AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 2001
REGISTRATION NO. 333-
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
USA NETWORKS, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 4833 59-2712887
(State or other Jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
Incorporation or Organization) Classification Code Number)
152 WEST 57TH STREET
NEW YORK, NEW YORK, 10019
(212) 314-7300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
JULIUS GENACHOWSKI, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
USA NETWORKS, INC., 152 WEST 57TH STREET
NEW YORK, NEW YORK 10019 (212) 314-7300
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
------------------------------
WITH COPIES TO:
PETER D. LYONS, ESQ. PAMELA S. SEYMON, ESQ. RICHARD B. DODD, ESQ.
Shearman & Sterling Wachtell, Lipton, Rosen & Preston Gates & Ellis LLP
555 California Street, Suite 2000 Katz 701 Fifth Avenue, Suite 5000
San Francisco, California 94104 51 West 52nd Street Seattle, Washington 98104
(415) 616-1100 New York, New York 10019-6150 (206) 623-7580
(212) 403-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective and all other
conditions to the acquisition of a controlling interest in Expedia, Inc. by the
Registrant pursuant to the agreement and plan of recapitalization and merger
described in the enclosed joint prospectus/proxy statement have been satisfied
or waived.
------------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
REGISTERED(1) REGISTERED PRICE PER SHARE OFFERING PRICE(3) REGISTRATION FEE(7)
Common Stock, $0.01 par value................ 54,247,938(2) N/A $1,476,187,500 $369,047(8)
Convertible Redeemable Preferred Stock, $0.01
par value.................................. 13,125,000 N/A N/A(4) N/A
Warrants to purchase one share of Common
Stock...................................... 16,985,000 N/A N/A(5) N/A
Common Stock, $0.01 par value................ 16,985,000(6) $35.10 $596,173,000 $149,044
(1) This registration statement relates to securities of the Registrant issuable
to holders of up to 37,500,000 shares of Class B common stock, par value
$.01 per share, of Expedia, Inc., a Washington corporation ("Expedia"), in
the proposed merger of a wholly owned subsidiary of the Registrant with and
into Expedia.
(2) The number of shares of common stock, par value $.01 per share, of the
Registrant ("USAi common stock") to be registered pursuant to this
Registration Statement is based on the maximum number of shares of USAi
common stock issuable to stockholders of Expedia in the merger, including
those shares issuable upon the conversion or exercise of the preferred stock
of the Registrant.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) and 457(c) under the Securities Act of 1933, as amended
(the "Securities Act"), based on the number of shares of common stock, par
value $.01 per share, of Expedia to be exchanged in the merger described
herein (37,500,000 shares) multiplied by $39.365, the average of the high
and low prices of such stock as reported on the Nasdaq National Market on
August 15, 2001.
(4) No consideration will be received by the Registrant upon the conversion of
the preferred stock into common stock in connection with the exercise of the
conversion right.
(5) The registration fee for the warrants is included in the registration fee
for the common stock to be issued upon their exercise as set forth below.
(6) Maximum number of shares of common stock, par value $0.01 per share, of the
Registrant to be issued upon exercise of the warrants being offered in the
exchange offer.
(7) Calculated by multiplying 0.00025 by the proposed maximum aggregate offering
price.
(8) A fee of $369,047 is being paid simultaneously by Expedia in respect of the
37,500,000 shares of Expedia shares being acquired by the Registrant in this
transaction. Pursuant to Rule 457(b) under the Securities Act of 1933, as
amended, such fee is being credited against the registration fee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SUBJECT TO COMPLETION--DATED AUGUST 22, 2001
[LOGO]
, 2001
Dear Shareholder:
Your Board of Directors, as well as the Boards of Directors of USA
Networks, Inc. and Microsoft Corporation, have approved the acquisition of a
controlling interest in Expedia, Inc. by USA, a media and electronic commerce
company. The acquisition is structured as a merger of a wholly owned subsidiary
of USA into Expedia, with Expedia surviving as a public company controlled by
USA.
Under the terms of the merger agreement, you will have the choice of either
(1) retaining your shares of Expedia common stock and in addition receiving
warrants to acquire Expedia common stock, or (2) exchanging your shares of
Expedia common stock for a package of USA securities consisting of USA common
stock, USA convertible redeemable preferred stock and warrants to acquire USA
common stock, subject to proration as we describe in this document. Following
the merger, Expedia will also own various travel and media-related assets
contributed by USA that are described in further detail in this document.
Before we can proceed with the merger and the other related transactions
described below, at the annual meeting the holders of a majority of the
outstanding shares of Expedia common stock must vote in favor of the merger
agreement as well as each of the other proposals relating to the transactions
being presented to Expedia shareholders. Please note that Microsoft, which owns
33,722,710 shares, or approximately 67%, of Expedia's common stock, has granted
to USA an irrevocable proxy to vote in favor of each of the proposals relating
to the transactions to be presented at the annual meeting. The vote of
Microsoft's shares is sufficient to ensure approval of all these matters.
Microsoft has also agreed to elect to receive USA securities in exchange for all
of its Expedia shares, subject to proration in the event that shareholders
holding more than 37,500,000 shares of Expedia common stock elect to receive USA
securities. Microsoft's decision to elect to receive the USA securities in the
merger was based on its own financial needs, goals and situation. Microsoft's
election is not a recommendation of the suitability of the USA securities for
any other person or a recommendation concerning the investment merits of the USA
securities in comparison to Expedia securities.
Expedia common stock is traded on Nasdaq under the symbol "EXPE" and USA
common stock is traded on Nasdaq under the symbol "USAI." Shares of USA
preferred stock, warrants to acquire USA common stock and warrants to acquire
Expedia common stock are expected to be listed on .
YOUR BOARD OF DIRECTORS, WITH ONE DIRECTOR EXCUSED, UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR EACH OF THE PROPOSALS RELATING TO THE TRANSACTIONS BEING
PRESENTED AT THE ANNUAL MEETING BUT MAKES NO RECOMMENDATION AS TO WHETHER YOU
SHOULD ELECT TO RECEIVE THE PACKAGE OF USA SECURITIES IN THE MERGER.
Whether or not you attend the annual meeting, it is important that your
shares be represented and voted at the meeting. Therefore, I urge you to sign,
date and promptly return the enclosed proxy in the enclosed postage-paid
envelope. Sending in your proxy will not prevent you from voting your shares at
the meeting in person if you so desire, as your proxy is revocable at your
option.
Sincerely,
/s/ Richard N. Barton
Richard N. Barton
CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED ANY OF THE USA SECURITIES OR EXPEDIA
SECURITIES TO BE ISSUED IN THE RECAPITALIZATION AND/OR MERGER, OR DETERMINED IF
THIS JOINT PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS JOINT
PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE ILLEGAL.
WE URGE YOU TO CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 19 OF
THIS JOINT PROSPECTUS/PROXY STATEMENT.
The date of this joint prospectus/proxy statement is , 2001. It is
first being mailed to Expedia shareholders on or about , 2001.
HOW TO OBTAIN ADDITIONAL INFORMATION
THIS JOINT PROSPECTUS/PROXY STATEMENT INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT USA AND EXPEDIA THAT IS NOT INCLUDED IN OR DELIVERED
WITH THIS DOCUMENT. THIS INFORMATION IS DESCRIBED UNDER "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 17. YOU CAN OBTAIN FREE COPIES OF THIS INFORMATION FROM
USA, EXPEDIA OR THE PROXY SOLICITATOR BY WRITING OR CALLING:
FOR USA DOCUMENTS: FOR EXPEDIA DOCUMENTS:
USA Networks, Inc. Expedia, Inc.
152 West 57th Street 13810 SE Eastgate Way, Suite 400
New York, New York 10019 Bellevue, Washington 98005
Attention: Investor Relations Attention: Investor Relations
Telephone: (212) 314-7300 Telephone: (425) 564-7233
or
FOR USA AND/OR EXPEDIA DOCUMENTS:
[LOGO]
156 Fifth Avenue
New York, NY 10010
(212) 929-5500 (collect)
(800) 322-2885 (toll-free)
IF YOU WOULD LIKE TO REQUEST ANY DOCUMENTS, PLEASE DO SO BY , 2001, IN
ORDER TO RECEIVE THEM BEFORE THE ANNUAL MEETING.
EXPEDIA, INC.
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2001
---------------------
An annual meeting of shareholders of Expedia, Inc., a Washington
corporation, will be held at a.m., local time, on , 2001 at
, , , , for the following purposes:
1. To consider and vote on a proposal to approve the Amended and Restated
Agreement and Plan of Recapitalization and Merger, dated as of July 15,
2001, among USA Networks, Inc., Expedia, Taipei, Inc., a wholly owned
subsidiary of USA, Microsoft Corporation and Microsoft E-Holdings, Inc., a
wholly owned subsidiary of Microsoft (which we refer to in this document as
the "MERGER AGREEMENT"), and the transactions contemplated thereby. Under
the terms of the merger agreement, among other things:
- USA will contribute to Taipei travel and media-related assets;
- Expedia will be recapitalized, with shareholders of Expedia electing to
either (a) retain their shares of Expedia common stock, which will remain
outstanding following the merger, and also receive warrants to acquire
Expedia common stock in the merger, or (b) exchange all or some of their
shares of Expedia common stock for shares of Expedia Class B common stock,
which shares will then be converted into the right to receive a package of
USA securities in the merger, subject to proration if holders of more than
37,500,000 shares of Expedia common stock elect to receive shares of
Expedia Class B common stock in the recapitalization; and
- Taipei will merge with and into Expedia, with Expedia surviving as a
public company controlled by USA.
2. To consider and vote on a proposal to amend and restate Expedia's Articles
of Incorporation to, among other things, create a high-vote and low-vote
class of common stock and to make other changes to the Articles of
Incorporation included in Annex B to this joint prospectus/proxy statement.
3. To consider and vote on a proposal to terminate the Shareholder Agreement,
dated as of October 1, 1999, between Expedia and Microsoft.
4. To consider and vote on a proposal to elect seven directors to serve until
the 2002 annual meeting of Expedia shareholders, four of whom will be
replaced upon closing of the transactions.
5. To consider and vote on a proposal to adopt the Expedia, Inc. 2001 Stock
Plan.
6. To transact any other business as may properly come before the annual
meeting or any adjournment or postponement.
