firm commitments and a
portion of its foreign indebtedness. In addition, the Company hedges foreign
currency risk on intercompany payments and receipts through currency forwards,
options and swaps which offset the exposure being hedged. Gains and losses on
forward contracts are deferred and offset against foreign exchange gains and
losses on the underlying hedged transaction. Gains and losses on forward
contracts used to hedge foreign debt and intercompany payments are recorded in
the income statement in selling, general and administrative expenses. The
Company uses interest rate swaps and swaptions to manage net exposure to
interest rate movements related to its borrowings and to lower its overall
borrowing costs. Net payments or receipts are recorded as adjustments to
interest expense. Interest rate instruments generally have the same life as the
underlying interest rate exposure. Gains or losses on the early termination of
interest rate instruments are recognized over the remaining life, if any, of the
underlying exposure as an adjustment to interest expense.

U.S. GAAP
F-66
267
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NEW ACCOUNTING GUIDANCE

Start-Up Costs It has been the Company's policy to capitalize one-time,
direct incremental costs incurred prior to the initial opening of major
recreation facilities, including sales and marketing, park set-up and training.
Capitalized start-up costs were amortized over a twelve-month period upon the
opening of the facility. At June 30, 1999, capitalized costs were $141 million.
Amortization of start-up costs were $14 million and $1 million in fiscal 1999
and 1998, respectively. On July 1, 1999, the Company adopted the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants (AcSEC) Statement of Position (SOP) 98-5, Reporting on the Costs of
Start-Up Activities, which requires that costs of start-up activities and
organization costs be expensed as incurred. The adoption of SOP 98-5 resulted in
an $84 million non-cash after-tax charge in fiscal 2000, which was recorded as a
cumulative effect of a change in accounting principle.

Financial Instruments SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, issued by the Financial Accounting Standards Board
(FASB), will require the Company to recognize all derivatives in the financial
statements at fair value beginning July 1, 2000. Changes in the fair value of
all derivatives will be recorded each period in current earnings or other
comprehensive income, depending on whether the derivative is used to hedge
fair-value or cash-flow transactions. The ineffective portion of all hedges will
be recognized in current-period earnings. The adoption of SFAS 133 will not have
a material effect on the Company's financial statements.

Film Accounting In June 2000, the AcSEC issued SOP 00-2, Accounting by
Producers or Distributors of Films. The SOP supersedes current film accounting
standards related to the recognition of revenues, costs and expenses and film
cost valuation and will be adopted by the Company on July 1, 2000. The SOP
requires that advertising costs for theatrical and television product be
expensed as incurred. Additionally, the SOP requires that certain abandoned
project costs, which were previously capitalized as film costs, be expensed on
an accelerated basis. Film costs are also required to be presented on the
balance sheet as noncurrent assets. In connection with the adoption of SOP 00-2,
the Company will expense story costs as incurred. The adoption of SOP 00-2 will
result in an approximate $360 million non-cash after-tax charge to reduce the
carrying value of film inventory, which will be reported as a cumulative effect
of a change in accounting principle.

RECLASSIFICATIONS Certain prior period amounts in the financial statement
notes have been reclassified to conform with the current year presentation.

NOTE 2 SIGNIFICANT TRANSACTIONS

Acquisition of PolyGram

On December 10, 1998, the Company acquired 99.5 percent of the outstanding
shares of PolyGram N.V. (PolyGram), a global music and entertainment company,
for $8,607 million in cash and approximately 47.9 million common shares of the
Company. Substantially all of the common shares were issued to Koninklijke
Philips Electronics N.V., which had owned 75 percent of the PolyGram shares. The
acquisition has been accounted for under the purchase method of accounting, and
accordingly the results of the operations of PolyGram are included in the
results of the Company's music and filmed entertainment segments from the date
of acquisition. The acquisition was financed through both short-term and
long-term borrowings.

U.S. GAAP
F-67
268
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Allocation of Purchase Price -- The Company completed a purchase price
study related to its acquisition of PolyGram in order to assess and allocate the
purchase price among tangible and intangible assets acquired and liabilities
assumed, based on fair values at the acquisition date. The final allocation of
purchase price follows:

U.S. DOLLARS IN MILLIONS
------------------------

Identifiable intangible assets.............................. $ 2,774
Goodwill.................................................... 9,616
Accrual for exit activities................................. (510)
All other, net.............................................. (1,080)
-------
$10,800
=======

Intangible Assets -- Identifiable intangible assets consist of music
catalogs, artists' contracts, music publishing assets, distribution networks and
customer relationships. Acquired music catalogs, artists' contracts and music
publishing assets are amortized over periods ranging from 14 to 20 years, on an
accelerated basis, and other intangibles are amortized over a 40-year period, on
a straight-line basis. Goodwill is the excess of purchase price over the fair
value of assets acquired and liabilities assumed, and is amortized on a
straight-line basis over a 40-year period.

Accrual for Exit Activities -- In connection with the integration of
PolyGram and Seagram, management developed a formal exit activity plan that was
committed to by management and communicated to employees shortly after the
acquisition was consummated. The accrual for exit activities consists
principally of facility elimination costs, including leasehold termination
payments and incremental facility closure costs, contract terminations,
relocation costs and the severance of approximately 1,700 employees. The
utilization of the accrual for exit activities to date follows:

UTILIZED
----------------- BALANCE AT
EXIT ACTIVITIES CASH NON-CASH JUNE 30, 2000
--------------- ----- -------- -------------
U.S. DOLLARS IN MILLIONS

Facility elimination costs............. $ 45 $ (23) $ (1) $ 21
Contract terminations.................. 68 (44) (13) 11
Severance or relocation................ 397 (207) (15) 175
---- ----- ---- ----
$510 $(274) $(29) $207
---- ----- ---- ----

As of June 30, 2000, remaining exit activities relate principally to
contractual obligations, facility elimination and severance payments to be made
in future periods.

Disposition of Tropicana

On August 25, 1998, the Company completed the sale of Tropicana Products,
Inc. and the Company's global fruit juice business (Tropicana) for approximately
$3,288 million in cash, which resulted in a pre-tax gain of $1,445 million
($1,072 million after tax). Tropicana produced and marketed

U.S. GAAP
F-68
269
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Tropicana, Dole and other branded fruit juices and beverages. Summarized
financial information related to the discontinued Tropicana business follows:

PERIOD ENDED FISCAL YEAR ENDED
AUGUST 25, 1998 JUNE 30, 1998
--------------- -----------------
U.S. DOLLARS IN MILLIONS

Revenues.............................................. $337 $1,986
Cost of revenues...................................... 266 1,394
Selling, general and administrative expenses.......... 68 423
---- ------
Operating income...................................... 3 169
Interest expense...................................... 3 39
Provision for income taxes............................ 3 64
---- ------
Income (loss) from discontinued operations............ $ (3) $ 66
==== ======

Interest expense above represents allocations based on the ratio of net
assets of discontinued operations to consolidated net assets.

USA Transactions

On October 21, 1997, Universal acquired from Viacom Inc. the remaining 50
percent interest in the USA Networks partnership for $1.7 billion in cash. This
purchase was in addition to Universal's original 50 percent interest in USA
Networks. The acquisition was accounted for under the purchase method of
accounting. The cost of the acquisition was allocated on the basis of the
estimated fair market value of the assets acquired and liabilities assumed. This
transaction resulted in $1.6 billion of goodwill which was being amortized over
40 years.

On February 12, 1998, Universal sold its acquired 50 percent interest in
USA Networks to USA Networks, Inc. (USAi) and contributed its original 50
percent interest in USA Networks, the majority of its television assets and 50
percent of the international operations of USA Networks to USANi LLC. In this
transaction, Universal received $1,332 million in cash, a 10.7 percent interest
in USAi and a 45.8 percent exchangeable interest in USANi LLC. Universal
recognized a gross gain of $583 million, before taking into consideration the
effect of the transaction, which impaired certain remaining television assets
and transformed various related contractual obligations into adverse purchase
commitments. The fair value of these items was determined based on expected
future cash flows. The impairment losses and adverse purchase commitments
arising from the transaction aggregated $223 million and were reflected in the
net gain of $360 million ($222 million after tax). During 1999, $128 million of
accrued costs were reversed as a result of the favorable settlement of certain
contractual obligations and adverse purchase commitments. The transactions
resulted in $82 million of goodwill, which is being amortized over 40 years. The
investment in the 18.2 million shares of USAi common stock held by Universal at
June 30, 2000 is accounted for at market value ($393 million at June 30, 2000)
and has an underlying historical cost of $211 million. The investment in 13.4
million shares of Class B common stock of USAi is carried at its historical cost
of $136 million. The investment in the LLC is accounted for under the equity
method.

Pro Forma Financial Information

The unaudited condensed pro forma income statement data presented below
assume the PolyGram acquisition, the sale of Tropicana and the USA transactions
occurred at the beginning of the 1998 fiscal year. The pro forma information is
not necessarily indicative of the combined results of operations of the Company
that would have occurred if the transactions had occurred on the date previously
indicated, nor is it necessarily indicative of future operating results of the
Company.
U.S. GAAP
F-69
270
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FISCAL YEARS ENDED
JUNE 30,
--------------------------
1999 1998
----------- -----------
U.S. DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS

Revenues.................................................... $15,344 $14,587
Net income (loss)........................................... $ (208) $ 447
Earnings (loss) per share:
Basic..................................................... $ (0.52) $ 1.12
Diluted................................................... $ (0.52) $ 1.11

Other Transactions

Disposition of Concert Operations On September 10, 1999, the Company
completed the sale of Universal Concerts, Inc. for proceeds of approximately
$190 million. This transaction resulted in a pre-tax gain of $98 million.

Disposition of Champagne Operations On July 2, 1999, the Company completed
the sale of its Mumm and Perrier-Jouet Champagne operations for approximately
$310 million. The sale price approximated book value and therefore no gain or
loss was recognized. Through agreements with the purchaser, Seagram has retained
global distribution rights for Mumm and Perrier-Jouet Champagnes for a ten-year
period.

Time Warner Shares On February 5, 1998, the Company sold 15 million shares
of Time Warner common stock for pre-tax proceeds of $958 million. On May 27,
1998, the Company sold its remaining 11.8 million shares of Time Warner common
stock for pre-tax proceeds of $905 million. The aggregate gain on the sale of
the shares was $926 million ($602 million after tax).

NOTE 3 RESTRUCTURING CHARGE

Management developed and committed to a formal plan that was communicated
to employees to restructure its music and filmed entertainment operations after
the acquisition of PolyGram. This plan resulted in a fiscal 1999 pre-tax
restructuring charge of $405 million. The charge related entirely to the
Company's existing global music and film production, financial, marketing and
distribution operations and included severance, elimination of duplicate
facilities and labels, termination of artists' and distribution contracts and
costs related to exiting film production arrangements and properties in
development. The major components of the charge were:

FILMED
MUSIC ENTERTAINMENT TOTAL
----- ------------- -----
U.S. DOLLARS IN MILLIONS

Severance and other employee-related costs.............. $111 $15 $126
Facilities and labels................................... 124 4 128
Contract termination and other costs.................... 78 73 151
---- --- ----
$313 $92 $405
---- --- ----

The severance and other employee-related costs provided for a reduction of
approximately 1,200 employees worldwide related to facility closures, duplicate
position eliminations and streamlining of operations related to cost reduction
initiatives. The facilities and labels elimination costs provided for domestic
and international lease and label terminations and the write-off of the net book
value of furniture, fixtures and equipment and leasehold improvements for
vacated properties. The costs of contract

U.S. GAAP
F-70
271
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

terminations were comprised primarily of artists' contracts, distribution
contracts, story property commitments and filmed entertainment term deals. The
cash and non-cash elements of the restructuring charge approximated $318 million
and $87 million, respectively. Many restructuring activities are complete or
near completion. Due to the favorable settlement of certain contractual and
employee severance obligations, $59 million of the original restructuring charge
was credited to income in the second quarter of fiscal 2000. The utilization of
the restructuring charge to date follows:

UTILIZED
ORIGINAL RESTRUCTURING ---------------- BALANCE AT
CHARGE CREDIT CASH NON-CASH JUNE 30, 2000
-------- ------------- ----- -------- -------------
U.S. DOLLARS IN MILLIONS

Severance and other employee-related
costs............................... $126 $(12) $ (74) $ (3) $ 37
Facilities and labels................. 128 (35) (9) (56) 28
Contract termination and other
costs............................... 151 (12) (75) (28) 36
---- ---- ----- ---- ----
$405 $(59) $(158) $(87) $101
==== ==== ===== ==== ====

As of June 30, 2000, essentially all of the employees provided for under
the restructuring initiative have separated from the Company. Remaining
restructuring activities relate principally to contractual obligations and
severance payments to be made in future periods.

NOTE 4 INVESTMENTS

The Company's investments consist of:

JUNE 30, 2000 JUNE 30, 1999
------------- -------------
U.S. DOLLARS IN MILLIONS

Equity method investments:
USANi LLC................................................ $2,719 $2,329
Other.................................................... 1,568 1,710
------ ------
4,287 4,039
------ ------
Cost and fair-value investments:
DuPont................................................... 719 1,123
USAi common stock........................................ 393 365
USAi Class B common stock................................ 136 136
Other.................................................... 68 --
------ ------
1,316 1,624
------ ------
$5,603 $5,663
====== ======

Equity method investments The Company has a number of investments in
unconsolidated companies which are 50 percent or less owned or controlled, that
are accounted for using the equity method. The most significant of these is
USANi LLC, which is part of our filmed entertainment business and is engaged in
network and first run syndication television production, domestic distribution
of its and Universal's television production and operation of the USA Network
and SCI-FI Channel cable networks (49 percent equity interest). Other filmed
entertainment equity investments include Loews Cineplex Entertainment
Corporation, primarily engaged in theatrical exhibition of motion pictures in
the U.S. and Canada (26 percent owned); Cinema International Corporation and
United Cinemas International, both engaged in theatrical exhibition of motion
pictures in territories outside the U.S. and Canada (49 percent owned), and
several other equity investments primarily related to our international
television networks. Significant investments in the recreation and other
business include Universal City Development Partners,

U.S. GAAP
F-71
272
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(50 percent owned) which owns Universal Orlando, a themed tourist attraction in
Orlando, Florida, that includes Universal Studios, Islands of Adventure,
CityWalk, Hard Rock Live and a 50 percent interest in the Portofino Bay Hotel (a
Loews hotel); USJ Co., Ltd., which has begun development of a motion picture
themed tourist attraction, Universal Studios Japan, and owns commercial real
estate in Osaka, Japan (24 percent owned); Universal Studios Port Aventura, a
theme park located in Spain (37 percent owned); SEGA GameWorks LLC, which
designs, develops and operates location-based entertainment centers (27 percent
owned); and Interplay Entertainment Corp., an entertainment software developer
(16 percent owned). In the music business, the most significant equity
investment is GetMusic, an online music alliance to create Internet sites that
promote and sell music (50 percent owned). The spirits and wine business has an
investment in Kirin-Seagram Limited, which is engaged in the manufacture, sale
and distribution of distilled beverage alcohol and wines in Japan (49 percent
owned).

Summarized financial information for the Company's investments in
unconsolidated companies, derived from unaudited historical financial results,
follows:

SUMMARIZED BALANCE SHEET INFORMATION

JUNE 30, 2000 JUNE 30, 1999
------------- -------------
U.S. DOLLARS IN MILLIONS

Current assets............................................. $ 2,250 $ 1,897
Noncurrent assets.......................................... 12,781 11,928
------- -------
$15,031 $13,825
======= =======
Current liabilities........................................ $ 2,123 $ 1,991
Noncurrent liabilities..................................... 4,693 3,883
Equity..................................................... 8,215 7,951
------- -------
$15,031 $13,825
======= =======
Proportionate share of net assets of unconsolidated
companies................................................ $ 3,392 $ 3,691
======= =======

Approximately $700 million of the cost of the 1995 Universal acquisition
was allocated to goodwill related to investments in unconsolidated companies and
is being amortized on a straight-line basis over 40 years.

SUMMARIZED STATEMENT OF OPERATIONS

FISCAL YEARS ENDED JUNE 30,
-----------------------------
2000 1999 1998
------- ------- -------
U.S. DOLLARS IN MILLIONS

Revenues................................................. $6,117 $5,294 $4,561
Earnings before interest and taxes....................... $ 286 $ 351 $ 366
Net income............................................... $ 241 $ 314 $ 173

The equity earnings (losses) of unconsolidated companies in the
consolidated statement of income includes goodwill amortization related to
unconsolidated companies of $17 million, $35 million and $81 million for the
fiscal years ended June 30, 2000, 1999 and 1998, respectively, principally in
the filmed entertainment and recreation and other segments. Additionally,
operating income for the fiscal year ended June 30, 1998 includes $76 million of
income from USA Networks for the period from October 21, 1997 to February 12,
1998 when the Company owned 100 percent of USA Networks as described in Note 2.

Cost and fair-value investments

DuPont -- At June 30, 2000, the Company owned 16.4 million shares of the
outstanding common stock of E.I. du Pont de Nemours and Company (DuPont). The
Company accounts for the investment at

U.S. GAAP
F-72
273
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market value which was $719 million at June 30, 2000. The underlying historical
book value of the DuPont shares is $187 million, which represents the historical
cost of the shares plus unremitted earnings related to those shares.

USAi -- At June 30, 2000, the Company owned 18.2 million shares of the
outstanding common stock of USAi. The investment, which is accounted for at
market value ($393 million at June 30, 2000), has an underlying cost of $211
million. At June 30, 2000, the Company also owned 13.4 million shares of USAi
Class B common stock which is carried at its historical cost of $136 million.

Other -- Other cost and fair-value investments at June 30, 2000, are
primarily related to our music electronic business initiatives.

NOTE 5 LONG-TERM DEBT AND CREDIT ARRANGEMENTS

LONG-TERM DEBT

JUNE 30, 2000 JUNE 30, 1999
------------- -------------
U.S. DOLLARS IN MILLIONS

6.5% Debentures due 2003.................................... $ 200 $ 200
8.35% Debentures due 2006................................... 200 200
8.35% Debentures due 2022................................... 200 200
6.875% Debentures due 2023.................................. 200 200
6% Swiss Franc Bonds due 2085 (SF 250 million).............. 153 162
7.50% Adjustable Conversion-rate Equity Security Units(1)... 1,004 927
Other....................................................... 293 208
------ ------
2,250 2,097
------ ------
Joseph E. Seagram & Sons, Inc. (JES), guaranteed by Company:
5.79% Senior Notes due 2001............................... 250 250
6.25% Senior Notes due 2001............................... 600 600
6.4% Senior Notes due 2003................................ 400 400
6.625% Senior Notes due 2005.............................. 475 475
8.375% Debentures due 2007................................ 200 200
7% Debentures due 2008.................................... 200 200
6.8% Senior Notes due 2008................................ 450 450
8.875% Debentures due 2011................................ 223 223
9.65% Debentures due 2018................................. 249 249
7.5% Senior Debentures due 2018........................... 875 875
9% Debentures due 2021.................................... 198 198
7.6% Senior Debentures due 2028........................... 700 700
8.00% Senior Quarterly Income Debt Securities due 2038
(QUIDS)................................................ 550 550
Liquid Yield Option Notes (LYONs)(2)...................... 9 9
------ ------
5,379 5,379
------ ------
7,629 7,476
Current portion of long-term debt........................... (251) (8)
------ ------
$7,378 $7,468
====== ======

---------------
(1) In June 1999, the Company issued 18,500,000 units of the 7.5% Adjustable
Conversion-rate Equity Security Units at a stated price of $50.125 for an
aggregate initial offering price of $927 million. In
U.S. GAAP
F-73
274
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

July 1999, the Company issued additional 1,525,000 units of the 7.5%
Adjustable Conversion-rate Equity Security Units at a stated price of
$50.125 for $77 million. Each unit consists of a contract to purchase common
shares of the Company and a subordinated deferrable note of its subsidiary,
Joseph E. Seagram & Sons, Inc., that is guaranteed by the Company. Under the
purchase contracts, on June 21, 2002, the unit holders will purchase for
$50.125 not more than one and not less than 0.8333 of one share of the
Company's common shares per unit, depending on the average trading price of
the common shares during a specified trading period in June 2002. The junior
subordinated deferrable notes have a principle amount equal to the stated
amount of the units and an interest rate of 7.62%. The interest rate on the
note is subject to adjustment at March 21, 2002 and the note matures on June
21, 2004. The holders of the units are required to pay contract fees to the
Company at an annual rate of .12%. These payments will be funded out of
payments made in respect of the notes so that the net distributions on the
notes will be 7.5%.

(2) LYONs are zero coupon notes with no interest payments due until maturity on
March 5, 2006. Each $1,000 face amount LYON may be converted, at the option
of the holder, into 18.44 of the Company's common shares (189,106 shares at
June 30, 2000). The Company has guaranteed the LYONs on a subordinated
basis.

The Company's unused lines of credit totaled $5.5 billion and have varying
terms of up to two years. At June 30, 2000, short-term borrowings comprised $248
million of bank borrowings bearing interest at market rates.

Interest expense on long-term debt was $576 million, $380 million and $226
million in the fiscal years ended June 30, 2000, 1999 and 1998, respectively.
Annual repayments and redemptions of long-term debt for the five fiscal years
subsequent to June 30, 2000 are: 2001 -- $251 million; 2002 -- $674 million;
2003 -- $203 million; 2004 -- $1,407 million; and 2005 -- $9 million.

Summarized financial information for JES and its subsidiaries is presented
below. Separate financial statements and other disclosures related to JES are
not provided because management has determined that such information does not
provide additional meaningful information to holders of JES debt securities.

FISCAL YEARS ENDED JUNE 30,
-----------------------------
2000 1999 1998
------- ------- -------
U.S. DOLLARS IN MILLIONS

Revenues.................................................... $2,438 $2,242 $2,144
Cost of revenues............................................ $1,514 $1,390 $1,356
Loss from continuing operations............................. $ (37) $ (8) $ (8)
Discontinued Tropicana operations........................... -- -- (17)
------ ------ ------
Net loss.................................................... $ (37) $ (8) $ (25)
====== ====== ======

JUNE 30, 2000 JUNE 30, 1999
------------- -------------
U.S. DOLLARS IN MILLIONS

Current assets.............................................. $ 2,232 $ 1,674
Noncurrent assets........................................... 18,377 18,602
------- -------
$20,609 $20,276
======= =======
Current liabilities......................................... $ 879 $ 1,099
Noncurrent liabilities...................................... 10,889 10,014
Shareholders' equity........................................ 8,841 9,163
------- -------
$20,609 $20,276
======= =======

U.S. GAAP
F-74
275
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 FINANCIAL INSTRUMENTS

The carrying value of cash, cash equivalents, receivables, short-term
borrowings, current portion of long-term debt and payables approximate fair
value because maturities are less than one year in duration. The Company's
remaining financial instruments consisted of the following:

ASSET (LIABILITY)
------------------------------------------------------------
JUNE 30, 2000 JUNE 30, 1999
---------------------------- ----------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
U.S. DOLLARS IN MILLIONS

NONDERIVATIVES
Investments (Note 4)...................... $ 431 $ 1,130 $ 398 $ 1,488
Long-term debt............................ $(7,378) $(7,239) $(7,468) $(7,600)

DERIVATIVES HELD FOR PURPOSES OTHER THAN
TRADING
Foreign exchange forwards................. $ -- $ 6 $ -- $ 50
Interest rate swaps....................... -- (41) -- 13
------- ------- ------- -------
$ -- $ (35) $ -- $ 63
======= ======= ======= =======

Fair value of investments was determined based on quoted market value of
these securities as traded on stock exchanges. Fair value of long-term debt was
estimated using quoted market prices for similar issues. The fair value for
foreign exchange and interest rate instruments was based on market prices as
quoted from financial institutions.

The Company, as the result of its global operating and financing
activities, is exposed to changes in interest rates and foreign currency
exchange rates that may adversely affect its results of operations and financial
position. In seeking to minimize the risks and costs associated with such
activities, the Company manages the impact of interest rate changes and foreign
currency changes on earnings and cash flows by entering into derivative
contracts. The Company does not use derivative financial instruments for trading
or speculative purposes.

At June 30, 2000, the Company held interest rate swap contracts that had
notional amounts of $2,250 million ($500 million at June 30, 1999). These swap
agreements expire in one to seven years.

At June 30, 2000, the Company held foreign currency forward contracts and
options to purchase and sell foreign currencies, including cross-currency
contracts and options to sell one foreign currency for another currency, with
notional amounts totaling $1,972 million ($4,539 million at June 30, 1999). The
forward contracts and options are primarily used to hedge the exchange rate
exposure to foreign currency forecasted cash flows. The forecasted cash flows
are principally related to intercompany sales, royalties, licenses and service
fees. These derivatives have varying maturities not exceeding two years. The
principal currencies hedged are the euro, British pound, Canadian dollar and
Japanese yen.

The Company minimizes its credit exposure to counter-parties by entering
into contracts only with highly-rated commercial banks or financial institutions
and by distributing the transactions among the selected institutions. Although
the Company's credit risk is the replacement cost at the then-estimated fair
value of the instrument, management believes that the risk of incurring losses
is remote and that such losses, if any, would not be material. The market risk
related to the foreign exchange agreements should be offset by changes in the
valuation of the underlying items being hedged.

U.S. GAAP
F-75
276
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 COMMON SHARES, EARNINGS PER SHARE AND STOCK OPTIONS

The Company is authorized to issue an unlimited number of common and
preferred shares without nominal or par value. At June 30, 2000, 58,202,953
common shares were potentially issuable upon the conversion of the LYONs, the
exercise of employee stock options, the conversion of deferred share units and
the early settlement of the contracts to purchase shares under the Adjustable
Conversion-rate Equity Security Units. Basic net income per share was based on
the following weighted average number of shares outstanding during the fiscal
years ended June 30, 2000 -- 434,544,033; June 30, 1999 -- 378,193,043; and June
30, 1998 -- 349,874,259. Diluted net income per share was based on the following
weighted average number of shares outstanding during the fiscal years ended June
30, 2000 -- 441,366,684; and June 30, 1998 -- 353,604,553. Average shares of
4,933,249 were not included in the computation of 1999 diluted net income per
share because to do so would have been anti-dilutive.

STOCK OPTION PLANS

Under the Company's employee stock option plans, options may be granted to
purchase the Company's common shares at not less than the fair market value of
the shares on the date of the grant. Currently outstanding options become
exercisable one to five years from the grant date and expire ten years after the
grant date.

The Company has adopted SFAS 123, Accounting for Stock-Based Compensation.
In accordance with the provisions of SFAS 123, the Company applies Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than for
restricted stock. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under these plans
utilizing the methodology prescribed by SFAS 123, the Company's net income and
earnings per share would be reduced to the pro forma amounts indicated below:

FISCAL YEARS ENDED JUNE 30,
---------------------------------
2000 1999 1998
--------- -------- --------
U.S. DOLLARS IN MILLIONS, EXCEPT
PER SHARE AMOUNTS

Net income (loss):
As reported............................................... $ 40 $ 686 $ 946
Pro forma................................................. (49) 622 892

Basic earnings (loss) per common share:
As reported............................................... $ 0.09 $1.81 $2.70
Pro forma................................................. (0.11) 1.64 2.55

Diluted earnings (loss) per common share:
As reported............................................... $ 0.09 $1.81 $2.68
Pro forma................................................. (0.11) 1.64 2.52

These pro forma amounts may not be representative of future disclosures.
The fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for the fiscal years ended June 30, 2000, 1999 and 1998,
respectively: dividend yields of 1.1, 1.5 and 1.8 percent; expected volatility
of 29, 30 and 25 percent; risk-free interest rates of 6.7, 5.1 and 5.6 percent;
and expected life of six years for all periods. The weighted average fair value
of options granted during the fiscal years ended June 30, 2000, 1999 and 1998
for which the exercise price equals the market price on the grant date was
$22.39, $15.25 and $10.92, respectively. The weighted

U.S. GAAP
F-76
277
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

average fair value of options granted during the fiscal year ended June 30, 1998
for which the exercise price exceeded the market price on the grant date was
$7.44.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

Transactions involving stock options are summarized as follows:

WEIGHTED
AVERAGE
EXERCISE PRICE
STOCK OPTIONS OF OPTIONS
OUTSTANDING OUTSTANDING
------------- --------------

BALANCE, JUNE 30, 1997...................................... 32,961,126 $31.79
Granted..................................................... 8,160,909 38.32
Exercised................................................... (2,751,832) 26.14
Cancelled................................................... (752,284) 38.53
---------- ------
BALANCE, JUNE 30, 1998...................................... 37,617,919 33.49
Granted..................................................... 11,674,558 45.40
Exercised................................................... (8,489,374) 31.50
Cancelled................................................... (3,234,811) 34.79
---------- ------
BALANCE, JUNE 30, 1999...................................... 37,568,292 37.53
Granted..................................................... 9,299,360 59.97
Exercised................................................... (4,583,749) 31.36
Cancelled................................................... (977,503) 49.31
---------- ------
BALANCE, JUNE 30, 2000...................................... 41,306,400 42.99
========== ======

The following table summarizes information concerning currently outstanding
and exercisable stock options:

WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------------ ----------- ----------- -------------- ----------- --------------

under $30................... 5,451,676 2.7 $27.18 5,385,010 $27.17
$30 - $40................... 19,352,833 6.5 35.67 14,654,396 35.40
$40 - $50................... 5,562,122 8.6 47.66 1,782,782 47.71
$50 - $60................... 3,329,141 8.9 57.37 867,488 57.22
$60 - $70................... 7,610,628 9.6 61.44 -- --
---------- ----------
41,306,400 22,689,676

U.S. GAAP
F-77
278
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 INCOME TAXES

The following tables summarize the sources of pre-tax income and the
resulting income tax expense:

GEOGRAPHIC COMPONENTS OF PRETAX INCOME

FISCAL YEARS ENDED JUNE 30,
---------------------------
2000 1999 1998
------ ------ -------
U.S. DOLLARS IN MILLIONS

U.S. ....................................................... $(458) $(545) $1,192
Canada...................................................... 93 39 51
Other jurisdictions......................................... 555 (73) 368
----- ----- ------
Income (loss) from continuing operations, before tax........ 190 (579) 1,611
Discontinued Tropicana operations........................... -- 1,445 130
----- ----- ------
Income before tax........................................... $ 190 $ 866 $1,741
===== ===== ======

COMPONENTS OF INCOME TAX EXPENSE

FISCAL YEARS ENDED JUNE 30,
---------------------------
2000 1999 1998
------ ------- ------
U.S. DOLLARS IN MILLIONS

Income tax expense (benefit) applicable to:
Continuing operations....................................... $158 $ (33) $638
Discontinued Tropicana operations........................... -- 376 64
---- ----- ----
Total income tax expense.................................... $158 $ 343 $702
==== ===== ====
Current
Continuing operations
Federal................................................ $ -- $(256) $134
State and local........................................ 8 3 (20)
Other jurisdictions.................................... 67 128 77
---- ----- ----
75 (125) 191
Discontinued Tropicana operations......................... -- 376 58
---- ----- ----
75 251 249
---- ----- ----
Deferred
Continuing operations
Federal................................................ (35) 130 351
State and local........................................ (2) 2 34
Other jurisdictions.................................... 120 (40) 62
---- ----- ----
83 92 447
Discontinued Tropicana operations......................... -- -- 6
---- ----- ----
83 92 453
---- ----- ----
Total income tax expense.................................... $158 $ 343 $702
==== ===== ====

U.S. GAAP
F-78
279
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMPONENTS OF NET DEFERRED TAX LIABILITY

JUNE 30, 2000 JUNE 30, 1999
------------- -------------
U.S. DOLLARS IN MILLIONS

Basis and amortization differences.......................... $ 969 $ 1,016
DuPont share redemption..................................... 1,540 1,540
DuPont and USAi investments................................. 471 613
Unremitted foreign earnings................................. 102 89
Other, net.................................................. 106 193
------- -------
Deferred tax liabilities.................................... 3,188 3,451
------- -------
Employee benefits........................................... (17) (114)
Tax credit and net operating loss carryovers................ (515) (256)
Valuation, doubtful accounts and return reserves............ (23) (259)
Other, net.................................................. (703) (697)
------- -------
Deferred tax assets......................................... (1,258) (1,326)
Valuation allowance......................................... 270 82
------- -------
(988) (1,244)
------- -------
Net deferred tax liability.................................. $ 2,200 $ 2,207
======= =======

The Company has U.S. tax credit carryovers of $56 million, $13 million of
which has no expiration date and $43 million of which have expiration dates
through 2009. In addition, the Company has approximately $1,309 million of net
operating loss carryovers, the majority of which have expiration dates through
2020. A portion of the valuation allowance arises from uncertainty as to the
realization of certain of these tax credit and net operating loss carryovers. If
realized, these benefits would be applied to reduce the unallocated purchase
price.

Deferred tax assets and liabilities are recognized based on differences
between the financial statement and tax bases of assets and liabilities using
presently enacted tax rates. Provision is made for income taxes which may be
payable on foreign subsidiary earnings to the extent that the Company
anticipates that they will be remitted. Unremitted earnings of foreign
subsidiaries which have been, or are intended to be, permanently reinvested and
for which no income tax has been provided, approximated $6,400 million at June
30, 2000. It is not practicable to estimate the additional tax that would be
incurred, if any, if these amounts were repatriated.

EFFECTIVE INCOME TAX RATE -- CONTINUING OPERATIONS

FISCAL YEARS ENDED
JUNE 30,
--------------------
2000 1999 1998
---- ---- ----

U.S. statutory rate......................................... 35% (35)% 35%
Goodwill amortization....................................... 58 11 1
Equity income............................................... 25 10 --
Foreign tax at other than U.S. statutory rate............... (39) 5 4
State and local............................................. 2 -- 1
Other....................................................... 2 3 (1)
--- --- --
Effective income tax rate -- continuing operations.......... 83% (6)% 40%
=== === ==

U.S. GAAP
F-79
280
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Various taxation authorities have proposed or levied assessments for
additional income taxes of prior years. Management believes that settlements
will not have a material effect on the results of operations, financial position
or liquidity of the Company.

NOTE 9 BENEFIT PLANS

Retirement pensions are provided for substantially all of the Company's
employees through defined benefit or defined contribution plans sponsored by the
Company or unions representing employees. For Company-sponsored defined benefit
plans, pension expense and plan contributions are determined by independent
consulting actuaries. The funding policy for tax-qualified pension plans is
consistent with statutory funding requirements and regulations. Contributions to
defined contribution plans are funded and expensed currently. Postretirement
health care and life insurance are provided to a majority of nonunion employees
in the U.S. Eligibility for benefits is based upon retirement, age and
completion of a specified number of years of service. Postemployment programs,
principally severance, are provided for the majority of nonunion employees. The
cost of these programs is accrued based on actuarial studies. There is no
advance funding for postretirement or postemployment benefits.

The following tables pertain to the Company's defined benefit pension or
postretirement plans principally in the U.S., the U.K., Canada, France, Germany
and Japan, and provide reconciliations of the changes in benefit obligations,
fair value of plan assets and funded status for the two-year period ending June
30, 2000:

POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------
2000 1999 2000 1999
------ ------ ----- -----
U.S. DOLLARS IN MILLIONS

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.................. $1,339 $1,070 $ 182 $ 172
Service cost............................................. 54 48 2 2
Interest cost............................................ 81 81 13 12
Plan amendments and acquisitions......................... 41 220 (1) 5
Actuarial (gain) loss, net............................... (77) 21 (12) 1
Benefits paid............................................ (101) (81) (11) (10)
Translation.............................................. (12) (20) -- --
------ ------ ----- -----
Benefit obligation at end of year........................ $1,325 $1,339 $ 173 $ 182
====== ====== ===== =====
FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year........... $1,365 $1,271 $ -- $ --
Actual return on plan assets............................. 91 127 -- --
Acquisition.............................................. -- 45 -- --
Contributions............................................ 16 15 11 10
Benefits paid............................................ (95) (80) (11) (10)
Translation.............................................. (9) (13) -- --
------ ------ ----- -----
Fair value of plan assets at end of year................. $1,368 $1,365 $ -- $ --
====== ====== ===== =====

U.S. GAAP
F-80
281
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------
2000 1999 2000 1999
------ ------ ----- -----
U.S. DOLLARS IN MILLIONS

FUNDED STATUS
Funded status at end of year............................. $ 43 $ 26 $(173) $(182)
Unrecognized actuarial gain.............................. (212) (203) (18) (3)
Unrecognized prior service (benefit) cost................ 55 15 (13) (16)
Unrecognized net transition (asset) obligation........... (2) 4 -- --
------ ------ ----- -----
Accrued pension liability................................ $ (116) $ (158) $(204) $(201)
====== ====== ===== =====

Amounts recognized in the Company's consolidated balance sheet at June 30
consist of:

POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------
2000 1999 2000 1999
------ ------ ----- -----
U.S. DOLLARS IN MILLIONS

Prepaid benefit cost...................................... $ 198 $ 181 $ -- $ --
Accrued benefit liability................................. (314) (339) (204) (201)
----- ----- ----- -----
Net liability recognized.................................. $(116) $(158) $(204) $(201)
===== ===== ===== =====

Net periodic pension and other postretirement benefit costs for the fiscal
years ended June 30 include the following components:

PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------------- -----------------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ----- ----- -----
U.S. DOLLARS IN MILLIONS

Service cost................................. $ 54 $ 48 $ 25 $ 2 $ 2 $ 2
Interest cost................................ 81 81 70 13 12 11
Expected return on plan assets............... (125) (116) (107) -- -- --
Amortization of prior service costs.......... 8 3 3 (3) (3) (3)
Amortization of actuarial gains.............. (7) (6) (6) -- -- (1)
----- ----- ----- --- --- ---
Net benefit cost (credit).................... $ 11 $ 10 $ (15) $12 $11 $ 9
===== ===== ===== === === ===

The weighted average rates and assumptions utilized in accounting for these
plans for the fiscal years ended June 30 were:

PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------- -----------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ----- ----- -----

Discount rate..................................... 8.0% 7.3% 7.0% 8.0% 7.3% 7.0%
Expected return on plan assets.................... 10.0% 10.0% 10.8% -- -- --
Rate of compensation increase..................... 5.0% 4.5% 4.3% 5.0% 4.5% 4.3%

The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $212 million, $184 million and $13 million,
respectively as of June 30, 2000, and $218 million, $196 million and $15
million, respectively as of June 30, 1999.

For postretirement benefit measurement purposes, the Company assumed growth
in the per capita cost of covered health care benefits (the health care cost
trend rate) would gradually decline from

U.S. GAAP
F-81
282
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8.2 percent and 7.2 percent in the pre-age 65 and post-age 65 categories,
respectively in 1998 to 6 percent and 5 percent, pre-age 65 and post-age 65,
respectively in 2002. In fiscal 2000, a one-percentage-point increase in the
annual trend rate would have increased the postretirement benefit obligation by
$7 million and the pre-tax expense by $1 million; conversely, a
one-percentage-point decrease in the annual trend rate would have decreased the
postretirement benefit obligation by $6 million and the pre-tax expense by $1
million.

During 1999, the Company amended the pension plan for certain U.S.
employees from a final pay plan to a cash balance pension plan. Under the new
plan, participants accrue benefits based on a percentage of pay plus interest.
The new cash balance plan allows lump sum benefit payments in addition to
annuities. This change did not have a significant impact on the Company's net
periodic pension costs for the fiscal year ended June 30, 1999.