Holders of record at the close of business on , 2001 of shares of
Expedia common stock will be entitled to vote at the annual meeting or any
adjournment or postponement.
By Order of the Board of Directors
/s/ Mark S. Britton
Mark S. Britton
SECRETARY
Bellevue, Washington
, 2001
WHAT YOU WILL RECEIVE IN THE MERGER
Immediately prior to the merger, Expedia will recapitalize its capital stock
to create a new class of common stock, Expedia Class B common stock. In
connection with the recapitalization, you have the right up to the election
deadline to elect to exchange, on a share-for-share basis, some or all of your
shares of Expedia common stock for Expedia Class B common stock, subject to
proration in the event that shareholders submit elections covering more than
37,500,000 shares of Expedia Class B common stock. ONLY SHARES OF EXPEDIA
CLASS B COMMON STOCK WILL BE CONVERTED INTO USA SECURITIES IN THE MERGER. All
shares of Expedia common stock that are not exchanged for Class B common stock
in the recapitalization will remain outstanding following the merger. In
addition, holders of Expedia common stock that remain outstanding following the
merger will receive warrants to acquire Expedia common stock.
If you hold outstanding Expedia warrants (which we refer to in this document
as "OUTSTANDING EXPEDIA WARRANTS") or vested Expedia stock options, you may also
participate in the election provided that you comply with the procedures we
describe under "Proposal No. 1--Approval of the Merger Agreement--Structure of
the Transactions--Recapitalization--Election Procedures."
The following hypothetical examples illustrate the consideration that you
may receive in the merger in exchange for your Expedia shares, depending upon
whether you (1) retain some or all of your shares of Expedia common stock and
receive warrants to purchase additional shares of Expedia common stock, or
(2) elect to exchange some or all of your shares of Expedia common stock for
shares of Expedia Class B common stock in the recapitalization and, as a result,
receive the package of USA securities in the merger. No fractional shares or
warrants will be issued in the merger. Instead, you will receive cash in place
of fractional shares and/or warrants. These cash payments are not reflected in
the examples below.
EXPEDIA COMMON STOCK
If you do not exchange your shares of Expedia common stock for Expedia
Class B common stock in the recapitalization and do not exercise your
dissenters' rights in the merger, you will retain your shares of Expedia common
stock in the merger. In addition, you will receive, for each share of Expedia
common stock that you hold at the time of the merger, 0.1920 of a warrant to
acquire one share of Expedia common stock (which we refer to in this document as
"NEW EXPEDIA WARRANTS") with a term of seven years and an exercise price of
$52.00 per share of Expedia common stock. The following examples illustrate what
a holder of 100, 150 and 200 shares of Expedia common stock would receive in the
merger:
RETAINED
SHARES OF SHARES OF WARRANT NUMBER OF
EXPEDIA EXPEDIA EXCHANGE EXPEDIA
COMMON STOCK COMMON STOCK RATIO WARRANTS
--------------------- ------------ -------- ---------
100.................. 100 .1920 19
150.................. 150 .1920 28
200.................. 200 .1920 38
i
EXPEDIA CLASS B COMMON STOCK
If you elect to exchange some or all of your shares of Expedia common stock
for Expedia Class B common stock in the recapitalization, each share of Expedia
Class B common stock that you receive in the recapitalization will be converted
into the right to receive the following consideration in the merger:
- a fraction of a share of USA common stock ranging in value from $15.54 (if
Microsoft is the only shareholder that elects to receive Expedia Class B
common stock in the recapitalization) to $17.50 (if the maximum number of
37,500,000 shares of Expedia Class B common stock are issued in the
recapitalization) if the measurement period value of a share of USA common
stock ranges from $23.00 to $31.00. If the measurement period value is
either greater than $31.00 or less than $23.00, the exact USA common stock
exchange ratio will be based on the fraction obtained assuming the
measurement period value was $31.00 or $23.00, respectively. The
measurement period value for USA common stock is the average closing price
of USA common stock over a ten consecutive trading-day period ending on
the second trading day prior to the date of the annual meeting;
- a fraction of a share of USA convertible redeemable preferred stock (which
we refer to in this document as "USA PREFERRED STOCK") ranging from 0.3892
(if Microsoft is the only shareholder that elects to receive Expedia
Class B common stock in the recapitalization) to 0.3500 (if the maximum
number of 37,500,000 shares of Expedia Class B common stock are issued in
the recapitalization). Each share of USA preferred stock has a $50 face
value, a 1.99% annual dividend, two votes per share, and is convertible at
any time into USA common stock at a conversion price of $33.75 per USA
share, subject to downward adjustment to the extent that the average share
price of USA common stock over a ten trading-day period prior to
conversion is greater than $35.10. The adjustment to the conversion price
is described in more detail on page 64 of this joint prospectus/proxy
statement; and
- a fraction of a warrant to acquire one share of USA common stock (which we
refer to in this document as "USA WARRANTS") ranging from 0.3873 to
0.4524, the exact fractional amount to be based on a measurement period
value for USA common stock ranging from $25.75 to $28.25 per share. The
exact USA warrant exchange ratio will be based on the measurement period
value for USA common stock as set forth in Annex F to this document. Each
USA warrant has a seven-year term and an exercise price of $35.10 per
share of USA common stock.
In order to preserve the tax-free nature of the transactions, under certain
circumstances the USA warrant exchange ratio may be decreased and the USA common
stock exchange ratio may be increased. If this occurs, you will receive fewer
USA warrants and more shares of USA common stock and the value of the USA common
stock received may be less than the value of the warrants it replaced. The
circumstances under which this may occur are described under "The Transaction
Agreements--The Merger Agreement--Treatment of Securities in the Merger--Tax
Adjustment" and are not reflected in the following examples.
The charts below show the merger consideration for 100 shares of Expedia
Class B common stock, assuming in the first chart that the maximum number of
shares of Expedia Class B common stock (37,500,000 shares) are issued in the
recapitalization, in the second chart that 35,500,000 shares of Expedia Class B
common stock are issued in the recapitalization, and in the final chart that
only Microsoft is issued shares of Expedia Class B common stock (33,722,710
shares) in the recapitalization. Because the same aggregate number of USA
preferred shares (13,125,000 shares) will be issued in the merger regardless of
the number of shares of Expedia Class B common stock issued in the
recapitalization, the USA preferred stock exchange ratio and the USA common
stock exchange ratio will vary depending upon the actual number of shares of
Expedia common stock exchanged for Expedia Class B common stock in the
recapitalization.
ii
37,500,000 SHARES OF EXPEDIA CLASS B COMMON STOCK ISSUED (MAXIMUM NUMBER)
MEASUREMENT
SHARES OF PERIOD PRICE PREFERRED
EXPEDIA OF USA COMMON STOCK SHARES OF STOCK SHARES OF USA WARRANT
CLASS B COMMON EXCHANGE USA COMMON EXCHANGE PREFERRED EXCHANGE NUMBER OF
COMMON STOCK STOCK RATIO STOCK RATIO STOCK RATIO USA WARRANTS
--------------------- ------------ ------------ ---------- --------- ------------- -------- ------------
100............. < or = 31 0.5645 56 0.35 35 0.3873 38
100............. 30 0.5833 58 0.35 35 0.3873 38
100............. 29 0.6034 60 0.35 35 0.3873 38
100............. 28 0.6250 62 0.35 35 0.3930 39
100............. 27 0.6481 64 0.35 35 0.4176 41
100............. 26 0.6731 67 0.35 35 0.4451 44
100............. 25 0.7000 70 0.35 35 0.4524 45
100............. 24 0.7292 72 0.35 35 0.4524 45
100............. > or = 23 0.7609 76 0.35 35 0.4524 45
35,500,000 SHARES OF EXPEDIA CLASS B COMMON STOCK ISSUED
MEASUREMENT
SHARES OF PERIOD PRICE PREFERRED
EXPEDIA OF USA COMMON STOCK SHARES OF STOCK SHARES OF USA WARRANT
CLASS B COMMON EXCHANGE USA COMMON EXCHANGE PREFERRED EXCHANGE NUMBER OF
COMMON STOCK STOCK RATIO STOCK RATIO STOCK RATIO USA WARRANTS
--------------------- ------------ ------------ ---------- --------- ------------- -------- ------------
100............. < or = 31 0.5327 53 0.3697 36 0.3873 38
100............. 30 0.5505 55 0.3697 36 0.3873 38
100............. 29 0.5695 56 0.3697 36 0.3873 38
100............. 28 0.5898 58 0.3697 36 0.3930 39
100............. 27 0.6116 61 0.3697 36 0.4176 41
100............. 26 0.6352 63 0.3697 36 0.4451 44
100............. 25 0.6606 66 0.3697 36 0.4524 45
100............. 24 0.6881 68 0.3697 36 0.4524 45
100............. > or = 23 0.7180 71 0.3697 36 0.4524 45
iii
33,722,710 SHARES OF EXPEDIA CLASS B COMMON STOCK ISSUED (MINIMUM
NUMBER-ONLY MICROSOFT ELECTS)
MEASUREMENT
SHARES OF PERIOD PRICE PREFERRED
EXPEDIA OF USA COMMON STOCK SHARES OF STOCK SHARES OF USA WARRANT
CLASS B COMMON EXCHANGE USA COMMON EXCHANGE PREFERRED EXCHANGE NUMBER OF
COMMON STOCK STOCK RATIO STOCK RATIO STOCK RATIO USA WARRANTS
--------------------- ------------ ------------ ---------- --------- ------------- -------- ------------
100............. < or = 31 0.5013 50 0.3892 38 0.3873 38
100............. 30 0.5180 51 0.3892 38 0.3873 38
100............. 29 0.5359 53 0.3892 38 0.3873 38
100............. 28 0.5550 55 0.3892 38 0.3930 39
100............. 27 0.5755 57 0.3892 38 0.4176 41
100............. 26 0.5977 59 0.3892 38 0.4451 44
100............. 25 0.6216 62 0.3892 38 0.4524 45
100............. 24 0.6475 64 0.3892 38 0.4524 45
100............. > or = 23 0.6756 67 0.3892 38 0.4524 45
These examples are not intended to indicate what the future price of USA common
stock and/or Expedia common stock may actually be. We will not know the exact
value or the exact combination of USA securities that holders electing to
receive Expedia Class B common stock will receive in the merger at the time you
submit your election form and letter of transmittal or at the time of the
shareholder meeting. The measurement period value of USA common stock is subject
to change due to market and other conditions, and may be greater or less than
the market price of USA common stock on the date of this document, the date of
the shareholder meeting, the date you submit your election form and letter of
transmittal, or the date of the merger. Fluctuations in the price of USA common
stock and Expedia common stock in the period between the date you vote on the
transactions and the date the transactions are completed will affect the value
of the consideration you receive at the time the transactions are completed,
whether received in the form of USA securities or Expedia securities.
iv
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
THIS QUESTIONS AND ANSWERS SECTION PERTAINS SOLELY TO PROPOSALS RELATING TO
THE TRANSACTIONS BEING PRESENTED AT THE ANNUAL MEETING. WE HAVE INCLUDED
INFORMATION REGARDING THE PROPOSALS BEING PRESENTED AT THE ANNUAL MEETING TO
ELECT DIRECTORS AND TO ADOPT THE EXPEDIA, INC. 2001 STOCK PLAN ELSEWHERE IN THIS
JOINT PROSPECTUS/PROXY STATEMENT. FOR INFORMATION ON THESE PROPOSALS, SEE
"PROPOSAL NO. 4--ELECTION OF DIRECTORS" ON PAGE 110 AND "PROPOSAL
NO. 5--ADOPTION OF 2001 STOCK PLAN" ON PAGE 124.
Q: WHEN DO YOU EXPECT TO COMPLETE THE TRANSACTIONS?
A: We expect to complete the transactions in the fourth quarter of 2001.
Q: WHAT SHOULD I DO NOW?
A: SEND IN YOUR PROXY CARD: After reviewing this document, indicate on your
proxy card how you want to vote on each of the proposals, and sign, date and
mail it in the enclosed envelope as soon as possible to ensure that your
shares will be represented at the annual meeting.
If you do not sign and send in your proxy, and if you do not attend and cast
your vote in person at the annual meeting, it will have the effect of voting
against each of these proposals.
If you sign, date and send in your proxy but do not indicate how you want to
vote, your proxy will be voted in favor of the merger agreement, in favor of
the amendment and restatement of Expedia's articles of incorporation and in
favor of the termination of the shareholder agreement with Microsoft, all of
which proposals are contingent on approval of the other proposals relating
to the transactions and all of which are described in this document.
SEND IN YOUR ELECTION FORM AND LETTER OF TRANSMITTAL AND EXPEDIA STOCK
CERTIFICATES ONLY IF YOU WANT TO RECEIVE USA SECURITIES IN THE MERGER: If
you hold Expedia common stock and you wish to receive the package of USA
securities in the merger, you must elect to exchange some or all of your
shares of Expedia common stock for shares of Expedia Class B common stock in
the recapitalization. You must make your election by completing the enclosed
election form and letter of transmittal and submitting the election form and
letter of transmittal with the stock certificates covered by the election by
the election deadline of 5:00 p.m., eastern time, on , 2001, the date
of the annual meeting. We describe the instructions for making an election
on page 36 of this document.
Please note that because Expedia will only issue a maximum of 37,500,000
shares of Expedia Class B common stock in the recapitalization, even if you
make a valid election to receive Expedia Class B common stock, you may not
receive shares of Expedia Class B common stock for all of the shares of
Expedia common stock surrendered with the election form and letter of
transmittal. You will, however, receive your proportional allocation.
DO NOT SEND IN YOUR ELECTION FORM AND LETTER OF TRANSMITTAL OR EXPEDIA STOCK
CERTIFICATES IF YOU WISH TO RETAIN YOUR EXPEDIA SHARES AND RECEIVE WARRANTS
TO PURCHASE ADDITIONAL SHARES OF EXPEDIA COMMON STOCK IN THE MERGER: If you
do not elect to exchange your shares of Expedia common stock for Expedia
Class B common stock in the recapitalization, please retain your shares of
Expedia common stock. Following the merger, we will send you, in respect of
each share of Expedia common stock you own immediately prior to the merger
(including those retained because Expedia Class B common stock was
oversubscribed in the recapitalization), 0.1920 of an Expedia warrant.
Q: IF I HOLD OUTSTANDING EXPEDIA WARRANTS, CAN I PARTICIPATE IN THE ELECTION?
A: Yes, provided that you comply with the procedures we describe under "Proposal
No. 1--Approval of the Merger Agreement--Structure of the Transactions--
Recapitalization--Election Procedures" starting on page 36.
v
Q: IF I HOLD VESTED EXPEDIA STOCK OPTIONS, CAN I PARTICIPATE IN THE ELECTION?
A: Yes, provided you exercise your vested stock options prior to the election
deadline and comply with the procedures we describe under "Proposal
No. 1--Approval of the Merger Agreement--Structure of the
Transactions--Recapitalization--Election Procedures."
Q: WHAT IS THE DEADLINE FOR MAKING AN ELECTION TO EXCHANGE MY SHARES OF EXPEDIA
COMMON STOCK FOR SHARES OF EXPEDIA CLASS B COMMON STOCK?
A: The deadline for making an election is 5:00 p.m., eastern time, on ,
2001, the date of the annual meeting. You can call our proxy solicitator,
MacKenzie Partners, Inc., toll-free at (800) 322-2885 for the final average
trading price of USA common stock during the ten-day pricing period that
ends on the second trading day prior to the date of the annual meeting.
Q: CAN I CHANGE MY VOTE AND/OR REVOKE AN ELECTION AFTER I HAVE SUBMITTED MY
PROXY AND ELECTION FORM AND LETTER OF TRANSMITTAL?
A: Yes. You can change your vote by delivering a later-dated, signed proxy card
to Expedia's secretary before the annual meeting, or by attending the annual
meeting and voting in person. You may change your election by delivering a
later-dated, signed election form and letter of transmittal (together with
Expedia stock certificates, or other documentation, as required) to Mellon
Investor Services, the exchange agent for the transactions, prior to the
election deadline. If you revoke an earlier made election, your Expedia
stock certificates will be returned to you by the exchange agent.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES AND MAKE AN ELECTION FOR ME?
A: Your broker will vote your shares of Expedia common stock and make an
election for you only if you provide your broker with instructions on how to
vote and whether to elect. You should instruct your broker how to vote your
shares and whether to elect to receive the package of USA securities by
following the directions your broker provides. If you do not provide
instructions to your broker, your shares will not be voted (which will have
the effect of voting against the transactions) and you will not make an
election (in which case you will retain your Expedia common stock and will
receive new Expedia warrants in the merger).
Q: WHAT IF I DO NOT OWN EXPEDIA SHARES AS OF 2001, THE RECORD DATE?
A: If you do not own Expedia shares as of the record date, you will not be
eligible to vote on the proposals being presented at the annual meeting.
However, if you acquire Expedia shares after the record date, you may still
elect to exchange your shares of Expedia common stock for shares of Expedia
Class B common stock in the recapitalization or receive new Expedia warrants
for your Expedia shares in the merger, if you follow the procedures set
forth in this document.
Q: WHOM CAN I CALL WITH QUESTIONS?
A: If you have any questions about the merger or any related transactions, or
would like copies of any of the documents we refer to in this joint
prospectus/proxy statement, please call MacKenzie Partners, Inc., the proxy
solicitator, at (800) 322-2885.
vi
TABLE OF CONTENTS
PAGE
--------
WHAT YOU WILL RECEIVE IN THE MERGER... i
Expedia Common Stock.............. i
Expedia Class B Common Stock...... ii
QUESTIONS AND ANSWERS ABOUT THE
TRANSACTIONS........................ v
SUMMARY............................... 1
The Companies..................... 1
The Proposed Transactions......... 1
Treatment of Expedia Options in
the Transactions................ 2
Expedia Shareholder Vote
Required........................ 3
Recommendation to Shareholders.... 3
Opinion of Financial Advisor...... 3
The Transaction Agreements........ 4
Interests of Officers and
Directors....................... 7
The Annual Meeting................ 7
Expedia after the Merger.......... 8
Markets and Market Prices......... 8
Selected Historical and Pro Forma
Financial Information........... 9
Selected Historical Financial
Information..................... 10
Selected Pro Forma Combined
Condensed Financial
Information..................... 13
Unaudited Comparative Per Share
Data............................ 15
Comparative Per Share Market Price
Information..................... 16
Where You Can Find More
Information..................... 17
RISK FACTORS.......................... 19
Risk Factors Relating to the
Transactions.................... 19
Risk Factors Relating to USA...... 23
Risk Factors Relating to
Expedia......................... 24
THE ANNUAL MEETING.................... 31
Time and Place; Purposes.......... 31
Record Date; Voting Rights........ 31
Votes Required for Approval....... 32
Voting and Revocation of
Proxies......................... 32
PROPOSAL NO. 1--APPROVAL OF THE MERGER
AGREEMENT........................... 34
Structure of the Transactions..... 34
Background........................ 39
Recommendations of the Expedia
Board of Directors.............. 40
PAGE
--------
Information and Factors Considered
by the Expedia Board of
Directors....................... 40
Opinion of Expedia's Financial
Advisor......................... 44
Expedia after the Merger.......... 50
Other Interests of Expedia
Officers and Directors in the
Transactions.................... 51
Microsoft's Interests in the
Transactions.................... 55
Accounting Treatment.............. 55
Material Federal Income Tax
Consequences.................... 56
Regulatory Matters................ 59
Dissenters' Rights................ 60
Federal Securities Laws
Consequences.................... 63
THE TRANSACTION AGREEMENTS............ 63
The Merger Agreement.............. 63
Other Transaction Agreements...... 75
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS................ 78
USA............................... 78
Expedia........................... 85
PROPOSAL NO. 2--AMENDMENT AND
RESTATEMENT OF EXPEDIA'S ARTICLES OF
INCORPORATION....................... 90
DESCRIPTION OF EXPEDIA CAPITAL
STOCK............................... 93
General........................... 93
Expedia Common Stock and Expedia
Class B Common Stock............ 93
New Expedia Warrants.............. 93
Transfer Agent.................... 94
DESCRIPTION OF USA CAPITAL STOCK...... 94
USA Common Stock and USA Class B
Common Stock.................... 94
USA Preferred Stock............... 95
USA Warrants...................... 97
Transfer Agent.................... 97
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF EXPEDIA AND USA.................. 98
vii
PAGE
--------
PROPOSAL NO. 3--TERMINATION OF THE
SHAREHOLDER AGREEMENT............... 109
PROPOSAL NO. 4--ELECTION OF
DIRECTORS........................... 110
Nominees.......................... 110
Information Regarding Expedia's
Board of Directors and Its
Committees...................... 111
Compensation Committee Interlocks
and Insider Participation in
Compensation Decisions.......... 112
Beneficial Ownership................ 112
Executive Officer Compensation...... 115
Report of the Compensation
Committee......................... 117
Report of the Audit Committee....... 118
Performance Graph................... 119
Certain Relationships and Related
Transactions...................... 120
PROPOSAL NO. 5--ADOPTION OF 2001 STOCK
PLAN................................ 124
New Plan Benefits................. 126
Federal Income Tax Consequences... 126
Vote Required and Board
Recommendation.................. 128
PROPOSALS OF SHAREHOLDERS............. 128
AUDITORS.............................. 128
Fees to Expedia Accountants for
Services Rendered During Fiscal
2001............................ 129
OTHER MATTERS......................... 129
PAGE
--------
LEGAL MATTERS......................... 129
EXPERTS............................... 129
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS.......................... 129
ANNEXES
Annex A Amended and Restated
Agreement and Plan of
Recapitalization and
Merger.................. A-1
Annex B Amended and Restated
Articles of
Incorporation of
Expedia, Inc............ B-1
Annex C Amended and Restated
Bylaws of Taipei,
Inc..................... C-1
Annex D Opinion of Morgan
Stanley & Co.