NOTE 10 BUSINESS SEGMENT AND GEOGRAPHIC DATA

BUSINESS SEGMENT DATA

The Company's four reportable segments are: music, filmed entertainment,
recreation and other, and spirits and wine. Each reportable segment defined by
the Company is a strategic business unit that offers different products and
services that are marketed through different channels. Segments are managed
separately because of their unique customers, technology, marketing and
distribution requirements. The Company evaluates the performance of its segments
and allocates resources to them based on several performance measures, including
modified EBITDA (EBITDA). As defined by the Company, EBITDA consists of
operating earnings (losses) before depreciation, amortization, corporate
expenses and restructuring activities from consolidated companies. While not a
standard measurement under GAAP, the Company believes EBITDA is an appropriate
measure of operating performance, given the significant assets and goodwill
associated with the Company's acquisitions. However, EBITDA could be defined
differently by other companies and should be considered in addition to, not as a
substitute for, other measures of financial performance including revenues and
operating income. There are no intersegment revenues; however, corporate
headquarters allocates a portion of its costs to each of its operating segments.
The Company does not allocate interest income, interest expense, income taxes or
unusual items to segments.

U.S. GAAP
F-82
283
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FILMED RECREATION SPIRITS
MUSIC ENTERTAINMENT AND OTHER AND WINE CORPORATE TOTAL
------- ------------- ---------- -------- --------- -------
U.S. DOLLARS IN MILLIONS

JUNE 30, 2000
Revenues.................. $ 6,236 $3,480 $ 862 $5,108 $ -- $15,686
EBITDA.................... $ 1,018 $ (61) $ 188 $ 727 $ -- $ 1,872
Depreciation and
amortization............ (730) (97) (105) (125) (10) (1,067)
Corporate expenses........ -- -- -- -- (111) (111)
Restructuring credit...... 40 19 -- -- -- 59
------- ------ ------ ------ ------ -------
Operating income (loss)... $ 328 $ (139) $ 83 $ 602 $ (121) $ 753
======= ====== ====== ====== ====== =======
Segment assets............ $16,082 $7,624 $2,568 $4,521 $2,013(1) $32,808
Equity method
investments............. $ 18 $3,177 $1,037 $ 55 $ -- $ 4,287
Capital expenditures...... $ 263 $ 113 $ 101 $ 121 $ 9 $ 607
JUNE 30, 1999
Revenues.................. $ 3,751 $2,931 $ 818 $4,812 $ -- $12,312
EBITDA.................... $ 347 $ (136) $ 133 $ 684 $ -- $ 1,028
Depreciation and
amortization............ (473) (70) (88) (132) (10) (773)
Corporate expenses........ -- -- -- -- (100) (100)
Restructuring charge...... (313) (92) -- -- -- (405)
------- ------ ------ ------ ------ -------
Operating income (loss)... $ (439) $ (298) $ 45 $ 552 $ (110) $ (250)
======= ====== ====== ====== ====== =======
Segment assets............ $16,392 $7,735 $3,029 $5,165 $2,690(2) $35,011
Equity method
investments............. $ 26 $2,810 $1,151 $ 52 $ -- $ 4,039
Capital expenditures...... $ 135 $ 134 $ 134 $ 128 $ -- $ 531
JUNE 30, 1998
Revenues.................. $ 1,461 $2,793 $ 695 $4,525 $ -- $ 9,474
EBITDA.................... $ 84 $ 316 $ 99 $ 583 $ -- $ 1,082
Depreciation and
amortization............ (128) (87) (75) (119) (7) (416)
Corporate expenses........ -- -- -- -- (113) (113)
------- ------ ------ ------ ------ -------
Operating income (loss)... $ (44) $ 229 $ 24 $ 464 $ (120) $ 553
======= ====== ====== ====== ====== =======
Segment assets............ $ 2,902 $6,638 $3,044 $5,594 $4,001(3) $22,179
Equity method
investments............. $ 24 $2,431 $ 961 $ 21 $ -- $ 3,437
Capital expenditures...... $ 31 $ 94 $ 115 $ 170 $ -- $ 410

---------------
(1) Comprised of corporate assets not identifiable with reported segments
($1,294) and DuPont holdings ($719).
(2) Comprised of corporate assets not identifiable with reported segments
($1,567) and DuPont holdings ($1,123).
(3) Comprised of corporate assets not identifiable with reported segments
($1,039), DuPont holdings ($1,228) and net assets of discontinued Tropicana
operations ($1,734).

U.S. GAAP
F-83
284
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GEOGRAPHIC DATA

The following table presents revenues and long-lived assets by geographic
area for the 2000, 1999 and 1998 fiscal years. Revenues are classified based
upon the location of the customer. In addition to Canada, the Company's country
of domicile, individual countries are specified if revenues or long-lived assets
exceed 10 percent of the total.

FISCAL YEARS ENDED JUNE 30,
----------------------------
2000 1999 1998
------- ------- ------
U.S. DOLLARS IN MILLIONS

REVENUES
United States............................................... $ 7,285 $ 5,917 $4,977
United Kingdom.............................................. 1,763 1,277 769
Canada...................................................... 438 325 285
Other countries............................................. 6,200 4,793 3,443
------- ------- ------
$15,686 $12,312 $9,474
======= ======= ======

JUNE 30, 2000 JUNE 30, 1999
------------- -------------
U.S. DOLLARS IN MILLIONS

LONG-LIVED ASSETS
United States............................................... $14,872 $15,093
United Kingdom.............................................. 1,654 1,905
Canada...................................................... 459 456
Other countries............................................. 8,024 8,676
------- -------
$25,009 $26,130
======= =======

NOTE 11 ADDITIONAL FINANCIAL INFORMATION

Income Statement and Cash Flow Data

FISCAL YEARS ENDED JUNE 30,
---------------------------
2000 1999 1998
------ ------- ------
U.S. DOLLARS IN MILLIONS

INTEREST, NET AND OTHER EXPENSE
Interest expense............................................ $745 $ 592 $318
Interest income............................................. (58) (109) (59)
Dividend income............................................. (23) (23) (27)
Capitalized interest........................................ (3) (3) (4)
---- ----- ----
$661 $ 457 $228
==== ===== ====
EXCISE TAXES (included in revenues and cost of revenues).... $883 $ 865 $726
CASH FLOW DATA
Interest paid, net.......................................... $728 $ 643 $265
Income taxes paid........................................... $133 $ 471 $144

U.S. GAAP
F-84
285
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Balance Sheet Data

JUNE 30, 2000 JUNE 30, 1999
------------- -------------
U.S. DOLLARS IN MILLIONS

RECEIVABLES
Trade....................................................... $3,071 $3,227
Other....................................................... 433 432
------ ------
3,504 3,659
Allowance for doubtful accounts and other valuation
accounts.................................................. (807) (674)
------ ------
$2,697 $2,985
====== ======
INVENTORIES
Beverages................................................... $2,009 $2,233
Materials, supplies and other............................... 413 394
------ ------
$2,422 $2,627
====== ======
LIFO INVENTORIES
Estimated replacement cost.................................. $ 381 $ 395
Excess of replacement cost over LIFO carrying value......... (190) (187)
------ ------
$ 191 $ 208
====== ======
OTHER CURRENT ASSETS
Film cost, net of amortization.............................. $ 142 $ 356
Artists' contracts.......................................... 222 247
Deferred income taxes....................................... 496 491
Prepaid expenses and other current assets................... 590 642
------ ------
$1,450 $1,736
====== ======
FILM COSTS, NET OF AMORTIZATION
Theatrical Film Costs
Released.................................................... $ 174 $ 320
In process and unreleased................................... 700 1,058
------ ------
874 1,378
------ ------
Television Film Costs
Released.................................................... 205 176
In process and unreleased................................... 54 53
------ ------
259 229
------ ------
1,133 1,607
Less: current portion....................................... 142 356
------ ------
$ 991 $1,251
====== ======

Unamortized costs related to released theatrical and television films
aggregated $379 million at June 30, 2000. Excluding the portion of the purchase
price allocated to the film library which is being amortized over a 20-year
life, the Company currently anticipates that approximately 75 percent of the
unamortized released film costs will be amortized under the individual film
forecast method during the three years ending June 30, 2003.

U.S. GAAP
F-85
286
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

JUNE 30, 2000 JUNE 30, 1999
------------- -------------
U.S. DOLLARS IN MILLIONS

PROPERTY, PLANT AND EQUIPMENT
Land........................................................ $ 636 $ 645
Buildings and improvements.................................. 1,498 1,646
Machinery and equipment..................................... 1,678 1,432
Furniture and fixtures...................................... 602 476
Construction in progress.................................... 272 286
------- -------
4,686 4,485
Accumulated depreciation.................................... (1,587) (1,327)
------- -------
$ 3,099 $ 3,158
======= =======
PAYABLES AND ACCRUED LIABILITIES
Trade....................................................... $ 774 $ 843
Income and other taxes...................................... 227 378
Other....................................................... 2,959 3,587
------- -------
$ 3,960 $ 4,808
======= =======

Minority interest

At June 30, 2000, Matsushita Electric Industrial Co., Ltd. had an
approximate 7.7 percent ownership interest in the entities which own Universal's
music, filmed entertainment and recreation and other assets, which was reflected
as minority interest in the Company's financial statements.

NOTE 12 COMMITMENTS AND CONTINGENCIES

The Company has various commitments for the purchase or construction of
property, plant and equipment, materials, supplies and items of investment
related to the ordinary conduct of business. The Company is involved in various
lawsuits, claims and inquiries. Management believes that the resolution of these
matters will not have a material adverse effect on the results of operations,
financial position or liquidity of the Company.

NOTE 13 DIFFERENCES BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

Differences between U.S. and Canadian GAAP for these financial statements
are:

(i) The common stock of DuPont and USAi, and certain other publicly traded
companies in which we hold an interest, would be carried at cost under Canadian
GAAP, thereby reducing shareholders' equity by $453 million or approximately
four percent at June 30, 2000. There is no effect on net income.

(ii) Proportionate consolidation of joint ventures under Canadian GAAP
would increase assets and liabilities by approximately $1,007 million and
decrease working capital by approximately $40 million at June 30, 2000. There is
no effect on net income.

(iii) There are no other significant differences between U.S. and Canadian
GAAP.

U.S. GAAP
F-86
287
THE SEAGRAM COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 RECENT EVENTS

On June 20, 2000, the Company, Vivendi and Canal+ announced that they had
entered into a merger agreement and related agreements providing for the
combination of the three companies into Vivendi Universal. The agreements
provide for the completion of a series of transactions, under which the
Company's shareholders will receive a number of Vivendi Universal American
Depositary Shares (ADSs) based on an exchange ratio. Each Vivendi Universal ADS
will represent one Vivendi Universal ordinary share. Canadian resident
shareholders of the Company may elect to receive exchangeable shares of a
Canadian subsidiary of Vivendi Universal that are substantially the economic
equivalent of the Vivendi Universal ADSs. The exchange ratio is equal to U.S.
$77.35 divided by the U.S. dollar equivalent of the average of the closing
prices on the Paris Bourse of Vivendi's ordinary shares during a measuring
period prior to the closing of the transactions. However, the exchange ratio
will equal 0.8000 if that average is equal to or less than U.S. $96.6875 and
0.6221 if that average is equal to or exceeds U.S. $124.3369. The merger is
expected to close by the end of the calendar year and is subject to customary
closing conditions, including shareholder approval and all necessary regulatory
approvals. There is no assurance that such approvals will be obtained.

On August 2, 2000, the Company entered into an agreement to purchase Rondor
Music, an independent music publishing company, for approximately $350 million
in stock.

U.S. GAAP
F-87
288

MANAGEMENT'S REPORT

The Company's management is responsible for the preparation of the
accompanying financial statements in accordance with generally accepted
accounting principles, including the estimates and judgments required for such
preparation.

The Company has a system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded and financial records
underlying the financial statements properly reflect all transactions. The
system contains self-monitoring mechanisms, including a program of internal
audits, which allow management to be reasonably confident that such controls, as
well as the Company's administrative procedures and internal reporting
requirements, operate effectively. Management believes that its long-standing
emphasis on the highest standards of conduct and business ethics, as set forth
in written policy statements, serves to reinforce the system of internal
accounting controls. There are inherent limitations in the effectiveness of any
system of internal control, including the possibility of human error or the
circumvention or overriding of controls. Accordingly, even an effective internal
control system can provide only reasonable assurance with respect to financial
statement preparation.

The Company's independent accountants, PricewaterhouseCoopers LLP, review
the system of internal accounting controls to the extent they consider necessary
to evaluate the system as required by generally accepted auditing standards.
Their report covering their audits of the financial statements is presented
below.

The Audit Committee of the Board of Directors, solely comprising Directors
who are not officers or employees of the Company, meets with the independent
accountants, the internal auditors and management to ensure that each is
discharging its respective responsibilities relating to the financial
statements. The independent accountants and the internal auditors have direct
access to the Audit Committee to discuss, without management present, the
results of their audit work and any matters they believe should be brought to
the Committee's attention.

/s/ EDGAR BRONFMAN, JR. /s/ BRIAN C. MULLIGAN /s/ FRANK MERGENTHALER
------------------------------------ ------------------------------------ ------------------------------------
Edgar Bronfman, Jr. Brian C. Mulligan Frank Mergenthaler
President and Chief Executive Vice President and Chief Vice President Controller and Chief
Executive Officer Financial Officer Accounting Officer

August 16, 2000

F-88
289

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of The Seagram Company Ltd.

We have audited the accompanying consolidated balance sheet of The Seagram
Company Ltd. and its subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended June 30, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States and Canada. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Seagram
Company Ltd. and its subsidiaries at June 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2000, in accordance with accounting principles generally accepted
in the United States which, in their application to the Company, conform in all
material respects with generally accepted accounting principles in Canada.

/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
PricewaterhouseCoopers LLP

New York, New York
August 16, 2000

F-89
290

QUARTERLY DATA

FISCAL 2000

FISCAL YEAR
FIRST SECOND THIRD FOURTH ENDED
QUARTER QUARTER QUARTER QUARTER JUNE 30, 2000(3)
-------- -------- -------- -------- -----------------
U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS (UNAUDITED)

Revenues............................................. $3,643 $4,970 $3,375 $3,698 $15,686
Operating income (loss).............................. $ 72 $ 566 $ (1) $ 116 $ 753
Income (loss) from continuing operations, after
tax................................................ $ (40)(1) $ 557(2) $ (265) $ (128) $ 124
Cumulative effect of change in accounting principle,
after tax.......................................... (84) -- -- -- (84)
------ ------ ------ ------ -------
Net income (loss).................................... $ (124) $ 557 $ (265) $ (128) $ 40
====== ====== ====== ====== =======
PER SHARE DATA
EARNINGS (LOSS) PER SHARE -- BASIC
Continuing operations................................ $(0.09) $ 1.29 $(0.61) $(0.29) $ 0.28
Cumulative effect of change in accounting principle,
after tax.......................................... (0.20) -- -- -- (0.19)
------ ------ ------ ------ -------
Net income (loss).................................... $(0.29) $ 1.29 $(0.61) $(0.29) $ 0.09
====== ====== ====== ====== =======
EARNINGS (LOSS) PER SHARE -- DILUTED
Continuing operations................................ $(0.09) $ 1.27 $(0.61) $(0.29) $ 0.28
Cumulative effect of change in accounting principle,
after tax.......................................... (0.20) -- -- -- (0.19)
------ ------ ------ ------ -------
Net income (loss).................................... $(0.29) $ 1.27 $(0.61) $(0.29) $ 0.09
====== ====== ====== ====== =======

FISCAL 1999

FISCAL YEAR
FIRST SECOND THIRD FOURTH ENDED
QUARTER QUARTER QUARTER QUARTER JUNE 30, 1999(3)
------- ------- ------- ------- ----------------
U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS (UNAUDITED)

Revenues............................................. $2,247 $ 3,327 $3,215 $ 3,523 $12,312
Operating income (loss).............................. $ 179 $ (219) $ (163) $ (47) $ (250)
Income (loss) from continuing operations, after
tax................................................ $ 95 $ (226)(4) $ (199) $ (53)(5) $ (383)
Loss from discontinued Tropicana operations, after
tax................................................ (3) -- -- -- (3)
Gain on sale of discontinued Tropicana operations,
after tax.......................................... 1,072 -- -- -- 1,072
------ ------- ------ ------- -------
Net income (loss).................................... $1,164 $ (226) $ (199) $ (53) $ 686
====== ======= ====== ======= =======
PER SHARE DATA
EARNINGS (LOSS) PER SHARE -- BASIC
Continuing operations................................ $ 0.27 $ (0.63) $(0.50) $ (0.13) $ (1.01)
Discontinued Tropicana operations, after tax......... (0.01) -- -- -- (0.01)
Gain on sale of discontinued Tropicana operations,
after tax.......................................... 3.09 -- -- -- 2.83
------ ------- ------ ------- -------
Net income (loss).................................... $ 3.35 $ (0.63) $(0.50) $ (0.13) $ 1.81
====== ======= ====== ======= =======
EARNINGS (LOSS) PER SHARE -- DILUTED
Continuing operations................................ $ 0.27 $ (0.63) $(0.50) $ (0.13) $ (1.01)
Discontinued Tropicana operations, after tax......... (0.01) -- -- -- (0.01)
Gain on sale of discontinued Tropicana operations,
after tax.......................................... 3.07 -- -- -- 2.83
------ ------- ------ ------- -------
Net income (loss).................................... $ 3.33 $ (0.63) $(0.50) $ (0.13) $ 1.81
====== ======= ====== ======= =======

---------------
(1) Includes a $55 million gain on sale of businesses, after tax and minority
interest.

(2) Includes a $35 million restructuring credit, after tax and minority
interest.

(3) For earnings per share data, each quarter is calculated as a discrete period
and the sum of the four quarters does not necessarily equal the full year
amount.

(4) Includes a $244 million restructuring charge, after tax and minority
interest.

(5) Includes a $76 million gain on the USA transactions, after tax and minority
interest.

F-90
291

SCHEDULE II

THE SEAGRAM COMPANY LTD.
(INCORPORATED UNDER THE CANADA BUSINESS CORPORATIONS ACT)
AND SUBSIDIARY COMPANIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(U.S. DOLLARS IN MILLIONS)

ADDITIONS
BALANCE AT CHARGED TO CUMULATIVE BALANCE AT
BEGINNING COSTS AND TRANSLATION END
OF PERIOD EXPENSES ACQUISITION DEDUCTIONS ADJUSTMENT OF PERIOD
---------- ---------- ----------- ---------- ----------- ----------

Reserves Deducted from Receivables:
Fiscal Year Ended June 30, 2000
Reserves for Doubtful Accounts....... $283 $102 $ -- $ (72) $ -- $313
Reserves for Merchandise Returns and
Allowances......................... 391 399 -- (296) -- 494
---- ---- ---- ----- ---- ----
$674 $501 $ -- $(368) $ -- $807
==== ==== ==== ===== ==== ====
Fiscal Year Ended June 30, 1999
Reserves for Doubtful Accounts....... $155 $115 $126 $(104) $ (9) $283
Reserves for Merchandise Returns and
Allowances......................... 171 563 214 (551) (6) 391
---- ---- ---- ----- ---- ----
$326 $678 $340 $(655) $(15) $674
==== ==== ==== ===== ==== ====
Fiscal Year Ended June 30, 1998
Reserves for Doubtful Accounts....... $127 $ 68 $ -- $ (40) $ -- $155
Reserves for Merchandise Returns and
Allowances......................... 183 185 -- (197) -- 171
---- ---- ---- ----- ---- ----
$310 $253 $ -- $(237) $ -- $326
==== ==== ==== ===== ==== ====

F-91
292

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of
The Seagram Company Ltd.

Our audits of the consolidated financial statements of The Seagram Company
Ltd. referred to in our report dated August 16, 2000 appearing in this
Registration Statement also included an audit of the financial statement
schedule. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
PricewaterhouseCoopers LLP

New York, New York
August 16, 2000

F-92
293

THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(UNITED STATES DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

QUARTER ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- --------

Revenues.................................................... $ 3,539 $ 3,643
Cost of revenues............................................ 2,014 2,150
Selling, general and administrative expenses................ 1,353 1,421
======== ========
Operating income............................................ 172 72
Interest, net and other expense............................. 160 161
Gain on sale of businesses.................................. -- 98
-------- --------
12 9
Provision for income taxes.................................. 5 110
Minority interest........................................... 6 4
Equity earnings from unconsolidated companies............... 20 65
-------- --------
Income (loss) from continuing operations.................... 21 (40)
Cumulative effect of change in accounting principle, after
tax....................................................... (390) (84)
-------- --------
Net loss.................................................... (369) (124)
Retained earnings at beginning of period.................... 8,460 8,707
Dividends paid.............................................. (73) (72)
-------- --------
Retained earnings at end of period.......................... $ 8,018 $ 8,511
======== ========
Basic loss per share........................................ $ (0.84) $ (0.29)
======== ========
Diluted loss per share...................................... $ (0.83) $ (0.29)
======== ========
Dividends paid per share.................................... $ 0.165 $ 0.165
======== ========
Weighted average shares outstanding (thousands)............. 439,541 432,842
Dilutive potential common shares (thousands)................ 7,413 --
-------- --------
Adjusted weighted average shares outstanding (thousands).... 446,954 432,842
======== ========

The accompanying notes are an integral part of these statements.
U.S. GAAP
F-94
294

THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED BALANCE SHEET
(UNITED STATES DOLLARS IN MILLIONS)

SEPTEMBER 30, JUNE 30,
2000 2000
------------- --------

ASSETS
Cash and cash equivalents................................... $ 651 $ 1,230
Receivables, net of allowances.............................. 2,770 2,697
Inventories................................................. 2,402 2,422
Other current assets........................................ 1,300 1,308
------- -------
TOTAL CURRENT ASSETS.............................. 7,123 7,657
Investments................................................. 5,684 5,603
Film costs, net of amortization............................. 1,293 1,133
Music catalogs, artists' contracts and advances............. 2,950 2,803
Property, plant and equipment, net.......................... 3,070 3,099
Goodwill and other intangible assets........................ 11,644 11,814
Other assets................................................ 700 699
------- -------
$32,464 $32,808
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings and current portion of long-term
debt...................................................... $ 703 $ 499
Payables and accrued liabilities............................ 3,796 3,960
Accrued royalties and participations........................ 1,920 2,263
------- -------
TOTAL CURRENT LIABILITIES......................... 6,419 6,722
Long-term debt.............................................. 7,339 7,378
Accrued royalties and participations........................ 518 575
Deferred income taxes....................................... 2,707 2,696
Other liabilities........................................... 1,241 1,326
Minority interest........................................... 2,603 1,882
------- -------
TOTAL LIABILITIES................................. 20,827 20,579
------- -------
Shareholders' Equity
Shares without par value.................................. 5,140 4,762
Retained earnings......................................... 8,018 8,460
Accumulated other comprehensive income.................... (1,521) (993)
------- -------
TOTAL SHAREHOLDERS' EQUITY........................ 11,637 12,229
------- -------
$32,464 $32,808
======= =======

The accompanying notes are an integral part of these statements.

U.S. GAAP
F-95
295

THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNITED STATES DOLLARS IN MILLIONS)

QUARTER ENDED
SEPTEMBER 30,
----------------
2000 1999
------ ------

OPERATING ACTIVITIES
Income (loss) from continuing operations.................... $ 21 $ (40)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided:
Depreciation and amortization of assets................... 184 182
Amortization of goodwill.................................. 85 86
Gain on sale of businesses................................ -- (98)
Minority interest in income of subsidiaries............... 6 4
Equity earnings from unconsolidated companies in excess of
dividends received..................................... (14) (52)
Deferred income taxes..................................... (31) 45
Other..................................................... (2) 13
Changes in assets and liabilities, net of effect of
acquisitions and dispositions:
Receivables, net of allowances......................... (107) (224)
Inventories............................................ (75) (82)
Other current assets................................... 78 176
Music catalogs, artists' contracts and advances........ (105) (87)
Payables and accrued liabilities....................... (44) 112
Other liabilities...................................... (131) 3
------ ------
(156) 78
------ ------
Net cash (used for) provided by operating activities........ (135) 38
------ ------
INVESTING ACTIVITIES
Sale of Champagne operations................................ -- 310
Sale of Universal Concerts.................................. -- 190
USA transactions............................................ -- (242)
Capital expenditures........................................ (66) (120)
Other....................................................... (172) (45)
------ ------
Net cash (used for) provided by investing activities........ (238) 93
------ ------
FINANCING ACTIVITIES
Dividends paid.............................................. (73) (72)
Issuance of shares upon exercise of stock options and
conversion of LYONs....................................... 28 30
Issuance of Adjustable Conversion-rate Equity Security
Units..................................................... -- 75
Issuance of long-term debt.................................. 4 --
Repayment of long-term debt................................. (51) (4)
Decrease in short-term borrowings and other financing
activities................................................ (114) (273)
------ ------
Net cash used for financing activities...................... (206) (244)
------ ------
Net decrease in cash and cash equivalents................... (579) (113)
------ ------
Cash and cash equivalents at beginning of period............ 1,230 1,533
------ ------
Cash and cash equivalents at end of period.................. $ 651 $1,420
====== ======

The accompanying notes are an integral part of these statements.
U.S. GAAP
F-96
296

THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited interim financial statements have been prepared
in accordance with the requirements of Form 10-Q and, therefore, do not include
all information and notes necessary for a presentation of results of operations,
financial position and cash flows in conformity with U.S. generally accepted
accounting principles (GAAP). These statements should be read in conjunction
with the consolidated financial statements and related notes in the Company's
Form 10-K for the fiscal year ended June 30, 2000, as amended. In the opinion of
the Company, the unaudited interim financial statements include all adjustments,
comprising only normal recurring adjustments, necessary for a fair presentation
of operating results. Results of operations for the first quarter are not
necessarily indicative of those expected for the fiscal year.

Certain prior year amounts have been reclassified to conform to the current
year's presentation.

2. RESTRUCTURING CHARGE AND ACCRUAL FOR EXIT ACTIVITIES

Restructuring Charge

UTILIZED BALANCE AT
ORIGINAL RESTRUCTURING ----------------- SEPTEMBER 30,
U.S. DOLLARS IN MILLIONS CHARGE CREDIT CASH NON-CASH 2000
------------------------ -------- ------------- ----- -------- ------------------

Severance and other
employee-related costs.......... $126 $(12) $ (78) $ (3) $33
Facilities and labels............. 128 (35) (20) (56) 17
Contract termination and other
costs........................... 151 (12) (76) (28) 35
---- ---- ----- ---- ---
$405 $(59) $(174) $(87) $85
==== ==== ===== ==== ===

As of September 30, 2000, all of the employees provided for under the
restructuring initiative have separated from the Company. Remaining
restructuring activities relate principally to contractual obligations and
severance payments to be made in future periods.

Accrual for Acquisition-Related Exit Activities

In connection with the integration of PolyGram and Seagram, management
developed a formal exit activity plan that was committed to by management and
communicated to employees shortly after the acquisition was consummated. The
accrual for exit activities consists principally of facility elimination costs,
including leasehold termination payments and incremental facility closure costs,
contract

U.S. GAAP
F-97
297
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

terminations, relocation costs and the severance of employees. The utilization
of the accrual for exit activities to date follows:

UTILIZED BALANCE AT
----------------- SEPTEMBER 30,
U.S. DOLLARS IN MILLIONS EXIT ACTIVITIES CASH NON-CASH 2000
------------------------ --------------- ----- -------- ------------------

Facility elimination costs................. $ 45 $ (23) $ (2) $ 20
Contract terminations...................... 68 (45) (13) 10
Severance or relocation.................... 397 (219) (16) 162
---- ----- ---- ----
$510 $(287) $(31) $192
==== ===== ==== ====

As of September 30, 2000, remaining exit activities relate principally to
contractual obligations and severance payments to be made in future periods.

3. INVESTMENT IN DUPONT AND USAi

At September 30, 2000, the Company owned 16.4 million shares of the
outstanding common stock of E.I. du Pont de Nemours and Company (DuPont). The
Company accounts for the investment at market value, which was $672 million at
September 30, 2000. The underlying historical book value of the DuPont shares is
$187 million.

At September 30, 2000, the Company owned 18.2 million shares of the
outstanding common stock of USA Networks, Inc. (USAi). The investment, which is
accounted for at market value ($399 million at September 30, 2000), has an
underlying cost of $211 million. At September 30, 2000, the Company also owned
13.4 million shares of USAi Class B common stock which is carried at its
historical cost of $136 million.

4. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

SEPTEMBER 30, JUNE 30,
U.S. DOLLARS IN MILLIONS 2000 2000
------------------------ ------------- --------

INVENTORIES
Beverages................................................... $1,956 $2,009
Materials, supplies and other............................... 446 413
------ ------
$2,402 $2,422
====== ======
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost...................... $4,681 $4,686
Accumulated depreciation.................................... (1,611) (1,587)
------ ------
$3,070 $3,099
====== ======

QUARTER ENDED
SEPTEMBER 30,
--------------
U.S. DOLLARS IN MILLIONS 2000 1999
------------------------ ----- -----

EXCISE TAXES (included in revenues and cost of revenues).... $185 $203
==== ====

U.S. GAAP
F-98
298
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. COMPREHENSIVE INCOME (LOSS)

The components of the Company's total comprehensive income (loss) were as
follows:

QUARTER ENDED
SEPTEMBER 30,
--------------
U.S. DOLLARS IN MILLIONS 2000 1999
------------------------ ----- -----

Net loss.................................................... $(369) $(124)
Currency translation adjustments............................ (497) 209
Unrealized holding loss in equity security, net of tax...... (31) (88)
----- -----
Total comprehensive loss.................................... $(897) $ (3)
===== =====

6. LONG-TERM DEBT AND DEBT GUARANTEES

The Company has unconditionally guaranteed the following outstanding debt
securities of its principal U.S. spirits and wine subsidiary, Joseph E. Seagram
& Sons, Inc., (JES); 5.79% Senior Notes due 2001, 6.25% Senior Notes due 2001,
6.4% Senior Notes due 2003, 6.625% Senior Notes due 2005, 8.375% Debentures due
2007, 7% Debentures due 2008, 6.8% Senior Notes due 2008, 8.875% Debentures due
2011, 9.65% Debentures due 2018, 7.5% Senior Debentures due 2018, 9% Debentures
due 2021, 7.6% Senior Debentures due 2028, 8% Quarterly Income Debt Securities
due 2038 (QUIDS) and 7.5% Adjustable Conversion-rate Equity Security Units.

QUARTER ENDED
SEPTEMBER 30,
-------------------------
U.S. DOLLARS IN MILLIONS 2000 1999
------------------------ ------------- --------

Revenues.................................................... $590 $558
Cost of revenues............................................ $366 $348
Net income (loss)........................................... $(23) $ 64

SEPTEMBER 30, JUNE 30,
U.S. DOLLARS IN MILLIONS 2000 2000
------------------------ ------------- --------

Current assets.............................................. $ 2,472 $ 2,232
Noncurrent assets........................................... 18,306 18,377
------- -------
$20,778 $20,609
======= =======
Current liabilities......................................... $ 1,160 $ 879
Noncurrent liabilities...................................... 10,816 10,889
Shareholders' equity........................................ 8,802 8,841
------- -------
$20,778 $20,609
======= =======

7. EARNINGS PER SHARE AND COMMON SHARES

At September 30, 2000, 58,058,399 common shares were potentially issuable
upon the conversion of the LYONs, the exercise of employee stock options,
conversion of deferred share units and the early settlement of the contracts to
purchase common shares under the Adjustable Conversion-rate Equity Security
Units. Basic net income per share was based on the following weighted average
number of shares

U.S. GAAP
F-99
299
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding during the quarters ended September 30, 2000 -- 439,540,513 and
September 30, 1999 -- 432,842,035. Diluted net income per share was based on
446,953,534 weighted average shares outstanding in the quarter ended September
30, 2000. Average shares of 7,146,720 were not included in the computation of
diluted net income per share in the quarter ended September 30, 1999 because to
do so would have been anti-dilutive.

In the quarter ended September 30, 2000, the Company issued 635,328 shares
upon the exercise of employee stock options and the conversion of LYONs.
Additionally, the Company issued approximately six million shares (approximate
value of $350 million) to acquire Rondor Music International, Inc., an
independent music publishing company.

8. BUSINESS SEGMENT INFORMATION

The Company's four reportable segments are music, filmed entertainment,
recreation and other and spirits and wine. Each reportable segment defined by
the Company is a strategic business unit that offers different products and
services that are marketed through different channels. Segments are managed
separately because of their unique customers, technology, marketing and
distribution requirements. The Company evaluates the performance of its segments
and allocates resources to them based on several performance measures, including
modified EBITDA (EBITDA). As defined by the Company, EBITDA consists of
operating earnings (losses) before depreciation, amortization and corporate
expenses from consolidated companies. While not a standard measurement under
GAAP, the Company believes EBITDA is an appropriate measure of operating
performance, given the significant assets and goodwill associated with the
Company's acquisitions. However, EBITDA could be defined differently by other
companies and should be considered in addition to, not as a substitute for,
other measures of financial performance including revenues and operating income.
There are no intersegment revenues; however, corporate headquarters allocates a
portion of its costs to each of its operating segments. The Company does not
allocate interest income, interest expense, income taxes or unusual items to
segments.

Business Segment Data

FILMED RECREATION SPIRITS
U.S. DOLLARS IN MILLIONS MUSIC ENTERTAINMENT AND OTHER AND WINE CORPORATE TOTAL
------------------------ ------ ------------- ---------- -------- --------- ------

SEPTEMBER 30, 2000
Revenues.................... $1,378 $787 $230 $1,144 $ -- $3,539
EBITDA...................... $ 210 $ 23 $ 56 $ 177 $ -- $ 466
Depreciation and
amortization.............. (187) (24) (26) (30) (2) (269)
Corporate expenses.......... -- -- -- -- (25) (25)
------ ---- ---- ------ ---- ------
Operating income (loss)..... $ 23 $ (1) $ 30 $ 147 $(27) $ 172
====== ==== ==== ====== ==== ======
Capital expenditures........ $ 31 $ 13 $ 8 $ 14 $ -- $ 66
SEPTEMBER 30, 1999
Revenues.................... $1,412 $873 $209 $1,149 $ -- $3,643
EBITDA...................... $ 185 $(38) $ 49 $ 156 $ -- $ 352
Depreciation and
amortization.............. (189) (21) (25) (31) (2) (268)
Corporate expenses.......... -- -- -- -- (12) (12)
------ ---- ---- ------ ---- ------
Operating income (loss)..... $ (4) $(59) $ 24 $ 125 $(14) $ 72
====== ==== ==== ====== ==== ======
Capital expenditures........ $ 52 $ 19 $ 14 $ 35 $ -- $ 120

U.S. GAAP
F-100
300
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Geographic Data

The following table presents revenues by geographic area for the quarters
ended September 30, 2000 and 1999. Revenues are classified based upon the
location of the customer. In addition to Canada, the Company's country of
domicile, individual countries are specified if revenues exceed 10 percent of
the total.

QUARTER ENDED
SEPTEMBER 30,
----------------
U.S. DOLLARS IN MILLIONS 2000 1999
------------------------ ------ ------

United States............................................... $1,852 $1,780
United Kingdom.............................................. 319 379
Canada...................................................... 92 113
Other countries............................................. 1,276 1,371
------ ------
$3,539 $3,643
====== ======

9. NEW ACCOUNTING GUIDANCE

On July 1, 2000, the Company adopted the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants (AcSEC)
Statement of Position (SOP) 00-2, Accounting by Producers or Distributors of
Films. The SOP requires that advertising costs for theatrical and television
product be expensed as incurred and that certain abandoned project costs, which
were previously capitalized as film costs, be expensed on an accelerated basis.
The adoption of SOP 00-2 resulted in a $390 million non-cash after-tax charge in
the quarter ended September 30, 2000. The charge reduced the carrying value of
film inventory and was recorded as a cumulative effect of a change in accounting
principle.

10. RECENT EVENTS

On June 20, 2000, the Company, Vivendi S.A. (Vivendi) and Canal Plus S.A.
(Canal+) announced that they had entered into a merger agreement and related
agreements providing for a strategic business combination among the three
companies. The combined entity will be named Vivendi Universal. The merger is
expected to close by the end of the calendar year and is subject to customary
closing conditions, including shareholder approval. There is no assurance that
such conditions will be satisfied.

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 proposed strategic business combination, Seagram and
JES have commenced cash tender offers and consent solicitations for certain of
their outstanding debt securities and intend to commence cash tender offers for
certain of their other outstanding debt securities. These debt securities would
otherwise mature between April 2001 and December 2028. The tender offers that
have already commenced have an aggregate principal amount of approximately $5.6
billion. They are conditioned upon, among other things, the completion of the
combination.

We understand that Vivendi is arranging certain bridge financing facilities
with various financial institutions to provide funding to Seagram and JES for
the tender offers and consent solicitations. We understand that Vivendi intends
to repay amounts drawn under these bridge financing facilities from the proceeds
of the sale of the spirits and wine business.

U.S. GAAP
F-100
301

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders of
MP3.com, Inc.

We have audited the accompanying consolidated balance sheets of MP3.com,
Inc. as of December 31, 2000 and 1999, and the related consolidated statements
of operations, stockholders' equity and cash flows for the years ended December
31, 2000 and 1999, and for the period from March 17, 1998 (inception) to
December 31, 1998. These financial statements are the responsibility of
MP3.com's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MP3.com, Inc.
at December 31, 2000 and 1999, and the consolidated results of its operations
and its cash flows for the years ended December 31, 2000 and 1999 and for the
period from March 17, 1998 (inception) to December 31, 1998, in conformity with
accounting principles generally accepted in the United States.

Ernst & Young LLP

San Diego, California
January 24, 2001,
except for Notes 9 and 10, as to which the date is
July 25, 2001.