Incorporated............ D-1
Annex E Voting and Election
Agreement............... E-1
Annex F USA Warrant Exchange
Ratio................... F-1
Annex G Chapter 23B.13 of the
Washington Business
Corporations Act........ G-1
Annex H Microsoft/Expedia
Agreement of July 15,
2001.................... H-1
Annex I Expedia, Inc. 2001 Stock
Plan.................... I-1
viii
SUMMARY
THIS DOCUMENT IS A PROSPECTUS AND A PROXY STATEMENT OF EXPEDIA. IN ADDITION,
THIS DOCUMENT, OTHER THAN "PROPOSAL NO. 4--ELECTION OF DIRECTORS" AND "PROPOSAL
NO. 5--ADOPTION OF 2001 STOCK PLAN," CONSTITUTES THE PROSPECTUS OF USA. THIS
SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS JOINT PROSPECTUS/ PROXY
STATEMENT. TO FULLY UNDERSTAND THE MERGER AND THE OTHER TRANSACTIONS
CONTEMPLATED IN CONNECTION WITH THE MERGER, AND FOR A MORE COMPLETE DESCRIPTION
OF THE LEGAL TERMS OF THESE TRANSACTIONS, YOU SHOULD READ THIS ENTIRE DOCUMENT
CAREFULLY, AS WELL AS THOSE ADDITIONAL DOCUMENTS TO WHICH WE REFER YOU. SEE
"WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 17. IN ADDITION, YOU SHOULD BE
AWARE THAT THIS SUMMARY DOES NOT HIGHLIGHT INFORMATION RELATING TO THE PROPOSALS
BEING PRESENTED AT THE ANNUAL MEETING TO ELECT DIRECTORS AND TO ADOPT THE
EXPEDIA, INC. 2001 STOCK PLAN. INFORMATION REGARDING THESE PROPOSALS IS NOT
INCLUDED IN THIS SUMMARY SECTION. FOR INFORMATION ON THESE PROPOSALS, SEE
"PROPOSAL NO. 4--ELECTION OF DIRECTORS" ON PAGE 110 AND "PROPOSAL
NO. 5--ADOPTION OF EXPEDIA, INC. 2001 STOCK PLAN" ON PAGE 124.
THE COMPANIES
USA NETWORKS, INC.
152 West 52nd Street
New York, New York 10019
(212) 314-7300
USA Networks, Inc. (Nasdaq: USAI), a Delaware corporation, is a company
focused on the new convergence of entertainment, information and direct selling.
USA is organized within two groups, the Entertainment Group and the Interactive
Group, comprised of interrelated business divisions that include the following
assets: USA Entertainment's USA Network, SCI FI Channel, TRIO, NWI, Crime,
Studios USA and USA Films; and USA Interactive's Home Shopping Network, HSN
International, HSN Interactive, Ticketmaster (Nasdaq: TMCS), which operates
Citysearch and Match.com, Hotel Reservations Network (Nasdaq: ROOM), Electronic
Commerce Solutions, Styleclick (Nasdaq: IBUY) and Precision Response
Corporation. USA Network's website is located at www.usanetworks.com.
EXPEDIA, INC.
13810 SE Eastgate Way, Suite 400
Bellevue, Washington 98005
(425) 564-7200
Expedia, Inc. (Nasdaq: EXPE), a Washington corporation, is a leading
provider of branded online travel services for leisure and business travelers.
Expedia operates its own website, located at
Expedia.com(-Registered Trademark-), with localized versions in the United
Kingdom, Germany and Canada. Expedia(-Registered Trademark-) also operates the
LVRS.com, VacationSpot.com-TM-, Travelscape.com-TM- and Rent-a-Holiday.com
websites and a Travelscape(-Registered Trademark-)/ LVRS-TM- sales call center
in Las Vegas. Expedia offers one-stop travel shopping and reservation services,
providing reliable, real-time access to schedule, pricing and availability
information for over 450 airlines, 43,000 lodging properties, all major car
rental companies, dozens of vacation and cruise suppliers and an increasing
number of local destination services providers.
Prior to completing its initial public offering in November 1999, Expedia
was part of Microsoft. As of June 30, 2001, Expedia employed 846 full-time
employees.
TAIPEI, INC.
c/o USA Networks, Inc.
152 West 52nd Street
New York, New York 10019
(212) 314-7300
Taipei, Inc., a Washington corporation, is a wholly owned subsidiary of USA,
created solely for the purpose of the proposed transactions. In accordance with
the terms of the merger described in this joint prospectus/proxy statement,
Taipei will merge with and into Expedia at the effective time of the merger.
THE PROPOSED TRANSACTIONS (see page 34)
The proposed transactions will involve the following steps:
- CONTRIBUTION OF ASSETS: Prior to the merger, USA will contribute the
following assets to Taipei, USA's wholly owned subsidiary that will merge
into Expedia:
-- a two-year option to acquire, at USA's purchase price, all of the
1
outstanding equity of National Leisure Group, Inc., a provider of
vacation and cruise packages, which USA has agreed to acquire;
-- a two-year option to purchase one third of USA's initial equity
interest in a travel channel that USA is currently developing. The
exercise price of the travel channel option will equal one-third of
the development costs USA incurs, plus interest, up to the date of
exercise in developing the travel channel; and
-- all of the outstanding equity of USA Media, LLC, which has as its sole
asset the right (at no cost to USA Media) to advertising, marketing
and promotion time, valued at $15 million for each of the next five
years, on the various media outlets owned by USA or its controlled
subsidiaries.
- RECAPITALIZATION OF EXPEDIA: Following the contribution of assets to
Taipei and immediately prior to the merger, Expedia will recapitalize its
common stock to create a new class of common stock, Expedia Class B common
stock, which will be entitled to 15 votes per share. In connection with
the recapitalization and subject to a maximum of 37,500,000 shares of
Expedia Class B common stock that Expedia will issue in the
recapitalization, Expedia shareholders and holders of outstanding Expedia
warrants who exercise such warrants prior to the recapitalization, may
elect to exchange some or all of their shares of Expedia common stock for
an equal number of shares of Expedia Class B common stock.
- AMENDMENT AND RESTATEMENT OF EXPEDIA'S ARTICLES OF INCORPORATION: As part
of the recapitalization, Expedia will amend and restate its articles of
incorporation to be in the form set forth on Annex B to this document.
- MERGER: Following the recapitalization, Taipei will merge with and into
Expedia, with Expedia surviving as a public company controlled by USA. In
the merger:
-- each share of Expedia Class B common stock will be converted into a
package of USA securities comprised of shares of USA common stock,
shares of USA convertible redeemable preferred stock and warrants to
acquire USA common stock;
-- each share of Expedia common stock will remain outstanding, with
holders of Expedia common stock also receiving warrants to acquire
Expedia common stock; and
-- outstanding shares of Taipei common stock, all of which are held by
USA, will be converted into the right to receive an aggregate number
of shares of Expedia Class B common stock equal to the number of
shares of Expedia Class B common stock issued in the recapitalization.
As a result of the merger, Expedia will succeed to Taipei's rights to the
travel and media-related assets which were contributed to Taipei prior to the
merger.
- TERMINATION OF SHAREHOLDER AGREEMENT: At the effective time of the merger,
the existing shareholder agreement between Expedia and Microsoft will be
terminated. The ongoing relationship between Microsoft and Expedia will be
governed by any ongoing agreements they have.
TREATMENT OF EXPEDIA OPTIONS IN THE TRANSACTIONS
Expedia options will remain unchanged following the transactions. Prior to
the date of the annual meeting, Expedia will distribute to holders of vested and
unvested Expedia options issued under Expedia employee benefit plans on or prior
to August 2, 2001, 0.1920 of a restricted Expedia warrant for each Expedia
option outstanding at the time of this distribution. The restricted Expedia
warrants to be distributed to
2
optionholders have terms identical to the terms of the Expedia warrants being
distributed in the merger to holders of Expedia common stock, except that the
restricted warrants being distributed to Expedia optionholders are subject to
the same vesting schedule as the options in respect of which the warrants are
being issued and will not be transferable and may not be exercised for a period
of 90 days following the date of their issue.
If a holder of a vested option desires to elect to receive Expedia Class B
common stock in the recapitalization and USA securities in the merger, the
holder must exercise his options prior to the election deadline.
EXPEDIA SHAREHOLDER VOTE REQUIRED
We refer to the contribution of assets to Taipei, the recapitalization of
Expedia, the amendment and restatement of Expedia's articles of incorporation,
the merger and the termination of the shareholder agreement with Microsoft
collectively throughout this document as the "TRANSACTIONS."