F-101
302

MP3.COM, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31,
--------------------
2000 1999
-------- --------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 83,858 $193,192
Short-term investments in marketable securities........... 14,988 234,789
Accounts receivable, net of allowance for doubtful
accounts of $1,810 and $600 in 2000 and 1999,
respectively........................................... 4,409 6,871
Restricted cash........................................... 30,000 --
Unbilled receivables...................................... 2,021 1,279
Prepaid expenses and other current assets................. 11,074 6,334
Prepaid multimedia content royalties...................... 8,755 --
-------- --------
Total current assets.............................. 155,105 442,465
Property and equipment, net of accumulated depreciation..... 20,270 13,849
Prepaid marketing and promotions expense.................... 3,579 2,162
Prepaid multimedia content royalties, less current
portion................................................... 41,633 --
Strategic investments....................................... 11,410 11,983
Other non-current assets.................................... 6,602 1,423
-------- --------
Total assets...................................... $238,599 $471,882
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,767 $ 5,659
Line of credit............................................ -- 1,234
Accrued expenses.......................................... 15,690 5,019
Deferred revenues......................................... 1,104 42,361
Reserve for litigation and copyright matters.............. 42,933 --
-------- --------
Total current liabilities......................... 64,494 54,273
Other liabilities........................................... 389 59
Commitments and contingencies (Notes 6 and 9)

Stockholders' equity:
Preferred stock, par value $0.001 per share; 15,000,000
authorized at December 31, 2000 and 1999, none issued
and outstanding at December 31, 2000 and 1999.......... -- --
Common stock, par value $0.001 per share; authorized
300,000,000 at December 31, 2000 and 1999; 68,529,044
and 68,620,913 issued and outstanding at December 31,
2000 and 1999, respectively............................ 69 69
Additional paid in capital................................ 501,194 477,272
Notes receivable from stockholder......................... (258) (258)
Deferred compensation..................................... (4,945) (18,148)
Accumulated other comprehensive (loss) income............. (12) 1,454
Accumulated deficit....................................... (322,332) (42,839)
-------- --------
Total stockholders' equity........................ 173,716 417,550
-------- --------
Total liabilities and stockholders' equity........ $238,599 $471,882
======== ========

The accompanying notes are an integral part of these consolidated financial
statements.
F-102
303

MP3.COM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PERIOD FROM
MARCH 17,
1998
YEAR ENDED DECEMBER 31, (INCEPTION) TO
----------------------- DECEMBER 31,
2000 1999 1998
---------- --------- --------------

Net revenues............................................ $ 80,136 $ 21,899 $1,162
Cost of revenues (excludes amortization of deferred
compensation of $128, $256, and $--, respectively).... 15,760 9,211 215
--------- -------- ------
Gross profit............................................ 64,376 12,688 947
Operating expenses:
Sales and marketing (excludes amortization of deferred
compensation of $1,884, $10,952, and $380,
respectively)...................................... 71,217 23,998 79
Engineering and product development (excludes
amortization of deferred compensation of $2,379,
$3,027, and $170, respectively).................... 22,447 9,417 395
General and administrative (excludes amortization of
deferred and other stock-based compensation of
$7,615, $8,053, and $--, respectively)............. 31,503 9,307 142
Charge for litigation and copyright matters........... 170,000 -- --
Costs related to acquisition activities............... 1,704 -- --
Amortization of deferred and other stock based
compensation....................................... 12,006 22,288 550
--------- -------- ------
Total operating expenses...................... 308,877 65,010 1,166
--------- -------- ------
Loss from operations.................................... (244,501) (52,322) (219)
Interest income (expense), net.......................... 17,412 10,852 (4)
Impairment of strategic investments and loss on sale of
short-term investments available for sale............. (50,736) -- --
--------- -------- ------
Loss before minority interest and income taxes.......... (277,825) (41,470) (223)
Provision (benefit) for income taxes.................... -- (93) 134
Minority interest in losses of an unconsolidated
subsidiary............................................ (1,668) (1,105) --
--------- -------- ------
Net loss................................................ $(279,493) $(42,482) $ (357)
========= ======== ======
Net loss per share:
Basic and diluted..................................... $ (4.18) $ (0.78) $(0.01)
========= ======== ======
Weighted average shares -- basic and diluted.......... 66,799 54,194 26,183
========= ======== ======

The accompanying notes are an integral part of these consolidated financial
statements.
F-103
304

MP3.COM, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTES
ADDITIONAL RECEIVABLE
PREFERRED PREFERRED COMMON COMMON PAID IN FROM DEFERRED
SHARES STOCK SHARES STOCK CAPITAL STOCKHOLDER COMPENSATION
--------- --------- ------ ------ ---------- ----------- ------------

Issuance of common stock in
exchange for certain assets and
liabilities....................... -- $ -- 26,179 $26 $ (26) $ -- $ --
Exercise of stock options.......... -- -- 3,071 3 (1) -- --
Deferred compensation related to
the grant of stock options for
common stock...................... -- -- -- -- 728 -- (728)
Amortization of deferred
compensation...................... -- -- -- -- -- -- 550
Net loss and comprehensive loss.... -- -- -- -- -- -- --
------- ---- ------ --- -------- ----- --------
Balance at December 31, 1998....... -- -- 29,250 29 701 -- (178)
Exercise of stock options in
exchange for notes receivable from
stockholders...................... -- -- 3,169 3 335 (338) --
Cancellation of notes receivable
from stockholder.................. -- -- (724) (1) (77) 78 --
Repayment of note receivable from
stockholder....................... -- -- -- -- -- 2 --
Issuance of Series A, B and C
convertible preferred stock, net
of issuance costs of $93.......... 12,872 13 -- -- 60,977 -- --
Issuance of common stock in
conjunction with the initial
public offering, net of issuance
costs of $23,124.................. -- -- 13,697 14 360,398 -- --
Conversion of convertible preferred
stock to common stock............. (12,872) (13) 19,308 19 (6) -- --
Exercise of warrants in connection
with promotion agreement.......... -- -- 659 1 2,410 -- --
Issuance of common stock in
connection with certain promotion
agreements........................ -- -- 112 1 2,610 -- --
Issuance of stock bonus awards..... -- -- 62 -- 1,890 -- --
Contribution of common stock to
MP3.com Foundation................ -- -- 100 -- 767 -- --
Exercise of common stock options... -- -- 2,988 3 5,021 -- --
Stock based charges associated with
acceleration of stock option
vesting........................... -- -- -- -- 4,247 -- --
Deferred compensation, net of
forfeitures....................... -- -- -- -- 37,999 -- (37,999)
Amortization of deferred
compensation...................... -- -- -- -- -- -- 20,029
Comprehensive loss:
Net loss.......................... -- -- -- -- -- -- --
Net unrealized gain on marketable
securities...................... -- -- -- -- -- -- --
------- ---- ------ --- -------- ----- --------
Total comprehensive loss.... -- -- -- -- -- -- --
------- ---- ------ --- -------- ----- --------
Balance at December 31, 1999....... -- $ -- 68,621 $69 $477,272 $(258) $(18,148)
Exercise of common stock options
and purchases through the ESPP.... -- -- 924 1 1,804 -- --
Repurchase of common stock......... -- -- (1,016) (1) (2,399) -- --
Fair value of stock options for
common stock and warrants
issued............................ -- -- -- -- 19,243 -- --
Stock based charges associated with
acceleration of stock option
vesting........................... -- -- -- -- 6,471 -- --
Forfeiture of stock options........ -- -- -- -- (4,228) -- 4,228
Stock based compensation in
connection with stock options
granted to certain executive
officers.......................... -- -- -- -- 3,031 -- --
Amortization of deferred
compensation...................... -- -- -- -- -- -- 8,975
Comprehensive loss:
Net loss.......................... -- -- -- -- -- -- --
Net unrealized loss on marketable
securities...................... -- -- -- -- -- -- --
Total comprehensive loss.... -- -- -- -- -- -- --
------- ---- ------ --- -------- ----- --------
Balance at December 31, 2000....... -- $ -- 68,529 $69 $501,194 $(258) $ (4,945)
======= ==== ====== === ======== ===== ========

ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
(LOSS) INCOME DEFICIT EQUITY
------------- ----------- -------------

Issuance of common stock in
exchange for certain assets and
liabilities....................... $ -- $ -- $ --
Exercise of stock options.......... -- -- 2
Deferred compensation related to
the grant of stock options for
common stock...................... -- -- --
Amortization of deferred
compensation...................... -- -- 550
Net loss and comprehensive loss.... -- (357) (357)
------- --------- ---------
Balance at December 31, 1998....... -- (357) 195
Exercise of stock options in
exchange for notes receivable from
stockholders...................... -- -- --
Cancellation of notes receivable
from stockholder.................. -- -- --
Repayment of note receivable from
stockholder....................... -- -- 2
Issuance of Series A, B and C
convertible preferred stock, net
of issuance costs of $93.......... -- -- 60,990
Issuance of common stock in
conjunction with the initial
public offering, net of issuance
costs of $23,124.................. -- -- 360,412
Conversion of convertible preferred
stock to common stock............. -- -- --
Exercise of warrants in connection
with promotion agreement.......... -- -- 2,411
Issuance of common stock in
connection with certain promotion
agreements........................ -- -- 2,611
Issuance of stock bonus awards..... -- -- 1,890
Contribution of common stock to
MP3.com Foundation................ -- -- 767
Exercise of common stock options... -- -- 5,024
Stock based charges associated with
acceleration of stock option
vesting........................... -- -- 4,247
Deferred compensation, net of
forfeitures....................... -- -- --
Amortization of deferred
compensation...................... -- -- 20,029
Comprehensive loss:
Net loss.......................... -- (42,482) (42,482)
Net unrealized gain on marketable
securities...................... 1,454 -- 1,454
------- --------- ---------
Total comprehensive loss.... -- -- (41,028)
------- --------- ---------
Balance at December 31, 1999....... $ 1,454 $ (42,839) $ 417,550
Exercise of common stock options
and purchases through the ESPP.... -- -- 1,805
Repurchase of common stock......... -- -- (2,400)
Fair value of stock options for
common stock and warrants
issued............................ -- -- 19,243
Stock based charges associated with
acceleration of stock option
vesting........................... -- -- 6,471
Forfeiture of stock options........ -- -- --
Stock based compensation in
connection with stock options
granted to certain executive
officers.......................... -- -- 3,031
Amortization of deferred
compensation...................... -- -- 8,975
Comprehensive loss:
Net loss.......................... -- (279,493) (279,493)
Net unrealized loss on marketable
securities...................... (1,466) -- (1,466)
Total comprehensive loss.... -- -- (280,959)
------- --------- ---------
Balance at December 31, 2000....... $ (12) $(322,332) $ 173,716
======= ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

F-104
305

MP3.COM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

PERIOD FROM
MARCH 17, 1998
YEAR ENDED DECEMBER 31, (INCEPTION) TO
----------------------- DECEMBER 31,
2000 1999 1998
---------- --------- --------------

OPERATING ACTIVITIES:
Net loss.................................................... $(279,493) $(42,482) $(357)
Adjustments to reconcile net loss to cash (used in) provided
by operating activities:
Depreciation, amortization of goodwill and amortization of
prepaid multimedia royalty licenses..................... 8,691 1,395 10
Deferred income taxes..................................... -- (98) 98
Stock based charges associated with acceleration of stock
option vesting.......................................... 6,471 4,488 --
Amortization and charges of stock based marketing......... 21,420 2,857 --
Amortization of deferred and other stock based
compensation............................................ 12,006 22,288 550
Stock based consulting costs.............................. 127 -- --
Charge for litigation and copyright matters............... 170,000 -- --
Impairment of strategic investments and loss on sale of
short-term investments available for sale............... 50,736 -- --
Loss on sale of fixed assets.............................. 91 -- --
Contribution to the MP3.com Foundation.................... -- 767 --
Non-cash lease abandonment expense........................ -- 815 --
Changes in operating assets and liabilities:
Restricted cash......................................... (30,000) -- --
Accounts receivable..................................... 2,462 (6,578) (224)
Unbilled receivables.................................... (742) (1,214) (65)
Prepaid expenses and other current assets............... (3,896) (5,353) --
Accounts payable........................................ (893) 5,622 25
Accrued expenses........................................ 11,437 4,674 105
Reserve for litigation and copyright matters............ (126,229) -- --
Deferred revenues....................................... (41,256) 42,405 15
--------- -------- -----
Cash (used in) provided by operating activities....... (199,068) 29,586 157
INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (12,912) (15,921) (29)
Maturities of marketable securities......................... 305,045 45,000 --
Purchases of marketable securities.......................... (99,995) (278,335) --
Purchases of strategic investments.......................... (39,738) (11,983) --
Issuance of note receivable................................. (4,000) -- --
Acquisition of MP3Radio.com, net of cash acquired........... (3,816) -- --
Prepaid multimedia content royalties........................ (51,000) -- --
Other assets................................................ (2,010) (2,693) (14)
--------- -------- -----
Cash provided by (used in) investing activities....... 91,574 (263,932) (43)
FINANCING ACTIVITIES:
Proceeds from notes receivable.............................. -- 2 --
Repurchase of unvested common stock......................... (2,400) -- (73)
Payments under capital lease obligations.................... -- (14) (19)
(Payments) proceeds from line of credit..................... (1,234) 1,234 --
Proceeds from the issuance of convertible preferred stock,
common stock and common stock warrants.................... 1,805 426,277 2
--------- -------- -----
Cash (used in) provided by financing activities....... (1,829) 427,499 (90)
--------- -------- -----
Translation adjustment...................................... (11) -- --
(Decrease) increase in cash and cash equivalents............ (109,334) 193,153 24
Cash and cash equivalents at beginning of period............ 193,192 39 15
--------- -------- -----
Cash and cash equivalents at end of period.................. $ 83,858 $193,192 $ 39
========= ======== =====

The accompanying notes are an integral part of these consolidated financial
statements.
F-105
306

MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

MP3.com, Inc. ("MP3.com") has pioneered a revolutionary approach to the
promotion and distribution of music. The MP3.com web site is a premier online
music destination featuring, representing one of the largest catalogs of digital
music available on the Internet today. MP3.com uses the Internet and file
formats that make music files smaller to enable this growing number of artists
to broadly distribute and promote their music and to enable consumers around the
world to conveniently access this continually expanding music catalog. Consumers
can search for, listen to and download music free of charge on the MP3.com web
site. In addition to the wide variety of music distributed by artists through
the MP3.com web site, consumers have a substantial amount of music already in
their personal music collections that they want to access, manage and listen to
in a variety of ways.

MP3.com shares are traded on the Nasdaq National Market System under the
symbol "MPPP". MP3.com was incorporated in the state of Delaware on March 17,
1998 and commenced operations on that date. MP3.com is headquartered in San
Diego, California.

Consolidation

The consolidated financial statements include the accounts of MP3.com and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The equity and net income or loss
attributable to the minority stockholder interests, which relate to MP3.com's
subsidiaries, are shown separately in the consolidated balance sheets and
consolidated statements of operations, respectively. Investments in entities in
which MP3.com can exercise significant influence, but less than majority owned
and not otherwise controlled by MP3.com, are accounted for under the equity
method. Under the equity method of accounting, MP3.com's share of the investee's
earnings or losses are included in the consolidated statements of operations as
"Minority interest in losses of an unconsolidated subsidiary". All other
investments, for which MP3.com does not have the ability to exercise significant
influence or for which there is not a readily determinable market value, are
accounted for under the cost method of accounting. Dividends and other
distributions of earnings from investees, if any, are included in income when
paid.

Use of Estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expense during the
reporting period. Examples include provisions for returns, bad debts, valuation
of privately-held strategic investments, the ultimate realizability of the
prepaid multimedia content royalties and the litigation and copyright matters
charge and reserve. Actual results could differ from those estimates.

Concentration of Credit Risks

Financial instruments that potentially subject MP3.com to significant
concentration of credit risk consist primarily of cash, cash equivalents,
short-term and strategic investments, and accounts receivable. Substantially all
of MP3.com's cash, cash equivalents, and short-term investments are managed by
three financial institutions. Accounts receivable are typically unsecured and
are derived from revenues earned from customers primarily located in the United
States and France. MP3.com maintains reserves for potential credit losses.

F-106
307
MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

One customer accounted for 50.4% of total net revenues for the year ended
December 31, 2000. One customer accounted for 21.3% of total net revenues for
the year ended December 31, 1999. Three customers accounted for 19.0%, 12.2%,
and 10.3%, respectively, of total net revenues for the period from March 17,
1998 (inception) to December 31, 1998. Additionally, MP3.com obtains a
significant percentage of its revenues by providing various advertising products
to Internet and high technology companies.

Cash and Cash Equivalents, Short and Long-Term Investments

MP3.com invests its excess cash in debt instruments of the U.S. Government
and its agencies, and in high-quality corporate issuers. All highly liquid
instruments with an original maturity of three months or less are considered
cash equivalents, and those with original maturities greater than three months
on the date of purchase are considered short-term investments.

MP3.com's short-term investments in marketable securities are classified as
available-for-sale and are reported at fair value, with unrealized gains and
losses, recorded in stockholders' equity as a separate component of
comprehensive income. Realized gains or losses and permanent declines in value,
if any, on available-for-sale securities are reported in other income or expense
as incurred. As of December 31, 2000 and 1999, MP3.com recorded net unrealized
(losses) gains, net of income taxes, of approximately $(12,000) and $1,454,000,
respectively.

MP3.com also invests in equity instruments of privately-held Internet and
other technology companies for strategic business purposes. These investments
are included in strategic investments and are accounted for under the cost
method when ownership is less than 20%. For these investments, MP3.com's policy
is to regularly review the underlying operating performance, cash flow
forecasts, and recent private equity transactions in assessing the carrying
values. MP3.com assesses and records impairment losses in these long term
investments when events and circumstances indicate that such assets might be
impaired. For the year ended December 31, 2000, MP3.com has recorded impairment
losses of approximately $40,300,000 related to these strategic investments.

Restricted Cash

The restricted cash balance of $30,000,000 as of December 31, 2000
represents cash equivalents held in escrow. This restriction will expire in
February 2001 unless MP3.com is proven financially insolvent. The cash
equivalents are recorded at market value, which approximates cost. During the
escrow period, a third party earns the interest from the escrow funds.

Fair Value of Financial Instruments

MP3.com's financial instruments include cash and cash equivalents,
short-term investments, accounts receivable, unbilled receivables, accounts
payable, deferred revenues, accrued expenses and a line of credit. Cash
equivalents and short-term investments are stated at fair value, based on quoted
market prices. The estimated value of all other financial instruments at
December 31, 2000 and 1999 was not materially different from the values
presented in the respective balance sheets.

Computer Software for Internal Use

MP3.com does not sell or license the rights to future use of its software;
accordingly, software development costs, consisting of internally developed
software and web site development costs, are accounted for in accordance with
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". In accordance with SOP 98-1,
internal and external costs incurred to develop internal-use computer software
during the application development stage

F-107
308
MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are capitalized. Application development stage costs generally include software
configuration, coding, installation and testing. Costs of significant upgrades
and enhancements that result in additional functionality are also capitalized.
Costs incurred for maintenance and minor upgrades and enhancements are expensed
as incurred. Capitalized internal-use software development costs are included in
property and equipment and are amortized on a straight-line basis over the
useful lives of the related software application of up to three years. The
estimated useful lives are based on planned or expected significant modification
or replacement of software applications, in response to the rapid rate of change
in the Internet industry and technology in general. MP3.com capitalized
$1,566,000 and $410,000 of software development costs for the years ended
December 31, 2000 and 1999, respectively. Depreciation associated with the
capitalized software development costs totaled $422,000, $48,000 and zero for
the years ended December 31, 2000 and 1999 and for the period from March 17,
1998 (inception) to December 31, 1998, respectively.

Depreciation and Amortization

Property and equipment is stated at historical cost and depreciated using
the straight-line method over the estimated useful lives of 2 to 5 years.
Leasehold improvements are amortized over the shorter of their estimated useful
lives, generally five years, or the lease term. Acquired music catalog is stated
at historical cost and amortized using the straight-line method over the
estimated useful life of 15 years.

Prepaid Multimedia Content Royalties

MP3.com has obtained multimedia content licenses for the future use of both
video and audio music content from certain major recording companies. These
licensing agreements provide a non-refundable prepaid royalty for a fixed term
ranging from 3 to 10 years. MP3.com has capitalized the cost of these prepaid
royalty arrangements for both the video and music licenses. MP3.com has recorded
amortization expense at the greater of straight-line amortization or units of
measure to cost of revenues for music content, and will begin to record expense
for the video licenses upon both the receipt of the video content and MP3.com's
use of the video content on the same basis as the music content. Periodically,
MP3.com will assess these assets for impairment.

Impairment of Long-Lived Assets

MP3.com evaluates the recoverability of its long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of". SFAS
121 requires recognition of impairment of long-lived assets in the event the net
book value of these assets exceeds the future undiscounted cash flows
attributable to these assets. MP3.com assesses potential impairments to its
long-lived assets when there is evidence that events or changes in circumstances
have made recovery of the asset's carrying value unlikely. Should an impairment
exist, the impairment loss would be measured based on the excess of the carrying
value of the asset over the asset's fair value or discounted estimates of future
cash flows. MP3.com has identified no such impairment losses as of December 31,
2000. All of MP3.com's long-lived assets are located in the United States.

Revenue Recognition

MP3.com recognizes revenue pursuant to Staff Accounting Bulletin No. 101
"Revenue Recognition in Financial Statements". Accordingly, revenue is
recognized when all four of the following criteria are met: (i) persuasive
evidence that arrangement exists; (ii) delivery of the products and/or services
has occurred; (iii) the selling price is both fixed and determinable; and (iv)
collectibility is reasonably probable.

F-108
309
MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MP3.com's revenues are derived from online advertising, offline advertising
and electronic commerce. Online advertising revenues primarily consist of
banner, button, portal and sponsorship advertisements on MP3.com's web site in
addition to advertisements placed in e-mail and greeting card campaigns. Banner,
button, portal, e-mail and greeting card advertisements are impression based,
requiring the advertisement to be displayed or delivered a minimum number of
times over the contract period. Sponsorship advertising contracts generally
involve static advertisements, whereby the advertisement is continually
displayed on a specified area of the MP3.com web site during the contract
period. Impression based contract revenues are recognized as the impression is
displayed on the MP3.com web site or delivered via e-mail or greeting card to
the intended addressee. In these circumstances, MP3.com recognizes revenues as
impressions are delivered. To the extent minimum guaranteed impressions are not
met, MP3.com defers recognition of the corresponding revenues until the
remaining guaranteed impressions are delivered. Sponsorship advertisement
contract revenues are generally recognized evenly over the period in which the
advertisement is displayed.

Offline advertising revenues primarily consist of advertising sponsorships
of free CD products, sweepstakes, contests and special events. Free CD product
revenue is recognized upon the shipment of each CD to the registered recipient.
Contest and sweepstakes revenue is recognized upon determination and
notification of the contest winner. Special event revenue is recognized on the
date the event occurs.

Electronic commerce revenues primarily consist of online sales of DAM CDs
and other music-related merchandise. Revenue derived from the sale of DAM CDs
and music-related merchandise is recognized upon shipment at the total sales
price. The portion of the sales price payable to artists as royalties is
expensed to cost of revenues and accrued at the time revenue is recorded.

Deferred revenue represents payments or billings in excess of revenue
recognized. Unbilled receivables represent revenues recognized in excess of
payments or billings.

Pursuant to SAB No. 101, MP3.com recognizes revenue for multiple element
arrangements by the four criteria mentioned above. Additionally, MP3.com values
each element of the arrangement by using a three-month rolling average for
identical or very similar products sold over the last three months for cash. In
the event there is a discount or premium to the historical three-month average
cash selling prices, the resulting discount or premium is allocated to each
element on a pro-rata basis. MP3.com was required to adopt SAB No. 101 during
the fourth quarter of 2000. There was no financial statement (including
recording revenues gross versus net) effect to the adoption of SAB No. 101.

MP3.com has entered into marketing and promotion arrangements and
recognized revenue with certain parties where MP3.com has also made a strategic
investment. MP3.com accounts for these arrangements under Accounting Principal
Board No. 29 "Accounting for Nonmonetary Transactions" ("APB No. 29"). Under APB
No. 29, the fair value of the exchange is based upon the lower of the products
historically sold for cash as outlined under SAB 101 or the valuation ascribed
in the strategic investment. Additionally, there must be no major uncertainties
as to the realizability of the strategic investment's value. Further, all of the
conditions to revenue recognition as they relate to SAB 101 must be met before
revenue is ultimately recorded. During the years ended December 31, 2000 and
1999, MP3.com recognized $8,351,000 and $869,000, respectively, of revenue in
connection with strategic investments.

Engineering and Product Development Costs

Engineering and product development costs include expenses incurred by
MP3.com to manage, monitor, maintain and operate MP3.com's web site. Engineering
and product development costs are expensed as incurred.

F-109
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Advertising Costs

MP3.com recognizes advertising expenses in accordance with Statement of
Position ("SOP") 93-7 "Reporting on Advertising Costs". As such, MP3.com
expenses the costs of producing advertisements at the time the respective
advertisement is first used. MP3.com does not incur any direct-response
advertising costs. Advertising expense totaled approximately $4,300,000,
$2,000,000 and $10,000 for the years ended December 31, 2000, 1999 and for the
period from March 17, 1998 (inception) to December 31, 1998, respectively.

Stock-Based Compensation

MP3.com accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and complies with the disclosure
provisions of SFAS 123, "Accounting for Stock-Based Compensation". Under APB 25,
compensation cost is recognized over the vesting period based on the excess, if
any, on the date of grant of the deemed fair value of MP3.com's stock over the
employee's exercise price. When the exercise price of the employee stock option
is less than the fair value price of the underlying stock on the grant date,
deferred stock compensation is recognized and amortized to expense in accordance
with FASB Interpretation No. 28 over the vesting period of the individual
options, generally four years. Deferred compensation for options granted to
non-employees has been determined in accordance with SFAS No. 123 and Emerging
Issues Task Force 96-18, "Accounting for Equity Instruments that are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" ("EITF 96-18"). Accordingly, deferred compensation is determined using
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measured. Deferred charges for
options granted to non-employees are periodically remeasured as the underlying
options vest. MP3.com has recorded amortization of deferred compensation
corresponding to the grants of stock options to employees and consultants of
$8,975,000, $20,029,000 and $550,000 during the years ended December 31, 2000,
1999 and for the period from March 17, 1998 (inception) to December 31, 1998,
respectively.

Net Loss Per Share

MP3.com computes net loss per share following SFAS No. 128, "Earnings Per
Share" and SEC Staff Accounting Bulletin No. 98. Under the provisions of SFAS
No. 128, basic net loss per share is computed by dividing the net loss available
to common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares, composed of unvested restricted common shares and incremental common
shares issuable upon the exercise of stock options, are included in diluted net
loss per share to the extent these shares are dilutive. Common equivalent shares
are not included in the computation of dilutive net loss per share for the years
ended December 31, 2000, 1999 and for the period from March 17, 1998 (inception)
to December 31, 1998, because the effect would be anti-dilutive.

Under the provisions of SAB 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.

F-110
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the computation of basic and diluted net
loss per share as follows (in thousands, except per share amounts):

PERIOD FROM
MARCH 17,
1998
YEAR ENDED DECEMBER 31, (INCEPTION) TO
----------------------- DECEMBER 31,
2000 1999 1998
---------- --------- --------------

Numerator:
Net loss...................................... $(279,493) $(42,482) $ (357)
Denominator:
Weighted average shares outstanding........... 68,193 59,306 26,200
Weighted average unvested common shares
subject to repurchase agreements........... (1,394) (5,112) (17)
--------- -------- -------
Denominator for basic and diluted calculation... 66,799 54,194 26,183
========= ======== =======
Net loss per share:
Basic and diluted............................. $ (4.18) $ (0.78) $ (0.01)
========= ======== =======

Dilutive common stock equivalents include common stock options, preferred
stock, and warrants for common stock as if converted and restricted stock that
has not yet fully vested. Potentially dilutive securities totaled approximately
6,733,000, 5,050,000 and 17,000 for the years ended December 31, 2000, 1999 and
for the period from March 17, 1998 (inception) to December 31, 1998,
respectively, and were excluded from the diluted earnings per share because of
their anti-dilutive effect.

Comprehensive Income

MP3.com has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. Net loss and other comprehensive loss, including foreign
currency translation adjustments, and unrealized gains and losses on investments
shall be reported, net of their related tax effect, to arrive at comprehensive
loss. There were no differences between MP3.com's net loss and its total
comprehensive loss for the year ended December 31, 2000 and 1999, except for net
unrealized gains and losses on investments of approximately $(1,466,000) and
$1,454,000, respectively.

Segment Information

MP3.com adopted the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS 131 requires public companies to
report financial and descriptive information about their reportable operating
segments. MP3.com identifies its operating segments based on how management
internally evaluates separate financial information, business activities and
management responsibility. MP3.com believes it operates in a single business
segment. Through December 31, 2000, there have been insignificant foreign
operations.

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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of advertising and merchandise revenue from customers is as
follows (in thousands):

PERIOD FROM
YEAR ENDED MARCH 17, 1998
DECEMBER 31, (INCEPTION) TO
------------------ DECEMBER 31,
2000 1999 1998
------- ------- --------------

Advertising............................... $77,362 $20,493 $1,061
Merchandise............................... 2,774 1,406 101
------- ------- ------
$80,136 $21,899 $1,162
======= ======= ======

Statements of Cash Flows

The table below discloses supplemental cash flow information and non-cash
activities (in thousands):

PERIOD FROM
YEAR ENDED MARCH 17, 1998
DECEMBER 31, (INCEPTION) TO
----------------- DECEMBER 31,
2000 1999 1998
------- ------- --------------

Supplemental disclosures of cash flow information:
Interest paid..................................... $ 75 $ 119 $ 3
======= ======= ====
Taxes received (paid)............................. $ 126 $ (171) $ (1)
======= ======= ====
Supplemental schedule of non-cash activities:
Unrealized (loss) gain on marketable securities,
net............................................ $(1,466) $ 1,454 $ --
======= ======= ====
Issuance of common stock, stock options for common
stock and common stock warrants for marketing,
promotions and compensation.................... $19,243 $ 6,692 $ --
======= ======= ====
Stock based compensation associated with the
acceleration of stock option vesting........... $ 6,471 $ 4,247 $ --
======= ======= ====
Reduction in deferred compensation associated with
stock option forfeitures....................... $ 4,228 $ -- $ --
======= ======= ====
Other stock-based compensation.................... $ 3,031 $ 369 $ --
Common stock issued for notes receivable.......... $ -- $ 338 $ --
======= ======= ====
Cancellation of stockholder notes receivable...... $ -- $ 78 $ --
======= ======= ====
Contribution of common shares to the MP3.com
Foundation..................................... $ -- $ 767 $ --
======= ======= ====
Deferred compensation, net of forfeitures......... $ -- $37,999 $728
======= ======= ====
Property and equipment acquired under capital
leases......................................... $ -- $ -- $ 33
======= ======= ====

Recent Accounting Pronouncements

In June 1999, the FASB issued Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of Effective Date of FASB
Statement No. 133" ("SFAS No. 137"). The Statement defers for one year the
effective date of FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 137 now will apply to all
fiscal quarters of all fiscal years beginning after June 15, 2000. In June 1998,
the FASB issued Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 requires
F-112
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MP3.com to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. As of December 31, 2000, MP3.com did not
hold any derivative instruments, except a warrant which had a full impairment
reserve, or conduct any hedging activities. Therefore, there is no anticipated
impact to the consolidated financial statements for the adoption of SFAS No. 133
and 137.

2. BALANCE SHEET SUPPLEMENTARY DISCLOSURE

Property and equipment consist of the following (in thousands):

DECEMBER 31,
------------------
2000 1999
------- -------

Compact disc database.................................... $ 1,251 $ 385
Computer equipment....................................... 15,936 8,321
Software................................................. 2,874 1,461
Office furniture and equipment........................... 4,331 3,711
Leasehold improvements................................... 3,613 1,310
------- -------
28,005 15,188
Accumulated depreciation................................. (7,735) (1,339)
------- -------
$20,270 $13,849
======= =======

During the year ended December 31, 1999, MP3.com incurred a lease
abandonment charge of $815,000 when it moved to its new facilities. This charge
includes a write-off of certain furniture and leasehold improvements of
$795,000, net of accumulated depreciation of $66,000.

Accrued expenses consist of the following (in thousands):

DECEMBER 31,
-----------------
2000 1999
------- ------

Accrued compensation and related expenses................. $ 6,560 $1,848
Accrued marketing and promotion expenses.................. 797 480
Accrued professional fees................................. 1,914 499
Accrued artist earnings................................... 3,021 694
Other accrued liabilities................................. 3,398 1,498
------- ------
$15,690 $5,019
======= ======

F-113
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENTS

Marketable Securities

At December 31, 2000 and 1999, short-term investments in marketable
securities were classified as available-for-sale as follows (in thousands):

DECEMBER 31, 2000
---------------------------------------------------
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COSTS GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------

Short-term Investments:
Corporate debt securities............. $ 9,734 $254 $ 9,988
U.S. government and agencies.......... 5,000 -- -- 5,000
------- ---- -- -------
$14,734 $254 $14,988
======= ==== == =======
Cash Equivalents:
Commercial paper...................... $42,257 $ 23 -- $42,280
Money market fund..................... 22,970 -- -- 22,970
U.S. government and agencies.......... 19,987 7 -- 19,994
------- ---- -- -------
$85,214 $ 30 $85,244
======= ==== == =======

DECEMBER 31, 1999
---------------------------------------------------
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COSTS GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------

Short-term Investments:
Corporate debt securities............. $151,384 $ 22 $23 $151,383
U.S. government and agencies.......... 68,655 1 -- 68,656
Publicly traded equity securities..... 13,347 1,403 -- 14,750
-------- ------ --- --------
$233,386 $1,426 $23 $234,789
======== ====== === ========
Cash Equivalents:
Commercial paper...................... $102,962 $ 37 -- $102,999
Money market fund..................... 17,307 -- -- 17,307
U.S. government and agencies.......... 72,959 14 -- 72,973
-------- ------ --- --------
$193,228 $ 51 $193,279
======== ====== === ========

As of December 31, 2000 and 1999, the balance sheet caption "cash and cash
equivalents" included a book cash deficit of approximately $1,386,000 and
$87,000, respectively.

F-114
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MP3.com holds a warrant in a publicly traded company. At December 31, 1999,
the warrant was classified as available-for-sale marketable securities and
reported at fair value with unrealized gains recorded in stockholders' equity as
comprehensive income. As of December 31, 1999, the fair value of the warrant was
determined using the Black-Scholes model based on the following assumptions:

DECEMBER 31,
1999
------------

Risk free interest rate..................................... 5.5%
Expected life (years)....................................... 4.0
Dividend yield.............................................. 1.0%
Expected volatility......................................... 46.7%
Public price of common stock................................ $8.09

During the year ended December 31, 2000, MP3.com fully reserved for the
impairment of the warrant as the decline in the stock price was determined to be
other than temporary.

The contractual maturities of debt securities classified as
available-for-sale as of December 31, 2000 and 1999 are as follows (in
thousands):

DECEMBER 31,
--------------------
2000 1999
-------- --------

Due within one year.................................... $100,232 $408,365
Due after one year through two years................... -- 4,953
-------- --------
$100,232 $413,318
======== ========

Realized gains and losses were immaterial to MP3.com's financial results for the
years ended December 31, 2000 and 1999.

Investments in Strategic Investments and Joint Venture

Investments in joint ventures and other companies that MP3.com does not
control but has the ability to exercise significant influence over operating and
financial policies are accounted for by the equity method. Equity method
investments are stated at their cost of acquisition adjusted for MP3.com's
equity in undistributed net income (loss) since the date of acquisition.
Investments that the MP3.com does not control and does not have the ability to
exercise significant influence over operating and financial policies are
accounted for by the cost method. Cost method investments are carried at their
cost of acquisition. Cost method investments in publicly traded companies or
securities are subsequently marked to market with unrealized gains and losses,
net of income taxes, reported as a component of accumulated other comprehensive
income (loss) within stockholders' equity in the balance sheets.

During the year ended December 31, 2000 and 1999, MP3.com purchased a
number of investments focused on establishing strategic business relationships.
These investments provided MP3.com with equity ownership interests in Internet
and other technology-based companies in exchange for $39,700,000 and $25,300,000
in cash, respectively.

Subsequent to an investment purchase, MP3.com evaluates whether subsequent
events and circumstances indicate that the carrying amount of such investment is
impaired. If a decline in fair value of the investment below its cost basis is
judged to be other than temporary, the investment is considered to be impaired,
and the carrying amount of the investment is written down to fair value as a new
cost basis. The new cost basis is not changed for subsequent recovery, if any,
in the fair value of the investment. MP3.com's future results of operations for
a quarter or a year could be materially affected by a future write down in the
carrying amount of these investments to recognize an impairment loss due to an
other than temporary decline in the value of these investments. As of December
31, 2000, such impairments have occurred resulting in impairment losses of
approximately $40,300,000.

F-115
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. RELATED PARTY TRANSACTIONS

On January 25, 1999, MP3.com loaned one of its executive officers $260,000
which was used to exercise an option to purchase 2,437,500 shares of common
stock that was granted to him under MP3.com's 1998 Equity Incentive Plan. The
loan, as amended, is a full recourse note secured by 187,500 shares of MP3.com's
common stock that bears interest at 4.64% and is due in January 2003. During the
year ended December 31, 1999, payments totaling approximately $2,000 were made
to repay an amount equal to the par value of the shares purchased. No payments
were received during the year ended December 31, 2000.

During the years ended December 31, 2000 (until his resignation as of
October 19, 2000) and 1999, the Chairman of Gateway, Inc. ("Gateway") held a
seat on the Board of Directors of MP3.com. During this same period of time,
MP3.com purchased approximately $628,000 and $510,000 of computers and computer
related equipment from Gateway, respectively.

In October 2000, MP3.com entered into a three year consulting agreement
with a member of the Board of Directors. In connection with the consulting
agreement, this member will receive an annual consulting fee of $450,000 payable
monthly and an option to purchase 125,000 shares of MP3.com common stock at the
fair market value of MP3.com's common stock price on the grant date. The option
was issued pursuant to MP3.com's Amended and Restated 1998 Equity Incentive
Plan. The options vested 25% immediately with the remaining shares vesting in
four quarterly increments over the course of one year. See Note 7 for the
accounting of the stock option.

5. ACQUISITION

In April 2000, MP3.com agreed to purchase 53.5% of mp3radio.com, a joint
venture with Cox Interactive Media, Inc., that it did not own. MP3.com paid
approximately $4,000,000 in cash, received tangible net assets of $47,000 and
assumed liabilities of $231,000. During the transition period ending June 30,
2000, the costs of relocating the joint venture's operations to San Diego were
shared pro rata based upon the parties' existing ownership percentages and
included in minority interest in losses of an unconsolidated subsidiary. The
acquisition was completed during the third quarter of 2000 and was accounted for
under the purchase method of accounting. The excess purchase price over fair
value of net assets acquired was generally allocated to assembled work force;
URLs, trademarks and trade names; radio station agreements; and goodwill. The
excess purchase price over fair value of the assets acquired of approximately
$4,000,000 will be amortized over the following periods using the straight-line
method as follows (in thousands):

INTANGIBLE ASSET AMOUNT LIFE
---------------- ------ ---------

Assembled work force................................... $ 50 12 months
URL's, trademarks and trade names...................... $ 200 24 months
Radio station agreement................................ $1,250 12 months
Goodwill............................................... $2,500 24 months

The operating results of mp3radio.com have been included in the
consolidated statement of operations from the date of acquisition. The results
of operations for mp3radio.com in 2000 were insignificant to

F-116
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MP3.com. Therefore, the pro forma net revenues, operating loss, net loss, net
loss per share -- basic, and net loss per share -- diluted are not disclosed.

6. LEASE COMMITMENTS

MP3.com leases its facilities and some of its furniture under
noncancellable operating leases, expiring at various dates through March 2009.

Future minimum annual lease payments under noncancellable operating leases
at December 31, 2000 are as follows (in thousands):

YEAR ENDED DECEMBER 31, OPERATING LEASES
----------------------- ----------------

2001........................................................ $ 1,980
2002........................................................ 2,048
2003........................................................ 1,984
2004........................................................ 1,914
2005........................................................ 1,509
Thereafter.................................................. 3,045
-------
Minimum lease payments...................................... $12,480
=======

Rent expense totaled $2,414,000, $896,000 and $10,000 for the years ended
December 31, 2000 and 1999, and for the period from March 17, 1998 (inception)
to December 31, 1998, respectively.

7. STOCKHOLDERS' EQUITY

Common Stock

In July 1999, the Board of Directors authorized a 3-for-2 stock split of
all outstanding common stock. All share and per share information has been
retroactively restated to reflect the stock splits.

In July 1999, MP3.com completed its initial public offering of common
stock. A total of 13,697,233 shares were sold at a price of $28.00 per share.
The offering resulted in net proceeds to MP3.com of approximately $360.4
million, net of an underwriting fee of $20.6 million and offering expenses of
$2.5 million. Upon the closing of MP3.com's initial public offering, all
12,871,681 shares of the Series A, B, and C Convertible Preferred Stock
converted into 19,307,516 shares of common stock.

Stock Options

During 1998, MP3.com adopted the Founders Stock Option Plan (the "Founders
Plan") and the 1998 Equity Incentive Plan (the "Incentive Plan") for the
granting of both incentive and non-qualified stock options. In February 2000,
MP3.com adopted the 2000 Equity Incentive Plan (the "2000 Plan"). The 1998
Equity Incentive Plan was subsequently amended and restated in 1999 and 2000.
Under the plans, incentive stock options may be granted to employees, directors,
and officers of MP3.com and non-qualified stock options may be granted to
consultants, employees, directors, and officers of MP3.com. Options granted
under the plans are for periods not to exceed ten years, and must be issued at
prices not less than 100% and 50%, for incentive and nonqualified stock options,
respectively, of the fair value of the stock on the date of grant, as determined
by the Board of Directors. Options granted to stockholders who own greater than
10% of the outstanding stock are for periods not to exceed five years and must
be issued at prices not less than 110% of the fair value of the stock on the
date of grant, as determined by the Board of Directors.

F-117
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Founders Plan reserved 3,071,250 shares of common stock for grants to
founders of MP3.com. During 1998, all of the shares reserved in the Founders
Plan were granted, and in December 1998 all of the shares were exercised at
$0.001 per share. The Founders shares were obtained by an early exercise and are
subject to be repurchased by MP3.com at the original exercise price. As of
December 31, 2000, there were 2,022,789 shares exercised and vested, 415,905
were repurchased and cancelled and 632,556 shares could be repurchased by
MP3.com.

The Incentive Plan reserved 22,500,000 shares, as amended, of common stock
for granting to employees and non-employees of MP3.com. Grants under the
Incentive Plan generally vest over four years with 25% of the shares vesting on
the first anniversary of the grant and 1/36 of the remaining shares vesting in
equal installments monthly for the following 36 months.

The 2000 Plan contains the same provisions as the Incentive Plan with the
exception that the grant of common shares are nonstatutory stock options to
employees of MP3.com and no more than 40% of the shares reserved under the 2000
Plan may be granted to existing executive officers of MP3.com. The 2000 Plan
reserved 1,100,000 shares of common stock for grant.

The following table summarizes MP3.com's stock option activity for the
Founders Plan, Incentive Plan and 2000 Plan:

WEIGHTED AVERAGE
AVAILABLE FOR OPTIONS EXERCISE PRICE
GRANT OUTSTANDING PER SHARE
------------- ----------- ----------------

Balance at March 17, 1998 (inception)..... -- -- --
Shares reserved......................... 9,821,250 -- --
Shares granted.......................... (3,071,250) 3,071,250 $0.001
Shares exercised........................ -- (3,071,250) $0.001
----------- ---------- ------
Balance as of December 31, 1998........... 6,750,000 -- --
Increase in shares available............ 6,000,000 -- --
Shares granted.......................... (13,106,260) 13,106,260 $ 8.28
Shares exercised........................ -- (5,769,479) $ 0.85
Shares forfeited........................ 902,600 (902,600) $ 3.66
----------- ---------- ------
Balance as of December 31, 1999........... 546,340 6,434,181 $15.53
Increase in shares available............ 10,600,000 -- --
Shares granted.......................... (8,653,881) 8,653,881 $ 8.51
Shares exercised........................ -- (827,981) $ 0.54
Shares forfeited........................ 1,423,235 (1,423,235) $16.65
----------- ---------- ------
Balance as of December 31, 2000........... 3,915,694 12,836,846 $11.55
=========== ========== ======

For the period from March 17, 1998 (inception) to December 31, 1998, the
weighted average exercise price and weighted average grant date fair value for
options to purchase 2,193,750 shares of common stock that were granted at
exercise prices less than deemed fair value were approximately $0.001 and $0.33,
respectively. The remaining options to purchase 877,500 shares of common stock
were granted at exercise prices equal to the fair value. For the year ended
December 31, 1999, the weighted average grant date fair value for options
granted at exercise prices less than fair value was approximately $4.93 and
2,641,260 options were granted at exercise prices equal to or in excess of fair
value.

F-118
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
as of December 31, 2000:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE OUTSTANDING PRICE
--------------- ----------- ----------- -------- ----------- --------

$ 0.11 - $12.13 8,167,216 9.3 $ 3.53 1,054,254 $ 2.40
$13.50 - $31.13 2,786,155 9.2 $17.59 244,701 $22.44
$31.56 - $55.63 1,883,475 8.9 $37.37 524,136 $37.69
---------- --- ------ --------- ------
12,836,846 9.2 $11.55 1,823,091 $15.23
========== === ====== ========= ======

In October and November 2000, MP3.com's Chairman and Chief Executive
Officer issued an option on shares he directly owns to certain executive
officers of MP3.com to purchase an aggregate of 2,500,000 shares of MP3.com
common stock. The options are fully vested, have a term of five years and were
issued at a discount from fair market value of the MP3.com common stock price on
the grant date. Pursuant to Interpretation No. 1 to Accounting Principles Board
No. 25, MP3.com has accounted for these stock options as if MP3.com had granted
them. Therefore, MP3.com has recognized the intrinsic value of approximately
$3,031,000, the difference between the exercise price and the fair market value
of MP3.com common stock on the grant date as stock-based compensation during the
year ended December 31, 2000.

In October 2000, MP3.com entered into a three year consulting agreement
with a member of the board of directors. In connection with the consulting
agreement, the director also received an option to purchase 125,000 shares of
MP3.com common stock at the fair market value of MP3.com common stock price on
the grant date. The option was issued pursuant to MP3.com's Amended and Restated
1998 Equity Incentive Plan. The option vested 25% immediately with the remaining
shares vesting in four quarterly increments. MP3.com accounts for the option
pursuant to SFAS 123 and EITF 96-18. SFAS 123 and EITF 96-18 requires that the
compensation amount should be measured at the end of each period for the fair
value that vests during the given period. Changes in the quoted market value
should be reflected as an adjustment of the compensation expense in the periods
which the changes occur. During the year ended December 31, 2000, MP3.com
recognized approximately $77,000 in stock-based compensation associated to these
options granted to the director.

Employee Stock Purchase Plan

In May 1999, MP3.com's Board of Directors adopted the Employee Stock
Purchase Plan (the "Purchase Plan"), which provides for the issuance of a
maximum of 300,000 shares of common stock. Eligible employees can have up to 15%
of their earnings withheld, up to certain maximums, to be used to purchase
shares of MP3.com's common stock on every January 31 and July 31. The price of
the common stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the common stock on the commencement date of
the offering period or the specified purchase date. There were approximately
97,000 and zero shares purchased under the Purchase Plan during the years ended
December 31, 2000 and 1999, respectively.

Warrants for Common Stock

In May 2000, in connection with a legal consulting agreement, MP3.com
issued a five year warrant for the purchase of 75,000 shares of common stock. As
of the date of grant, the warrant was fully vested and non-forfeitable and
provided for an exercise price of $13.45 per share. The warrant is deemed to
have a fair value of approximately $794,000 using the Black-Scholes method of
valuation. The $794,000 was

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

included in the charge for litigation and copyright matters of $170 million.
MP3.com calculated the minimum fair value of the warrant on the grant date using
the following assumptions:

Fair value of common stock on the date of issuance.......... $11.00
Risk-free interest rate..................................... 5.50%
Expected life (in years).................................... 5.0
Dividend yield.............................................. 0%
Expected volatility......................................... 184.5%

In December 2000, MP3.com issued three warrants for the purchase of an
aggregate of 2,400,000 shares of common stock. As of the date of grant, each
warrant is fully vested and non-forfeitable. The warrants in aggregate were
deemed to have a fair value of approximately $10,528,000 using the Black-
Scholes method of valuation reduced by the receipt of $200,000 in cash. The
deemed fair value of $10,328,000 was included in sales and marketing expense for
the year ended December 31, 2000. The general terms of the warrants and the
calculated fair value of the warrant on the grant date using the following
Black-Scholes assumptions are as follows:

WARRANT #1 WARRANT #2 WARRANT #3
---------- ---------- ----------

Terms............................................ 1 year 1 year 1 year
Number of shares exercisable..................... 800,000 800,000 800,000
Exercise prices.................................. $6.50 $7.25 $7.25
Fair value of common stock on the date of
issuance....................................... $5.688 $5.688 $5.688
Risk-free interest rates......................... 6.25% 6.25% 6.25%
Expected lives (in years)........................ 1.0 2.0 3.0
Dividend yields.................................. 0% 0% 0%
Expected volatilities............................ 184.5% 184.5% 184.5%

In November 2000, MP3.com issued three warrants for the purchase of an
aggregate of 3,000,000 shares of common stock. As of the grant date, each
warrant is fully vested and non-forfeitable. The warrants in aggregate were
deemed to have a fair value of approximately $7,750,000 using the Black-Scholes
method of valuation. The deemed fair value of $7,750,000 was included in sales
and marketing for the year ended December 31, 2000. The general terms of the
warrants and the calculated fair value of the warrant on the grant date using
the following Black-Scholes assumptions are as follows:

WARRANT #1 WARRANT #2 WARRANT #3
---------- ---------- ----------

Terms............................................ 1 year 2 years 3 years
Number of shares exercisable..................... 1,000,000 1,000,000 1,000,000
Exercise prices.................................. $3.75 $5.00 $5.00
Fair value of common stock on the date of
issuance....................................... $3.375 $3.375 $3.375
Risk-free interest rates......................... 6.25% 6.25% 6.25%
Expected lives (in years)........................ 1.0 2.0 3.0
Dividend yields.................................. 0% 0% 0%
Expected volatilities............................ 184.5% 184.5% 184.5%

Pro Forma Disclosures

Pro forma information regarding net loss is required by SFAS No. 123 and
has been determined as if MP3.com accounted for its employee stock options and
stock purchase plan under the fair value method of SFAS No. 123. The
compensation cost associated with MP3.com's stock-based compensation plans,
determined using the minimum value method prescribed by SFAS 123, did not result
in a material

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

difference from the reported net loss for the period from March 17, 1998
(inception) to December 31, 1998.

MP3.com calculated the minimum fair value of each option grant on the date
of grant using the Black-Scholes option pricing model as prescribed by SFAS 123
using the following assumptions:

PERIOD FROM
MARCH 17,
YEAR ENDED 1998
DECEMBER 31, (INCEPTION) TO
------------ DECEMBER 31,
2000 1999 1998
---- ---- --------------

Risk-free interest rates................................. 6.0% 5.3% 5.5%
Expected lives (in years)................................ 4.0 4.6 5.0
Dividend yields.......................................... 0% 0% 0%
Expected volatilities.................................... 170% 107% 0%

The effect of compensation cost on net losses and losses per share for the
year ended December 31, 2000 and 1999 is as follows (in thousands, except per
share amounts):

YEAR ENDED DECEMBER 31,
-----------------------
2000 1999
---------- ---------

Net loss as reported........................................ $(279,493) $(42,482)
========= ========
Pro forma net loss under SFAS 123........................... $(291,645) $(47,341)
========= ========
Pro forma net loss per share, basic and diluted under SFAS
123....................................................... $ (4.37) $ (0.87)
========= ========
Weighted average fair value of options granted.............. $ 7.96 $ 6.26
========= ========

Because grants of additional stock options are expected to occur each year, the
above pro forma disclosures are not representative of pro forma effects on
reported financial results for future years.

Common Stock Reserved

The following represents the number of common shares reserved for future
issuances:

NUMBER OF
COMMON SHARES
-------------

Warrants for common stock................................... 5,475,000
Options for common stock.................................... 16,752,540
Employee Stock Purchase Plan................................ 203,423
----------
Total.................................................. 22,430,963
==========

8. INCOME TAXES

MP3.com accounts for income taxes following the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", under
which the liability method is used to calculate deferred income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial reporting and income tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The (benefit) provision for income taxes is as follows (in thousands):

PERIOD FROM
MARCH 17,
YEAR ENDED 1998
DECEMBER 31, (INCEPTION) TO
-------------- DECEMBER 31,
2000 1999 1998
---- ---- --------------

Current:
Federal............................................. $(93) $ 28
State............................................... -- -- 7
---- ---- ----
Total current............................... -- (93) 35
Deferred:
Federal............................................. -- -- 77
State............................................... -- -- 22
---- ---- ----
Total deferred.............................. -- -- 99
---- ---- ----
(Benefit) provision for income taxes.................. $(93) $134
==== ==== ====

Significant components of the net deferred tax assets are shown below (in
thousands). A valuation allowance of $106,033,000 and $6,078,000 has been
established at December 31, 2000 and 1999, respectively, as realization of such
assets is uncertain.

DECEMBER 31,
-------------------
2000 1999
--------- ------

Deferred tax assets:
Net operating loss........................................ $ 76,350 $5,723
Reserve for litigation and copyright matters.............. 20,908 --
Warrants.................................................. 7,231 --
Other reserves and accruals............................... 1,730 409
--------- ------
Total deferred tax assets......................... 106,219 6,132
Deferred tax liabilities:
Depreciation.............................................. (186) (42)
Other..................................................... -- (12)
--------- ------
Total deferred tax liabilities.................... (186) (54)
--------- ------
Total deferred tax assets......................... 106,033 6,078
Valuation allowance......................................... (106,033) (6,078)
--------- ------
Net deferred tax assets..................................... $ -- $ --
========= ======

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of income taxes at the statutory federal income tax rate
to the provision for income taxes is as follows (in thousands):

PERIOD FROM
MARCH 17,
1998
YEAR ENDED DECEMBER 31, (INCEPTION) TO
------------------------ DECEMBER 31,
2000 1999 1998
---------- ---------- --------------

U.S. federal taxes at the statutory rate......... $(95,028) $(14,099) $(76)
State taxes, net of federal benefit.............. (11,258) 12 20
Non-deductible amortization of deferred
compensation................................... 4,082 7,578 187
Non-deductible stock based compensation.......... 2,200 1,780 --
Change in valuation allowance.................... 99,955 4,578 --
Other non-deductible expenses.................... 49 58 3
-------- -------- ----
$ -- $ (93) $134
======== ======== ====

As of December 31, 2000, MP3.com has federal net operating loss
carryforwards of approximately $200,000,000 expiring through 2020 and state net
operating loss carryforwards of approximately $190,000,000 expiring through
2007. The utilization of these loss carryforwards may be limited by certain
events including an ownership change as defined by the Internal Revenue Code.
Deferred tax assets relating to net operating loss carryforwards as of December
31, 2000 include approximately $350,000 associated with stock option activity
for which subsequent recognizable tax benefits, if any, will be credited
directly to shareholders' equity.

9. LEGAL PROCEEDINGS

Major Label Lawsuits. On January 21, 2000, ten major recording companies
filed a copyright infringement lawsuit against MP3.com, Inc. in the United
States District Court for the Southern District of New York (the "Major Label
Lawsuit"). The complaint alleged that MP3.com, in connection with certain
content available in its My.MP3 service, made unauthorized copies of tens of
thousands of audio CDs in violation of the Copyright Act. On April 28, 2000, the
court granted plaintiffs' motion for summary judgment and held that MP3.com was
liable for infringing plaintiffs' copyrights, and the litigation proceeded with
discovery on the issues of willfulness and damages. On May 10, 2000, MP3.com
disabled all content within the My.MP3 service except as expressly authorized by
the copyright holders.

Between June and August 2000, MP3.com entered into settlement and license
agreements with Warner Music Group, BMG Entertainment, Sony Music, and Capitol
Records, Inc. (EMI), which together represented eight of the ten major recording
companies that filed the Major Label Lawsuit. The settlement agreements provide
for a settlement amount to be paid in cash by MP3.com in exchange for a release
from the settling plaintiffs and their affiliated entities (as defined in the
settlement agreements) of all claims related to the lawsuit and the My.MP3
service. "Most-favored-nation" provisions in these settlement agreements require
additional settlement amounts to be paid under certain circumstances.

As a result of these settlements, the Major Label Lawsuit was limited to a
dispute with UMG Recordings, Inc., which represented two of the original
plaintiffs. A trial in the case was held from August 28 through September 6,
2000 on the issues of willfulness and damages. After hearing evidence, the court
ruled on September 6, 2000 that MP3.com had willfully infringed UMG's copyrights
and awarded damages to UMG in an amount of $25,000 per CD. The Court then
scheduled a period to allow MP3.com to conduct discovery concerning the
certificates of registration for which plaintiffs sought damages. On November
16, 2000, UMG made a motion for entry of judgment in the amount of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$53,400,000 in statutory damages, costs, and attorneys' fees, which MP3.com did
not oppose. As a result, a judgment in that amount was entered.

MP3.com has also entered into a license agreement with UMG. Subject to
certain affirmative obligations of MP3.com and other terms and conditions
regarding the implementation of the My.MP3 service, MP3.com is permitted to
utilize the recordings owned by Warner Music Group, BMG Entertainment, Sony
Music, EMI, and UMG as part of the My.MP3 service. The license agreements have
terms of approximately three to ten years, and provide for payment of a one-time
fee each time a licensor's recording is added to a separate My.MP3 account.
These licenses also provide for on-going royalty payments based on the greater
of (i) a specified percentage of net revenues generated from or in connection
with the My.MP3 service or (ii) a specified amount accrued each time a
licensor's recording is streamed from My.MP3. Although MP3.com has obtained
license agreements permitting the use of recordings from BMG Entertainment,
Warner Music Group, Sony Music, UMG, EMI, and certain other independent labels,
there can be no guarantee that MP3.com will be able to secure similar license
agreements from any other recording company.

Other Record Label Lawsuits. Over the course of 2000 and 2001, some other
entities filed lawsuits against MP3.com based on the same set of allegations as
the Major Label Lawsuit. These include: Tee Vee Toons, Inc.; Zomba Recording
Corp. (the "Zomba case"); Koch Entertainment and Velvel Records LLC (the "Koch
case"); EMusic.com, Inc., Fuel 2000 Records, Spinart, Inc., Gig Records,
Fearless Records, and Invisible Records (the "EMusic case"); and Unity
Entertainment Corporation (the "Unity" case). Additionally, several independent
labels have sent MP3.com demand letters alleging similar claims.

A jury trial in the Tee Vee Toons case commenced on March 26, 2001. Prior
to trial, in reliance on the Court's rulings in the Major Label Lawsuit, the
issues of infringement, fair use, and willfulness were adjudicated against
MP3.com. As a result, the jury trial was limited to the issue of damages. The
trial concluded on April 6, 2001. The jury considered 145 copyright certificates
and returned a verdict which the Court tabulated as totaling $292,968.
Subsequently, two jurors contacted the Court to inform it that the verdict
decided upon by the jurors contained discrepancies. The Court interviewed all
the jurors and set a briefing schedule on the issue of the jury's verdict. On
June 19, 2001, the Court declared a mistrial, and set a new trial date of
November 5, 2001. On June 26, 2001, MP3.com filed a motion to certify the ruling
to the Court of Appeals pursuant to 28 U.S.C. sec. 1292(b). Tee Vee Toons'
response papers were filed on June 29, 2001. The Court has not yet ruled on the
motion.

Discovery in the Zomba case closed June 4, 2001. The final pre-trial
conference is scheduled for August 10, 2001, and the case is set for trial on
September 5, 2001. Like the Tee Vee Toons case, the trial in the Zomba case will
be limited to only the issue of damages. The Koch case has been settled and the
case is now closed. The complaint in the EMusic case was filed on December 14,
2000. MP3.com's response to the complaint was filed on February 8, 2001. On June
20, 2001, MP3.com and EMusic filed a stipulation of dismissal of their claims
against each other without prejudice. The dismissal was entered by the Court on
June 21, 2001. Plaintiffs' counsel's motion to withdraw as counsel to the
remaining plaintiffs was granted on July 23, 2001. On August 7, 2001, the Court
will hear MP3.com's motion to dismiss the case. The Unity case, which purports
to be brought on behalf of Unity, an independent record company whose works were
allegedly used in the My.MP3 service, and all other similarly situated entities
or individuals, was filed on November 7, 2000. MP3.com answered the Complaint on
January 16, 2001. On April 16, 2001, the Court entered an order denying
plaintiffs' motion for class certification without prejudice to a renewal of the
motion within 45 days. Unity did not renew its motion within the 45 day
deadline. Thus, the case may proceed as an individual action only based on the
Unity sound recordings allegedly infringed by MP3.com.

Publisher Lawsuits. On March 14, 2000, two large music publishing
companies, MPL Communications, Inc. and Peer International Corporation, with the
assistance of The Harry Fox Agency, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

("HFA"), filed a copyright infringement lawsuit against MP3.com in the United
States District Court for the Southern District of New York (the "MPL/Peer
case"). The complaint alleged that MP3.com, in connection with its My.MP3
service, made unauthorized copies of audio CDs containing plaintiffs'
copyrighted works in violation of the Copyright Act, and that MP3.com, in
connection with the streaming of audio content to users of the My.MP3 service,
continued to make unauthorized digital phonorecords in violation of the
Copyright Act. The complaint further alleged that MP3.com's actions constituted
unauthorized copying and willful infringement of plaintiffs' copyrights.
Plaintiffs sought damages (including statutory damages of up to $150,000 per
violation) and injunctive relief prohibiting MP3.com from operating its My.MP3
service or any other service that uses unauthorized reproductions of plaintiffs'
copyrighted works.

On October 17, 2000, MP3.com, the National Music Publishers' Association,
Inc., and its licensing subsidiary, HFA, entered into a preliminary agreement to
be approved by individual HFA music publisher-principals for settlement and use
of musical compositions on the My.MP3 service for a three year term. As a
result, MPL and Peer settled the MPL/Peer case with MP3.com, and a stipulation
of dismissal with prejudice was subsequently signed by the parties on December
28, 2000 and entered by the Court on January 2, 2001.

The three-year licensing arrangement provided that MP3.com would pay up to
$30,000,000 to HFA for the benefit of up to 25,000 music publishers and their
songwriter partners, to be allocated to two equal funds. One fund was used to
pay HFA publisher-principals for past uses of music on the My.MP3 service, in
exchange for a release from HFA publisher-principals and their affiliated
entities of all claims related to those asserted in the MPL/Peer case and the
use of their compositions on the My.MP3 service. The other fund provides advance
payments toward royalties earned under the prospective license. The terms of the
prospective license call for a payment of one-quarter cent each time a song is
streamed on demand to a customer from his or her My.MP3 locker, along with a
one-time fee per track added to the My.MP3 service. The preliminary agreement
with HFA was finalized on February 28, 2001. Approximately 78% of the
publisher-principals HFA represents accepted and are bound by the settlement
agreement and approximately 90% accepted and are bound by the licensing
agreement. In April 2001, HFA refunded to MP3.com approximately $4,600,000
pursuant to the agreement, representing approximately $3,200,000 and $1,400,000
for the proportion of HFA publisher-principals that did not settle or license
content to MP3.com, respectively.

Zomba Enterprises, Inc. has filed its own music publishing case against
MP3.com making allegations like those set forth in the MPL/Peer case. The case
is set for trial on September 5, 2001. In the second quarter of 2001, similar
publisher lawsuits were filed by Randy Newman, Tom Waits, and Ann and Nancy
Wilson (the "Newman case") and Major Bob Music, Inc., Rio Bravo Music, Inc.,
Castle Bound Music Inc., Dream Catcher Music, Inc., and Moon Catcher Music, Inc
(the "Major Bob case"). The Newman case was filed on May 7, 2001 in the United
States District Court for the Central District of California. MP3.com filed its
answer to the complaint on June 15, 2001. The Major Bob case was filed on May
14, 2001. MP3.com filed its answer to the complaint on June 28, 2001.
Additionally, several other publishers, not affiliated with HFA, have sent
MP3.com demand letters alleging similar claims. In view of the Court's rulings
in the Tee Vee Toons and Zomba cases, there is a substantial risk that the
issues of infringement, fair use, and willfulness may be adjudicated against
MP3.com in any and all publisher cases. This would mean that MP3.com would only
be able to litigate the issue of damages.

Artists' Class Action. On April 12, 2000, several artists filed a class
action lawsuit in the United States District Court for the Southern District of
New York against MP3.com and several major recording companies that claimed to
own copyrights in sound recordings featuring the artists. The complaint alleged
that the recording company defendants in the Major Label Lawsuit claimed rights
in plaintiffs' recordings that they did not possess. In particular, the
complaint alleged that the recording company defendants did

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not possess any copyright protections with respect to plaintiffs' pre-1972
published and pre-1978 unpublished recordings, did not possess the right to
digitally transmit plaintiffs' pre-1996 recordings over the Internet, and did
not possess the right to control the conversion of plaintiffs' recordings into
mp3 files. The complaint further alleged that MP3.com has used the names and
likenesses of plaintiffs without their consent or authorization and in a
deceptive manner, in violation of the federal Lanham Act, the New York Civil
Rights Law, and unspecified unfair competition and misappropriation laws. In
their prayer for relief, plaintiffs asked to have their class action certified,
to be awarded unspecified damages and attorneys' fees, to have the defendants
enjoined from using plaintiffs' names and likenesses to promote downloading
music over the Internet, and to receive declaratory relief regarding plaintiffs'
rights in their pre- and post-1972 recordings. On August 28, 2000, the Court
issued an oral ruling dismissing all claims against MP3.com. On December 7,
2000, judgment was entered dismissing, with prejudice, the federal claims
against the defendants. All state claims were dismissed for lack of an
independently sufficient jurisdictional basis. Plaintiffs filed a Notice of
Appeal on January 5, 2001. Briefing on the appeal concluded June 11, 2001. Oral
argument on the appeal has not yet been scheduled but is anticipated to occur
after October 21, 2001.

Copyright Settlement Discussions; Charge to Operations. MP3.com has
pursued and continues to actively pursue settlement discussions with the various
plaintiffs and claimants in the cases and disputes discussed above. The decision
whether to enter into settlement and/or license agreements with each party will
be based upon a number of factors related to both the lawsuits and MP3.com's
business in general. MP3.com cannot guarantee that it will be able to enter into
any additional settlement agreements on terms favorable to MP3.com, if at all,
or that any settlement or license agreement will prove beneficial to its
business or stockholders. During the year ended December 31, 2000, MP3.com
recorded a charge for litigation and copyright matters of $170,000,000. The
charge for litigation and copyright matters represented its estimate of the
total costs to be incurred only in connection with the resolution of the various
litigation and copyright matters associated with the My.MP3 service, including
the lawsuits filed by major recording companies and other parties. Copyright
issues associated with the My.MP3 service also include but are not limited to
publishing rights, non-major label content, and legal and advisory fees. This
charge did not reflect or include any amounts paid or payable in connection with
forward-looking licenses to use music recordings or compositions in connection
with the My.MP3 service. This charge reflects management's expectations as of
the date of this filing, and is based on currently available information as well
as significant assumptions made by management regarding the various litigation
and copyright matters. Cash payments for the settlements and judgments discussed
above and other payments have reduced the cumulative amount reserved as a result
of this charge to approximately $43,000,000 as of December 31, 2000. MP3.com
cannot guarantee that future events or results will conform to its expectations
or assumptions regarding the various litigation and copyright matters. If these
expectations and significant assumptions prove to be erroneous in light of
future events, the actual amounts incurred by MP3.com to resolve all copyright
matters related to the My.MP3 service could be materially different than those
recorded as of December 31, 2000, and could far exceed the resources and market
capitalization of MP3.com.

Class Action and Derivative Lawsuits

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of MP3.com filed shareholder derivative suits against MP3.com and certain of its
employees, officers, and directors in the Superior Court of the State of
California, County of San Diego. These complaints allege various statutory and
common law claims relating to the My.MP3 service, including breach of fiduciary
duty, abuse of control, constructive fraud, gross mismanagement, unjust
enrichment, and waste of corporate assets. MP3.com did not record a charge
related to these claims during the year ended December 31, 2000.

MP3.com and the representatives of the various plaintiffs for both the
class action lawsuits and derivative lawsuit executed Stipulations of Settlement
dated as of March 20, 2001 ("Stipulations"). Under the terms of the
Stipulations, the defendants, while continuing to deny all liability, have paid
into an escrow account $35,000,000 and agreed to issue 2.5 million shares of
MP3.com common stock which MP3.com valued at $5,391,000, in exchange for
complete dismissals and releases of all claims with prejudice. The escrow amount
and the 2.5 million shares of common stock will be governed by the Stipulations.
The distribution of the escrow amount and the 2.5 million shares will not occur
prior to March 31, 2002, except under certain circumstances, including the sale
or other acquisition of MP3.com prior to the distribution of the 2.5 million
shares of common stock, in which case the stock will be treated equally with all
other outstanding shares of MP3.com common stock. In addition, under the
Stipulations, MP3.com agreed to institute certain corporate governance
enhancements. On June 29, 2001, the State Superior Court issued final approval
of the settlement of the derivative cases. The Federal District Court issued
final approval of the settlement of the class action on July 11, 2001.

Charge Related to Class Action and Derivative Lawsuits. Subsequent to
December 31, 2000, in light of the settlements of the class action and
derivative lawsuits, MP3.com recorded a charge of $41,428,000. The charge
includes the cash paid into the escrow account, the value of the 2.5 million
shares of common stock to be issued, and other legal costs. While the charge of
$41,428,000 excludes any potential recovery from its insurance carriers, MP3.com
is seeking to recover from its carriers the full amount of the settlement
together with its legal expenses. National Union has agreed to pay its policy
limit of $5,000,000 towards the securities case, but such amount has not yet
been paid. Prior to receiving payment from National Union, MP3.com is required
to provide certain releases. Currently, MP3.com is reviewing those releases. If
MP3.com receives insurance proceeds, MP3.com will record the recovery as a gain
in the statement of operations caption "Charge related to class action and
derivative lawsuits".

IPO Allocation Cases.

During May and June 2001, MP3.com and certain of its current and former
directors and officers were named defendants in seven similar class actions
pending in federal district court in the Southern District of New York. The
complaints allege that the prospectus and registration statement in MP3.com's
initial public offering contained materially false and misleading statements
related to underwriting fees, commissions and other economic benefits connected
with the offering, including alleged tie-in arrangements between the
underwriters and their customers. The complaints allege causes of action under
Sections 11, 12(2) and 15 of the Securities Act of 1933, as well as Sections
10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934. Similar
cases have been filed against a number of other companies and their
underwriters. There has been no activity in any of these cases to date.

Other Litigation

MP3.com is also involved in other legal matters and claims of various
types, and from time to time MP3.com may also be involved in litigation relating
to claims arising out of its operations in the normal course of business.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

others in the music industry, including those entities with whom MP3.com has
ongoing license arrangements. For example, some of the major recording companies
that settled their portion of the Major Label Lawsuit with MP3.com have asserted
in writing that they believe the amount paid by MP3.com to UMG in satisfaction
of the Court's judgment, together with the concurrent issuance of warrants to
UMG, triggered additional payments to them under the "most favored nations"
clause in their settlement agreement with MP3.com. Although MP3.com does not
believe they are entitled to any such additional payments, there can be no
assurances that MP3.com will be successful in ultimately concluding this
particular matter in an amicable fashion, or defending any resulting lawsuit. As
a result, MP3.com may be forced to defend one or more lawsuits on this and other
issues in the future, and in fact may be involved in a number of litigation
proceedings with the same group of related plaintiffs. MP3.com has not recorded
any charge related to any claims for additional "most favored nations" payments
as of December 31, 2000.

There can be no assurances that MP3.com will be successful in ultimately
defending any of these lawsuits, and MP3.com may be required to pay license fees
or substantial damages, including statutory, punitive, or other damages that far
exceed the resources and overall market capitalization of MP3.com, in which
event MP3.com might have to significantly limit or terminate its business
operations, particularly because MP3.com's business is not yet profitable. At
the rate of $25,000 per work (which is the per CD amount of statutory damages
awarded by the court in the Major Label Lawsuit), MP3.com's aggregate potential
liability resulting from all of its copyright litigation proceedings could
exceed one billion dollars. If successful, any one of these lawsuits could
seriously harm MP3.com's business by forcing MP3.com to cease providing services
to its consumers or requiring MP3.com to pay monetary damages. Even if
unsuccessful, these lawsuits still can harm MP3.com's business severely by
damaging its reputation, requiring MP3.com to incur legal costs, lowering
MP3.com's stock price and public demand for MP3.com's stock, and diverting
management's attention away from MP3.com's primary business activities in
general.

10. SUBSEQUENT EVENTS

In April 2001, MP3.com loaned its chief executive officer approximately
$4,820,000. The loan is secured by no less than 19,700,000 shares of MP3.com
Common Stock held by the officer and certain other assets, and accrues interest
at 6.75%. Principal and interest are due in April 2002 or earlier if there is a
change of control of MP3.com, such as the merger discussed below.

In May 2000, MP3.com entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Vivendi Universal, a societe anonyme organized under
the laws of France ("Vivendi Universal"), and Metronome Acquisition Sub Inc., a
Delaware corporation and a wholly-owned subsidiary of Vivendi Universal ("Sub").
Pursuant to the Merger Agreement, MP3.com will be merged with and into Sub (the
"Merger"), with Sub continuing as the surviving corporation and as a
wholly-owned subsidiary of Vivendi Universal. At the effective time of the
Merger, each issued and outstanding share of common stock of MP3.com will be
converted into, at the option of the holder thereof, the right to receive either
(i) $5 in cash, or (ii) a number of Vivendi Universal shares (in the form of
American Depositary Receipts) having a value of $5, subject to aggregate
transaction consideration caps of 50% cash consideration and 50% share
consideration, which may result in proration. The Merger has been structured as
a reorganization under the Internal Revenue Code of 1986, as amended, that is
planned to be tax-free to MP3.com stockholders to the extent they receive
Vivendi Universal shares.

The Board of Directors of MP3.com has unanimously approved the Merger. In
addition, stockholders of MP3.com who beneficially own in the aggregate over
approximately 50% of MP3.com common stock entered into a Stockholder Agreement
dated May 20, 2001, pursuant to which these stockholders have agreed to vote
their shares in favor of the Merger and against any competing proposal. The
Merger is subject to approval by MP3.com's stockholders, the expiration or early
termination of the applicable

F-128
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MP3.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and other customary closing conditions. The Merger is anticipated to
close during the third quarter of 2001.

11. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

QUARTER ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- --------- ------------- ------------

1999
Net revenue................................ $ 666 $ 1,911 $ 4,051 $ 15,271
Gross profit............................... $ 460 $ 1,100 $ 2,364 $ 8,764
Net loss................................... $ (1,406) $ (6,343) $(19,869) $(14,864)
Net loss per share -- basic and diluted.... $ (0.05) $ (0.22) $ (0.33) $ (0.23)
Shares used in the per share
calculation -- basic and diluted......... 27,537 28,838 60,333 63,316
2000
Net revenue................................ $ 17,495 $ 20,178 $ 20,459 $ 22,004
Gross profit............................... $ 13,739 $ 16,366 $ 16,713 $ 17,558
Net loss................................... $(18,137) $(177,068) $(48,700) $(35,588)
Net loss per share -- basic and diluted.... $ (0.28) $ (2.71) $ (0.74) $ (0.54)
Shares used in the per share
calculation -- basic and diluted......... 64,628 65,384 65,989 66,509

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MP3.COM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 91,211 $ 83,858
Short-term investments in marketable securities........... -- 14,988
Accounts receivable, net.................................. 4,812 4,409
Restricted cash........................................... -- 30,000
Unbilled receivables...................................... 1,259 2,021
Prepaid expenses and other current assets................. 12,990 11,074
Prepaid multimedia content royalties...................... 9,056 8,755
-------- ---------
Total current assets.............................. 119,328 155,105
Property and equipment, net of accumulated depreciation..... 19,428 20,270
Prepaid marketing and promotions expense, net of accumulated
amortization.............................................. 3,511 3,579
Prepaid multimedia content royalties, net of accumulated
amortization, less current portion........................ 39,691 41,633
Strategic investments....................................... 11,410 11,410
Other non-current assets.................................... 5,998 6,602
-------- ---------
Total assets...................................... $199,366 $ 238,599
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,810 $ 4,767
Accrued expenses.......................................... 14,721 15,690
Deferred revenues......................................... 1,654 1,104
Reserve for litigation and copyright matters.............. 43,399 42,933
-------- ---------
Total current liabilities......................... 64,584 64,494
Other liabilities........................................... 427 389
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001 per share; 15,000,000
authorized at March 31, 2001 and December 31, 2000;
none issued and outstanding at March 31, 2001 and
December 31, 2000...................................... -- --
Common stock, par value $0.001 per share; 300,000,000
authorized at March 31, 2001 and December 31, 2000;
68,664,790 and 68,529,044 issued and outstanding at
March 31, 2001 and December 31, 2000, respectively..... 69 69
Additional paid in capital................................ 501,125 501,194
Common shares issuable.................................... 5,391 --
Note receivable from stockholder.......................... (258) (258)
Deferred compensation..................................... (3,501) (4,945)
Accumulated other comprehensive loss...................... (11) (12)
Accumulated deficit....................................... (368,460) (322,332)
-------- ---------
Total stockholders' equity........................ 134,355 173,716
-------- ---------
Total liabilities and stockholders' equity........ $199,366 $ 238,599
======== =========

The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-130
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MP3.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
2001 2000
----------- -----------
(UNAUDITED)

Net revenues................................................ $ 21,750 $ 17,495
Cost of revenues (excludes amortization of deferred
compensation of $--and $71, respectively)................. 4,875 3,756
----------- -----------
Gross profit........................................... 16,875 13,739
Operating expenses:
Sales and marketing (excludes deferred compensation
amortization of $321 and $591, respectively)........... 10,491 17,002
Engineering and product development (excludes deferred
compensation amortization of $325 and $805,
respectively).......................................... 5,595 5,279
General and administrative (excludes deferred compensation
amortization of $325 and $2,935, respectively)......... 6,218 7,762
Charge related to class action and derivative lawsuits.... 41,428 --
Amortization of deferred compensation..................... 971 4,402
Costs related to acquisition activities................... -- 1,704
----------- -----------
Total operating expenses.......................... 64,703 36,149
----------- -----------
Loss from operations........................................ (47,828) (22,410)
Interest income, net........................................ 1,700 5,678
----------- -----------
Loss before minority interest............................... (46,128) (16,732)
Minority interest in losses of an unconsolidated
subsidiary................................................ -- 1,405
----------- -----------
Net loss.................................................... $ (46,128) $ (18,137)
=========== ===========
Net loss per share:
Basic and diluted......................................... $ (0.69) $ (0.28)
=========== ===========
Weighted average shares -- basic and diluted.............. 66,929,000 64,628,000
=========== ===========

The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-131
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MP3.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
2001 2000
--------- ---------
(UNAUDITED)

OPERATING ACTIVITIES:
Net loss.................................................... $(46,128) $(18,137)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation, amortization of goodwill and amortization of
prepaid multimedia royalty licenses.................... 4,581 1,158
Amortization of deferred compensation..................... 971 4,402
Charge related to class action and derivative lawsuits
(non-cash portion)..................................... 5,391 --
Stock based charges associated with the acceleration of
stock option vesting................................... -- 6,030
Amortization of stock based marketing..................... -- 208
Loss on sale of fixed assets.............................. -- 19
Changes in operating assets and liabilities:
Restricted cash........................................ 30,000 --
Accounts receivable.................................... (403) 813
Unbilled receivables................................... 762 466
Prepaid expenses and other current assets.............. 2,743 552
Accounts payable....................................... 43 (3,580)
Accrued expenses....................................... (931) 9,339
Reserve for litigation and copyright matters........... (2,776) --
Deferred revenue....................................... 550 (4,290)
-------- --------
Cash used in operating activities.................... (5,197) (3,020)
INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (1,227) (5,571)
Maturities of marketable securities, net.................... 14,977 74,385
Purchases of prepaid multimedia content royalties........... (1,626) --
Purchases of strategic investments.......................... -- (31,637)
Other assets................................................ 10 (1,845)
-------- --------
Cash provided by investing activities....................... 12,134 35,332
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock.................. 404 975
Repurchase of unvested common stock......................... -- (2,400)
Payments on line of credit.................................. -- (217)
-------- --------
Cash provided by (used in) financing activities............. 404 (1,642)
-------- --------
Translation adjustment...................................... 12 --
Increase in cash and cash equivalents....................... 7,353 30,670
Cash and cash equivalents at beginning of period............ 83,858 193,192
-------- --------
Cash and cash equivalents at end of period.................. $ 91,211 $223,862
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................... $ -- $ 27
======== ========
Taxes paid.................................................. $ 5 $ --
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Unrealized loss on marketable securities, net............... $ 1 $ 5,773
======== ========
Reduction in deferred compensation associated with stock
option forfeitures........................................ $ 473 $ 3,558
======== ========

The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-132
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MP3.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

MP3.com, Inc. ("MP3.com") has created a unique and robust technology
infrastructure designed to facilitate the storage, management, promotion, and
delivery of digital music. As a Music Service Provider (MSP), the company is
dedicated to providing consumers access to music when they want it, where they
want it, using any web-enabled device. MP3.com's web site hosts large catalogs
of digital music available on the Internet. Dedicated to growing the digital
music space, MP3.com's products and services include on-demand Subscription
Music Channels, an innovative Business Music Services program, a Radio Services
program and others. Additionally, through MP3.com's MSP technology initiative
and its Music InterOperating System, MP3.com is partnering with a variety of
forward-looking businesses to expand its digital music strategy.