USA, Expedia and Microsoft will only proceed with the transactions if each
of Proposal No. 1, Proposal No. 2 and Proposal No. 3, as each of these proposals
is described in this joint prospectus/proxy statement (we refer to these
proposals in this document as "THE PROPOSALS RELATING TO THE TRANSACTIONS") has
been approved by holders of a majority of the shares of Expedia common stock
outstanding on , 2001, the record date, and the other conditions to the
transactions are satisfied or waived. Microsoft has agreed to vote all its
shares of Expedia common stock in favor of the proposals relating to the
transactions and has granted USA an irrevocable proxy to vote its shares in
favor of each of the proposals related to the transactions. The vote of
Microsoft shares is sufficient to ensure approval of all of the proposals
relating to the transactions.
RECOMMENDATION TO SHAREHOLDERS
(see page 40)
The Expedia board of directors, with one director excused, has unanimously
determined that each of the proposals relating to the transactions being
presented to you at the annual meeting is consistent with, and in furtherance
of, the long-term business strategy of Expedia and is fair to, and in the best
interests of, Expedia and its shareholders and recommends that you vote FOR
approval and adoption of each of these proposals. However, the Expedia board of
directors is not taking a position on whether you should remain as a shareholder
of Expedia or elect to receive shares of Expedia Class B common stock in the
recapitalization, and as a result USA securities in the merger.
Microsoft has agreed to exchange all of its shares of Expedia common stock
for shares of Expedia Class B common stock in the recapitalization, subject to
proration, and thus, to receive the USA securities in the merger. Other
shareholders of Expedia may not be subject to the same restraints on liquidity
with respect to the Expedia shares as Microsoft. Other shareholders may have
objectives and concerns that are different than Microsoft's. Microsoft's
election is not a recommendation of the suitability of the USA securities for
any other person or as a recommendation concerning the investment merits of the
USA securities in comparison to Expedia securities. Microsoft specifically
disclaims any such recommendations.
You should refer to the material factors considered by the Expedia board of
directors in making its decision to adopt and approve the proposals relating to
the transactions. These material factors are discussed beginning on page 40.
OPINION OF FINANCIAL ADVISOR (see page 44)
In deciding to approve the transactions, the Expedia board of directors
considered the opinion of its financial advisor, Morgan Stanley & Co.
Incorporated, that, as of July 15, 2001, and subject to and based on the
assumptions and considerations referred to in Morgan Stanley's opinion, the
consideration to be received by the holders of shares of Expedia common stock
(other than Microsoft) pursuant to the terms of the merger agreement was fair
from a financial point of view to such holders.
3
THE FULL TEXT OF MORGAN STANLEY'S OPINION IS ATTACHED AS ANNEX D TO THIS JOINT
PROSPECTUS/ PROXY STATEMENT. Expedia urges its shareholders to read the opinion
of Morgan Stanley in its entirety.
THE TRANSACTION AGREEMENTS
THE MERGER AGREEMENT (see page 34)
We have attached the merger agreement, which is the legal document that
governs the transactions, as Annex A to this document. In addition, we have
attached the proposed amended and restated articles of Expedia as Annex B and
the amended and restated bylaws of Taipei, which will become the bylaws of
Expedia as a result of the merger, as Annex C. We encourage you to read these
documents carefully. We have also filed other related agreements as exhibits to
USA's and Expedia's registration statements. Please see the section titled
"Where You Can Find More Information," on page 17, for instructions on how to
obtain copies of these exhibits.
CONDITIONS (see page 73)
USA, Expedia and Microsoft will complete the transactions only if certain
conditions are satisfied or waived, including the following:
- approval by Expedia's shareholders of all of the proposals related to the
transactions presented to shareholders at the annual meeting;
- listing of shares of USA common stock, shares of USA convertible
redeemable preferred stock, USA warrants, new Expedia warrants and, if
necessary, Expedia Class B common stock on Nasdaq, the American Stock
Exchange or other exchange acceptable to, in the case of the USA
securities, Microsoft and USA and, in the case of the new Expedia
warrants, Expedia, in each case to the extent eligible for listing;
- clearance under U.S. and any material foreign antitrust laws;
- receipt by Expedia of an opinion of its tax counsel and, as a condition
for Microsoft only, receipt by Microsoft of an opinion of its tax counsel,
in each case that the recapitalization and the merger each constitute a
reorganization under the Internal Revenue Code and that no gain or loss
will be recognized by Expedia's shareholders or Microsoft, as the case may
be, upon the receipt of the package of USA securities in exchange for
shares of Expedia Class B common stock; and
- other customary closing conditions as provided in the merger agreement.
TERMINATION (see page 74)
The merger agreement may be terminated in a number of circumstances,
including the following:
- by mutual agreement of USA, Expedia and Microsoft;
- by any of USA, Expedia or Microsoft if:
-- the merger is not completed by April 15, 2002, which date will
automatically be extended to July 15, 2002 if necessary to obtain
remaining material antitrust clearances;
-- a final and nonappealable order is issued enjoining or prohibiting the
proposed transactions;
-- any other party materially breaches and fails to cure its
representations and warranties or covenants contained in the merger
agreement; or
-- if any litigation or proceeding is pending or threatened which is
reasonably likely to result in substantial damages or substantially
impair the benefits of the transactions to any party.
- by USA if:
-- Expedia's board of directors breaches its obligation to submit all of
the proposals relating to the transactions described in this document
to Expedia's shareholders
4
at the annual meeting or alters its recommendation to shareholders in
a manner that would prevent Expedia from submitting the proposals to
its shareholders at the annual meeting; or
-- Microsoft breaches and fails to timely cure any of its covenants or
agreements included in the voting and election agreement with USA.
ELECTION PROCEDURES (see page 36)
You will receive along with this joint prospectus/proxy statement an
election form and letter of transmittal, which will include instructions on how
to elect to exchange all or a portion of your shares of Expedia common stock for
shares of Expedia Class B common stock in the recapitalization and, as a result,
receive USA securities in the merger. If you did not receive a copy of the
election form and letter of transmittal because you acquired Expedia shares
after the record date you should call the proxy solicitor, MacKenzie Partners,
Inc. at (800) 322-2885 and a copy of each will be mailed to you free of charge.
Depending on the manner in which you hold your shares, as discussed in more
detail in this joint prospectus/proxy statement, in order to validly make an
election, you will have to, or cause your broker(s) or nominee(s) to, if the
shares and/or warrants are held through a broker or nominee, complete and
execute the election form and letter of transmittal so that it is received (and
not withdrawn in writing) prior to the election deadline, which is 5:00 p.m.
eastern time on , 2001, the date of the annual meeting. You may submit
more than one election form and letter of transmittal.
If you are a shareholder and are electing to receive Expedia Class B common
stock in the recapitalization, for your election to be valid, you must deliver,
or cause to be delivered, to the exchange agent:
- the certificates representing all of the shares of Expedia common stock
for which you have made an election; and
- a completed election form and letter of transmittal.
If the stock certificates are not available when the election form and letter of
transmittal are sent to the exchange agent, you may provide a guarantee of
delivery instead of providing the stock certificates.
If you hold outstanding Expedia warrants and are electing to receive Expedia
Class B common stock in the recapitalization, for your election to be valid, you
must deliver, or cause to be delivered, to the exchange agent:
- a copy of your warrant, payment of your exercise price and an executed
notice to exercise your warrant prior to the recapitalization and the
applicable exercise price; and
- a completed election form and letter of transmittal.
Please note that you will not actually receive physical certificates for the
shares of Expedia Class B common stock you elect in the recapitalization.
Instead, the shares of Expedia Class B common stock you elect will automatically
be converted in the merger into the package of USA securities, which will be
certificated if directed in the election form and letter of transmittal.
REGULATORY APPROVALS (see page 59)
USA, Expedia and Microsoft have made filings and taken other actions, and
will continue to take actions, necessary to obtain approvals from U.S. and
foreign governmental authorities in connection with the proposed transactions,
including U.S. and foreign antitrust authorities. On August 1, 2000, USA and
Microsoft filed their Premerger Notification and Report Forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 with the Antitrust Division
of the Department of Justice and the Federal Trade Commission. The waiting
period was terminated early on August 10, 2001. We expect to obtain all other
material required governmental approvals and complete the merger in the last
quarter of 2001.
5
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS (see page 56)
The obligations of the parties to consummate the recapitalization and the
merger are conditioned on Expedia's receipt of an opinion of counsel, dated the
closing date of the recapitalization and the merger, substantially to the effect
that (1) each of the recapitalization and the merger will, taking into account
all of the transactions contemplated under the merger agreement, constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and (2) no gain or loss will be recognized by the shareholders of Expedia
upon the receipt of USA common stock, USA preferred stock and USA warrants in
exchange for their shares of Expedia Class B common stock in the merger.
Assuming that each of the merger and the recapitalization qualifies as a
reorganization, the recapitalization and the merger will generally be tax-free
to Expedia shareholders, except that Expedia shareholders will recognize gain or
loss on the sale of new Expedia warrants, USA common stock, USA preferred stock
or USA warrants by the exchange agent on behalf of the Expedia shareholders who
would otherwise receive fractional interests.
This tax treatment may not apply to all Expedia shareholders. Determining
the actual tax consequences to you of the recapitalization and the merger can be
complicated, and will depend on your specific situation and on variables not
within the control of Expedia or USA. You should consult your own tax advisor
for a full understanding of the tax consequences to you of the recapitalization
and the merger.
ACCOUNTING TREATMENT (see page 55)
USA will account for the transactions as a purchase in accordance with
generally accepted accounting principles. As the transaction is currently
structured, Expedia will use purchase accounting to reflect in its financial
statements the purchase price paid by USA for the voting stock acquired in
accordance with generally accepted accounting principles.
DISSENTERS' RIGHTS (see page 60)
Expedia shareholders are entitled to dissenters' rights in connection with
the recapitalization and/or merger if they properly exercise their rights under
Washington law. We describe the procedures for exercising dissenters' rights in
this joint prospectus/proxy statement and attach the provisions of Washington
law that govern dissenters' rights as Annex G to this document. Expedia
shareholders who exercise dissenters' rights will be treated as non-electing
shareholders in the recapitalization.
LISTING OF SECURITIES
USA will list the shares of USA common stock to be issued in the merger on
Nasdaq. USA expects to list the shares of USA preferred stock and USA warrants
to be issued in the merger on Nasdaq, the American Stock Exchange or another
exchange acceptable to Microsoft and USA, to the extent eligible for listing.
Expedia expects to list the Expedia warrants and, if necessary, the Expedia
Class B common stock to be issued in the transactions on Nasdaq, the American
Stock Exchange or another exchange acceptable to Expedia, to the extent eligible
for listing.