MP3.com shares of Common Stock are listed for trading on the Nasdaq
National Market System under the symbol "MPPP". MP3.com was incorporated in the
state of Delaware on March 17, 1998 and commenced operations on that date.
MP3.com is headquartered in San Diego, California.

Basis of Presentation

The accompanying condensed consolidated financial statements as of March
31, 2001 and for the three months ended March 31, 2001 and 2000 are unaudited
and have been prepared by MP3.com pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The unaudited condensed consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary to state
fairly the financial information included, in accordance with generally accepted
accounting principles. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such SEC
rules and regulations. The consolidated results of operations for the three
months ended March 31, 2001 are not necessarily indicative of the results which
may be reported for any other interim period or for the year ending December 31,
2001. Certain prior period amounts have been reclassified to conform to the
current period presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of MP3.com and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The equity and net income or loss
attributable to the minority stockholder interests which relate to MP3.com's
subsidiaries are shown separately in the consolidated balance sheets and
consolidated statements of operations, respectively. Investments in entities
over which MP3.com can exercise significant influence, but which are less than
majority owned and not otherwise controlled by MP3.com, are accounted for under
the equity method. Under the equity method of accounting, MP3.com's share of the
investee's earnings or losses are included in consolidated statements of
operations as "Minority interest in losses of an unconsolidated subsidiary". All
other investments, either in entities over which MP3.com does not have the
ability to exercise significant influence or for which there is not a readily
determinable market value, are accounted for under the cost method of
accounting. Dividends and other distributions of earnings from investees, if
any, are included in income when declared.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of

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MP3.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Examples include provisions
for returns, bad debts, valuation of privately held strategic investments, the
ultimate realizability of the prepaid multimedia content royalties, the reserve
for litigation and copyright matters and the charge and reserve for class action
and derivative lawsuits. Actual results could differ from those estimates.

Net Loss Per Share

MP3.com computes net loss per share following SFAS No. 128 "Earnings Per
Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions
of SFAS No. 128, basic net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted average number
of common shares outstanding during the period. Diluted net loss per share is
computed by dividing the net loss for the period by the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares, composed of unvested restricted common shares, incremental
common shares issuable upon the exercise of stock options, and common shares
issuable upon the exercise of warrants for common stock, are included in diluted
net loss per share to the extent these shares are dilutive. Common equivalent
shares are not included in the computation of dilutive net loss per share for
the three months ended March 31, 2001 and 2000 because the effect would be
anti-dilutive.

The following table sets forth the computation of basic and diluted net
loss per share as follows (in thousands, except share and per share data):

THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
2001 2000
----------- -----------

Numerator:
Net loss................................................ $ (46,128) $ (18,137)
Denominator:
Weighted average shares outstanding..................... 68,615,000 67,811,000
Weighted average unvested common shares subject to
repurchase agreements................................ (1,686,000) (3,183,000)
----------- -----------
Denominator for basic and diluted calculation............. 66,929,000 64,628,000
=========== ===========
Net loss per share:
Basic and diluted....................................... $ (0.69) $ (0.28)
=========== ===========

Diluted common stock equivalents include common stock options, warrants for
common stock as if converted and restricted stock that has not yet fully vested.
Potentially dilutive securities totaled approximately 2,635,000 and 9,753,000
common shares as of March 31, 2001 and 2000, respectively, and were excluded
from historical diluted earnings per share because of their anti-dilutive
effect.

Comprehensive Income

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MP3.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from non-owner sources. Net loss and other comprehensive loss, including foreign
currency translation adjustments, and unrealized gains and losses on investments
shall be reported, net of their related tax effect, to arrive at comprehensive
loss. There was no difference between MP3.com's net loss and its total
comprehensive loss for the three months ended March 31, 2001 and 2000, except
for unrealized losses on investments of approximately $1,000 and $5,773,000,
respectively.

Segment Information

MP3.com has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 requires public
companies to report financial and descriptive information about their reportable
operating segments. MP3.com identifies its operating segments based on how
management internally evaluates separate financial information, business
activities and management responsibility. MP3.com believes it operates in a
single business segment. Through March 31, 2001, MP3.com has had insignificant
foreign operations.

A summary of advertising and non-advertising revenue from customers is as
follows (in thousands):

THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------

Advertising.............................................. $20,011 $14,584
Non-advertising.......................................... 1,739 2,911
------- -------
$21,750 $17,495
======= =======

NOTE 2 -- LEGAL PROCEEDINGS

F-135
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MP3.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$53,400,000 in statutory damages, costs, and attorneys' fees, which MP3.com did
not oppose. As a result, a judgment in that amount was entered.

Publisher Lawsuits. On March 14, 2000, two large music publishing
companies, MPL Communications, Inc. and Peer International Corporation, with the
assistance of The Harry Fox Agency, Inc.

F-136
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MP3.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

unpublished recordings, did not possess the right to digitally transmit
plaintiffs' pre-1996 recordings over the Internet, and did not possess the right
to control the conversion of plaintiffs' recordings into mp3 files. The
complaint further alleged that MP3.com has used the names and likenesses of
plaintiffs without their consent or authorization and in a deceptive manner, in
violation of the federal Lanham Act, the New York Civil Rights Law, and
unspecified unfair competition and misappropriation laws. In their prayer for
relief, plaintiffs asked to have their class action certified, to be awarded
unspecified damages and attorneys' fees, to have the defendants enjoined from
using plaintiffs' names and likenesses to promote downloading music over the
Internet, and to receive declaratory relief regarding plaintiffs' rights in
their pre- and post-1972 recordings. On August 28, 2000, the Court issued an
oral ruling dismissing all claims against MP3.com. On December 7, 2000, judgment
was entered dismissing, with prejudice, the federal claims against the
defendants. All state claims were dismissed for lack of an independently
sufficient jurisdictional basis. Plaintiffs filed a Notice of Appeal on January
5, 2001. Briefing on the appeal concluded June 11, 2001. Oral argument on the
appeal has not yet been scheduled but is anticipated to occur after October 21,
2001.

Copyright Settlement Discussions; Charge to Operations. MP3.com has
pursued and continues to actively pursue settlement discussions with the various
plaintiffs and claimants in the cases and disputes discussed above. The decision
whether to enter into settlement and/or license agreements with each party will
be based upon a number of factors related to both the lawsuits and MP3.com's
business in general. MP3.com cannot guarantee that it will be able to enter into
any additional settlement agreements on terms favorable to MP3.com, if at all,
or that any settlement or license agreement will prove beneficial to its
business or stockholders. During the year ended December 31, 2000, MP3.com
recorded a charge for litigation and copyright matters of $170,000,000. The
charge for litigation and copyright matters represented MP3.com's estimate of
the total costs to be incurred only in connection with the resolution of the
various litigation and copyright matters associated with the My.MP3 service,
including the lawsuits filed by major recording companies and other parties.
Copyright issues associated with the My.MP3 service also include but are not
limited to publishing rights, non-major label content, and legal and advisory
fees. This charge did not reflect or include any amounts paid or payable in
connection with forward-looking licenses to use music recordings or compositions
in connection with the My.MP3 service. This charge reflects management's
expectations as of the date of this filing, and is based on currently available
information as well as significant assumptions made by management regarding the
various litigation and copyright matters. Cash payments for the settlements and
judgments discussed above and other payments have reduced the cumulative amount
reserved as a result of this charge to $43,400,000 as of March 31, 2001. MP3.com
cannot guarantee that future events or results will conform to its expectations
or assumptions regarding the various litigation and copyright matters. If these
expectations and significant assumptions prove to be erroneous in light of
future events, the actual amounts incurred by MP3.com to resolve all copyright
matters related to the My.MP3 service could be materially different than those
recorded as of March 31, 2001, and could far exceed the resources and market
capitalization of MP3.com.

Class Action and Derivative Lawsuits

MP3.com and certain of its employees, officers, and directors have been
named as defendants in several lawsuits alleging violations of the federal
securities laws. The complaints, which were filed between September 19, 2000 and
November 15, 2000 in the United States District Court for the Southern District
of California, each purport to be brought on behalf of a class of stockholders.
The complaints allege that MP3.com and the other defendants violated the federal
securities laws by issuing materially false and misleading statements and
failing to disclose material information regarding its My.MP3 service and the
litigation surrounding the service. Between September 14, 2000 and October 26,
2000, certain stockholders of MP3.com filed shareholder derivative suits against
MP3.com and certain of its employees, officers, and directors in the Superior
Court of the State of California, County of San Diego. These complaints allege
various statutory and common law claims relating to the My.MP3 service,
including breach of fiduciary
F-138
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MP3.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

duty, abuse of control, constructive fraud, gross mismanagement, unjust
enrichment, and waste of corporate assets.

Charge Related to Class Action and Derivative Lawsuits. In light of the
settlements of the class action and derivative lawsuits, MP3.com has recorded a
charge of $41,428,000 during the three months ended March 31, 2001. The charge
includes the cash paid into the escrow account, the value of the 2.5 million
shares of common stock to be issued, and other legal costs. While the charge of
$41,428,000 excludes any potential recovery from its insurance carriers, MP3.com
is seeking to recover from its carriers the full amount of the settlement
together with its legal expenses. National Union has agreed to pay its policy
limit of $5,000,000 towards the securities case, but such amount has not yet
been paid. Prior to receiving payment from National Union, MP3.com is required
to provide certain releases. Currently, MP3.com is reviewing those releases. If
MP3.com receives insurance proceeds, MP3.com will record the recovery as a gain
in the statement of operations caption "Charge related to class action and
derivative lawsuits".

IPO Allocation Cases.

Other Litigation

In particular, the music industry in the United States is generally
regarded as extremely litigious in nature compared to other industries. As a
result, in the future MP3.com may be engaged in litigation with others in the
music industry, including those entities with whom MP3.com has ongoing license
arrangements. For example, some of the major recording companies that settled
their portion of the Major Label Lawsuit with MP3.com have asserted in writing
that they believe the amount paid by MP3.com to

F-139
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MP3.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

UMG in satisfaction of the Court's judgment, together with the concurrent
issuance of warrants to UMG, triggered additional payments to them under the
"most favored nations" clause in their settlement agreement with MP3.com.
Although MP3.com does not believe they are entitled to any such additional
payments, there can be no assurances that MP3.com will be successful in
ultimately concluding this particular matter in an amicable fashion, or
defending any resulting lawsuit. As a result, MP3.com may be forced to defend
one or more lawsuits on this and other issues in the future, and in fact may be
involved in a number of litigation proceedings with the same group of related
plaintiffs. MP3.com has not recorded any charge related to any claims for
additional "most favored nations" payments as of March 31, 2001.

NOTE 3 -- RECENT EVENTS

F-140
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--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

ANNEX A

AGREEMENT AND PLAN OF MERGER

DATED AS OF MAY 20, 2001

BY AND AMONG

VIVENDI UNIVERSAL, S.A.,

METRONOME ACQUISITION SUB INC.

AND

MP3.COM, INC.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
342

TABLE OF CONTENTS

PAGE
----

ARTICLE I
The Merger

SECTION 1.01. The Merger....................................................... 1
SECTION 1.02. Closing.......................................................... 2
SECTION 1.03. Effective Time................................................... 2
SECTION 1.04. Effects of the Merger............................................ 2
SECTION 1.05. Certificate of Incorporation and By-laws......................... 2
SECTION 1.06. Directors........................................................ 2
SECTION 1.07. Officers......................................................... 2

ARTICLE II
Effect of the Merger on the Capital Stock of
the Constituent Corporations; Exchange of Certificates

SECTION 2.01. Effect on Capital Stock.......................................... 2
(a) Capital Stock of Sub........................................ 2
(b) Cancelation of Treasury Stock and Parent-Owned Stock........ 2
(c) Conversion of Company Common Stock.......................... 2
(d) Appraisal Rights............................................ 3
SECTION 2.02. Anti-Dilution Provisions......................................... 3
SECTION 2.03. Exchange of Certificates......................................... 4
(a) Exchange Agent.............................................. 4
(b) Exchange Procedures......................................... 4
(c) Distributions with Respect to Unexchanged Shares............ 5
(d) No Further Ownership Rights in Company Common Stock......... 5
(e) No Fractional Shares........................................ 5
(f) Termination of Exchange Fund................................ 5
(g) No Liability................................................ 5
(h) Investment of Exchange Fund................................. 6
(i) Lost Certificates........................................... 6
(j) Withholding Rights.......................................... 6
SECTION 2.04. Elections........................................................ 6
SECTION 2.05. Proration........................................................ 7

ARTICLE III
Representations and Warranties

SECTION 3.01. Representations and Warranties of the Company.................... 8
(a) Organization, Standing and Corporate Power.................. 8
(b) Subsidiaries................................................ 8
(c) Capital Structure........................................... 8
(d) Authority; Noncontravention................................. 9
(e) SEC Documents; Undisclosed Liabilities...................... 11
(f) Information Supplied........................................ 12
(g) Absence of Certain Changes or Events........................ 12
(h) Litigation.................................................. 12

A-I-i
343

PAGE
----

(i) Compliance with Applicable Laws............................. 13
(j) Absence of Changes in Benefit Plans......................... 13
(k) ERISA Compliance; Excess Parachute Payments................. 14
(l) Taxes....................................................... 16
(m) Voting Requirements......................................... 17
(n) State Takeover Statutes..................................... 17
(o) Brokers; Schedules of Fees and Expenses..................... 17
(p) Opinion of Financial Advisor................................ 17
(q) Intellectual Property....................................... 18
(r) Contracts................................................... 18
(s) Title to Properties......................................... 20
(t) Privacy Policy.............................................. 20
SECTION 3.02. Representations and Warranties of Parent and Sub................. 21
(a) Organization, Standing and Corporate Power.................. 21
(b) Authority; Noncontravention................................. 21
(c) SEC Documents............................................... 22
(d) Absence of Material Adverse Change.......................... 23
(e) Information Supplied........................................ 23
(f) No Parent Stockholder Vote Required......................... 23
(g) Parent Shares............................................... 23
(h) Tax Matters................................................. 23
(i) Interim Operations of Sub................................... 23

ARTICLE IV
Covenants Relating to Conduct of Business

SECTION 4.01. Conduct of Business.............................................. 23
(a) Conduct of Business by the Company.......................... 23
(b) Advice of Changes; Filings.................................. 26

SECTION 4.02. No Solicitation by the Company................................... 26

ARTICLE V
Additional Agreements

SECTION 5.01. Preparation of the Form F-4 and the Proxy Statement; Stockholders 27
Meeting..........................................................
SECTION 5.02. Access to Information; Confidentiality........................... 28
SECTION 5.03. Reasonable Efforts............................................... 29
SECTION 5.04. Stock Options.................................................... 29
SECTION 5.05. Employee Matters................................................. 30
SECTION 5.06. Indemnification, Exculpation and Insurance....................... 31
SECTION 5.07. Fees and Expenses................................................ 31
SECTION 5.08. Public Announcements............................................. 32
SECTION 5.09. Affiliates....................................................... 32
SECTION 5.10. NYSE Listing..................................................... 32
SECTION 5.11. Litigation....................................................... 32
SECTION 5.12. Tax Treatment.................................................... 32
SECTION 5.13. Stockholder Agreement Legend..................................... 32

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PAGE
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SECTION 5.14. Termination of Agreements........................................ 33
SECTION 5.15. Resignation of Directors of the Company.......................... 33

ARTICLE VI
Conditions Precedent

SECTION 6.01. Conditions to Each Party's Obligation To Effect the Merger....... 33
(a) Stockholder Approval........................................ 33
(b) HSR Act..................................................... 33
(c) No Restraints............................................... 33
(d) Form F-4.................................................... 33
(e) NYSE Listing................................................ 33
SECTION 6.02. Conditions to Obligations of Parent and Sub...................... 33
(a) Representations and Warranties.............................. 33
(b) Performance of Obligations of the Company................... 34
(c) Tax Opinion................................................. 34
SECTION 6.03. Conditions to Obligations of the Company......................... 34
(a) Representations and Warranties.............................. 34
(b) Performance of Obligations of Parent and Sub................ 34
(c) Tax Opinion................................................. 34
SECTION 6.04. Frustration of Closing Conditions................................ 34

ARTICLE VII
Termination, Amendment and Waiver

SECTION 7.01. Termination...................................................... 35
SECTION 7.02. Effect of Termination............................................ 35
SECTION 7.03. Amendment........................................................ 35
SECTION 7.04. Extension; Waiver................................................ 35
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver........ 36

ARTICLE VIII
General Provisions

SECTION 8.01. Nonsurvival of Representations and Warranties.................... 36
SECTION 8.02. Notices.......................................................... 36
SECTION 8.03. Definitions...................................................... 37
SECTION 8.04. Interpretation................................................... 37
SECTION 8.05. Counterparts..................................................... 38
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries................... 38
SECTION 8.07. Governing Law.................................................... 38
SECTION 8.08. Assignment....................................................... 38
SECTION 8.09. Enforcement...................................................... 38
SECTION 8.10. Severability..................................................... 38
Annex I -- Index of Defined Terms............................................... 40
Exhibit A -- Form of Affiliate Letter........................................... 42
Schedule A -- Employment Agreement Signatories

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AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of May 20, 2001,
among VIVENDI UNIVERSAL, a societe anonyme organized under the laws of France
("Parent"), METRONOME ACQUISITION SUB INC., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and MP3.COM, INC., a Delaware corporation
(the "Company").

WHEREAS the respective Boards of Directors of Parent, Sub and the Company
have approved, and the Boards of Directors of Sub and the Company have declared
advisable, this Agreement and the merger of the Company with and into Sub (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of common stock, par value
$0.001 per share, of the Company (the "Company Common Stock"), other than shares
owned by Parent, Sub or the Company, or any wholly owned subsidiary of Parent,
Sub or the Company, will be converted into, at the option of the holder thereof
(upon the terms and subject to the limitations set forth herein), either (i) the
right to receive ordinary shares, nominal value E5.50 per share, of Parent (the
"Parent Shares"), which shares will be issued in the form of American depositary
shares representing Parent Shares, each American depositary share representing
one Parent Share (the "Parent ADSs"), or (ii) the right to receive cash;

WHEREAS simultaneously with the execution and delivery of this Agreement
and as a condition and inducement to the willingness of Parent and Sub to enter
into this Agreement, Parent and certain principal stockholders of the Company
(collectively, the "Company Stockholders") are entering into an agreement (the
"Stockholder Agreement") pursuant to which the Company Stockholders will agree
to vote to adopt and approve this Agreement and to take certain other actions in
furtherance of the Merger upon the terms and subject to the conditions set forth
in the Stockholder Agreement;

WHEREAS simultaneously with the execution of this Agreement and as a
condition and inducement to the willingness of Parent and Sub to enter into this
Agreement, Parent, the Company and those employees of the Company identified on
Schedule A have entered into employment agreements, conditioned on the
consummation of the Merger (each, an "Employment Agreement"), pursuant to which
Parent has agreed to employ such individuals following the Effective Time and
such individuals have agreed to certain modifications to the terms of their
Stock Options and to be subject to certain non-compete and non-solicitation
obligations, in each case upon the terms and conditions set forth in the
applicable Employment Agreement;

WHEREAS for U.S. Federal income tax purposes, it is intended that (a) the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations promulgated thereunder and (b) this Agreement constitutes a plan of
reorganization; and

WHEREAS Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.

NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:

ARTICLE I

THE MERGER

SECTION 1.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), the Company shall be merged with and into Sub at
the Effective Time. At the Effective Time, the separate corporate existence of
the Company shall cease and Sub shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of the Company in accordance with the DGCL.

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SECTION 1.02. Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m., New York City time, on the second business day after
satisfaction or (to the extent permitted by applicable law) waiver of the
conditions set forth in Article VI (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the satisfaction or
waiver of those conditions), at the offices of Cravath, Swaine & Moore, 825
Eighth Avenue, New York, New York 10019, or at such other place, time and date
as shall be agreed to in writing by Parent and the Company. The date on which
the Closing occurs is referred to in this Agreement as the "Closing Date"

SECTION 1.03. Effective Time. Upon the terms and subject to the
conditions set forth in this Agreement, as soon as practicable on or after the
Closing Date, the parties shall prepare and file with the Secretary of State of
the State of Delaware, a certificate of merger or other appropriate documents
(in any such case, the "Certificate of Merger") executed in accordance with the
relevant provisions of the DGCL and shall make all other filings or recordings
required under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware, or at such subsequent date or time as Parent and the Company shall
agree and specify in the Certificate of Merger (the time the Merger becomes
effective being referred to as the "Effective Time").

SECTION 1.04. Effects of the Merger. The Merger shall have the effects
set forth in Section 259 of the DGCL.

SECTION 1.05. Certificate of Incorporation and By-laws. (a) The
certificate of incorporation of Sub, as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.

(b) The by-laws of Sub, as in effect immediately prior to the Effective
Time, shall be the by-laws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.

SECTION 1.06. Directors. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.

SECTION 1.07. Officers. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES

SECTION 2.01. Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Company Common Stock or any shares of capital stock of Sub:

(a) Capital Stock of Sub. Each issued and outstanding share of common
stock of Sub shall remain outstanding as one fully paid and nonassessable
share of common stock of the Surviving Corporation.

(b) Cancelation of Treasury Stock and Parent-Owned Stock. Each share
of Company Common Stock that is owned by the Company, as treasury stock,
Parent or Sub, or any wholly owned subsidiary of the Company, Parent or
Sub, immediately prior to the Effective Time shall automatically be
canceled and retired and shall cease to exist, and no consideration shall
be delivered or deliverable in exchange therefor.

(c) Conversion of Company Common Stock. Except as otherwise provided
in Section 2.05 and subject to Sections 2.01(d) and 2.03(e), each share of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance

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with Section 2.01(b)) shall be converted into the right to receive, at the
election of the holder thereof, one of the following (as adjusted pursuant
to Section 2.05, the "Merger Consideration"):

(i) for each such share of Company Common Stock with respect to
which an election to receive Parent Shares has been effectively made,
and not revoked or lost, pursuant to Section 2.04 (a "Share Election"),
the right to receive a number of fully paid and nonassessable Parent
Shares equal to the Exchange Ratio (the "Share Consideration"); and

(ii) for each such share of Company Common Stock with respect to
which an election to receive cash has been effectively made, and not
revoked or lost, pursuant to Section 2.04 (a "Cash Election"), and for
each such share of Company Common Stock with respect to which a Cash
Election is deemed to have been made pursuant to Section 2.04(d), the
right to receive $5.00 in cash (the "Cash Consideration").

The Parent Shares to be issued in the Merger shall be registered in the
name of The Bank of New York, as depositary (the "Depositary") under the
Deposit Agreement dated as of April 19, 1995, as amended and restated as of
September 11, 2000 and as further amended and restated as of December 8,
2000, among Parent, The Bank of New York, a New York banking corporation,
and all owners and beneficial owners from time to time of the American
depositary receipts issued thereunder (the "Deposit Agreement"), and then
delivered in the form of Parent ADSs, and such Parent ADSs shall be issued
in accordance with the Deposit Agreement. At the Effective Time, all such
shares of Company Common Stock shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each holder of a
certificate or certificates that immediately prior to the Effective Time
represented any such shares of Company Common Stock (the "Certificates")
shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration, certain dividends or other distributions
in accordance with Section 2.03(c) and cash in lieu of any fractional
Parent ADS in accordance with Section 2.03(e) upon the surrender of such
certificate in accordance with Section 2.03(b), without interest. "Exchange
Ratio" means the quotient (rounded to the fourth decimal place) obtained by
dividing $5.00 by the Average Closing Price. "Average Closing Price" means
an amount equal to the average per share closing price of Parent ADSs on
the New York Stock Exchange (the "NYSE"), as reported in The Wall Street
Journal, Northeastern edition (or, if not reported therein in another
authoritative source selected by Parent and reasonably acceptable to the
Company), for the five consecutive trading days ending on the trading day
immediately preceding the date on which the Stockholders Meeting occurs.

(d) Appraisal Rights. Notwithstanding anything in this Agreement to
the contrary, shares ("Appraisal Shares") of Company Common Stock that are
outstanding immediately prior to the Effective Time and that are held by
any person who is entitled to demand and properly demands appraisal of such
Appraisal Shares pursuant to, and who complies in all respects with,
Section 262 of the DGCL ("Section 262") shall not be converted into Merger
Consideration as provided in Section 2.01(c), but rather the holders of
Appraisal Shares shall be entitled to payment of the fair market value of
such Appraisal Shares in accordance with Section 262; provided, however,
that if any such holder shall fail to perfect or otherwise shall waive,
withdraw or lose the right to appraisal under Section 262, then the right
of such holder to be paid the fair value of such holder's Appraisal Shares
shall cease and such Appraisal Shares shall be deemed to have been
converted as of the Effective Time into, and to have become exchangeable
solely for the right to receive, the Merger Consideration as provided in
Section 2.01(c) and in accordance with 2.04(d). The Company shall serve
prompt notice to Parent of any demands received by the Company for
appraisal of any shares of Company Common Stock, and Parent shall have the
right to participate in and direct all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the Company shall
not, without the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands, or agree to do
any of the foregoing.

SECTION 2.02. Anti-Dilution Provisions. In the event Parent changes (or
establishes a record date for changing) the number of Parent Shares issued and
outstanding prior to the Effective Time as a

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result of a stock split, stock dividend, recapitalization, subdivision,
reclassification, combination, exchange of shares or similar transaction with
respect to the outstanding Parent Shares and the record date therefor shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted to reflect such stock split, stock dividend, recapitalization,
subdivision, reclassification, combination, exchange of shares or similar
transaction.

SECTION 2.03. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, Parent shall provide, or cause the Surviving Corporation to
provide, to the Depositary the Parent Shares being issued in the form of Parent
ADSs in accordance with this Article II, and the Depositary shall deposit with
such bank or trust company as may be designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the holders
of shares of Company Common Stock, for exchange in accordance with this Article
II, through the Exchange Agent, receipts issued in accordance with the Deposit
Agreement evidencing the Parent ADSs issuable pursuant to Section 2.01 in
exchange for outstanding shares of Company Common Stock, and Parent shall take
all steps necessary to enable and cause the Surviving Corporation to provide to
the Exchange Agent, on a timely basis, as and when needed after the Effective
Time, cash necessary to pay for the shares of Company Common Stock converted
into the right to receive cash pursuant to Section 2.01 (such receipts
evidencing Parent ADSs and cash, together with any dividends or other
distributions with respect thereto in accordance with Section 2.03(c) and any
cash in lieu of any fractional Parent ADS in accordance with Section 2.03(e),
being hereinafter referred to as the "Exchange Fund"). At the time of such
deposit, Parent shall irrevocably instruct the Exchange Agent to deliver the
Exchange Fund to the Company's stockholders after the Effective Time in
accordance with the procedures set forth in this Section 2.03, subject to
Sections 2.03(f) and 2.03(g).

(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate whose shares were converted into the right to receive the applicable
Merger Consideration pursuant to Section 2.01, (i) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in customary form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for use
in surrendering the Certificates in exchange for the applicable Merger
Consideration with respect thereto. Upon surrender of a Certificate for
cancelation to the Exchange Agent, together with such letter of transmittal,
duly completed and validly executed, and such other documents as may reasonably
be required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor a receipt evidencing that number of
whole Parent ADSs (together with cash in lieu of any fractional Parent ADS in
accordance with Section 2.03(e)), if any, and the amount of cash, if any, that
the aggregate number of shares of Company Common Stock previously represented by
such Certificate shall have been converted pursuant to Section 2.01 into the
right to receive, together with certain dividends or other distributions in
accordance with Section 2.02(c), and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Company Common
Stock that is not registered in the transfer records of the Company, a receipt
evidencing the proper number of Parent ADSs may be issued and/or the proper
amount of cash may be paid, as appropriate, in exchange therefor to a person
other than the person in whose name the Certificate so surrendered is registered
if such Certificate shall be properly endorsed or otherwise be in proper form
for transfer and the person requesting such issuance shall pay any transfer or
other taxes required by reason of the issuance of Parent ADSs to a person other
than the registered holder of such Certificate or establish to the satisfaction
of Parent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.03(b), each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration that the holder thereof has the right to
receive pursuant to the provisions of this Article II, certain dividends or
other distributions in accordance with Section 2.03(c) and cash in lieu of any
fractional Parent ADS in accordance with Section 2.03(e). No interest shall be
paid or will accrue on any cash payable upon surrender of any Certificate.

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(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made with respect to Parent Shares with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the Parent ADSs represented thereby, if any, and all
such dividends and other distributions shall be paid by Parent to the Exchange
Agent and shall be included in the Exchange Fund, until the surrender of such
Certificate in accordance with this Article II. Subject to the effect of
applicable escheat or similar laws, following surrender of any such Certificate
there shall be paid to the holder of the receipt evidencing whole Parent ADSs
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole Parent ADSs
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and with a payment date subsequent to such surrender payable with
respect to such whole Parent ADSs.

(d) No Further Ownership Rights in Company Common Stock. All receipts
evidencing Parent ADSs issued and cash paid upon the surrender for exchange of
Certificates in accordance with the terms of this Article II (including any
dividends or other distributions paid pursuant to Section 2.03(c) and any cash
in lieu of any fractional Parent ADS paid pursuant to Section 2.03(e)) shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock formerly represented by such
Certificates, subject, however, to the Surviving Corporation's obligation to pay
any dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by the Company with respect
to such shares of Company Common Stock which remain unpaid at the Effective
Time. At the close of business on the day on which the Effective Time occurs,
the stock transfer books of the Company shall be closed, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for transfer or any other reason, they shall be canceled and exchanged as
provided in this Article II.

(e) No Fractional Shares. (i) No certificates or scrip representing, or
receipts evidencing, fractional Parent ADSs shall be issued upon the surrender
for exchange of Certificates, no dividend or distribution with respect to Parent
Shares shall relate to such fractional shares interests and such fractional
share interests shall not entitle the owner thereof to vote or to any rights of
a stockholder of Parent.

(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a Parent
ADS (after taking into account all such shares held by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount, less the
amount of any withholding taxes that may be required thereon, equal to such
fractional part of a Parent ADS (rounded to the fourth decimal place)
multiplied by the Average Closing Price.

(f) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of the Certificates for 12 months after the
Effective Time shall be delivered to Parent, upon demand, and any holders of the
Certificates who have not theretofore complied with this Article II shall
thereafter look only to Parent for, and, subject to Section 2.03(g), Parent
shall remain liable for, payment of their claim for the Merger Consideration,
certain dividends and other distributions in accordance with Section 2.03(c) and
any cash in lieu of any fractional Parent ADS in accordance with Section
2.03(e).

(g) No Liability. None of Parent, Sub, the Company or the Exchange Agent
shall be liable to any person in respect of any receipts evidencing Parent ADSs
(or any dividends or distributions with respect thereto) or cash from the
Exchange Fund, in each case delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Certificate shall
not have been surrendered prior to three years after the Effective Time (or
immediately prior to such earlier date on which any amounts payable pursuant to
this Article II would otherwise escheat to or become the property of any
Governmental Entity), any such amounts shall, to the extent permitted by
applicable law, become the

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property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.

(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Parent, on a daily basis; provided
that no such investment or loss thereon shall affect the amounts payable to the
Company's stockholders pursuant to this Article II. Any interest and other
income resulting from such investments shall be the property of, and shall be
paid to, Parent, and Parent shall be responsible for paying all taxes with
respect to such interest and other income.

(i) Lost Certificates. If any Certificate 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 and, if required by Parent, the
posting by such person of a bond in such reasonable amount as Parent may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificate the applicable Merger Consideration with respect thereto,
certain dividends and other distributions in accordance with Section 2.03(c) and
any cash in lieu of any fractional Parent ADS in accordance with Section
2.03(e).

(j) Withholding Rights. Parent, Sub or the Exchange Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock such
amounts as Parent, Sub or the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld and
paid over to the appropriate taxing authority by Parent, Sub or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the shares of Company Common Stock in
respect of which such deduction and withholding was made by Parent, Sub or the
Exchange Agent.

SECTION 2.04. Elections. (a) Each person who, on or prior to the Election
Date referred to in Section 2.04(b), is a record holder of shares of Company
Common Stock (which for this purpose shall be deemed to include an authorized
representative of the persons entitled to receive the 2,500,000 shares of
Company Common Stock reserved for issuance pursuant to the Stipulation of
Settlement in the Company's class action and derivative lawsuits) shall be
entitled, with respect to all or any portion of such shares, to make an
unconditional Share Election or an unconditional Cash Election, in each case
specifying that number of shares of Company Common Stock such holder desires to
have converted into the Share Consideration and that number of shares of Company
Common Stock such holder desires to have converted into the Cash Consideration,
as applicable, on or prior to such Election Date, on the basis hereinafter set
forth.

(b) Parent shall prepare a form of election, which form shall be subject to
the reasonable approval of the Company (the "Form of Election") and shall be
mailed with the Proxy Statement to the record holders of Company Common Stock as
of the record date for the Stockholders Meeting, which Form of Election shall be
used by each record holder of shares of Company Common Stock who wishes to elect
to receive the Share Consideration or the Cash Consideration, as applicable, for
any or all shares of Company Common Stock held by such holder. The Company shall
use all reasonable efforts to make the Form of Election and the Proxy Statement
available to all persons who become record holders of Company Common Stock
during the period between such record date and the Election Date and to the
authorized representative of the persons entitled to receive the 2,500,000
shares of Company Common Stock reserved for issuance pursuant to the Stipulation
of Settlement in the Company's class action and derivative lawsuits. Any such
holder's (and such authorized representative's) election to receive the Share
Consideration or the Cash Consideration, as applicable, shall have been properly
made only if the Exchange Agent shall have received at its designated office, by
5:00 p.m., New York City time, on the business day immediately preceding the
date of the Stockholders Meeting (the "Election Date"), a Form of Election
properly completed and signed and (other than in the case of such authorized
representative) accompanied by Certificates for the shares of Company Common
Stock to which such Form of Election relates, duly endorsed in blank or
otherwise in a form acceptable for transfer on the books of the Company (or
accompanied by an appropriate guarantee of delivery of such Certificates as set
forth in such Form of

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Election from a firm that is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States).

(c) Any Form of Election may be revoked, by the stockholder who submitted
such Form of Election to the Exchange Agent, only by written notice received by
the Exchange Agent (i) prior to 5:00 p.m., New York City time, on the Election
Date or (ii) after such time, if (and only to the extent that) the Exchange
Agent is legally required to permit revocations and only if the Effective Time
shall not have occurred prior to such date. In addition, all Forms of Election
shall automatically be revoked if the Exchange Agent is notified in writing by
Parent and the Company that the Merger has been abandoned. If a Form of Election
is revoked, the Certificate or Certificates (or guarantees of delivery, as
appropriate) for the shares of Company Common Stock to which such Form of
Election relates shall be promptly returned to the stockholder that submitted
the same to the Exchange Agent.

(d) The determination of the Exchange Agent in its sole discretion shall be
binding as to whether or not elections to receive the Share Consideration or the
Cash Consideration have been properly made or revoked pursuant to this Section
2.04 with respect to shares of Company Common Stock and when elections and
revocations were received by it. If no Form of Election is received with respect
to shares of Company Common Stock, or if the Exchange Agent determines that any
election to receive the Share Consideration was not properly made with respect
to shares of Company Common Stock, the holder of such shares shall be treated by
the Exchange Agent as having submitted a Cash Election with respect to such
shares and, subject to Section 2.05, such shares shall be converted at the
Effective Time into the right to receive the Cash Consideration. The Exchange
Agent shall also make all computations as to the proration contemplated by
Section 2.05, and absent manifest error any such computation shall be conclusive
and binding on the holders of shares of Company Common Stock. The Exchange Agent
may, with the mutual agreement of Parent and the Company, make such rules as are
consistent with this Section 2.04 for the implementation of the elections
provided for herein as shall be necessary or desirable fully to effect such
elections and the provisions of this Section 2.04.

SECTION 2.05. Proration. (a) As is more fully set forth below, the
maximum aggregate number of Parent Shares to be issued to holders of Company
Common Stock pursuant to this Article II (the "Share Cap") shall be equal to
that number of Parent Shares having a value (calculated based on the Average
Closing Price) equal to the product of (x) 0.5 and (y) the aggregate Merger
Consideration (calculated by multiplying the aggregate number of outstanding
shares of Company Common Stock as of the Effective Time (excluding any shares of
Company Common Stock to be canceled pursuant to Section 2.01(b)) by the Cash
Consideration).

(b) As is more fully set forth below, the maximum aggregate amount of cash
to be paid to holders of Company Common Stock pursuant to this Article II (the
"Cash Cap") shall be equal to the product of (x) 0.5 and (y) the aggregate
Merger Consideration (calculated by multiplying the aggregate number of
outstanding shares of Company Common Stock as of the Effective Time (excluding
any shares of Company Common Stock to be canceled pursuant to Section 2.01(b))
by the Cash Consideration).

(c) In the event that the aggregate number of Parent Shares subject to
Share Elections received by the Exchange Agent (the "Requested Share Amount")
exceeds the Share Cap, each holder of Company Common Stock that has made a Share
Election shall receive, for each share of Company Common Stock for which a Share
Election has been made, (x) a number of Parent Shares (in the form of Parent
ADSs) equal to the product of the Exchange Ratio and the Share Proration Factor
(such product, the "Prorated Share Amount") and (y) cash in an amount equal to
the product of (A) the Exchange Ratio minus the Prorated Share Amount and (B)
the Average Closing Price. The "Share Proration Factor" shall be a fraction, the
numerator of which is the Share Cap and the denominator of which is the
Requested Share Amount.

(d) In the event that the aggregate amount of cash subject to Cash
Elections received (or deemed to have been received in accordance with Section
2.04(d)) by the Exchange Agent (the "Requested Cash Amount") exceeds the Cash
Cap, each holder making a Cash Election (and each holder who is deemed

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to have made a Cash Election pursuant to Section 2.04(d)) shall receive, for
each share of Company Common Stock with respect to which a Cash Election has
been made, (x) cash in an amount equal to the product of the Cash Consideration
and a fraction, the numerator of which is the Cash Cap and the denominator of
which is the Requested Cash Amount (such product, the "Prorated Cash Amount")
and (y) a number of Parent Shares (in the form of Parent ADSs) equal to a
fraction, the numerator of which is equal to the Cash Consideration minus the
Prorated Cash Amount and the denominator of which is the Average Closing Price.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

SECTION 3.01. Representations and Warranties of the Company. Except as
set forth on the disclosure schedule (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein and such other representations and warranties or covenants to
the extent a matter in such section is disclosed in such a way as to make its
relevance to the information called for by such other representation and
warranty or covenant reasonably apparent) delivered by the Company to Parent
prior to the execution of this Agreement (the "Company Disclosure Schedule"),
the Company represents and warrants to Parent and Sub as follows:

(a) Organization, Standing and Corporate Power. The Company and each
of its subsidiaries is a corporation or other legal entity duly organized,
validly existing and in good standing (with respect to jurisdictions which
recognize such concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may
be, and authority to carry on its business as now being conducted. The
Company and each of its subsidiaries is duly qualified or licensed to do
business and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its assets makes such
qualification or licensing necessary, except for those jurisdictions where
the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate has not had and could not reasonably be
expected to have a material adverse effect on the Company. The Company has
made available to Parent prior to the execution of this Agreement complete
and correct copies of its certificate of incorporation and by-laws, as
amended to the date of this Agreement.