VOTING AND ELECTION AGREEMENT
(see page 75)
Microsoft has agreed to vote the Expedia shares it beneficially owns or has
the right to vote in favor of each of the proposals relating to the transactions
being presented to shareholders at the annual meeting and against any other
takeover proposal and has granted to USA an irrevocable proxy to vote its
Expedia shares in this manner. As of August 3, 2001, these shares represented
approximately 67% of the total voting power of Expedia shares entitled to vote
on the transactions. Microsoft has also agreed to elect to exchange all of its
shares of Expedia common stock, including shares issuable upon exercise of
outstanding Expedia warrants, for Expedia Class B common stock in the
recapitalization, subject to proportional allocation in the event that the
shares of Expedia Class B common stock are oversubscribed in the
recapitalization. USA has agreed to provide Microsoft with registration rights
in order to permit Microsoft to sell the
6
USA securities received by Microsoft in the merger.
INTERESTS OF OFFICERS AND DIRECTORS
(see page 51)
Members of the management and board of directors of Expedia have interests
in the merger that are different from, or in addition to, your interests as a
shareholder. Mr. Richard N. Barton is the president and chief executive officer
of Expedia and is a member of the Expedia board of directors that approved the
merger. He and Mr. Gregory S. Stanger, the chief financial officer of Expedia,
as well as Messrs. Gregory B. Maffei and Jay C. Hoag, current board of directors
members of Expedia, will be designated as members of the initial board of
directors of the surviving company after the merger.
In addition, Expedia entered into binding employment agreement term sheets
with Mr. Richard N. Barton and Mr. Gregory S. Stanger in connection with the
merger, setting forth the material terms of their employment, which will be
reflected in employment agreements that will be entered into prior to the
effective time of the merger. Expedia and USA have also agreed in a binding term
sheet that Mr. Barton may, in his discretion, cause Expedia to enter into
employment agreements with 16 additional members of senior management for a term
of three years following the effective time. The additional managers' initial
base salaries to be provided in the employment agreements will be the managers'
respective current salaries.
In addition, around the time the parties entered into the merger agreement,
the compensation committee of the board of directors of Expedia granted to
members of Expedia's management and board of directors options to acquire
Expedia common stock. All options held by non-employee directors of Expedia who
do not continue to serve on the board of directors after the effective time, or
who cease to be directors for any reason within one year following the effective
time, will become fully exercisable.
For a more complete description of these arrangements, please read the
section "Proposal No. 1--Approval of the Merger Agreement--Other Interests of
Expedia Officers and Directors in the Transactions."
THE ANNUAL MEETING (see page 31)
WHEN AND WHERE. The Expedia annual meeting will take place at ,
, , , on , 2001, at a.m., local
time.
WHAT YOU ARE BEING ASKED TO VOTE ON. At the annual meeting, you will have the
opportunity to vote on the following proposals relating to the transactions:
- a proposal to approve the merger agreement and the transactions
contemplated by the merger agreement, including the contribution of
assets, the recapitalization and the merger;
- a proposal to approve the amended and restated articles of incorporation
of Expedia; and
- a proposal to approve the termination of the shareholder agreement between
Expedia and Microsoft.
WHO CAN VOTE. You can vote at the annual meeting if you owned shares of Expedia
common stock at the close of business on the record date for the annual meeting,
, 2001. On that date, there were shares of Expedia common stock
outstanding and entitled to vote. You can cast one vote for each share of
Expedia common stock that you owned on that date.
WHAT VOTE IS NEEDED. In order to approve each of the proposals relating to the
transactions being presented to shareholders at the annual meeting, the holders
of a majority of the outstanding shares of Expedia entitled to vote must vote in
favor of those proposals.
Microsoft has agreed to vote in favor of each of the proposals relating to
the transactions being presented at the annual meeting and has granted USA an
irrevocable proxy to vote its shares in this manner. Accordingly, no other vote
of any Expedia shareholder is required to approve any of these proposals.
7
EXPEDIA AFTER THE MERGER (see page 50)
CAPITAL STOCK
After the transactions, Expedia's capital stock will consist of:
- Expedia common stock, which will be held by shareholders of Expedia who
did not elect to receive Expedia Class B common stock in the
recapitalization and shareholders who did so elect but were prorated;
- Expedia Class B common stock, all of which will be held by USA;
- outstanding Expedia warrants, which in accordance with their terms do not
terminate upon the effective time of the merger, to the extent that
holders of these warrants have not elected to exercise them prior to the
recapitalization;
- new Expedia warrants which will be issued in the merger to shareholders of
Expedia who retain their Expedia common stock in the recapitalization; and
- new Expedia warrants which will be distributed as part of the transactions
prior to the annual meeting to Expedia optionholders who were granted
options on or prior to August 2, 2001 and who continue to hold such
options on the date of the distribution.
The only difference between the two classes of common shares is that the Expedia
common stock will be entitled to one vote per share and the Expedia Class B
common stock will be entitled to 15 votes per share.
OWNERSHIP OF EXPEDIA AFTER THE TRANSACTIONS
Immediately after the transactions are consummated, USA will hold between
67% and 75% of the outstanding equity (depending on the number of shareholders
who remain as shareholders of Expedia after the recapitalization) and in excess
of 90% of the outstanding voting power of Expedia, with the former holders of
Expedia owning the remaining outstanding interests in Expedia. All percentages
are as of , 2001, but after giving effect to the transactions.
MANAGEMENT AND OPERATIONS OF EXPEDIA AFTER THE TRANSACTIONS
Following the transactions, USA will control Expedia. Barry Diller, the
Chairman of the Board and Chief Executive Officer of USA, will become Chairman
of Expedia and Richard N. Barton will continue in his role as President and
Chief Executive Officer of Expedia. At the effective time of the merger and
through the one-year anniversary of such time, the board of directors of Expedia
will consist of 11 members, six of whom will be appointed by USA. The other five
members will be Expedia's Chief Executive Officer, Expedia's Chief Financial
Officer and three independent directors, of whom two will be Gregory B. Maffei
and Jay C. Hoag, current directors of Expedia.
RELATIONSHIP WITH USA
Following the transactions, USA and Expedia have agreed that their
relationship will be governed by the following principles, none of which can be
amended or waived without the approval of a majority of Expedia's independent
directors:
- USA or any of its subsidiaries, on the one hand, and Expedia or any of its
subsidiaries, on the other hand, may engage in or own interests in
businesses that compete with the other;
- as long as USA owns 50.1% of Expedia's total voting power, Expedia may not
enter into or amend any material arrangements with USA or any of its
affiliates without the approval of a majority of Expedia independent
directors; and
- there will be meaningful consultation between USA and Expedia's Chief
Executive Officer in the selection of Expedia's independent directors.
MARKETS AND MARKET PRICES (page 46)
The shares of USA common stock are listed on Nasdaq under the symbol "USAI."
The shares of Expedia common stock are listed on Nasdaq under the symbol "EXPE."
On July 13, 2001, the last trading date prior to the public
8
announcement of the proposed transactions, USA common stock closed at $25 17/64
per share and Expedia common stock closed at $48 45/64 per share. On
, 2001, the most recent practicable date prior to printing of this
joint prospectus/proxy statement, USA common stock closed at $ per share and
Expedia common stock closed at $ per share. You may obtain more recent stock
price quotes from most newspapers or other financial sources and we encourage
you to do so.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
HISTORICAL FINANCIAL INFORMATION
We are providing or incorporating by reference in this joint
prospectus/proxy statement selected historical financial information for USA and
Expedia to help you in your analysis of the financial aspects of the proposed
transactions. We derived this information from the audited and unaudited
financial statements of USA and Expedia for the periods presented. The
information is only a summary and you should read it together with the financial
information included or incorporated by reference in this joint prospectus/proxy
statement. See "Where You Can Find More Information" on page 17.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
We are also providing unaudited pro forma combined financial information on
page 78 of this joint prospectus/proxy statement to show you how USA and Expedia
might have looked if the transactions had been completed as of the dates or at
the beginning of the periods presented. The pro forma financial information was
prepared using the purchase method of accounting, with USA treated as the
acquiror.
If we had actually completed these transactions in prior periods, USA and
Expedia might have performed differently. You should not rely on the pro forma
financial information as an indication of the results that USA or Expedia would
have achieved if the transactions had taken place earlier or the future results
that USA or Expedia will experience after completion of the transactions.
9
SELECTED HISTORICAL FINANCIAL INFORMATION
USA
In the table below, USA provides you with selected historical consolidated
financial data of USA. USA prepared this information using the consolidated
financial statements of USA for each of the years in the five-year period ended
December 31, 2000 and for the six-month periods ended June 30, 2001 and 2000.
The financial statements for each of the five years in the period ended
December 31, 2000 have been audited by Ernst & Young LLP, independent auditors.
The financial statements for the six-month periods ended June 30, 2001 and 2000
have not been audited. USA has not declared any cash dividends on USA common
stock.
When you read the selected historical financial information, you should
consider reading along with it the historical financial statements and
accompanying notes that USA has included in its December 31, 2000 Annual Report
on Form 10-K. You can obtain this report by following the instructions we
provide under "Where You Can Find More Information" on page 17.
As used in this document, the term "EBITDA" refers to net income plus
(1) extraordinary items and cumulative effect of accounting changes,
(2) provision for income taxes, (3) interest expense, (4) depreciation and
amortization, (5) minority interest and (6) amortization of non-cash
distribution and marketing expense and non-cash compensation expense. EBITDA is
presented because USA believes it is a widely accepted indicator of its ability
to service debt as well as a valuation methodology for companies in the media,
entertainment and communication industries. EBITDA should not be considered in
isolation or as a substitute for measures of financial performance or liquidity
prepared in accordance with generally accepted accounting principles. EBITDA may
not be comparable to calculations of similarly titled measures presented by
other companies.