(b) Subsidiaries. Section 3.01(b) of the Company Disclosure Schedule
sets forth a true and complete list of each of the Company's subsidiaries.
All the outstanding shares of capital stock of, or other equity interests
in, each subsidiary of the Company have been validly issued, are fully paid
and nonassessable and are owned directly or indirectly by the Company, free
and clear of all pledges, claims, liens, charges, encumbrances, mortgages
and security interests of any kind or nature whatsoever (collectively,
"Liens") and free of any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests except
restrictions under applicable law.

(c) Capital Structure. The authorized capital stock of the Company
consists of 300,000,000 shares of Company Common Stock and 15,000,000
shares of preferred stock, par value $0.001 per share (the "Company
Preferred Stock"). At the close of business on May 17, 2001, (i) 68,704,430
shares of Company Common Stock were issued and outstanding; (ii) no shares
of Company Common Stock were held by the Company in its treasury; (iii) no
shares of Company Preferred Stock were issued or outstanding or were held
by the Company in its treasury; (iv) 26,671,250 shares of Company Common
Stock were reserved for issuance pursuant to the Company's 1998 Equity
Incentive Plan, 2000 Equity Incentive Plan and Founders Stock Option Plan
(such plans, collectively, the "Company Stock Plans"), of which 12,147,489
shares were subject to outstanding Stock Options); (v) 300,000 shares of
Company Common Stock were reserved for issuance pursuant to the Company's
Employee Stock Purchase Plan (the "ESPP"), of which 184,555 shares of
Company Common Stock had been issued and 36,697 shares of Company Common
Stock were subject to outstanding purchase rights under the ESPP (assuming
ESPP payroll withholdings as of May 17, 2001 and a purchase price of
$4.2234375); (vi) 5,475,000 shares of Company Common Stock were

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reserved for issuance upon the exercise of the warrants (the "Warrants")
subject to the warrant agreements listed in Section 3.01(c) of the Company
Disclosure Schedule; and (vii) 2,500,000 shares of Company Common Stock
were reserved for issuance pursuant to the Stipulation of Settlement in the
Company's class action and derivative lawsuits. No shares of Company Common
Stock are owned by any subsidiary of the Company. Except as set forth above
and except for shares of Company Common Stock issued upon the exercise of
Stock Options or Warrants referenced above subsequent to the close of
business on May 17, 2001 and prior to the date of this Agreement, as of the
date of this Agreement no shares of capital stock or other voting
securities of the Company were issued, reserved for issuance or
outstanding. There are no outstanding stock appreciation rights ("SARs") or
rights (other than the Stock Options and purchase rights under the ESPP) to
receive shares of Company Common Stock on a deferred basis or other rights
that are linked to the value of shares of Company Common Stock granted
under the Company Stock Plans or otherwise. Section 3.01(c) of the Company
Disclosure Schedule sets forth a complete and correct list, as of May 17,
2001, of each holder of outstanding stock options or other rights to
purchase or receive Company Common Stock granted under the Company Stock
Plans or otherwise (collectively, the "Stock Options") and the Warrants,
the number of shares of Company Common Stock subject to each such Stock
Option and Warrant, the name of the Company Stock Plan pursuant to which
such Stock Options were granted, the grant dates, expiration dates and
exercise prices of such Stock Options and Warrants and the dates on which
such Stock Options and Warrants become vested. All (i) outstanding shares
of Company Common Stock in respect of which the Company has a right under
specified circumstances to repurchase such shares at a fixed purchase price
and (ii) outstanding Stock Options, are evidenced by stock option
agreements and restricted stock purchase agreements in the forms attached
as Exhibit A to Section 3.01(c) of the Company Disclosure Schedule, and no
stock option agreement or restricted stock purchase agreement contains
terms that are inconsistent with such forms. No bonds, debentures, notes or
other indebtedness of the Company having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any
matters on which stockholders of the Company or any of its subsidiaries may
vote are issued or outstanding or subject to issuance. All outstanding
shares of capital stock of the Company are, and all shares which may be
issued will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and will be delivered free and clear of all Liens (other
than Liens created by or imposed upon the holders thereof) and not subject
to preemptive rights. Except as set forth in this Section 3.01(c)
(including pursuant to the conversion or exercise of the securities
referred to above), (x) there are not issued, reserved for issuance or
outstanding (A) any shares of capital stock or other voting securities of
the Company or any of its subsidiaries (other than shares of capital stock
or other voting securities of such subsidiaries that are directly or
indirectly owned by the Company), (B) any securities of the Company or any
of its subsidiaries convertible into or exchangeable or exercisable for
shares of capital stock or other voting securities of, or other ownership
interests in, the Company or any of its subsidiaries or (C) any warrants,
calls, options or other rights to acquire from the Company or any of its
subsidiaries, and no obligation of the Company or any of its subsidiaries
to issue, any capital stock or other voting securities of, or other
ownership interests in, or any securities convertible into or exchangeable
or exercisable for any capital stock or other voting securities of, or
other ownership interests in, the Company or any of its subsidiaries and
(y) there are not any outstanding obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any such securities
or to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. The Company is not a party to any voting agreement with
respect to the voting of any such securities. As of the date of this
Agreement, the Subject Shares (as such term is defined in the Stockholder
Agreement) represent more than 50% of the shares of Company Common Stock
outstanding. Section 3.01(c) of the Company Disclosure Schedule sets forth
a complete and correct list of all securities or other beneficial ownership
interests in any other entity beneficially owned, directly or indirectly,
by the Company, other than the capital stock of, or other equity interests
in, its subsidiaries.

(d) Authority; Noncontravention. The Company has all requisite
corporate power and authority to enter into this Agreement and, subject to
obtaining the Stockholder Approval, to consummate the

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transactions contemplated by this Agreement. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the transactions contemplated by this
Agreement, subject, in the case of the Merger, to obtaining the Stockholder
Approval. This Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by
Parent and Sub, constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
Board of Directors of the Company formed a special committee of the Board
of Directors of the Company, composed of Thomas A. Heymann, Lawrence F.
Probst III and Justice Howard B. Wiener (the "Special Committee"), to
consider this Agreement and the Stockholder Agreement and the transactions
contemplated hereby and thereby and to make a recommendation with respect
thereto to the entire Board of Directors of the Company. The Special
Committee, at a meeting duly called and held at which all members of the
Special Committee were present either in person or by telephone, duly and
unanimously (and without any abstentions) adopted resolutions (i) approving
and declaring advisable this Agreement, (ii) declaring that it is in the
best interests of the Company's stockholders that the Company enter into
this Agreement and consummate the Merger on the terms and subject to the
conditions set forth in this Agreement, (iii) declaring that the
consideration to be paid to the Company's stockholders in the Merger such
stockholders, (iv) approving the Stockholder Agreement and the transactions
contemplated thereby and (v) recommending that the Board of Directors of
the Company approve this Agreement and the Stockholder Agreement and the
transactions contemplated hereby and thereby and that the Board of
Directors of the Company declare the advisability of this Agreement. After
receiving and considering such resolutions of the Special Committee, the
Board of Directors of the Company, at a meeting duly called and held at
which all directors of the Company were present either in person or by
telephone, duly and unanimously (and without any abstentions) adopted
resolutions (i) approving and declaring advisable this Agreement, (ii)
declaring that it is in the best interests of the Company's stockholders
that the Company enter into this Agreement and consummate the Merger on the
terms and subject to the conditions set forth in this Agreement, (iii)
declaring that the consideration to be paid to the Company's stockholders
in the Merger is fair to such stockholders, (iv) directing that this
Agreement be submitted to a vote at a meeting of the Company's stockholders
to be held as promptly as practicable following the date of this Agreement,
(v) recommending that such stockholders adopt this Agreement and (vi)
approving the Stockholder Agreement and the transactions contemplated
thereby, which resolutions have not been subsequently rescinded, modified
or withdrawn in any way. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this
Agreement and compliance by the Company with the provisions of this
Agreement will not, conflict with, or result in any violation or breach of,
or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancelation or acceleration of any
obligation or to the loss of a benefit under, or result in the creation of
any Lien upo n any of the properties or assets of the Company or any of its
subsidiaries under, (i) the certificate of incorporation or by-laws of the
Company or the comparable organizational documents of any of its
subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other contract, agreement, obligation, commitment,
arrangement, understanding, instrument, permit, concession, franchise,
license or similar authorization (each, a "Contract") to which the Company
or any of its subsidiaries is a party or otherwise applicable to the
Company or any of its subsidiaries or their respective properties or assets
or (iii) subject to the governmental filings and other matters referred to
in the following sentence, (A) any judgment, order or decree or (B) any
statute, law, ordinance, rule or regulation, in each case applicable to the
Company or any of its subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, breaches, defaults, rights, losses or Liens that
individually or in the aggregate could not reasonably be expected to (x)
have a material adverse effect on the Company, (y) impair in any material
respect the ability of the Company to perform its obligations under this
Agreement or (z) prevent or materially impede, interfere with, hinder or
delay

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the consummation of the transactions contemplated by this Agreement. No
consent, approval, order or authorization of, action by or in respect of,
or registration, declaration or filing with, any Federal, state, local or
foreign government, any court, administrative, regulatory or other
governmental agency, commission or authority or any non-governmental
self-regulatory agency, commission or authority (each a "Governmental
Entity") is required to be obtained or made by or with respect to the
Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated by this Agreement, except for (1)
the filing of a premerger notification and report form by the Company under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and any applicable filings and approvals under similar foreign
antitrust or competition laws and regulations ("Foreign Antitrust Laws");
(2) the filing with the Securities and Exchange Commission (the "SEC") of
(A) a proxy statement relating to the adoption of this Agreement by the
Company's stockholders at the Stockholders Meeting (such proxy statement,
as amended or supplemented from time to time, the "Proxy Statement"), and
(B) such reports under Section 13(a), 13(d), 15(d) or 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the Stockholder Agreement
and the transactions contemplated by this Agreement and the Stockholder
Agreement; (3) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which the Company or any of its
subsidiaries is qualified to do business; and (4) such other consents,
approvals, orders, authorizations, registrations, declarations and filings
the failure of which to be made or obtained individually or in the
aggregate could not reasonably be expected to (x) have a material adverse
effect on the Company, (y) impair in any material respect the ability of
the Company to perform its obligations under this Agreement or (z) prevent
or materially impede, interfere with, hinder or delay the consummation of
the transactions contemplated by this Agreement.

(e) SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) with
the SEC since July 20, 1999 (together with the Company's Registration
Statement on Form S-1 (Registration No. 333-78545), the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents
complied in all material respects with the requirements of the Securities
Act of 1933 (the "Securities Act") or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable
to such Company SEC Documents, and none of the Company SEC Documents when
filed contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in
any Company SEC Document has been revised or superseded by a later filed
Company SEC Document, none of the Company SEC Documents contains any untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the Company SEC
Documents comply as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto
(the "Accounting Rules"), have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal recurring year-end audit adjustments). Except (i) as
reflected in the most recent financial statements contained in the Company
Filed SEC Documents or in the notes thereto or (ii) for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, neither the Company nor any of its

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subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, have had or could reasonably be expected to have a material
adverse effect on the Company.

(f) Information Supplied. (i) None of the information supplied or to
be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the registration statement on Form F-4 to be filed with
the SEC by Parent in connection with the issuance of Parent Shares in the
Merger (the "Form F-4") will, at the time the Form F-4 is filed with the
SEC, at any time it is amended or supplemented and at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii)
the Proxy Statement will, at the date it is first mailed to the Company's
stockholders or at the time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder. No representation or warranty is made by the Company with
respect to statements made or incorporated by reference in the Proxy
Statement based on information supplied by Parent specifically for
inclusion or incorporation by reference in the Proxy Statement.

(ii) The information set forth in Section 3.01(f)(ii) of the Company
Disclosure Schedule is true and correct.

(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby and except as disclosed in the Company SEC Documents filed and
publicly available prior to the date of this Agreement (the "Company Filed
SEC Documents"), since the date of the most recent audited financial
statements included in the Company Filed SEC Documents, the Company and its
subsidiaries have conducted their business only in the ordinary course, and
since such date there has not been (1) any material adverse change with
respect to the Company, (2) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property)
with respect to any of the Company's capital stock, (3) any split,
combination or reclassification of any of the Company's capital stock or
any issuance or the authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for shares of the Company's
capital stock, (4) (A) any granting by the Company or any of its
subsidiaries to any current or former director, consultant, executive
officer or other employee of the Company or its subsidiaries of any
increase in compensation, bonus or other benefits, except for normal
increases in cash compensation and the granting of Stock Options, in each
case prior to the date of this Agreement in the ordinary course of business
consistent with past practice, or as was required under employment
agreements in effect as of the date of the most recent audited financial
statements included in the Company Filed SEC Documents, (B) any granting by
the Company or any of its subsidiaries to any such current or former
director, consultant, executive officer or employee of any increase in
severance or termination pay, except as was required under employment
agreements in effect as of the date of the most recent audited financial
statements included in the Company Filed SEC Documents, (C) any entry by
the Company or any of its subsidiaries into, or any amendment of, any
Benefit Agreement or (D) any amendment to, or modification of, any Stock
Option, (5) except insofar as may have been required by a change in GAAP,
any change in accounting methods, principles or practices by the Company or
any of its subsidiaries materially affecting their respective assets,
liabilities or businesses, (6) any tax election that individually or in the
aggregate could reasonably be expected to adversely affect in any material
respect the tax liability or tax attributes of the Company or any of its
subsidiaries or (7) any settlement or compromise of any material income tax
liability.

(h) Litigation. Section 3.01(h) of the Company Disclosure Schedule
sets forth, as of the date of this Agreement, a complete and accurate list
of (i) all suits, actions and proceedings pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against the Company or
any of

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its subsidiaries and (ii) all judgments, decrees, injunctions, rules and
orders of any Governmental Entity or arbitrator outstanding against the
Company or any of its subsidiaries. Section 3.01(h) of the Company
Disclosure Schedule sets forth, as of the date of this Agreement, a
complete and accurate list of each settlement or similar agreement in
respect of any pending or threatened suit, action, proceeding, judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
which the Company or any of its subsidiaries has entered into or become
bound by since December 31, 1998. Section 3.01(h) of the Company Disclosure
Schedule sets forth a complete and accurate list of all legal fees in
excess of $1,000,000 owed by the Company as of the date of this Agreement.

(i) Compliance with Applicable Laws. (i) The Company and its
subsidiaries hold all permits, licenses, variances, exemptions, orders,
registrations and approvals of all Governmental Entities (collectively,
"Permits") that are required for them to own, lease or operate their assets
and to carry on their businesses as now conducted, except for failures to
hold Permits that individually or in the aggregate have not had and could
not reasonably be expected to have a material adverse effect on the
Company. The Company and its subsidiaries are in compliance with the terms
of the Permits and all applicable statutes, laws, ordinances, rules and
regulations, except for instances of noncompliance or possible
noncompliance that individually or in the aggregate have not had and could
not reasonably be expected to have a material adverse effect on the
Company. The Merger, in and of itself, would not cause the revocation or
cancelation of any Permit that individually or in the aggregate could
reasonably be expected to have a material adverse effect on the Company.
Section 3.01(i) of the Company Disclosure Schedule sets forth, as of the
date of this Agreement, a complete and accurate list of all actions,
demands, requirements or investigations by any Governmental Entity with
respect to the Company or any of its subsidiaries or any of their
respective properties. Other than the matters set forth on Section 3.01(i)
of the Company Disclosure Schedule, as of the Closing Date there will not
be any action, demand, requirement or investigation by any Governmental
Entity with respect to the Company or any of its subsidiaries or any of
their respective properties pending or, to the knowledge of the Company,
threatened that individually or in the aggregate has had or could
reasonably be expected to have a material adverse effect on the Company.

(ii) To the Company's knowledge, there have been no Releases of any
Hazardous Materials at, on or under any facility or property currently or
formerly owned, leased, or operated by the Company or any of its
subsidiaries that, individually or in the aggregate, have had or could
reasonably be expected to have a material adverse effect on the Company.
Neither the Company nor any of its subsidiaries is the subject of any
pending or, to the Company's knowledge, threatened investigation or
proceeding under Environmental Law relating in any manner to the off-site
treatment, storage or disposal of any Hazardous Materials generated at any
facility or property currently or formerly owned, leased or operated by the
Company or any of its subsidiaries. Neither the Company nor any of its
subsidiaries has assumed or otherwise agreed to be responsible for any
liabilities arising under Environmental Law. The term "Environmental Law"
means any and all applicable laws or regulations or other requirements of
any Governmental Entity concerning the protection of human health or the
environment. The term "Hazardous Materials" means all explosive or
regulated radioactive materials, hazardous or toxic substances, wastes or
chemicals, petroleum (including crude oil or any fraction thereof) or
petroleum distillates, asbestos or asbestos-containing materials, and all
other materials or chemicals regulated under any Environmental Law. The
term "Release" means any spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching, emanation or migration
in, into, onto, or through the environment.

(j) Absence of Changes in Benefit Plans. Except as disclosed in the
Company Filed SEC Documents, since the date of the most recent audited
financial statements included in the Company Filed SEC Documents, there has
not been any adoption or amendment by the Company or any of its
subsidiaries of any collective bargaining agreement or any bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, thrift,
savings, stock bonus, restricted stock, cafeteria, paid time off,
perquisite, fringe benefit, vacation, severance, disability, death benefit,
hospitalization, medical, welfare benefit or other

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plan, arrangement or understanding (whether or not legally binding)
maintained, contributed to or required to be maintained or contributed to
by the Company, any of its subsidiaries, or any other person or entity
that, together with the Company, is treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code (a "Commonly Controlled
Entity") providing benefits to any current or former employee, officer,
consultant or director of the Company or any of its subsidiaries
(collectively, the "Benefit Plans"), or any change in the manner in which
contributions to any Benefit Plans of the Company are made or the basis on
which such contributions are determined. Except as disclosed in the Company
Filed SEC Documents, there are no currently binding (1) employment,
consulting, deferred compensation, indemnification, severance or
termination agreements or similar arrangements or understandings between
the Company or any of its subsidiaries and any current or former employee,
officer, consultant or director of the Company or any of its subsidiaries
or (2) agreements between the Company or any of its subsidiaries and any
current or former employee, officer, consultant or director of the Company
or any of its subsidiaries, the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Company of a nature contemplated by this Agreement
(collectively, the "Benefit Agreements").

(k) ERISA Compliance; Excess Parachute Payments. (i) Section 3.01(k)
of the Company Disclosure Schedule contains a list of each Benefit Plan
that is an "employee pension benefit plan" (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as a "Pension Plan"), "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA) and all other Benefit
Plans and Benefit Agreements. The Company has made available to Parent
true, complete and correct copies of (a) each Benefit Plan and Benefit
Agreement (or, in the case of any unwritten Benefit Plan or Benefit
Agreement, a description thereof), (b) the two most recent annual reports
on Form 5500 filed with the Internal Revenue Service with respect to each
Benefit Plan (if any such report was required), (c) the most recent summary
plan description for each Benefit Plan for which such summary plan
description is required and (d) each trust agreement and insurance or group
annuity contract relating to any Benefit Plan.

(ii) Each Benefit Plan has been administered in accordance with its
terms in all material respects. The Company, its subsidiaries and each
Benefit Plan are in compliance in all material respects with the applicable
provisions of ERISA and the Code, and all other applicable laws, including
laws of foreign jurisdictions. All Pension Plans intended to be
tax-qualified have either received a favorable determination letter from
the Internal Revenue Service to the effect that such Pension Plans are
qualified and exempt from Federal income taxes under Sections 401(a) and
501(a), respectively, of the Code, or the remedial amendment period under
Section 401(b) of the Code has not expired, and no such determination
letter has been revoked nor, to the knowledge of the Company, has
revocation been threatened, nor has any event occurred since the date of
its most recent determination letter, application therefor or Pension
Plan's adoption that would adversely affect its qualification or materially
increase its costs. All Pension Plans required to have been approved by any
foreign Governmental Entity have been so approved; no such approval has
been revoked (or, to the knowledge of the Company, has revocation been
threatened) nor has any event occurred since the date of the most recent
approval or application therefor relating to any such Pension Plan that
would materially affect any such approval relating thereto or materially
increase the costs relating thereto. The Company has delivered to Parent a
true and complete copy of the most recent determination letter received
with respect to each Pension Plan, as well as a true and complete copy of
each pending application for a determination letter, if any.

(iii) No Pension Plan is a "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA (a "Multiemployer Pension Plan") or is subject
to the provisions of Title IV of ERISA, and neither the Company nor any
Commonly Controlled Entity could have any liability under Title IV of
ERISA. None of the Company, any of its subsidiaries, any officer of the
Company or any of its subsidiaries or any of the Benefit Plans which are
subject to ERISA, including the Pension Plans, any

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trusts created thereunder or any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is defined in Section
406 of ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility that could subject the Company, any of its subsidiaries or
any officer of the Company or any of its subsidiaries to the tax or penalty
on prohibited transactions imposed by such Section 4975 or to any liability
under Section 502(i) or 502(l) of ERISA. None of such Benefit Plans and
trusts has been terminated. All contributions and premiums and benefit
payments required to be made under the terms of any Benefit Plan as of the
date hereof have been timely made or have been reflected on the most recent
consolidated balance sheet included in the Company Filed SEC Documents.

(iv) All material reports, returns and similar documents with respect
to all Benefit Plans required to be filed with any Governmental Entity or
distributed to any Benefit Plan participant have been duly and timely filed
or distributed. None of the Company or any of its subsidiaries has received
notice of, and to the knowledge of the Company, there are no investigations
by any Governmental Entity with respect to, termination proceedings or
other claims (except claims for benefits payable in the normal operation of
the Benefit Plans), suits or proceedings against or involving any Benefit
Plan or asserting any rights or claims to benefits under any Benefit Plan
that could give rise to any liability, and, to the knowledge of the
Company, there are not any facts that could give rise to any liability in
the event of any such investigation, claim, suit or proceeding.

(v) The Company and its subsidiaries, with respect to each Benefit
Plan that is a "group health plan" (as such term is defined in Section
5000(b)(1) of the Code), comply in all material respects with the
applicable requirements of Section 4980B(f) of the Code. Neither the
Company nor any of its subsidiaries has any obligations for retiree health
or life insurance benefits under any Benefit Plan or Benefit Agreement.

(vi) Except as expressly contemplated by this Agreement or as set
forth in any Employment Agreement, none of the execution and delivery of
this Agreement, the consummation of the Merger or any other transaction
contemplated by this Agreement and the Stockholder Agreement (including as
a result of any termination of employment following the Effective Time)
will (x) entitle any employee, officer, consultant or director of the
Company or any of its subsidiaries to severance or termination pay, (y)
accelerate the time of payment or vesting or trigger any payment or funding
(through a grantor trust or otherwise) of compensation or benefits under,
increase the amount payable or trigger any other material obligation
pursuant to, any of the Benefit Plans or Benefit Agreements or (z) result
in any breach or violation of, or a default under, any of the Benefit Plans
or Benefit Agreements.

(vii) Other than payments or benefits that may be made or provided to
the persons listed in Section 3.01(k)(vii) of the Company Disclosure
Schedule (the "Primary Company Executives"), no amount or other entitlement
or economic benefit that could be received (whether in cash or property or
the vesting of property) as a result of the Merger or any other transaction
contemplated by this Agreement or the Stockholder Agreement (including as a
result of termination of employment on or following the Effective Time) by
or for the benefit of any employee, officer, director or consultant of the
Company or any of its affiliates who is a "disqualified individual" (as
such term is defined in proposed Treasury Regulation Section 1.280G-1)
under any Benefit Plan or Benefit Agreement or otherwise would be
characterized as an "excess parachute payment" (as defined in Section
280G(b)(1) of the Code), and no disqualified individual is entitled to
receive any additional payment from the Company or any of its subsidiaries,
the Surviving Corporation or any other person in the event that the excise
tax under Section 4999 of the Code is imposed on such disqualified
individual. Set forth in Section 3.01(k)(vii) of the Company Disclosure
Schedule is (a) the estimated maximum amount that could be paid to each
Primary Company Executive as a result of the Merger and the other
transactions contemplated by this Agreement and the Stockholder Agreement
based upon the assumptions set forth therein (including as a result of a
termination of employment on or following the Effective Time) under all
Benefit Plans and Benefit Agreements and

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(b) the "base amount" (as defined in Section 280G(b)(3) of the Code) for
each Primary Company Executive calculated as of the date of this Agreement.

(viii) The Company and its subsidiaries are in compliance in all
material respects with all Federal, state and local requirements regarding
employment. Neither the Company nor any of its subsidiaries is a party to
any collective bargaining or other labor union contract applicable to
persons employed by the Company or any of its subsidiaries and no
collective bargaining agreement is being negotiated by the Company or any
of its subsidiaries. As of the date of this Agreement, there is no labor
dispute, strike or work stoppage against the Company or any of its
subsidiaries pending or, to the knowledge of the Company, threatened which
may interfere with the respective business activities of the Company or its
subsidiaries. As of the date of this Agreement, to the knowledge of the
Company, none of the Company, any of its subsidiaries or any of their
respective representatives or employees has committed an unfair labor
practice in connection with the operation of the respective businesses of
the Company or any of its subsidiaries, and there is no charge or complaint
against the Company or any of its subsidiaries by the National Labor
Relations Board or any comparable governmental agency pending or threatened
in writing.

(ix) None of the Company nor any of its subsidiaries has any material
liability or obligations, including under or on account of a Benefit Plan,
arising out of the hiring of persons to provide services to the Company or
any of its subsidiaries and treating such persons as consultants or
independent contractors and not as employees of the Company or any of its
subsidiaries.

(l) Taxes. (i) Each of the Company and its subsidiaries has timely
filed all tax returns and reports required to be filed by it, and all such
returns and reports are true, complete and correct in all material
respects. Each of the Company and its subsidiaries has timely paid all
taxes required to be paid by it and withheld and timely paid to the proper
taxing authority all taxes required to be withheld. The most recent
financial statements included in the Company Filed SEC Documents reflect an
adequate reserve for all taxes payable by the Company and its subsidiaries
for all taxable periods and portions thereof accrued through the date of
such financial statements.

(ii) No deficiencies for any taxes have been assessed or, to the
knowledge of the Company, proposed or asserted against the Company or any
of its subsidiaries that are not adequately reserved for in the most recent
financial statements included in the Company Filed SEC Documents. All
assessments for taxes due with respect to any concluded litigation have
been fully paid or have been adequately reserved for in the most recent
financial statements included in the Company Filed SEC Documents. The
statute of limitations for the assessment or collection of tax liability
has not expired with respect to any income tax returns of the Company or
any of its subsidiaries. There is no currently effective agreement or other
document extending, or having the effect of extending, the period of
assessment or collection of any taxes of the Company or any of its
subsidiaries and no power of attorney with respect to taxes has been
executed or filed with any taxing authority. No tax returns of the Company
or any of its subsidiaries are currently under audit or examination by any
taxing authority.

(iii) There are no material Liens for taxes (other than for taxes not
yet due and payable) on the assets of the Company or any of its
subsidiaries. Neither the Company nor any of its subsidiaries is bound by
any agreement with respect to taxes.

(iv) Neither the Company nor any of its subsidiaries has been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.

(v) Neither the Company nor any of its subsidiaries has taken any
action or knows of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.

(vi) The Benefit Plans and other employee compensation arrangements in
effect as of the date of this Agreement have been designed so that the
disallowance of a material deduction under

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Section 162(m) of the Code for employee remuneration will not apply to any
amounts paid or payable by the Company or any of its subsidiaries under any
such plan or arrangement and, to the knowledge of the Company, no fact or
circumstance exists that is reasonably likely to cause such disallowance to
apply to any such amounts.

(vii) Neither the Company nor any of its subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" (within
the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code (x) in the
two years prior to the date of this Agreement or (y) in a distribution
which could otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.

(viii) As used in this Agreement, "taxes" shall include all (x) U.S.
Federal, state, local or foreign income, property, sales, excise and other
taxes or similar governmental charges, including any interest, penalties or
additions with respect thereto, (y) liability for the payment of any
amounts of the type described in (x) as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (z) liability for
the payment of any amounts as a result of being party to any tax sharing
(or similar) agreement or as a result of any express or implied obligation
to indemnify any other person with respect to the payment of any amounts of
the type described in clause (x) or (y).

(m) Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock at the
Stockholders Meeting to adopt this Agreement (the "Stockholder Approval")
is the only vote of the holders of any class or series of the Company's
capital stock necessary to approve and adopt this Agreement and the
transactions contemplated hereby.

(n) State Takeover Statutes. The approval of this Agreement and the
Merger and the Stockholder Agreement and the transactions contemplated by
this Agreement and the Stockholder Agreement by the Special Committee and
the Board of Directors of the Company referred to in Section 3.01(d)
constitutes approval of this Agreement and the Merger and the Stockholder
Agreement and the transactions contemplated by this Agreement and the
Stockholder Agreement by the Special Committee and the Board of Directors
of the Company under the provisions of Section 203 of the DGCL and
represents all the action necessary to ensure that the restrictions
contained in Section 203 of the DGCL do not apply to Parent or Sub in
connection with the Merger and the other transactions contemplated by this
Agreement and the Stockholder Agreement. To the knowledge of the Company,
except for Section 203 of the DGCL (which has been rendered inapplicable),
no state takeover statute is applicable to the Merger or the other
transactions contemplated by this Agreement and by the Stockholder
Agreement.

(o) Brokers; Schedules of Fees and Expenses. No broker, investment
banker, financial advisor or other person, other than Credit Suisse First
Boston Corporation, the fees and expenses of which will be paid by the
Company, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of the Company. The Company has furnished to Parent true and complete
copies of all agreements under which any such fees or expenses are payable
and all indemnification and other agreements related to the engagement of
the persons to whom such fees are payable. The Company's good faith
estimates of the fees and expenses of any accountant, broker, financial
advisor, consultant, legal counsel or other person retained by the Company
in connection with this Agreement or the transactions contemplated hereby
incurred or to be incurred by the Company in connection with this Agreement
and the transactions contemplated by this Agreement have been previously
provided to Parent in writing, identified by category of advisor.

(p) Opinion of Financial Advisor. The Company has received the
opinion of Credit Suisse First Boston Corporation, as of the date of this
Agreement, to the effect that, as of such date, the consideration provided
for in the Merger is fair to the holders of Company Common Stock from a

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financial point of view. A signed copy of such opinion set forth in writing
and dated as of the date of this Agreement will be delivered to Parent
promptly after the date of this Agreement.

(q) Intellectual Property. (i) A complete and accurate list of all
trademarks, service marks, copyrights and patents, and all applications for
registration and registrations for such trademarks, copyrights and patents
(all of the foregoing, together with all trade names, brands, trade
secrets, confidential and proprietary information, formulas, designs,
proprietary rights, know-how and processes collectively hereinafter
referred to as the "Intellectual Property Rights") owned by or licensed to
or used by the Company, and all licenses and contracts with respect to the
foregoing, is set forth in Section 3.01(q) of the Company Disclosure
Schedule. The Company has furnished or granted access to Parent (or with
respect to any patents or patent applications, to Parent's outside patent
counsel) true and complete copies of each of the foregoing and, to the
Company's knowledge, all the material Intellectual Property Rights owned by
or licensed to the Company are valid, enforceable and in full force and
effect. The Company and its subsidiaries own, free and clear of all Liens,
or are validly licensed or otherwise have the right to use, all the
Intellectual Property Rights which are material to the conduct of the
business of the Company and its subsidiaries.

(ii) To the knowledge of the Company, neither the Company nor any of
its subsidiaries has infringed upon or misappropriated any Intellectual
Property Rights or other proprietary information of any other person,
except for instances of infringement or misappropriation that individually
or in the aggregate have not had and could not reasonably be expected to
have a material adverse effect on the Company. As of the date of this
Agreement, neither the Company nor any of its subsidiaries has received any
written charge, complaint, claim, demand or notice alleging any such
infringement or misappropriation (including any claim that the Company or
any such subsidiary must license or refrain from using any Intellectual
Property Rights or other proprietary information of any other person) which
has not been settled or otherwise fully resolved. To the Company's
knowledge, no other person has infringed upon or misappropriated any
Intellectual Property Rights of the Company or any of its subsidiaries,
except for instances of infringement or misappropriation that individually
or in the aggregate have not had and could not reasonably be expected to
have a material adverse effect on the Company.

(iii) As the business of the Company and its subsidiaries is presently
conducted and proposed to be conducted without giving effect to any change
with respect thereto that may be made by Parent, to the Company's
knowledge, Parent's use after the Closing of the Intellectual Property
Rights which are material to the conduct of the business of the Company and
its subsidiaries taken as a whole will not infringe upon or misappropriate
the Intellectual Property Rights or other proprietary information of any
other person.

(iv) The Company has taken, and until the Closing Date, the Company
will take all steps reasonably necessary to preserve the Company's legal
rights in, and the secrecy of, all its Intellectual Property Rights. In
addition, to the Company's knowledge, each employee, agent, consultant or
contractor who has materially contributed to or participated in the
creation or development of any copyrightable, patentable or trade secret
material on behalf of the Company, any of its subsidiaries or any
predecessor-in-interest thereto either (x) is a party to a "work-for-hire"
agreement under which the Company or such subsidiary is deemed to be the
original owner/author of all property rights therein in substantially the
form attached as Exhibit A to Section 3.01(q) of the Company Disclosure
Schedule, or (y) has executed an assignment or an agreement to assign in
favor of the Company, such subsidiary or such predecessor-in-interest, as
applicable, all right, title and interest in such material in substantially
the form attached as Exhibit B to Section 3.01(q) of the Company Disclosure
Schedule.

(r) Contracts. Except for Contracts filed as exhibits to the Company
Filed SEC Documents and Contracts that have previously expired or been
terminated, none of the Company or any of its

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subsidiaries is a party to or bound by, and none of their respective
properties or assets are bound by or subject to, any written or oral:

(i) material Contract not made in the ordinary course of business
entered into prior to the date of this Agreement;

(ii) Contract pursuant to which the Company or any of its
subsidiaries has agreed not to compete with any person or to engage in
any activity or business, or pursuant to which any benefit is required
to be given or lost as a result of so competing or engaging;

(iii) Contract pursuant to which the Company or any of its
subsidiaries is restricted in any material respect in the development,
marketing or distribution of their respective products or services;

(iv) Contract with (A) any affiliate of the Company or any of its
subsidiaries or (B) any current or former director or officer of the
Company or any of its subsidiaries or of any affiliate of the Company or
any of its subsidiaries or any of the 25 most highly compensated
employees of the Company and its subsidiaries, taken as a whole, or (C)
any affiliate of any such person (other than (w) contracts on
arm's-length terms with companies whose common stock is publicly traded,
(x) offer letters providing solely for "at will" employment, (y)
invention assignment and confidentiality agreements relating to the
assignment of inventions to the Company or any of its subsidiaries not
involving the payment of money and (z) Benefit Plans referred to in
Section 3.01(j));

(v) license granted by the Company or any of its subsidiaries
pursuant to which the Company or any of its subsidiaries has agreed to
refrain from granting license rights to any other person;

(vi) Contract under which the Company or any of its subsidiaries
has (i) incurred any indebtedness that is currently owing or (ii) given
any guarantee in respect of indebtedness, in each case having an
aggregate principal amount in excess of $100,000;

(vii) material Contract that requires consent, approval or waiver
of or notice to a third party in the event of or with respect to the
Merger, including in order to avoid termination of or a loss of material
benefit under any such Contract;

(viii) Contract or other agreement, whether written or oral, that
contains any guarantees as to the Company's or any of its subsidiaries'
future revenues;

(ix) Contract providing for payments of royalties to third parties
in excess of $250,000 per year or $500,000 in the aggregate;

(x) Contract not made in the ordinary course of business granting a
third party any license to Intellectual Property Rights of the Company
or any of its subsidiaries that is not limited to the internal use of
such third party;

(xi) Contract providing confidential treatment by the Company or
any of its subsidiaries of third party information other than (x)
non-disclosure agreements and provisions entered into by the Company in
the ordinary course of business consistent with past practice and (y)
the Confidentiality Agreement;

(xii) Contract granting the other party to such Contract or a third
party "most favored nation" status that, following the Merger, would in
any way apply to Parent or any of its subsidiaries (other than the
Company and its subsidiaries and their products or services or any
similar products or services produced or offered by Parent or its
subsidiaries (other than the Company and its subsidiaries)); or

(xiii) Contract which (i) has aggregate future sums due from the
Company or any of its subsidiaries in excess of $250,000 and is not
terminable by the Company or any such subsidiary

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for a cost of less than $250,000 or (ii) is otherwise material to the
business of the Company and its subsidiaries, taken as a whole, as
presently conducted or as proposed by management of the Company to be
conducted.

Each Contract of the Company and its subsidiaries is in full force and
effect and is a legal, valid and binding agreement of the Company or
such subsidiary and, to the knowledge of the Company or such subsidiary,
of each other party thereto, enforceable against the Company or such
subsidiary, as the case may be, and, to the knowledge of the Company or
such subsidiary, against the other party or parties thereto, in each
case, in accordance with its terms, except for such failures to be in
full force and effect or enforceable that individually or in the
aggregate have not had and could not reasonably be expected to have a
material adverse effect on the Company. Each of the Company and its
subsidiaries has performed or is performing all material obligations
required to be performed by it under its Contracts and is not (with or
without notice or lapse of time or both) in breach or default in any
material respect thereunder, and, to the knowledge of the Company or
such subsidiary, no other party to any of its Contracts is (with or
without notice or lapse of time or both) in breach or default in any
material respect thereunder except, in each case, for such breaches that
individually or in the aggregate have not had and could not reasonably
be expected to have a material adverse effect on the Company.

(s) Title to Properties. (i) Section 3.01(s) of the Company
Disclosure Schedule sets forth a complete and accurate list of all real
property and material personal property owned or leased by the Company or
any of its subsidiaries. Each of the Company and its subsidiaries has good
and valid title to, or valid leasehold interests in or valid rights to, all
its material properties and assets except for such as are no longer used or
useful in the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for defects in title, easements,
restrictive covenants and similar encumbrances that individually or in the
aggregate do not materially interfere with its ability to conduct its
business as currently conducted. All such material assets and properties,
other than assets and properties in which the Company or any of its
subsidiaries has a leasehold interest, are free and clear of all Liens
except for Liens that individually or in the aggregate do not materially
interfere with the ability of the Company and its subsidiaries to conduct
their respective businesses as currently conducted.

(ii) Each of the Company and its subsidiaries has complied in all
material respects with the terms of all real property leases to which it is
a party and under which it is in occupancy, and all such leases are in full
force and effect. Each of the Company and its subsidiaries enjoys peaceful
and undisturbed possession under all such leases, except for failures to do
so that individually or in the aggregate have not had and could not
reasonably be expected to have a material adverse effect on the Company.

(t) Privacy Policy. (i) For purposes of this Section 3.01(t):

(A) "Privacy Statement" means the Company's privacy policies
published on its web site regarding the collection, use and distribution
of personal information from visitors to its web site and consumers of
its products and services;

(B) "Terms and Conditions" means the terms and conditions published
on the Company's web site that govern the use of the Company's products
and services.

(ii) The Privacy Statement and Terms and Conditions are posted at all
times on the Company's web site. The Company maintains a link to the
Privacy Statement from its homepage and makes an effort to include a link
from any page on which personal information is collected from visitors to
its web site and users of its products and services. The Privacy Statement
is clearly written and includes at the minimum the following: (A) notice to
users about the Company's web site's information collection policies and
practices prior to disclosing their personal information; and (B) a
description of

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how users' personal information will be used, including any uses beyond
those for which the information was provided.

(iii) The Company has adequate technological and procedural measures
in place to protect data collected from visitors and users against loss,
theft, unauthorized access or disclosure. The Company does not knowingly
collect information from or target children under the age of thirteen. The
Company does not sell, rent or otherwise make available to third parties
any personally-identifiable data submitted by users.