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------ ------------------------
1996(1) 1997(2) 1998(3)(4) 1999(5) 2000(6) 2000 2001(7)
---------- ---------- ----------- ---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net revenues.......................... $ 36,361 $1,377,145 $ 2,759,896 $3,371,745 $ 4,601,492 $ 2,175,877 $ 2,687,125
Operating profit (loss)............... (564) 105,753 249,904 269,914 56,326 139,284 157,399
Earnings (loss) from continuing
operations.......................... (1,572) 34,209 63,892 16,515 (88,588) (20,419) (27,661)
Earnings (loss) before cumulative
effect of accounting change......... (6,539) 13,061 76,894 (27,631) (147,983) (47,427) 22,168
Net earnings (loss)................... (6,539) 13,061 76,894 (27,631) (147,983) (47,427) 12,981
Basic earnings (loss) per common share
from continuing operations(8)....... (.04) .16 .22 .05 (.25) (.06) (.07)
Diluted earnings (loss) per common
share from continuing
operations(8)....................... (.04) .15 .19 .04 (.25) (.06) (.07)
Basic earnings (loss) per common share
before cumulative effect of
accounting change(8)................ (.15) .06 .27 (.08) (.41) (.14) .06
Diluted earnings (loss) per common
share before cumulative effect of
change of accounting change(8)...... (.15) .06 .21 (.08) (.41) (.14) .06
Basic earnings (loss) per common
share(8)............................ (.15) .06 .27 (.08) (.41) (.14) .03
Diluted earnings (loss) per common
share(8)............................ (.15) .06 .21 (.08) (.41) (.14) .03
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit)............. $ (24,444) $ 60,941 $ 443,408 $ 381,046 $ 602,588 $ 441,630 $ 758,376
Total assets.......................... 2,116,232 2,670,796 8,316,190 9,233,227 10,473,870 10,462,407 10,811,257
Long-term obligations, net of current
maturities.......................... 271,430 448,346 775,683 574,979 552,501 574,763 552,572
Minority interest..................... 356,136 372,223 3,633,597 4,492,066 4,817,137 4,823,507 4,915,889
Stockholders' equity.................. 1,158,749 1,447,354 2,571,405 2,769,729 3,439,871 3,538,192 3,542,751
OTHER DATA:
Net cash provided by (used in)
Operating activities.................. $ 8,198 $ 60,363 $ 256,929 $ 401,577 $ 372,507 $ 284,845 $ 288,331
Investing activities.................. 1,545 (83,043) (1,201,912) (413,968) (524,556) (280,621) 99,530
Financing activities.................. 16,308 105,156 1,297,654 55,948 58,346 72,237 43,167
Net cash used in discontinued
operations.......................... 2,585 9,041 (20,488) (66,260) (82,563) (38,180) (40,220)
Effect of exchange rate changes....... -- -- (1,501) (123) (2,687) (1,029) (2,715)
EBITDA................................ 2,295 198,372 496,612 627,745 809,491 396,762 479,737
------------------------------
(1) The consolidated statement of operations data include the operations of
Savoy Pictures Entertainment, Inc. and Home Shopping Network, Inc. since
their acquisition by USA on December 19, 1996 and December 20, 1996,
respectively. Prior to USA's acquisition of USA Networks, referred to as
Networks, which consisted of USA Network and The Sci-Fi Channel cable
televisions networks, and the domestic television production and
distribution business of Universal Studios, Inc., referred to as Studios
USA, the assets of Home Shopping Network, Inc. consisted principally of our
retail sales programs, Home Shopping Network and America's Store.
10
(2) The consolidated statement of operations data include the operations of
Ticketmaster since the acquisition by USA of its controlling interest in
Ticketmaster on July 17, 1997.
(3) The consolidated statement of operations data include the operations of
Networks and Studios USA since the acquisition by USA from Universal on
February 12, 1998 and CitySearch since its acquisition by USA on
September 28, 1998.
(4) Net earnings for the year ended December 31, 1998 include a pre-tax gain of
$74.9 million related to USA's sale of its Baltimore television station
during the first quarter of 1998 and a pre-tax gain of $109.0 million
related to the CitySearch transaction during the fourth quarter of 1998.
(5) The consolidated statement of operations data include the operations of
Hotel Reservation Network, referred to as Hotel Reservations, since its
acquisition by USA on May 10, 1999 and the operations of October Films and
the domestic film distribution and development business of Universal, which
was previously operated by Polygram Filmed Entertainment, referred to as USA
Films, since their acquisition by USA on May 28, 1999. Net earnings for the
year ended December 31, 1999 includes a pre-tax gain of $89.7 million
related to the sale of securities.
(6) Includes a pre-tax gain of $104.6 million related to the Styleclick
transaction, a pre-tax gain of $3.7 million related to the HRN initial
public offering, and a pre-tax charge of $145.6 million related to
impairment of Styleclick goodwill.
(7) Includes a gain of $49.8 million related to the sale of capital stock of
certain USA Broadcasting subsidiaries and an after-tax expense of
$9.2 million related to the cumulative effect of adoption SOP 00-2,
Accounting By Producers or Distributors of Films.
(8) Earnings (loss) per common share data and shares outstanding retroactively
reflect the impact of two-for-one stock splits of USA's Common Stock and USA
Class B common stock paid on February 24, 2000 and March 26, 1998. All share
numbers give effect to such stock splits.
11
EXPEDIA
In the table below, Expedia provides you with selected historical
consolidated financial data of Expedia. Expedia prepared this information using
the consolidated financial statements of Expedia for each of the fiscal years in
the five-year period ended June 30, 2001. The financial statements for each of
the fiscal years in the five year period ended June 30, 2001 have been audited
by Deloitte & Touche LLP, independent auditors. Expedia has not declared any
dividends on Expedia common stock.
When you read the selected historical financial information, you should
consider reading along with it the historical financial statements and
accompanying notes that Expedia has included in its June 30, 2001 Annual Report
on Form 10-K. You can obtain this report by following the instructions we
provide under "Where You Can Find More Information" on page 17.
YEARS ENDED JUNE 30,
-----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-----------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Agency revenues................................... $ 1,715 $ 6,866 $ 24,677 $ 59,534 $122,987
Merchant revenues................................. -- -- 10,912 64,548
Advertising and other revenues.................... 1,027 6,961 14,022 24,185 34,685
-------- -------- -------- --------- --------
Revenues.......................................... 2,742 13,827 38,699 94,631 222,220
-------- -------- -------- --------- --------
Cost of agency revenues........................... 3,176 8,996 14,548 34,136 53,427
Cost of merchant revenues......................... -- 3,369 17,567
Cost of advertising and other revenues............ 103 696 1,402 2,643 3,280
-------- -------- -------- --------- --------
Cost of revenues.................................. 3,279 9,692 15,950 40,148 74,274
-------- -------- -------- --------- --------
Gross profit (loss)............................... (537) 4,135 22,749 54,483 147,946
-------- -------- -------- --------- --------
Operating expenses................................ 28,384 33,613 42,351 96,599 137,381
Operating expenses - non-cash..................... -- -- -- 78,552 93,209
-------- -------- -------- --------- --------
Loss from operations.............................. (28,921) (29,478) (19,602) (120,668) (82,644)
Net interest income and other..................... -- -- -- 2,353 4,591
-------- -------- -------- --------- --------
Net loss.......................................... $(28,921) $(29,478) $(19,602) $(118,315) $(78,053)
======== ======== ======== ========= ========
Basic and diluted net loss per share................ $ (1.65)
========
Pro forma basic and diluted net loss per share...... $ (0.59) $ (3.11)
======== =========
Weighted average shares used to compute basic and
diluted net loss per common share................. 47,210
========
Weighted average shares used to compute pro forma
basic and diluted net loss per common share....... 33,000 38,044
======== =========
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ -- $ -- $ -- $ 60,670 $182,161
Working capital................................... 658 4,814 1,390 20,122 96,147
Total assets...................................... 1,645 8,333 5,756 273,050 389,844
Unearned revenue.................................. 2,337 7,963 6,215 9,696 1,545
Deferred merchant bookings........................ -- -- -- 14,424 80,326
Long-term liabilities, net of current portion..... -- 5,820 3,851 4,557 1,303
Accumulated deficit............................... (37,684) (67,162) (86,764) --
Retained deficit.................................. -- -- -- (113,365) (191,418)
Total stockholders' equity (owner's net
deficit)........................................ (721) (92) (1,675) 207,496 230,999
12
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
USA
In the table below, we provide you with unaudited selected pro forma
combined condensed financial information for USA as if the transactions had been
completed on January 1, 2000 for income statement purposes and on June 30, 2001
for balance sheet purposes. Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets", provides that any goodwill
resulting from a business combination completed subsequent to June 30, 2001 will
not be amortized, but instead is required to be tested for impairment at least
annually. USA has not declared any cash dividends on USA common stock.
This unaudited selected pro forma combined financial information should be
read in conjunction with the separate historical financial statements and
accompanying notes of USA and Expedia that are incorporated by reference in this
joint prospectus/proxy statement. It is also important that you read the
unaudited pro forma combined financial information and accompanying discussion
that we have included in this joint prospectus/proxy statement starting on page
78 under "Unaudited Pro Forma Combined Condensed Financial Statements--USA." You
should not rely on the unaudited selected pro forma financial information as an
indication of the results of operations or financial position that would have
been achieved if the transactions had taken place earlier or of the results of
operations or financial position of USA after the completion of the
transactions.
PRO FORMA
------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 2000 JUNE 30, 2001
----------------- ----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $ 4,829,687 $ 2,822,821
Operating profit (loss)................................... (130,817) 133,650
Loss from continuing operations........................... (254,519) (46,222)
Earnings (loss) before cumulative effect of accounting
change.................................................. (254,519) 3,607
Net loss before preferred dividend........................ (313,914) (5,580)
Net loss available to common shareholders................. (326,973) (12,110)
LOSS PER SHARE FROM CONTINUING OPERATIONS
Basic and diluted......................................... ($0.65) ($0.12)
EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE
Basic and diluted......................................... ($0.65) $0.01
NET LOSS PER SHARE BEFORE PREFERRED DIVIDEND EARNINGS
Basic and diluted......................................... ($0.80) ($0.01)
NET LOSS PER SHARE AVAILABLE TO COMMON SHAREHOLDERS
Basic and diluted......................................... ($0.84) ($0.03)
BALANCE SHEET DATA (END OF PERIOD):
Working capital........................................... $ 844,523
Total assets.............................................. 12,604,879
Long-term obligations, net of current maturities 553,875
Minority interest......................................... 4,944,416
Stockholders' equity...................................... 5,139,001
13
EXPEDIA
In the table below, we provide you with unaudited selected pro forma
combined condensed financial information for Expedia as if the transactions had
been completed on July 1, 2000 for income statement purposes and on June 30,
2001 for balance sheet purposes. Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets", provides that goodwill
resulting from a business combination completed subsequent to June 30, 2001 will
not be amortized but instead is required to be tested for impairment at least
annually. Expedia has not declared any cash dividends on Expedia common stock.