(iv) The Privacy Statement is accurate and consistent with the Terms
and Conditions. The Company and its employees have (A) complied at all
times with the then current privacy policy issued by the Company, all
applicable U.S. privacy laws regarding the disclosure and use of data, (B)
not violated the Privacy Statement or the Terms and Conditions and (C)
taken all appropriate and reasonable steps to protect and maintain the
confidential nature of the information provided to the Company by visitors
and users. Neither the Company nor any of its subsidiaries is party to any
Contract or subject to any other obligation that, following the Merger,
would prevent Parent and its affiliates from using the information covered
by the Privacy Statement in a manner consistent with applicable privacy
laws and industry standards regarding the disclosure and use of data. No
claims or controversies have arisen regarding the Privacy Statement, the
Terms and Conditions or the implementation of any of the foregoing.

SECTION 3.02. Representations and Warranties of Parent and Sub. Except as
set forth on the disclosure schedule (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein and such other representations and warranties or covenants to
the extent a matter in such section is disclosed in such a way as to make its
relevance to the information called for by such other representation and
warranty or covenant reasonably apparent) delivered by Parent to the Company
prior to the execution of this Agreement (the "Parent Disclosure Schedule"),
Parent and Sub represent and warrant to the Company as follows:

(a) Organization, Standing and Corporate Power. Parent is a
corporation duly incorporated and validly subsisting under the laws of
France, Sub is a corporation duly incorporated, validly existing and in
good standing under the DGCL, and each of Parent and Sub has the requisite
corporate power and authority to carry on its business as now being
conducted. Each of Parent and Sub is duly qualified or licensed to do
business and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its assets makes such
qualification or licensing necessary, except for those jurisdictions where
the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate has not had and could not reasonably be
expected to have a material adverse effect on Parent. Parent has made
available to the Company prior to the execution of this Agreement complete
and correct copies of its certificate of incorporation and by-laws and the
certificate of incorporation and by-laws of Sub, in each case as amended to
the date of this Agreement.

(b) Authority; Noncontravention. Each of Parent and Sub has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part of Parent and
Sub and no other corporate proceedings on the part of Parent or Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated by this Agreement. This Agreement has been duly executed and
delivered by Parent and Sub and, assuming the due authorization, execution
and delivery by the Company, constitutes a legal, valid and binding
obligation of Parent and Sub, enforceable against each of them in
accordance with its terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this
Agreement and compliance by Parent and Sub with the provisions of this
Agreement will not, conflict with, or result in any violation or breach of,
or default (with or without notice or lapse of time, or both) under, or
give rise to a right of

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termination, cancelation or acceleration of any obligation or loss of a
benefit under, or result in the creation of any Lien upon any of the
properties or assets of Parent or Sub under, (i) the Restated Corporate
Statutes of Parent or the certificate of incorporation or by-laws of Sub,
(ii) any Contract to which Parent or Sub is a party or otherwise applicable
to Parent or Sub or their respective properties or assets or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, (A) any judgment, order or decree or (B) any statute, law,
ordinance, rule or regulation, in each case applicable to Parent or Sub or
any of their respective properties or assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, violations, breaches, defaults,
rights, losses or Liens that individually or in the aggregate could not
reasonably be expected to (x) have a material adverse effect on Parent, (y)
impair in any material respect the ability of Parent or Sub to perform its
obligations under this Agreement or (z) prevent or materially impede,
interfere with, hinder or delay the consummation of the transactions
contemplated by this Agreement. No consent, approval, order or
authorization of, action by, or in respect of, or registration, declaration
or filing with, any Governmental Entity is required to be obtained or made
by or with respect to Parent or Sub in connection with the execution and
delivery of this Agreement by Parent and Sub or the consummation by Parent
and Sub of the transactions contemplated by this Agreement, except for (1)
the filing of a premerger notification and report form by Parent under the
HSR Act and any applicable filings and approvals under Foreign Antitrust
Laws; (2) the filing with the SEC of (A) the Form S-4 and (B) such reports
under Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as may be
required in connection with this Agreement and the Stockholder Agreement
and the transactions contemplated by this Agreement and the Stockholder
Agreement; (3) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which Parent is qualified to do
business; (4) such filings with and approvals of the NYSE to permit the
Parent ADSs that are to be issued in the Merger to be listed on the NYSE;
and (5) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be made or
obtained individually or in the aggregate could not reasonably be expected
to (x) have a material adverse effect on Parent, (y) impair in any material
respect the ability of Parent or Sub to perform its obligations under this
Agreement or (z) prevent or materially impede, interfere with, hinder or
delay the consummation of the transactions contemplated by this Agreement.

(c) SEC Documents. Parent has filed all required reports, schedules,
forms, statements and other documents (including exhibits and all other
information incorporated therein) with the SEC since September 11, 2000
(collectively, the "Parent SEC Documents"). As of their respective dates,
the Parent SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable
to such Parent SEC Documents, and none of the Parent SEC Documents when
filed contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in
any Parent SEC Document has been revised or superseded by a later filed
Parent SEC Document, none of the Parent SEC Documents contains any untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of Parent included in the Parent SEC Documents
comply as to form, as of their respective dates of filing with the SEC, in
all material respects with the Accounting Rules, have been prepared in
accordance with French GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present in all material respects the consolidated financial position
of Parent and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended. The notes to the financial statements of Parent included in the
Parent SEC Documents reconciling to U.S. GAAP the consolidated net income
and shareholders' equity of Parent comply in all material respects with the
Accounting Rules applicable to such reconciliation.

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(d) Absence of Material Adverse Change. Since the date of the most
recent audited financial statements included in Parent SEC Documents filed
and publicly available prior to the date of this Agreement, there has not
been any material adverse change with respect to Parent.

(e) Information Supplied. None of the information supplied or to be
supplied by Parent specifically for inclusion or incorporation by reference
in (i) the Form F-4 will, at the time the Form F-4 is filed with the SEC,
at any time it is amended or supplemented and at the time the Form F-4
becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii)
the Proxy Statement will, at the date it is first mailed to the Company's
stockholders or at the time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Form F-4 will comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations
thereunder. No representation or warranty is made by Parent or Sub with
respect to statements made or incorporated by reference in the Form F-4
based on information supplied by the Company specifically for inclusion or
incorporation by reference in the Form F-4.

(f) No Parent Stockholder Vote Required. This Agreement and the
transactions contemplated hereby, including the issuance of Parent Shares
pursuant to Article II hereof, do not require the approval of the holders
of any shares of capital stock of Parent.

(g) Parent Shares. All outstanding Parent Shares, Parent ADSs and
receipts evidencing Parent ADSs are, and all Parent Shares, Parent ADSs and
receipts evidencing Parent ADSs which may be issued pursuant to this
Agreement shall when issued in accordance with this Agreement be, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights.

(h) Tax Matters. Neither Parent nor any of its subsidiaries has taken
any action or knows of any fact, agreement, plan or other circumstance that
is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.

(i) Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as
contemplated hereby.

ARTICLE IV

COVENANTS RELATING TO CONDUCT OF BUSINESS

SECTION 4.01. Conduct of Business. (a) Conduct of Business by the
Company. Except as set forth in Section 4.01(a) of the Company Disclosure
Schedule, as otherwise expressly contemplated by this Agreement or as consented
to in writing by Parent, during the period from the date of this Agreement to
the Effective Time, the Company shall, and shall cause its subsidiaries to,
carry on their respective businesses only in the ordinary course consistent with
past practice and in compliance in all material respects with all applicable
laws and regulations and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, use reasonable
efforts to keep available the services of their current officers and other key
employees and preserve their relationships with those persons having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time, except as set forth in Section 4.01(a) of the Company Disclosure Schedule
or as otherwise expressly contemplated by this Agreement, the Company shall not,
and shall not permit any of its subsidiaries to, without Parent's prior written
consent:

(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of the
Company to its parent, (x) declare, set aside or pay any dividends on, or
make any other distributions (whether in cash, stock, property or
otherwise) in

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respect of, any of its capital stock, (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (z) purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities, except for
repurchases of outstanding unvested shares of Company Common Stock in
respect of which the Company has a right under specified circumstances to
repurchase such shares at a fixed purchase price (which shall not exceed
the Cash Consideration) pursuant to restricted stock purchase agreements in
the form attached as Exhibit A to Section 3.01(c) of the Company Disclosure
Schedule;

(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien (w) any shares of its capital stock, (x) any other voting
securities, (y) any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities or (z) any "phantom" stock or stock rights, SARs or stock-based
performance units other than (A) the issuance of Company Common Stock upon
the exercise of Stock Options, purchase rights under the ESPP or the
Warrants, in each case outstanding as of the date hereof in accordance with
their present terms or (B) the issuance of up to 2,500,000 shares of
Company Common Stock pursuant to the Stipulation of Settlement in the
Company's class action and derivative lawsuits;

(iii) amend the Company's certificate of incorporation, by-laws or
other comparable organizational documents other than as necessary to
implement the corporate governance enhancements to be entered into in
accordance with the Stipulation of Settlement in the Company's class action
and derivative lawsuits;

(iv) directly or indirectly acquire (x) by merging or consolidating
with, or by purchasing assets of, or by any other manner, any person or
division, business or equity interest of any person or (y) any assets that,
individually, have a purchase price in excess of $100,000 or, in the
aggregate, have a purchase price in excess of $100,000, except for
purchases of components or supplies in the ordinary course of business
consistent with past practice;

(v) sell, lease, license, sell and leaseback, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its
properties or assets (including securitizations), other than sales or
licenses of finished goods or services in the ordinary course of business
consistent with past practice;

(vi) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business (or to refund
existing or maturing indebtedness) consistent with past practice not to
exceed $100,000 at any time outstanding and except for intercompany
indebtedness between the Company and any of its subsidiaries or between
such subsidiaries;

(vii) make any loans, advances or capital contributions to, or
investments in, any other person;

(viii) make any new capital expenditures, or enter into any agreements
providing for payments which, individually, are in excess of $100,000 or,
in the aggregate, are in excess of $1,000,000;

(ix) make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of the Company or any of its subsidiaries or
settle or compromise any material income tax liability;

(x) (A) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of
this Agreement), or modify the terms of any existing settlement agreement
or arrangement,

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other than the payment, discharge, settlement or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of Non-Litigation Liabilities recognized or disclosed in
the most recent consolidated financial statements (or the notes thereto) of
the Company included in the Company Filed SEC Documents or Non-Litigation
Liabilities incurred since the date of such financial statements in the
ordinary course of business consistent with past practice (it being
understood and agreed that, without limiting the generality of the
foregoing proscription, all matters relating to the payment, discharge,
settlement or satisfaction of any matters covered by Section 5.11(b) shall
be governed exclusively by such Section 5.11(b)), (B) cancel any
indebtedness, (C) waive or assign any claims or rights of substantial
value, (D) waive any benefit of, agree to modify in any manner, terminate,
release any person from or fail to enforce any standstill or similar
agreement to which the Company or any of its subsidiaries is a party or of
which the Company or any of its subsidiaries is a beneficiary or (E) waive
any material benefit of, agree to modify in any material respect,
terminate, release any person from or fail to enforce any confidentiality
or similar agreement to which the Company or any of its subsidiaries is a
party or of which the Company or any of its subsidiaries is a beneficiary;

(xi) except as required by law or as otherwise contemplated by this
Agreement, (x) establish, enter into, adopt or amend or terminate any
Benefit Plan or Benefit Agreement, (y) change the manner in which
contributions to any Pension Plan are made or the basis on which such
contributions are determined or (z) take any action to accelerate any
rights or benefits, or make any material determinations not in the ordinary
course of business consistent with past practice, under any Benefit Plan or
Benefit Agreement;

(xii) (w) increase the compensation, bonus or fringe or other benefits
of any current or former director, consultant, officer or other employee,
except for (A) salary increases for non-executive officer employees as part
of an annual review process or part of a promotion in job title or
responsibility in the ordinary course of business consistent with past
practice or (B) after consultation with Parent, bonuses awarded in the
ordinary course of business consistent with past practice, including
bonuses to be awarded in June 2001 and paid in July 2001, (x) grant any
current or former director, consultant, officer or other employee any
increase in severance or termination pay, (y) amend or modify any Stock
Option, or (z) or pay any benefit or amount not required by a plan or
arrangement as in effect on the date of this Agreement to any such person;

(xiii) transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Intellectual Property Rights of
the Company and its subsidiaries other than in the ordinary course of
business consistent with past practices; provided that in no event shall
the Company or any of its subsidiaries license on an exclusive basis or
sell any Intellectual Property Rights of the Company and its subsidiaries;

(xiv) enter into or amend any agreements pursuant to which any person
is granted exclusive marketing, manufacturing or other rights with respect
to any product, process or technology of the Company or any of its
subsidiaries;

(xv) enter into or amend any Contract or other agreement, whether
written or oral, that contains any guarantees as to the Company's or any of
its subsidiaries' future revenues;

(xvi) obtain, through acquisition, lease, sublease or otherwise, any
real property for use as an office or similar facility of the Company or
any of its subsidiaries;

(xvii) increase the headcount of employees of the Company by more than
5%;

(xviii) except insofar as may be required by a change in GAAP, make
any changes in accounting methods, principles or practices;

(xix) take any action that would, or that could reasonably be expected
to, result in any condition to the Merger set forth in Article VI not being
satisfied; or

(xx) authorize, or commit, resolve or agree to take, any of the
foregoing actions.

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For purposes of this Agreement, "Non-Litigation Liabilities" means all
liabilities of the Company and its subsidiaries of a type that would be
disclosed in consolidated financial statements of the Company prepared in
accordance with GAAP, other than (i) liabilities pertaining to the line item
"Reserve for litigation and copyright matters" (or any similar line item) on any
condensed consolidated balance sheet of the Company or the related notes thereto
and (ii) liabilities of a type described in Section 5.11(b).

(b) Advice of Changes; Filings. The Company and Parent shall promptly
advise the other party orally and in writing to the extent it has knowledge of
(i) any representation or warranty made by it (and, in the case of Parent, made
by Sub) contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becoming untrue or inaccurate in any material respect, (ii)
the failure by it (and, in the case of Parent, by Sub) to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement and (iii) any change or event having, or
which could reasonably be expected to have, a material adverse effect on such
party or on the ability of the conditions set forth in Article VI to be
satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of the parties under
this Agreement. The Company and Parent shall promptly provide the other copies
of all filings made by such party with any Governmental Entity in connection
with this Agreement and the transactions contemplated hereby, other than the
portions of such filings that include confidential information not directly
related to the transactions contemplated by this Agreement.

SECTION 4.02. No Solicitation by the Company. (a) The Company shall not,
nor shall it permit any of its subsidiaries to, nor shall it authorize or permit
any of its or any of its subsidiaries' directors, officers or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action intended to, or
which could reasonably be expected to, facilitate, any inquiries or the making
of any proposal that constitutes, or could reasonably be expected to lead to,
any Takeover Proposal or (ii) enter into, continue or otherwise participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate in any way with, any
Takeover Proposal. Notwithstanding the foregoing, in the event that,
notwithstanding compliance with the preceding sentence, the Company receives a
bona fide written Takeover Proposal that the Board of Directors of the Company
determines in good faith (after consultation with outside counsel and a
financial advisor of nationally recognized reputation) constitutes or is
reasonably likely to lead to a Superior Proposal, the Company may, to the extent
that the Board of Directors of the Company determines in good faith (after
consultation with outside counsel) that it is required to do so in order to
comply with its fiduciary duties, participate in discussions or negotiations
regarding such Takeover Proposal in order to inform itself in a manner required
to comply with its fiduciary duties with respect to such Takeover Proposal so
that it may make any determination permitted pursuant to Section 4.02(b)(i) and
meet its fiduciary duties of full disclosure to the stockholders of the Company.
In such event, the Company shall, (i) no less than 48 hours prior to
participating in any such discussions or negotiations, inform Parent of the
material terms and conditions of such Takeover Proposal, including the identity
of the person making such Takeover Proposal, (ii) promptly inform Parent of the
substance of any discussions or negotiations relating to such Superior Proposal
and (iii) promptly keep Parent fully informed of the status, including any
change to the details of, any such Takeover Proposal. Without limiting the
foregoing, it is understood that any violation in any material respect of the
restrictions set forth in the first sentence of this Section 4.02(a) by any
director, officer or employee of the Company or any of its subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative of the Company or any of its subsidiaries shall be deemed to be a
breach of this Section 4.02(a) by the Company.

For purposes of this Agreement, "Superior Proposal" means any offer not
solicited by the Company made by a third party to consummate a tender offer,
exchange offer, merger, consolidation, share exchange or similar transaction
which would result in such third party (or its shareholders) owning, directly or

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indirectly, 50% or more of the shares of Company Common Stock then outstanding
(or of the surviving entity in a merger) or 50% or more of the assets of the
Company and its subsidiaries and otherwise on terms which the Board of Directors
of the Company determines in good faith (following receipt of the advice of a
financial advisor of nationally recognized reputation) to be more favorable to
the Company's stockholders from a financial point of view than the Merger.

For purposes of this Agreement, "Takeover Proposal" means any inquiry,
proposal or offer from any person relating to any direct or indirect acquisition
or purchase of 20% or more of the assets of the Company and its subsidiaries,
taken as a whole, or 20% or more of any class or series of equity securities of
the Company or any of its subsidiaries, any tender offer or exchange offer that
if consummated would result in any person beneficially owning 20% or more of any
class or series of equity securities of the Company or any of its subsidiaries,
or any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries pursuant to which any person (or its
shareholders) would beneficially own 20% or more of any class or series of
equity securities of the Company (or any resulting parent or surviving entity),
other than the transactions contemplated by this Agreement.

(b) Neither the Company nor the Board of Directors of the Company nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent, the approval or recommendation by such
Board of Directors or such committee of the Merger or this Agreement, except to
the extent that such Board of Directors determines in good faith (after
consultation with outside counsel) that it is required to do so in order to
comply with its fiduciary duties, (ii) approve or recommend, or propose to
approve or recommend, any Takeover Proposal or (iii) approve or recommend, or
propose to approve or recommend, or execute or enter into, any letter of intent,
memorandum of understanding, agreement in principle, merger agreement,
acquisition agreement, option agreement, joint venture agreement, partnership
agreement or other similar agreement or propose or agree to do any of the
foregoing constituting or related to, or which is intended to or could
reasonably be expected to lead to, any Takeover Proposal.

(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 4.02, the Company shall immediately (and no later
than 48 hours) advise Parent orally and in writing of any request for
information or of any inquiry with respect to a Takeover Proposal, the material
terms and conditions of such request, inquiry or Takeover Proposal and the
identity of the person making such request, inquiry or Takeover Proposal. The
Company shall promptly keep Parent informed of the status and details (including
amendments or changes or proposed amendments or changes) of any such request,
inquiry or Takeover Proposal.

(d) Nothing contained in this Section 4.02 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule 14d-9
or 14e-2 promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders if, in the good faith judgment of the Board of Directors
of the Company, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law; provided,
however, that, subject to Section 4.02(b)(i), neither the Company nor its Board
of Directors nor any committee thereof shall withdraw or modify, or propose to
withdraw or modify, its position with respect to this Agreement or the Merger or
approve or recommend, or propose to approve or recommend, a Takeover Proposal.

ARTICLE V

ADDITIONAL AGREEMENTS

SECTION 5.01. Preparation of the Form F-4 and the Proxy Statement;
Stockholders Meeting. (a) As soon as practicable following the date of this
Agreement, Parent and the Company shall prepare and file with the SEC the Proxy
Statement and Parent and the Company shall prepare and Parent shall file with
the SEC the Form F-4, in which the Proxy Statement will be included as a
prospectus. Parent shall use all reasonable efforts to have the Form F-4
declared effective under the Securities Act as

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promptly as practicable after such filing. The Company will use all reasonable
efforts to cause the Proxy Statement to be mailed to the Company's stockholders
as promptly as practicable after the Form F-4 is declared effective under the
Securities Act. Parent shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified or to file a
general consent to service of process) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Shares in the
Merger, and the Company shall furnish all information concerning the Company and
the holders of Company Common Stock as may be reasonably requested in connection
with any such action and the preparation, filing and distribution of the Proxy
Statement. No filing of, or amendment or supplement to, or correspondance to the
SEC or its staff with respect to, the Form F-4 will be made by Parent, or the
Proxy Statement will be made by the Company, without providing the other party a
reasonable opportunity to review and comment thereon. Parent will advise the
Company, promptly after it receives notice thereof, of the time when the Form
F-4 has become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the Parent
Shares issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Form F-4 or
comments thereon and responses thereto or requests by the SEC for additional
information. The Company will advise Parent, promptly after it receives notice
thereof, of any request by the SEC for the amendment of the Proxy Statement or
comments thereon and responses thereto or requests by the SEC for additional
information. If at any time prior to the Effective Time any information relating
to the Company or Parent, or any of their respective affiliates, officers or
directors, should be discovered by the Company or Parent which should be set
forth in an amendment or supplement to any of the Form F-4 or the Proxy
Statement, so that any of such documents would not include any misstatement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information shall promptly notify
the other parties hereto and an appropriate amendment or supplement describing
such information shall be promptly filed with the SEC and, to the extent
required by law, disseminated to the stockholders of the Company.

(b) The Company shall, as soon as practicable following the date of this
Agreement, establish a record date (which will be as soon as practicable
following the date of this Agreement) for, duly call, give notice of, convene
and hold a meeting of its stockholders (the "Stockholders Meeting") solely for
the purpose of obtaining the Stockholder Approval. The Company shall cause the
Stockholders Meeting to be held as promptly as practicable after the date of
this Agreement. Subject to Section 4.02(b)(i), the Company shall, through its
Board of Directors, recommend to its stockholders that they adopt this Agreement
and shall include such recommendation in the Proxy Statement. Without limiting
the generality of the foregoing, the Company agrees that its obligations
pursuant to this Section 5.01(b) shall not be affected by (i) the commencement,
public proposal, public disclosure or communication to the Company or any other
person of any Takeover Proposal or (ii) the withdrawal or modification by the
Board of Directors of the Company or any committee thereof of such Board of
Directors' or such committee's approval or recommendation of the Merger or this
Agreement.

SECTION 5.02. Access to Information; Confidentiality. Upon reasonable
notice and subject to the Confidentiality Agreement dated as of March 14, 2001,
between Parent and the Company (the "Confidentiality Agreement"), the Company
shall, and shall cause each of its subsidiaries to, afford to Parent and to its
officers, employees, accountants, counsel, financial advisors and other
representatives (including insurance providers and consultants), reasonable
access during normal business hours during the period prior to the Effective
Time to all its properties, books, contracts, commitments, personnel and records
(including electronic databases) and, during such period, the Company shall, and
shall cause each of its subsidiaries to, furnish promptly to Parent (a) a copy
of each report, schedule, form, statement and other document filed by it during
such period pursuant to the requirements of Federal or state securities laws and
(b) all other information concerning its business, properties and personnel as
Parent may reasonably request (including the Company's outside accountants' work
papers). The Company shall not be required to provide access to or disclose
information where such access or disclosure would contravene any law, rule,
regulation, order or decree of any Governmental Entity. No review pursuant to
this Section 5.02 shall have an effect for the purpose of determining the
accuracy of any representation or

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warranty given by the Company to Parent and Sub. Parent will hold, and will
cause its officers, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information in
accordance with the terms of the Confidentiality Agreement.

SECTION 5.03. Reasonable Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement and the Stockholder Agreement, including using
reasonable efforts to accomplish the following: (i) the taking of all reasonable
acts necessary to cause the conditions to Closing to be satisfied as promptly as
practicable; (ii) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, including under the HSR Act) and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity; (iii) the obtaining of all necessary
consents, approvals or waivers from third parties; (iv) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the Stockholder Agreement or the consummation of
the transactions contemplated by this Agreement or the Stockholder Agreement,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed; and (v) the execution
and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement and the Stockholder Agreement; provided, however, that Parent will not
be required to agree to, or proffer to, (i) divest or hold separate, or enter
into any licensing or similar arrangement with respect to, any assets (whether
tangible or intangible) or any of Parent's, the Company's or any of their
respective affiliates' businesses or (ii) cease to conduct business or
operations in any jurisdiction in which Parent, the Company or any of their
respective subsidiaries conducts business or operations as of the date of this
Agreement.

(b) In connection with and without limiting the foregoing, the Company and
its Board of Directors shall (i) take all action necessary to ensure that no
state takeover statute or similar statute or regulation is or becomes applicable
to the Merger, this Agreement, the Stockholder Agreement or any of the other
transactions contemplated by this Agreement or the Stockholder Agreement and
(ii) if any state takeover statute or similar statute or regulation becomes
applicable to the Merger, this Agreement, the Stockholder Agreement or any other
transaction contemplated by this Agreement or the Stockholder Agreement, take
all action necessary to ensure that the Merger and the other transactions
contemplated by this Agreement and the Stockholder Agreement may be consummated
as promptly as practicable on the terms contemplated by this Agreement and the
Stockholder Agreement and otherwise to minimize the effect of such statute or
regulation on the Merger and the other transactions contemplated by this
Agreement and the Stockholder Agreement.

SECTION 5.04. Stock Options. (a) As soon as practicable following the
date of this Agreement, the Board of Directors of the Company (or, if
appropriate, any committee thereof administering the Stock Plans) shall adopt
such resolutions or take such other actions as may be required to effect the
following:

(i) adjust the terms of all outstanding Stock Options granted under
the Company Stock Plans, whether vested or unvested, as necessary to
provide that, at the Effective Time, each Stock Option outstanding
immediately prior to the Effective Time shall be amended and converted into
an option to acquire, on the same terms and conditions as were applicable
under such Stock Option, the number of Parent Shares (rounded down to the
nearest whole share) equal to (A) the number of shares of Company Common
Stock subject to such Stock Option immediately prior to the Effective Time
multiplied by (B) the Exchange Ratio, at an exercise price per Parent Share
(rounded up to the nearest whole cent) equal to (x) the exercise price per
share of Company Common Stock otherwise purchasable pursuant to such Stock
Option immediately prior to the Effective Time divided by (y) the Exchange
Ratio (each, as so adjusted, an "Adjusted Option"); and

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(ii) make such other changes to the Company Stock Plans as the Company
and Parent may agree are appropriate to give effect to the Merger.

(b) The adjustments provided in this Section 5.04 with respect to any Stock
Option to which Section 421(a) of the Code applies shall be and are intended to
be effected in a manner which is consistent with Section 424(a) of the Code. As
soon as practicable after the Effective Time, Parent shall deliver to the
holders of Stock Options appropriate notices setting forth such holders' rights
pursuant to the respective Company Stock Plans and the agreements evidencing the
grants of such Stock Options and that such Stock Options and agreements shall be
assumed by Parent and shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 5.04 after giving effect to
the Merger).

(c) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by following procedures to be
communicated by Parent with the notice contemplated by Section 5.04(b), together
with the consideration therefor and the Federal withholding tax information, if
any, required in accordance with the related Company Stock Plan or Stock Option
Agreement.

(d) Except to the extent required under the respective terms of the Stock
Options, all restrictions or limitations on transfer and vesting with respect to
Stock Options awarded under the Company Stock Plans or any other plan, program
or arrangement of the Company or any of its subsidiaries, to the extent that
such restrictions or limitations shall not have already lapsed, and all other
terms thereof, shall remain in full force and effect with respect to such
options after giving effect to the Merger and the assumption by Parent as set
forth above.

(e) Prior to the Effective Time, Parent shall take all necessary action to
assume as of the Effective Time all obligations undertaken by Parent under this
Section 5.04, including the reservation, issuance and listing of a number of
Parent ADSs at least equal to the number of Parent Shares subject to the
Adjusted Options. No later than one business day after the Effective Time,
Parent shall prepare and file with the SEC a registration statement on Form S-8
(or another appropriate form) registering a number of Parent ADSs representing
the number of Parent Shares subject to the Adjusted Options and shall maintain
the effectiveness of such registration statement (and maintain the current
status of the prospectus contained therein) for so long as such Adjusted Options
remain outstanding. The Company shall cooperate with, and assist Parent in the
preparation of, such registration statement.

SECTION 5.05. Employee Matters. (a) For a period ending not earlier than
December 31, 2002, employees of the Company and its subsidiaries who continue
their employment after the Effective Time (the "Affected Employees") shall
receive employee benefits that are substantially comparable in the aggregate to
the employee benefits provided to the Affected Employees immediately prior to
the Effective Time; provided, that neither Parent nor the Surviving Corporation
shall have any obligation to issue, or adopt any plans or arrangements providing
for the issuance of, shares of capital stock, warrants, options, SARs or other
rights in respect of any shares of capital stock of any entity or any securities
convertible or exchangeable into such shares pursuant to any such plans or
arrangements; provided, further, that no plans or arrangements of the Company or
any of its subsidiaries providing for such issuance shall be taken into account
in determining whether employee benefits are substantially comparable in the
aggregate. Affected Employees shall be given credit under each employee benefit
plan, program, policy or arrangement of Parent or any of its affiliates in which
the Affected Employees are eligible to participate for all service with the
Company or any predecessor employer (to the extent such credit was given by the
Company) for purposes of eligibility, vesting, severance and vacation
entitlement.

(b) With respect to the ESPP, the Company shall take all actions necessary
to provide that (i) no offerings that would commence on a date following the
date of this Agreement shall be permitted, (ii) with respect any offering
thereunder that is in effect immediately prior to the Effective Time, each
participant's accumulated payroll deductions shall be used to purchase shares of
Company Common Stock immediately prior to the Effective Time in accordance with
the terms of the ESPP and (iii) the ESPP shall terminate at the Effective Time.

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(c) Parent and the Company agree to implement the arrangements described in
Section 5.05(c) of the Company Disclosure Schedule. In addition, Parent agrees
that, if it offers a one-year written employment agreement to any employee of
the Company or the Surviving Corporation, such employment agreement will be in
the form previously agreed to by Parent and the Company.

(d) Nothing contained in this Section 5.05 or elsewhere in this Agreement
shall be construed to prevent the termination of employment of any individual
Company Employee or any change in the employee benefits available to any
individual Company Employee or the amendment or termination of any particular
Benefit Plan or Benefit Agreement to the extent permitted by its terms as in
effect immediately prior to the Effective Time.

SECTION 5.06. Indemnification, Exculpation and Insurance. (a) Parent
agrees that all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time now existing in
favor of the current or former directors or officers of the Company and its
subsidiaries as provided in their respective articles of organization or by-laws
(or comparable organizational documents) and any indemnification agreements of
the Company (as each is in effect on the date hereof), the existence of which
does not constitute a breach of this Agreement, shall be assumed by the
Surviving Corporation in the Merger, without further action, as of the Effective
Time and shall survive the Merger and shall continue in full force and effect in
accordance with their terms, and Parent shall cause the Surviving Corporation to
honor all such rights.

(b) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, or Parent otherwise dissolves the Surviving Corporation, then,
and in each such case, Parent shall cause proper provision to be made so that
the successors and assigns of the Surviving Corporation assume the obligations
set forth in this Section 5.06.

(c) The Surviving Corporation shall, at its option, for a period of not
less than six years after the Effective Time, either (i) maintain the Company's
current directors' and officers' liability insurance covering acts or omissions
occurring at or prior to the Effective Time ("D&O Insurance") with respect to
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy on terms with respect to such coverage and
amount no less favorable than those of such policy in effect on the date hereof
or (ii) cause to be provided coverage no less favorable to such directors or
officers, as the case may be, than the D&O Insurance, in each case so long as
the annual premium therefor would not be in excess of 200% of the last annual
premium paid for the D&O Insurance prior to the date of this Agreement (such
200% amount the "Maximum Premium"); provided that if the annual premium for such
coverage exceeds the Maximum Premium, Parent shall be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding the Maximum
Premium. If the existing or substituted directors' and officers' liability
insurance expires, is terminated or canceled during such six-year period, the
Surviving Corporation will obtain as much D&O Insurance as can be obtained for
the remainder of such period for an annualized premium not in excess of the
Maximum Premium. The Company represents that the Maximum Premium is $3,874,800.

(d) The provisions of this Section 5.06 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.

SECTION 5.07. Fees and Expenses. All fees and expenses incurred in
connection with the Merger, this Agreement, the Stockholder Agreement and the
transactions contemplated by this Agreement and the Stockholder Agreement shall
be paid by the party incurring such fees or expenses, whether or not the Merger
is consummated, except that each of Parent and the Company shall bear and pay
one-half of the costs and expenses incurred in connection with the filing,
printing and mailing of the Form F-4 and the Proxy Statement (including SEC
filing fees).

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SECTION 5.08. Public Announcements. Parent and the Company will consult
with each other before issuing, and provide each other the opportunity to
review, comment upon and concur with, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger and the Stockholder Agreement, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as either party may determine is required by applicable law, the SEC or
any similar foreign regulatory authority, court process or by obligations
pursuant to any listing or similar foreign regulatory authority or quotation
agreement with any national securities exchange or national trading system. The
parties agree that the initial press release to be issued with respect to the
transactions contemplated by this Agreement and the Stockholder Agreement shall
be in the form heretofore agreed to by the parties.

SECTION 5.09. Affiliates. The Company shall deliver to Parent at least 15
days prior to the Closing Date a letter identifying all persons who are, at the
time this Agreement is submitted for adoption by the stockholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use reasonable efforts to cause each such
person who makes or proposes to make a Share Election to deliver to Parent prior
to the Closing Date a written agreement substantially in the form attached as
Exhibit A hereto.

SECTION 5.10. NYSE Listing. Parent shall use reasonable efforts to cause
the Parent ADSs issuable in the Merger and issuable upon exercise of the
Adjusted Options to be approved for listing on the NYSE, subject to official
notice of issuance, as promptly as practicable after the date hereof, and in any
event prior to the Closing Date.

SECTION 5.11. Litigation. (a) The Company shall give Parent the
opportunity to participate in the defense or settlement of any litigation
against the Company and/or its directors relating to the transactions
contemplated by this Agreement and the Stockholder Agreement, and no such
settlement shall be agreed to without Parent's prior written consent, which
consent shall not be unreasonably withheld.

(b) The Company shall keep Parent fully informed of the status and details
of any discussions, negotiations or litigation relating to any of the matters
set forth in Section 3.01(h) of the Company Disclosure Schedule (and shall
promptly provide Parent with copies of any relevant documents or materials
related thereto), and shall give Parent and its counsel the opportunity to
participate in any such discussions or negotiations and in the defense of any
litigation in respect of any such matters. The Company shall also inform Parent
promptly of the commencement of any suit, action or proceeding (whether or not
relating to any matter set forth in Section 3.01(h) of the Company Disclosure
Schedule) against the Company, and of the assertion or threatened assertion of
any claim against, or demand made upon, the Company by any person (and promptly
provide Parent with copies of all complaints, briefs, claims, demands,
correspondance and other documents relating thereto), shall keep Parent fully
informed of the status and details of all such litigation claims and demands and
of any settlement discussions or negotiations relating thereto and shall give
Parent the opportunity to participate in the defense thereof and in any such
discussions or negotiations. The Company shall not enter into any agreement that
has the effect of settling, releasing or otherwise disposing of any such
litigation, claim or demand (or enter into any licensing agreement relating
thereto) without Parent's prior written consent.

SECTION 5.12. Tax Treatment. Each of Parent and the Company shall use
reasonable efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368(a) of the Code and to obtain the tax opinions referred
to in Sections 6.02(c) and 6.03(c), including the execution of the letters of
representation referred to therein. Neither Parent nor the Surviving Corporation
shall take any action after the Effective Time that is reasonably likely to
prevent the Merger from qualifying as a reorganization under the provisions of
Section 368(a) of the Code.

SECTION 5.13. Stockholder Agreement Legend. The Company will inscribe
upon any certificate representing Subject Shares (as defined in the Stockholder
Agreement) tendered by the Company Stockholders in connection with any proposed
transfer of any Subject Shares by the Company Stockholders in accordance with
the terms of the Stockholder Agreement the following legend: "THE

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SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF MP3.COM, INC.,
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDER AGREEMENT DATED AS
OF MAY 20, 2001, AND ARE SUBJECT TO THE TERMS THEREOF. COPIES OF SUCH AGREEMENT
MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES OF MP3.COM, INC."; and the
Company will return such certificate containing such inscription to the Company
Stockholders within three business days following the Company's receipt thereof.

SECTION 5.14. Termination of Agreements. The Company shall cause all
provisions of all purchase agreements, stockholder agreements, registration
rights agreements, investors' rights agreements, co-sale agreements, rights of
first refusal and similar agreements between any stockholder of the Company and
the Company to terminate and be of no further force and effect upon consummation
of the Merger. A list of all of such agreements is set forth in Section 5.14 of
the Company Disclosure Schedule.

SECTION 5.15. Resignation of Directors of the Company. Prior to the
Effective Time, the Company shall cause each member of its Board of Directors to
execute and deliver a letter effectuating his or her resignation as a director
of such Board effective immediately prior to the Effective Time.

ARTICLE VI

CONDITIONS PRECEDENT

SECTION 6.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:

(a) Stockholder Approval. The Stockholder Approval shall have been
obtained.

(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired, and any required approvals under Foreign Antitrust Laws
applicable to the Merger shall have been obtained.

(c) No Restraints. No judgment, order, decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity of competent jurisdiction
or other legal restraint or prohibition (collectively, "Restraints") shall
be in effect preventing the consummation of the Merger; provided, however,
that each of the parties shall have used its reasonable efforts to prevent
the entry of any such Restraints and to appeal as promptly as possible any
such Restraints that may be entered.

(d) Form F-4. The Form F-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.

(e) NYSE Listing. The Parent ADSs issuable to the Company's
stockholders and optionholders as contemplated by this Agreement shall have
been approved for listing on the NYSE, subject to official notice of
issuance.

SECTION 6.02. Conditions to Obligations of Parent and Sub. The obligation
of Parent and Sub to effect the Merger is further subject to satisfaction or
waiver of the following conditions:

(a) Representations and Warranties. (i) The representations and
warranties of the Company contained in Section 3.01(h) shall have been true
and correct in all material respects as of the date of this Agreement and
the representations and warranties of the Company contained in Section
3.01(c) shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made on the Closing
Date, except to the extent such representations and warranties expressly
speak as of an earlier date, in which case as of such earlier date and (ii)
each of the other representations and warranties of the Company contained
in this Agreement, disregarding all qualifications and exceptions contained
therein relating to materiality or material adverse effect, shall be true
and correct as of the date of this Agreement and as of the Closing Date as
though made on the Closing Date (except to the extent such representations
and warranties expressly speak as of an

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earlier date, in which case as of such earlier date), except to the extent
that the facts or matters as to which such representations and warranties
are not so true and correct as of such dates, individually or in the
aggregate, have not had and could not reasonably be expected to have a
material adverse effect on the Company. Parent shall have received a
certificate signed on behalf of the Company by the chief executive officer
of the Company to such effect.

(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date. Parent shall
have received a certificate signed on behalf of the Company by the chief
executive officer of the Company to such effect.

(c) Tax Opinion. Parent shall have received from Cravath, Swaine &
Moore, counsel to Parent, an opinion dated as of the Closing Date, stating
that the Merger will qualify for U.S. Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. The
issuance of such opinion shall be conditioned upon the receipt by such tax
counsel of customary representation letters from each of the Company and
Parent, in each case, in form and substance reasonably satisfactory to such
tax counsel.

SECTION 6.03. Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is further subject to satisfaction or waiver of
the following conditions:

(a) Representations and Warranties. Each of the representations and
warranties of Parent and Sub contained in this Agreement, disregarding all
qualifications and exceptions contained therein relating to materiality or
material adverse effect, shall be true and correct as of the date of this
Agreement and as of the Closing Date as though made on the Closing Date
(except to the extent such representations and warranties expressly speak
as of an earlier date, in which case as of such earlier date), except to
the extent that the facts or matters as to which such representations and
warranties are not so true and correct as of such dates, individually or in
the aggregate, have not had and could not reasonably be expected to have a
material adverse effect on Parent. The Company shall have received a
certificate signed on behalf of Parent by an authorized signatory of Parent
to such effect.

(b) Performance of Obligations of Parent and Sub. Parent and Sub
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date.
The Company shall have received a certificate signed on behalf of Parent by
an authorized signatory of Parent to such effect.

(c) Tax Opinion. The Company shall have received from Ernst & Young
LLP, tax advisors to the Company, an opinion dated as of the Closing Date,
stating that the Merger will qualify for U.S. Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code. The
issuance of such opinion shall be conditioned upon the receipt by such tax
advisor of customary representation letters from each of the Company and
Parent, in each case, in form and substance reasonably satisfactory to such
tax advisor.

SECTION 6.04. Frustration of Closing Conditions. None of Parent, Sub or
the Company may rely on the failure of any condition set forth in Section 6.01,
6.02 or 6.03, as the case may be, to be satisfied if such failure was caused by
such party's failure to use reasonable efforts to consummate the Merger and the
other transactions contemplated by this Agreement and the Stockholder Agreement,
as required by and subject to Section 5.03.

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ARTICLE VII

TERMINATION, AMENDMENT AND WAIVER

SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after receipt of the Stockholder
Approval:

(a) by mutual written consent of Parent and the Company;

(b) by either Parent or the Company:

(i) if the Merger shall not have been consummated by November 30,
2001; provided, however, that the right to terminate this Agreement
pursuant to this Section 7.01(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by such time;

(ii) if the Stockholder Approval shall not have been obtained at
the Stockholders Meeting duly convened therefor or at any adjournment or
postponement thereof; or

(iii) if any Restraint having any of the effects set forth in
Section 6.01(c) shall be in effect and shall have become final and
nonappealable; provided that the party seeking to terminate this
Agreement pursuant to this Section 7.01(b)(iii) shall have used
reasonable efforts to prevent the entry of and to remove such Restraint;

(c) by Parent, if the Company shall have breached or failed to perform
in any material respect any of its representations, warranties, covenants
or other agreements contained in this Agreement, which breach or failure to
perform (A) would give rise to the failure of a condition set forth in
Section 6.02(a) or (b), and (B) is incapable of being or has not been cured
by the Company within 30 calendar days after giving written notice to the
Company of such breach or failure to perform; or

(d) by the Company, if Parent shall have breached or failed to perform
in any material respect any of its representations, warranties, covenants
or other agreements contained in this Agreement, which breach or failure to
perform (A) would give rise to the failure of a condition set forth in
Section 6.03(a) or (b), and (B) is incapable of being or has not been cured
by Parent within 30 calendar days after giving written notice to Parent of
such breach or failure to perform.

SECTION 7.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent or the Company, other than the provisions of
Section 3.01(o), the last sentence of Section 5.02, Section 5.07, this Section
7.02 and Article VIII, which provisions survive such termination, and except to
the extent that such termination results from the willful and material breach by
a party of any of its representations, warranties, covenants or agreements set
forth in this Agreement.

SECTION 7.03. Amendment. This Agreement may be amended by the parties at
any time prior to the Effective Time; provided, however, that after the
Stockholder Approval has been obtained, there shall not be made any amendment
that by law requires further approval by the stockholders of the Company without
the further approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.

SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time,
a party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso to the first sentence of Section 7.03, waive compliance by the other
party with any of the agreements or conditions contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.

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SECTION 7.05. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 7.01, an amendment
of this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, require, in the case of Parent or
the Company, action by its Board of Directors or, except with respect to a
termination of this Agreement, the duly authorized committee of its Board of
Directors to the extent permitted by law.

ARTICLE VIII

GENERAL PROVISIONS

SECTION 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.

SECTION 8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):

(a) if to Parent or Sub, to

Vivendi Universal
42, avenue de Friedland
75380 Paris cedex 08
FRANCE

Telecopy No.: +33-1-71-71-14-14

Attention: Gerard Ries

with a copy to:

Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019

Telecopy No.: (212) 474-3700

Attention: Faiza J. Saeed; and

(b) if to the Company, to

MP3.com, Inc.
4790 Eastgate Mall
San Diego, CA 92121-1970

Telecopy No.: (858) 623-7010

Attention: Paul Ouyang

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with a copy to: Latham & Watkins
12636 High Bluff Drive
Suite 300
San Diego, CA 92130

Telecopy No.: (858) 523-5450

Attention: Scott N. Wolfe

SECTION 8.03. Definitions. For purposes of this Agreement:

(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person, where "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise;

(b) "business day" means any day other than Saturday, Sunday or any
other day on which banks are legally permitted to be closed in New York;

(c) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers after reasonable inquiry;

(d) "material adverse change" or "material adverse effect" means, when
used in connection with the Company or Parent, any change, effect, event,
occurrence, condition or development or state of facts that is materially
adverse to the business, assets, or results of operations or financial
condition of such party and its subsidiaries taken as a whole, other than
any change, effect, event, occurrence, condition, development or state of
facts relating to (i) the economy or securities markets in general, (ii)
the industries in which such party operates in general and not having a
materially disproportionate effect on such party relative to most other
industry participants, (iii) the announcement or existence of this
Agreement, (iv) any claim, suit, action, proceeding or other litigation in
respect of copyright infringement matters instituted or threatened against
the Company following the announcement of this Agreement, (v) any
settlement or judgment with respect to any of the matters set forth on
Section 3.01(h) of the Company Disclosure Schedule or (vi) the failure by
the Company to meet or exceed any third-party or internal, revenue,
earnings or other financial estimates or projections, in and of itself;

(e) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and

(f) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.

SECTION 8.04. Interpretation. (a) When a reference is made in this
Agreement to an Article, Section or Exhibit, such reference shall be to an
Article or Section of, or an Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". 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 particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders

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of such term. Any agreement, instrument or statute defined or referred to herein
or in any agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted successors and
assigns.

(b) To the extent any matter contained in the Company Disclosure Schedule
or the Parent Disclosure Schedule expressly qualifies or modifies a covenant or
definition contained in this Agreement, such covenant or definition shall be
construed and interpreted as so qualified or modified. Each covenant set forth
in the Company Disclosure Schedule or the Parent Disclosure Schedule shall be
binding on Parent and the Company, as applicable, to the same extent as if such
covenant were set forth in full in this Agreement.

SECTION 8.05. 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 parties.

SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein), the
Stockholder Agreement and the Confidentiality Agreement (a) constitute the
entire agreement, and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter of this
Agreement and (b) except for the provisions of Article II and Section 5.06, are
not intended to confer upon any person other than the parties any rights or
remedies.

SECTION 8.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.

SECTION 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.

SECTION 8.09. Enforcement. Each of the parties hereto agrees that
irreparable damage would occur and that the parties would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, (c) agrees that it will not bring any action relating
to this Agreement or any of the transactions contemplated by this Agreement in
any court other than a Federal court sitting in the State of Delaware or a
Delaware state court and (d) waives any right to trial by jury with respect to
any claim or proceeding related to or arising out of this Agreement or any
transaction contemplated by this Agreement.

SECTION 8.10. 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. 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 to the

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fullest extent permitted by applicable law in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.

IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.

VIVENDI UNIVERSAL, S.A.,

By /s/ JEAN-MARIE MESSIER
------------------------------------
Name: Jean-Marie Messier
Title: Chairman and CEO

METRONOME ACQUISITION SUB INC.,

By /s/ GEORGE E. BUSHNELL, III
------------------------------------
Name: George E. Bushnell, III
Title: Vice President and Secretary

MP3.COM, INC.,

By /s/ ROBIN D. RICHARDS
------------------------------------
Name: Robin D. Richards
Title: President

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ANNEX I
TO THE MERGER AGREEMENT

INDEX OF DEFINED TERMS

TERM PAGE
---- ----

Accounting Rules.................. 11
Adjusted Option................... 29
Affected Employees................ 30
affiliate......................... 37
Agreement......................... Preamble
Appraisal Shares.................. 3
Average Closing Price............. 3
Benefit Agreements................ 14
Benefit Plans..................... 14
business day...................... 37
Cash Cap.......................... 7
Cash Consideration................ 3
Cash Election..................... 3
Certificate of Merger............. 2
Certificates...................... 3
Closing........................... 2
Closing Date...................... 2
Code.............................. Preamble
Commonly Controlled Entity........ 14
Company........................... Preamble
Company Common Stock.............. Preamble
Company Disclosure Schedule....... 8
Company Filed SEC Documents....... 12
Company Preferred Stock........... 8
Company SEC Documents............. 11
Company Stockholders.............. Preamble
Company Stock Plans............... 8
Confidentiality Agreement......... 28
Contract.......................... 10
control........................... 37
Deposit Agreement................. 3
Depositary........................ 3
D & O Insurance................... 31
DGCL.............................. 1
Effective Time.................... 2
Election Date..................... 6
Employment Agreement.............. Preamble
Environmental Law................. 13
ERISA............................. 14
ESPP.............................. 8
Exchange Act...................... 11
Exchange Agent.................... 4
Exchange Fund..................... 4

TERM PAGE
---- ----

Exchange Ratio.................... 3
Foreign Antitrust Laws............ 11
Form F-4.......................... 12
Form of Election.................. 6
GAAP.............................. 11
Governmental Entity............... 11
Hazardous Materials............... 13
HSR Act........................... 11
Intellectual Property Rights...... 18
knowledge......................... 37
Liens............................. 8
material adverse change........... 37
material adverse effect........... 37
Maximum Premium................... 31
Merger............................ Preamble
Merger Consideration.............. 3
Multiemployer Pension Plan........ 14
Non-Litigation Liabilities........ 26
NYSE.............................. 3
Parent............................ Preamble
Parent ADSs....................... Preamble
Parent Disclosure Schedule........ 21
Parent SEC Documents.............. 22
Parent Shares..................... Preamble
Pension Plan...................... 14
Permits........................... 13
person............................ 37
Primary Company Executives........ 15
Privacy Statement................. 20
Prorated Cash Amount.............. 8
Prorated Share Amount............. 7
Proxy Statement................... 11
Release........................... 13
Requested Cash Amount............. 7
Requested Share Amount............ 7
Restraints........................ 33
SARs.............................. 9
SEC............................... 11
Section 262....................... 3
Securities Act.................... 11
Share Cap......................... 7
Share Consideration............... 3
Share Election.................... 3

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TERM PAGE
---- ----

Share Proration Factor............ 7
Special Committee................. 10
Stockholder Agreement............. Preamble
Stockholder Approval.............. 17
Stockholders Meeting.............. 28
Stock Options..................... 9
Sub............................... Preamble

TERM PAGE
---- ----

subsidiary........................ 37
Superior Proposal................. 26
Surviving Corporation............. 1
Takeover Proposal................. 27
taxes............................. 17
Terms and Conditions.............. 20
Warrants.......................... 9

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EXHIBIT A

FORM OF AFFILIATE LETTER

Dear Sirs:

The undersigned, a holder of shares of common stock, par value $0.001 per
share ("Company Common Stock"), of MP3.com, Inc., a Delaware corporation (the
"Company"), is entitled to receive in connection with the merger (the "Merger")
of the Company with and into a subsidiary of Parent, a societe anonyme organized
under the laws of France ("Parent"), securities of Parent, as the parent of the
surviving corporation in the Merger (the "Parent Securities"). The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of the Company
within the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act
of 1933 (the "Securities Act") by the Securities and Exchange Commission (the
"SEC"), although nothing contained herein should be construed as an admission of
such fact.

If in fact the undersigned were an affiliate under the Securities Act, the
undersigned's ability to sell, assign or transfer the Parent Securities received
by the undersigned in exchange for any shares of Company Common Stock in
connection with the Merger may be restricted unless such transaction is
registered under the Securities Act or an exemption from such registration is
available. The undersigned understands that such exemptions are limited and the
undersigned has obtained or will obtain advice of counsel as to the nature and
conditions of such exemptions, including information with respect to the
applicability to the sale of such securities of Rules 144 and 145(d) promulgated
under the Securities Act. The undersigned understands that Parent will not be
required to maintain the effectiveness of any registration statement under the
Securities Act for the purposes of resale of Parent Securities by the
undersigned.

The undersigned hereby represents to and covenants with Parent that the
undersigned will not sell, assign or transfer any of the Parent Securities
received by the undersigned in exchange for shares of Company Common Stock in
connection with the Merger except (i) pursuant to an effective registration
statement under the Securities Act, (ii) in conformity with the volume and other
limitations of Rule 145 or (iii) in a transaction which, in the opinion of
counsel to Parent or the undersigned reasonably acceptable to Parent or as
described in a "no-action" or interpretive letter from the Staff of the SEC
specifically issued with respect to a transaction to be engaged in by the
undersigned, is not required to be registered under the Securities Act.

In the event of a sale or other disposition by the undersigned of Parent
Securities pursuant to Rule 145, the undersigned will supply Parent with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto or the opinion of counsel or no-action letter referred to above.
The undersigned understands that Parent may instruct its transfer agent to
withhold the transfer of any Parent Securities disposed of by the undersigned,
but that (provided such transfer is not prohibited by any other provision of
this letter agreement) upon receipt of such evidence of compliance, Parent shall
cause the transfer agent to effectuate the transfer of the Parent Securities
sold as indicated in such letter.

Parent covenants that it will take all such actions as may be reasonably
available to it to permit the sale or other disposition of Parent Securities by
the undersigned under Rule 145 in accordance with the terms thereof.

The undersigned acknowledges and agrees that the legends set forth below
will be placed on certificates representing Parent Securities received by the
undersigned in connection with the Merger or held by a transferee thereof, which
legends will be removed by delivery of substitute certificates upon receipt of
an opinion in form and substance reasonably satisfactory to Parent from
independent counsel reasonably satisfactory to Parent to the effect that such
legends are no longer required for purposes of the Securities Act.

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387

There will be placed on the certificates for Parent Securities issued to
the undersigned, or any substitutions therefor, a legend stating in substance:

"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933
(the "Securities Act") applies. The shares have not been acquired by the
holder with a view to, or for resale in connection with, any distribution
thereof within the meaning of the Securities Act. The shares may not be
sold, pledged or otherwise transferred except (i) pursuant to an effective
registration under the Securities Act, (ii) in conformity with the volume
and other limitations of Rule 145 or (iii) in accordance with an exemption
from the registration requirements of the Securities Act".

The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Parent Securities
and (ii) the receipt by Parent of this letter is an inducement to Parent's
obligations to consummate the Merger.

Very truly yours,

Dated:

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388

ANNEX I
TO EXHIBIT A

[Name] [Date]

On , the undersigned sold the securities of Parent, a societe
anonyme organized under the laws of France ("Parent"), described below in the
space provided for that purpose (the "Securities"). The Securities were received
by the undersigned in connection with the merger of MP3.com, Inc., a Delaware
corporation, with and into a subsidiary of Parent.

Based upon the most recent report or statement filed by Parent with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933 (the "Securities Act").

The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Securities Act
or in transactions directly with a "market maker" as that term is defined in
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended. The
undersigned further represents that the undersigned has not solicited or
arranged for the solicitation of orders to buy the Securities, and that the
undersigned has not made any payment in connection with the offer or sale of the
Securities to any person other than to the broker who executed the order in
respect of such sale.

Very truly yours,

[Space to be provided for description of the Securities.]

A-I-44
389

MODIFICATION AGREEMENT dated as of June 13, 2001, among VIVENDI UNIVERSAL,
a societe anonyme organized under the laws of France ("Parent"), METRONOME
ACQUISITION SUB INC., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and MP3.COM, INC., a Delaware corporation (the "Company").

WHEREAS Parent, Sub and the Company entered into an Agreement and Plan of
Merger dated as of May 20, 2001 (the "Merger Agreement"); and

WHEREAS Parent, Sub and the Company desire to amend certain provisions of
the Merger Agreement.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties intending to be legally bound agree as follows:

SECTION 1. Amendment to Section 4.01(a)(iv)(y). The first reference in
Section 4.01(a)(iv)(y) to "$100,000" shall be deleted and substituted with
'$500,000", and the second reference to "$100,000" in such Section shall be
deleted and substituted with "$3,000,000".

SECTION 2. Amendment to Section 4.01(a)(v). The words "having an
aggregate value in excess of $500,000" shall be inserted after the words
"(including securitizations)" in Section 4.01(a)(v).

SECTION 3. Amendment to Section 4.01(a)(viii). The reference in Section
4.01(a)(viii) to "$100,000" shall be deleted and substituted with "$1,000,000"
and the reference in such Section to "$1,000,000" shall be deleted and
substituted with "$3,000,000".

SECTION 4. Amendment to Section 4.01(a)(x)(C). The reference in Section
4.01(a)(x)(C) to "of substantial value" shall be deleted and substituted with
"that, individually, have a value in excess of $500,000 or, in the aggregate,
have a value in excess of $2,000,000".

SECTION 5. Amendment to Section 4.01(a)(xiv). The words ",other than in
accordance with current business practices" shall be inserted at the end of
Section 4.01(a)(xiv).

A-II-1
390

SECTION 6. Effectiveness. This Modification Agreement shall be effective
as of the date first written above.

SECTION 7. Governing Law. This Modification Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws.

IN WITNESS WHEREOF, Parent, Sub and the Company have duly executed this
Modification Agreement as of the date first written above.

VIVENDI UNIVERSAL, S.A.,

by /s/ GEORGE E. BUSHNELL, III
------------------------------------
Name: George E. Bushnell, III
Title: Vice President

METRONOME ACQUISITION SUB INC.,

by /s/ GEORGE E. BUSHNELL, III
------------------------------------
Name: George E. Bushnell, III
Title: Vice President and Secretary

MP3.COM, INC.,

by /s/ PAUL L.M. OUYANG
------------------------------------
Name: Paul L.M. Ouyang
Title: Vice President and CFO

A-II-2
391

ANNEX B

STOCKHOLDER AGREEMENT dated as of May 20, 2001 (this "Agreement"), among
VIVENDI UNIVERSAL, a societe anonyme organized under the laws of France
("Parent"), and the individuals and other parties listed on Schedule A hereto
(each, a "Stockholder" and, collectively, the "Stockholders").

WHEREAS, Parent, Metronome Acquisition Sub Inc., a Delaware corporation
("Sub"), and MP3.com, Inc., a Delaware corporation (the "Company"), propose to
enter into an Agreement and Plan of Merger dated as of the date hereof (as the
same may be amended or supplemented, the "Merger Agreement"; capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement) providing for the merger of the Company with and into Sub; and

WHEREAS, each Stockholder owns the number of shares of Company Common Stock
set forth opposite his, her or its name on Schedule A hereto (such shares of
Company Common Stock, together with any other shares of capital stock of the
Company acquired by such Stockholder after the date hereof and during the term
of this Agreement (including through the exercise of any stock options, warrants
or similar instruments), being collectively referred to herein as the "Subject
Shares" of such Stockholder);

WHEREAS, the Board of Directors of the Company has approved the terms of
this Agreement; and

WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has required that each Stockholder enter into this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, agree as follows:

SECTION 1. Representations and Warranties of Each Stockholder. Each
Stockholder hereby, severally and not jointly, represents and warrants to Parent
as follows:

(a) Authority; Execution and Delivery; Enforceability. The
Stockholder has all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by each Stockholder
that is not a natural person and the consummation by such Stockholder of
the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate or other comparable action on the part of such
Stockholder and no other corporate or other comparable proceedings on the
part of such Stockholder are necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement. The Stockholder
has duly executed and delivered this Agreement, and this Agreement
constitutes the legal, valid and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with its terms. The
execution and delivery by the Stockholder of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and
compliance by the Stockholder with the provisions of this Agreement will
not, conflict with, or result in any violation or breach of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancelation or acceleration of any obligation or to
loss of a benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Stockholder under, (i) with respect to each
Stockholder that is not a natural person, the certificate of incorporation
or by-laws, partnership agreement or limited liability company agreement
(or similar organizational documents) of such Stockholder, (ii) any
Contract to which the Stockholder is a party or otherwise applicable to the
Stockholder or the properties or assets of the Stockholder or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, any judgment, order or decree (collectively, "Judgment") or any
statute, law, ordinance, rule or regulation (collectively, "Applicable
Law"), in each case applicable to the Stockholder or the properties or
assets of the Stockholder. No consent, approval, order or authorization
(collectively, "Consent") of, action by or in respect of, or registration,
declaration or filing with, any Governmental Entity is required to be
obtained or made by or with respect to the Stockholder in connection with
the execution and delivery of this Agreement by the Stockholder or the
consummation by the Stockholder of the transactions contemplated by this
Agreement, other than (i) compliance with and filings under the HSR Act, if
applicable to the Stockholder's receipt in the Merger of Parent Shares, and
(ii) such reports under Sections 13(d) and 16 of
B-1
392

the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby. With respect to each Stockholder that
is a natural person and whose Subject Shares 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 a valid and binding agreement of, such
Stockholder's spouse, enforceable against such spouse in accordance with
its terms.

(b) The Subject Shares. The Stockholder is the record and beneficial
owner of, or is the trustee of a trust that is the record holder of, and
whose beneficiaries are the beneficial owners of, and has good and
marketable title to, the Subject Shares set forth opposite his, her or its
name on Schedule A attached hereto, free and clear of any Liens. The
Stockholder does not own, of record or beneficially, any shares of capital
stock of the Company other than the Subject Shares set forth opposite his,
her or its name on Schedule A attached hereto. The Stockholder has the sole
right to vote such Subject Shares, and except as contemplated by this
Agreement, none of such Subject Shares is subject to any voting trust or
other agreement, arrangement or restriction with respect to the voting of
such Subject Shares.

SECTION 2. Representations and Warranties of Parent. Parent hereby
represents and warrants to each Stockholder as follows: Parent has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery by
Parent of this Agreement and consummation by Parent of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Parent and no other corporate proceedings on the
part of Parent are necessary to authorize this Agreement or to consummate the
transactions contemplated by this Agreement. Parent has duly executed and
delivered this Agreement, and, assuming this Agreement constitutes the legal,
valid and binding obligation of each of the other parties hereto, this Agreement
constitutes the legal, valid and binding obligation of Parent, enforceable
against Parent in accordance with its terms. The execution and delivery by
Parent of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance by Parent with the provisions of
this Agreement will not, conflict with, or result in any violation or breach of,
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancelation or acceleration of any obligation or
to loss of a benefit under, or result in the creation of any Lien upon any of
the properties or assets of Parent under, (i) the Restated Corporate Statutes of
Parent, (ii) any Contract to which Parent is a party or otherwise applicable to
Parent or the properties or assets of Parent or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any Judgment or Applicable Law, in each case applicable to Parent or the
properties or assets of Parent. No Consent of, action by or in respect of, or
registration, declaration or filing with, any Governmental Entity is required to
be obtained or made by or with respect to Parent in connection with the
execution and delivery of this Agreement by Parent or the consummation by Parent
of the transactions contemplated by this Agreement, other than such reports
under Sections 13(d) and 16 of the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated hereby.

SECTION 3. Covenants of Each Stockholder. Each Stockholder, severally and
not jointly, covenants and agrees as follows:

(a) (1) At any meeting (whether annual or special and whether or not
an adjourned or postponed meeting) of the stockholders of the Company
called to seek the Stockholder Approval or in any other circumstances upon
which a vote, consent or other approval (including by written consent) with
respect to the Merger Agreement, the Merger or any other transaction
contemplated by the Merger Agreement is sought, the Stockholder shall,
including by executing a written consent solicitation if requested by
Parent, vote (or cause to be voted) the Subject Shares of the Stockholder
in favor of adoption of the Merger Agreement and approval of the Merger and
any other transactions contemplated by the Merger Agreement.

(2) The Stockholder hereby irrevocably grants to, and appoints, Parent
and George E. Bushnell III, Philippe Germond and Gerard Ries, or any of
them, and any individual designated in writing by any of them, and each of
them individually, as the Stockholder's proxy and attorney-in-fact (with
full power of substitution), for and in the name, place and stead of the
Stockholder, to vote the Subject Shares of the Stockholder, or grant a
consent or approval in respect of the Subject Shares of the Stockholder (i)
in favor

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393

of adoption of the Merger Agreement and approval of the Merger and any
other transactions contemplated by the Merger Agreement, (ii) against any
Takeover Proposal and (iii) against any amendment of the Company's
certificate of incorporation or by-laws or other proposal or transaction
involving the Company or any of its subsidiaries, which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent or
nullify any provision of the Merger Agreement, the Merger or any other
transaction contemplated by the Merger Agreement or change in any manner
the voting rights of any class of capital stock of the Company. The
Stockholder understands and acknowledges that Parent is entering into the
Merger Agreement in reliance upon the Stockholder's execution and delivery
of this Agreement. The Stockholder hereby affirms that the irrevocable
proxy set forth in this Section 3(a)(2) is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given
to secure the performance of the duties of the Stockholder under this
Agreement. The Stockholder hereby further affirms that the irrevocable
proxy is coupled with an interest and may under no circumstances be
revoked. The Stockholder hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue hereof.
Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section 212(e) of the DGCL. The
irrevocable proxy granted hereunder shall automatically terminate upon the
termination of Sections 3(a) and 3(b) in accordance with Section 4.

(b) At any meeting (whether annual or special and whether or not an
adjourned or postponed meeting) of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's vote, consent or other approval is sought (in the
Stockholder's capacity as a stockholder of the Company), the Stockholder
shall vote (or cause to be voted) the Subject Shares of the Stockholder
against (i) any Takeover Proposal and (ii) any amendment of the Company's
certificate of incorporation or by-laws or other proposal or transaction
involving the Company or any of its subsidiaries, which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent or
nullify any provision of the Merger Agreement, the Merger or any other
transaction contemplated by the Merger Agreement or change in any manner
the voting rights of any class of capital stock of the Company. The
Stockholder shall not commit or agree to take any action inconsistent with
the foregoing.

(c) Other than pursuant to this Agreement, the Stockholder shall not
(i) sell, transfer, pledge, assign or otherwise dispose of (including by
gift) (collectively, "Transfer"), or enter into any Contract, option or
other arrangement (including any profit sharing arrangement) with respect
to the Transfer of, any Subject Shares (or any options to acquire shares of
Company Common Stock) to any person other than pursuant to the Merger or
(ii) enter into any voting arrangement, whether by proxy, voting agreement
or otherwise, with respect to any Subject Shares and shall not commit or
agree to take any of the foregoing actions.

(d) The Stockholder shall not, nor shall it authorize or permit any
employee or affiliate of, or any investment banker, financial advisor,
attorney, accountant or other representative of, the Stockholder to,
directly or indirectly through another person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other
action intended to, or which could reasonably be expected to, facilitate,
any inquiries or the making of any proposal that constitutes, or could
reasonably be expected to lead to, any Takeover Proposal or (ii) enter
into, continue or otherwise participate in any discussions or negotiations
regarding, or furnish to any person (other than Parent and any of its
affiliates and representatives) any information with respect to, or
otherwise cooperate in any way with, any Takeover Proposal. The Stockholder
promptly shall advise Parent orally and in writing of any Takeover Proposal
or inquiry made to the Stockholder with respect to or that could reasonably
be expected to lead to any Takeover Proposal.

(e) The Stockholder shall use all reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by the
Merger Agreement. The Stockholder shall not issue any press release or make
any other public statement with respect to the Merger Agreement, the Merger
or any other transaction contemplated by the Merger Agreement without the
prior written consent of Parent, except as may be required by Applicable
Law.

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394

(f) The Stockholder hereby consents to and approves the actions taken
by the Board of Directors of the Company in approving the Merger Agreement
and this Agreement, the Merger and the other transactions contemplated by
the Merger Agreement. The Stockholder hereby waives, and agrees not to
exercise or assert, any appraisal rights under Section 262 in connection
with the Merger.

(g) If, at the time the Merger Agreement is submitted for adoption by
the stockholders of the Company, the Stockholder is an "affiliate" of the
Company for purposes of Rule 145 under the Securities Act and has made or
proposes to make a Share Election, the Stockholder shall deliver to Parent
prior to the Closing a written agreement substantially in the form attached
as Exhibit A to the Merger Agreement.

SECTION 4. Termination. This Agreement shall terminate upon the earliest
of (i) the Effective Time and (ii) the termination of the Merger Agreement in
accordance with its terms.

SECTION 5. Additional Matters. (a) Each Stockholder shall, from time to
time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments as Parent may
reasonably request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.

(b) No person executing this Agreement who is or becomes during the term
hereof a director or officer of the Company makes any agreement or understanding
herein in his or her capacity as such a director or officer of the Company. Each
Stockholder signs solely in his, her or its capacity as the record holder and
beneficial owner of, or the trustee of a trust whose beneficiaries are the
beneficial owners of, such Stockholder's Subject Shares and nothing herein shall
limit or affect any actions taken by any Stockholder in his or her capacity as
an officer or director of the Company.

SECTION 6. General Provisions.

(a) Amendments. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.

(b) Notice. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or sent by overnight
courier (providing proof of delivery) to Parent in accordance with Section 8.02
of the Merger Agreement and to the Stockholders at their respective addresses
set forth on Schedule A hereto (or at such other address for a party as shall be
specified by like notice).

(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation".

(d) 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. 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 to the fullest extent
permitted by applicable law in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.

(e) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement. This
Agreement shall become effective against Parent when one or more counterparts
have been signed by Parent and delivered to each Stockholder. This Agreement
shall become effective against any Stockholder when one or more counterparts
have been executed by such Stockholder and delivered to Parent. Each party need
not sign the same counterpart.

(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and

B-4
395

understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.

(g) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.

(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by Parent without the prior written consent of
each Stockholder (except that Parent may assign, in its sole discretion, any or
all of its rights, interests and obligations hereunder, to any direct or
indirect wholly owned subsidiary of Parent) or by any Stockholder without the
prior written consent of Parent, and any purported assignment without such
consent shall be void. Subject to the preceding sentences, this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.

(i) Enforcement. The parties agree that irreparable damage would occur and
that the parties would not have any adequate remedy at law in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties will be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any Federal court located in the State of Delaware or in any
Delaware state court, the foregoing being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the parties
hereto (i) consents to submit itself to the personal jurisdiction of any Federal
court located in the State of Delaware or any Delaware state court in the event
any dispute arises out of this Agreement or any of the transactions contemplated
by this Agreement, (ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
(iii) agrees that it will not bring any action relating to this Agreement or any
of the transactions contemplated by this Agreement in any court other than a
Federal court sitting in the State of Delaware or any Delaware state court and
(iv) waives any right to trial by jury with respect to any claim or proceeding
related to or arising out of this Agreement or any transaction contemplated by
this Agreement.

(j) Agent for Service of Process. Each Stockholder hereby appoints
CorpAmerica, Inc., with offices on the date hereof at 30 Old Rudnick Lane, City
of Dover, County of Kent, Delaware 19901, as its authorized agent (the
"Authorized Agent"), upon whom process may be served in any suit, action or
proceeding arising out of or relating to this Agreement or any transaction
contemplated by this Agreement that may be instituted in any court described in
Section 6(i)(i). Each Stockholder agrees to take any and all action at no cost
to such Stockholder, including the filing of any and all documents, that may be
reasonably necessary to establish and continue such appointment in full force
and effect as aforesaid. Each Stockholder agrees that service of process upon
the Authorized Agent shall be, in every respect, effective service of process
upon such Stockholder.

IN WITNESS WHEREOF, each party has duly executed this Agreement, all as of
the date first written above.

VIVENDI UNIVERSAL, S.A.,

by /s/ JEAN-MARIE MESSIER
---------------------------------------
Name: Jean-Marie Messier
Title: Chairman and CEO

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK --
STOCKHOLDER SIGNATURE PAGES FOLLOW]

B-5
396

/s/ MICHAEL L. ROBERTSON
-----------------------------------------
Name: Michael L. Robertson

/s/ LESLIE BURCHAM
-----------------------------------------
Name: Leslie Burcham

The SKL Trust,

by /s/ MICHAEL L. ROBERTSON
--------------------------------------
Name: Michael L. Robertson
Title: Trustee

by /s/ LESLIE BURCHAM
--------------------------------------
Name: Leslie Burcham
Title: Trustee

Robertson Descendant's
Irrevocable 1999 Trust,

by /s/ MICHAEL L. ROBERTSON
--------------------------------------
Name: Michael L. Robertson
Title: Trustee

by /s/ LESLIE BURCHAM
--------------------------------------
Name: Leslie Burcham
Title: Trustee

Michael L. Robertson 1999 Trust,

by /s/ MICHAEL L. ROBERTSON
--------------------------------------
Name: Michael L. Robertson
Title: Trustee

Leslie Burcham 1999 Trust,

by /s/ LESLIE BURCHAM
--------------------------------------
Name: Leslie Burcham
Title: Trustee

B-6
397

/s/ ROBIN D. RICHARDS
-----------------------------------------
Name: Robin D. Richards

/s/ SUSAN B. RICHARDS
-----------------------------------------
Name: Susan B. Richards

Richards Family Trust,
by /s/ SUSAN B. RICHARDS
---------------------------------------
Name: Susan B. Richards
Title: Trustee

by /s/ ROBIN D. RICHARDS
---------------------------------------
Name: Robin D. Richards
Title: Trustee

Richards Descendant's
Irrevocable Trust,

by /s/ SUSAN B. RICHARDS
---------------------------------------
Name: Susan B. Richards
Title: Trustee

by /s/ ROBIN D. RICHARDS
---------------------------------------
Name: Robin D. Richards
Title: Trustee

Robin D. Richards 1999 Trust,

by /s/ ROBIN D. RICHARDS
---------------------------------------
Name: Robin D. Richards
Title: Trustee

Susan B. Richards 1999 Trust,

by /s/ SUSAN B. RICHARDS
---------------------------------------
Name: Susan B. Richards
Title: Trustee

B-7
398

/s/ MARK STEVENS
-----------------------------------------
Name: Mark Stevens

Sequoia Capital VIII
Sequoia International
Technology Partners VIII
Sequoia International
Technology Partners VIII(Q)

by SC VIII Management, LLC
A California Limited
Liability Company,
its General Partner

by /s/ MARK STEVENS
---------------------------------------
Name: Mark Stevens
Title: Managing Member

CMS Partners LLC
Sequoia 1997
Sequoia Capital Franchise Fund
Sequoia Capital Franchise
Partners

by /s/ MARK STEVENS
---------------------------------------
Name: Mark Stevens
Title: Partner

B-8
399

SCHEDULE A

NUMBER OF SUBJECT
NAME OF STOCKHOLDER SHARES OWNED
------------------- -----------------

Michael L. Robertson & related trusts 23,057,927

Leslie Burcham 379,478

Robin D. Richards & related trusts 1,503,446

Susan B. Richards 161,250

Sequoia Capital & related entities 9,837,011

Mark Stevens 8,000

400

ANNEX C

[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]

May 20, 2001

Board of Directors
MP3.com, Inc.
4790 Eastgate Mall
San Diego, California 92121
Members of the Board:

You have asked us to advise you with respect to the fairness, from a financial
point of view, to the holders of the common stock of MP3.com, Inc. ("MP3.com")
of the Merger Consideration (as defined below) set forth in the Agreement and
Plan of Merger, dated as of May 20, 2001 (the "Merger Agreement"), by and among
Vivendi Universal ("Vivendi"), Metronome Acquisition Sub Inc., a wholly owned
subsidiary of Vivendi ("Merger Sub"), and MP3.com. The Agreement provides for,
among other things, the merger of MP3.com with and into Merger Sub (the
"Merger") pursuant to which Merger Sub will be the surviving corporation and
each outstanding share of the common stock, par value $0.001 per share, of
MP3.com ("MP3.com Common Stock") will be converted into the right to receive, at
the election of the holder thereof and subject to certain procedures and
limitations set forth in the Merger Agreement as to which we express no opinion,
(i) $5.00 in cash (the "Cash Consideration") or (ii) that number of ordinary
shares, nominal value E5.50 per share, of Vivendi ("Vivendi Ordinary Shares")
(such Vivendi Ordinary Shares to be delivered in the form of American depository
shares representing Vivendi Ordinary Shares ("Vivendi ADSs" and, together with
the Vivendi Ordinary Shares, the "Vivendi Shares")) equal to the quotient
obtained by dividing $5.00 by the average per share closing price of Vivendi
ADSs on the New York Stock Exchange for the five consecutive trading days ending
on the trading day immediately preceding the date of the Stockholders Meeting
(as defined in the Merger Agreement) (the "Stock Consideration" and, together
with the Cash Consideration, as appropriate, the "Merger Consideration"). We
understand that each Vivendi ADS represents the right to receive one Vivendi
Ordinary Share.

In arriving at our opinion, we have reviewed the Merger Agreement and certain
related documents, as well as certain publicly available business and financial
information relating to MP3.com and Vivendi. We also have reviewed certain other
information relating to MP3.com and Vivendi provided to or discussed with us by
MP3.com and Vivendi, including publicly available financial forecasts for
MP3.com and Vivendi, and have met with the managements of MP3.com and Vivendi to
discuss the businesses and prospects of MP3.com and Vivendi. We also have
considered certain financial and stock market data of MP3.com and Vivendi and we
have compared those data with similar data for publicly held companies in
businesses similar to MP3.com and Vivendi, and we have considered, to the extent
publicly available, the financial terms of certain other business combinations
and other transactions which have been announced or effected. We also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant, including the
potential impact on MP3.com of pending and future copyright infringement
litigation and related claims.

In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
such information being complete and accurate in all material respects. With
respect to the publicly available financial forecasts for MP3.com and Vivendi
referred to above, we have reviewed and discussed such forecasts with the
managements of MP3.com and Vivendi and have been advised, and have assumed, that
such forecasts represent reasonable estimates and judgments as to the future
financial performance of MP3.com and Vivendi. We also have assumed, with your
consent, that the Merger will be treated as a tax-free reorganization for
federal income tax purposes. We have not been requested to

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Board of Directors
MP3.com, Inc.
May 20, 2001
Page 2

make, and have not made, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of MP3.com or Vivendi, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon information available to us, and financial, economic, market and
other conditions as they exist and can be evaluated, on the date hereof. We are
not expressing any opinion as to what the value of Vivendi ADSs actually will be
when issued pursuant to the Merger or the prices at which Vivendi Shares will
trade at any time. In connection with our engagement, we were not requested to,
and did not, solicit third party indications of interest in the possible
acquisition of all or a part of MP3.com. Our opinion does not address the
relative merits of the Merger as compared to other business strategies that
might be available to MP3.com, nor does it address the underlying business
decision of MP3.com to proceed with the Merger.

We have acted as financial advisor to MP3.com in connection with the Merger and
will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger. We also will receive a fee upon
delivery of this opinion. We and our affiliates have in the past provided
financial services to MP3.com and Vivendi unrelated to the proposed Merger, for
which services we have received compensation. In the ordinary course of
business, we and our affiliates may actively trade the securities of MP3.com and
Vivendi for our own and such affiliates' accounts and for the accounts of
customers and, accordingly, may at any time hold long or short positions in such
securities.

It is understood that this letter is for the information of the Board of
Directors of MP3.com in connection with its evaluation of the Merger and does
not constitute a recommendation to any stockholder as to the form of the Merger
Consideration such stockholder should elect to receive or as to how such
stockholder should vote or act on any other matter relating to the Merger.

Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Merger Consideration is fair, from a financial point of view, to the
holders of MP3.com Common Stock.

Very truly yours,

CREDIT SUISSE FIRST BOSTON CORPORATION

C-2
402

ANNEX D

SECTION 262 OF DELAWARE GENERAL CORPORATION LAW

APPRAISAL RIGHTS

(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:

(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depositary receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:

a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.

D-1
403

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or

(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, then, either a constituent corporation before
the effective date of the merger or consolidation, or the surviving or
resulting corporation within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated, therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given,
D-2
404

provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If
no record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may

D-3
405

participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to received
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.

(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.

D-4