This unaudited selected pro forma combined financial information should be
read in conjunction with the separate historical financial statements and
accompanying notes of Expedia that are incorporated by reference in this joint
prospectus/proxy statement. It is also important that you read the unaudited pro
forma combined financial information and accompanying discussion that we have
included in this joint prospectus/proxy statement starting on page 85 under
"Unaudited Pro Forma Combined Condensed Financial Statements--Expedia." You
should not rely on the unaudited selected pro forma financial information as an
indication of the results of operations or financial position that would have
been achieved if the transactions had taken place earlier or of the results of
operations or financial position of Expedia after the completion of the
transactions.
TWELVE MONTHS ENDED
JUNE 30, 2001
-------------------
STATEMENT OF OPERATIONS DATA:
Net revenues............................................ $ 222,220
Operating loss.......................................... (82,644)
Net loss................................................ ($78,053)
LOSS PER SHARE
Basic and diluted....................................... ($1.65)
BALANCE SHEET DATA (END OF PERIOD):
Working capital......................................... $ 86,147
Total assets............................................ 1,793,622
Long-term obligations, net of current maturities........ 1,303
Minority interest....................................... 28,527
Stockholders' equity.................................... 1,596,250
14
UNAUDITED COMPARATIVE PER SHARE DATA
In the table below, we provide you with historical per share financial
information for USA and Expedia as of June 30, 2001 and December 31, 2000 and
for the twelve months ended December 31, 2000. We also provide you with pro
forma per share financial information for USA and Expedia as of June 30, 2001
and for the twelve months ended December 31, 2000, in the case of USA and
June 30, 2001, in the case of Expedia. The USA pro forma financial information
assumes that the transactions had been completed on January 1, 2000 for income
statement purposes and on June 30, 2001 for balance sheet purposes. The Expedia
pro forma financial information assumes that this transaction had been completed
on July 1, 2000 for income statement purposes and on June 30, 2001 for balance
sheet purposes.
Neither USA nor Expedia has declared any cash dividends during this period.
It is important that when you read this information, you read along with it
the financial statements and accompanying notes of USA and Expedia included in
the documents described on page 17 of this joint prospectus/proxy statement
under "Where You Can Find More Information." It is also important that you read
the pro forma combined financial information and accompanying discussion and
notes that we have included in this joint prospectus/proxy statement starting on
page 78 under "Unaudited Pro Forma Combined Condensed Financial Statements." You
should not rely on the pro forma financial information as an indication of the
results of operations or financial position that would have been achieved if the
transactions had taken place earlier or the results of USA after the completion
of the transactions.
USA EXPEDIA
------------------------- EXPEDIA EQUIVALENT
ACTUAL PRO FORMA(1) HISTORICAL PRO FORMA(2)
---------- ------------ ---------- ------------
(IN 000'S)
BOOK VALUE PER SHARE
Common stock and Class B common stock
June 30, 2001.................................. $11.33 $12.95 $ 4.60 $ 8.58
December 31, 2000.............................. 9.34 4.84
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE FROM
CONTINUING OPERATIONS
For the twelve months ended June 30, 2001...... (1.65) (0.21)
For the twelve months ended December 31,
2000......................................... (0.25) (0.65)
BASIC AND DILUTED EARNINGS (LOSS) BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
For the twelve months ended June 30, 2001...... (1.65) (0.12)
For the twelve months ended December 31,
2000......................................... (0.41) (0.84)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
For the twelve months ended June 30, 2001...... (1.65) (0.14)
For the twelve months ended December 31,
2000......................................... (0.41) (0.84)
------------------------
(1) Pro forma information gives effect to the acquisition by USA of Expedia as
well as acquisitions made by USA and Expedia in 2000 and 2001. See
"Unaudited Pro Forma Combined Condensed Financial Statements."
(2) The equivalent pro forma per share data for Expedia is computed by
multiplying USA's pro forma per share information by the mid-point of the
range of USA common stock exchange ratios for each share of Expedia Class B
common stock (0.663). The exchange ratio does not consider the USA preferred
stock or USA warrants exchanged. See "What You Will Receive in the Merger"
for more information.
15
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
The following table sets forth the high and low sale prices for a share of
USA common stock and for a share of Expedia common stock, rounded up to the
nearest eighth for the periods indicated. Neither USA nor Expedia, nor any of
their respective predecessors, has ever paid any cash dividends in respect of
their respective shares of common stock. Neither USA nor Expedia has declared
any cash dividends. The prices are as quoted on Nasdaq, based on published
financial sources.
USA COMMON EXPEDIA
STOCK COMMON STOCK
------------------------- -------------------------
HIGH LOW HIGH LOW
-------- -------------- -------- --------------
1998
First Quarter............................................. 14.53 11.86 N/A N/A
Second Quarter............................................ 13.63 11.38 N/A N/A
Third Quarter............................................. 15.25 9.72 N/A N/A
Fourth Quarter............................................ 17.38 7.59 N/A N/A
1999
First Quarter............................................. 21.22 15.75 N/A N/A
Second Quarter............................................ 21.50 17.13 N/A N/A
Third Quarter............................................. 24.06 19.38 N/A N/A
Fourth Quarter............................................ 27.97 18.00 54.94 35.00
2000
First Quarter............................................. 28.34 19.63 38.38 19.00
Second Quarter............................................ 23.44 17.25 21.75 14.00
Third Quarter............................................. 25.44 20.50 21.00 13.00
Fourth Quarter............................................ 22.00 16.81 16.44 8.69
2001
First Quarter............................................. 24.44 18.00 17.88 9.25
Second Quarter............................................ 28.00 21.06 46.60 13.38
Third Quarter (through August 16, 2001)................... 28.04 24.48 51.19 38.67
On July 13, 2001, the last trading date prior to the public announcement of
the proposed transactions, USA common stock closed at $25 17/64 per share and
Expedia common stock closed at $48 45/64 per share. On , 2001, the
most recent practicable date prior to printing of this joint prospectus/proxy
statement, USA common stock closed at $ per share and Expedia common stock
closed at $ per share. You may obtain more recent stock price quotes from most
newspapers or other financial sources and we encourage you to do so.
16
WHERE YOU CAN FIND MORE INFORMATION
USA and Expedia file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center, Suite 1400
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the website maintained by the SEC
at www.sec.gov.
This joint prospectus/proxy statement is part of a Registration Statement on
Form S-4 filed by USA to register with the SEC the USA common stock, USA
preferred stock and USA warrants to be issued in the merger. This joint
prospectus/proxy statement is also part of a Registration Statement on Form S-4
filed by Expedia to register with the SEC the Expedia Class B common stock to be
issued in the recapitalization and the Expedia warrants to be issued in the
merger. This joint prospectus/proxy statement also constitutes a prospectus of
each of USA and Expedia, as well as being a proxy statement of Expedia for its
annual meeting.
As allowed by SEC rules, this joint prospectus/proxy statement does not
contain all the information you can find in the Registration Statement or the
exhibits to the Registration Statements.
The SEC allows us to "incorporate by reference" information into this joint
prospectus/proxy statement, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
joint prospectus/proxy statement, except for any information superseded by
information contained directly in this joint prospectus/proxy statement. This
joint prospectus/proxy statement incorporates by reference the documents set
forth below that we have previously filed with the SEC. These documents contain
important information about our companies and their financial condition.
USA SEC FILINGS
(FILE NO. 0-20570) PERIOD/FILING DATE
Annual Report on Form 10-K Year ended December 31, 2000
Quarterly Reports on Form 10-Q Quarters ended March 31, 2001 and June 30,
Current Reports on Form 8-K 2001
Filed on January 10, 2001, February 1, 2001,
March 6, 2001, April 25, 2001, June 6, 2001,
June 7, 2001, June 27, 2001, July 16, 2001,
July 23, 2001, and July 25, 2001
Proxy Statement Filed on April 9, 2001
EXPEDIA SEC FILINGS
(FILE NO. 000-27429) PERIOD/FILING DATE
Annual Report on Form 10-K Year ended June 30, 2001
Current Reports on Form 8-K Filed on July 19, 2001 and July 27, 2001
USA and Expedia also incorporate by reference into this joint
prospectus/proxy statement additional documents that may be filed with the SEC
from the date of this joint prospectus/proxy statement to the date of the annual
meeting. 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, as well as proxy
statements.
17
USA has supplied all information contained or incorporated by reference in
this joint prospectus/ proxy statement relating to USA. Expedia has supplied all
such information relating to Expedia, and Microsoft has supplied all such
information relating to Microsoft.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us, the SEC or
the SEC's website as described above. Documents incorporated by reference are
available from us without charge, excluding all exhibits unless we have
specifically incorporated by reference an exhibit in this joint prospectus/proxy
statement. Shareholders may obtain documents incorporated by reference in this
joint prospectus/proxy statement by requesting them in writing or by telephone
from the proxy solicitator or the appropriate company at the following
addresses:
USA Networks, Inc. Expedia, Inc.
152 West 57th Street 13810 SE Eastgate Way, Suite 400
New York, New York 10019 Bellevue, Washington 98005
Tel: (212) 314-7300 Tel: (425) 564-7200
Attn.: Corporate Secretary Attn.: Corporate Secretary
or
[LOGO]
156 Fifth Avenue
New York, NY 10010
(212) 929-5500 (collect)
(800) 322-2885 (toll-free)
If you would like to request documents from us, please do so by , 2001
to receive them before the annual meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROSPECTUS/PROXY STATEMENT TO VOTE ON THE TRANSACTIONS
AND TO DECIDE WHETHER OR NOT TO MAKE AN ELECTION. INFORMATION CONTAINED ON OUR
WEBSITES IS NOT INCORPORATED IN THIS JOINT PROSPECTUS/PROXY STATEMENT, NOR
SHOULD YOU RELY ON ANY INFORMATION CONTAINED THEREON TO DETERMINE HOW TO VOTE ON
THE TRANSACTIONS AND/OR WHETHER OR NOT TO MAKE AN ELECTION. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS JOINT PROSPECTUS/PROXY STATEMENT. THIS JOINT PROSPECTUS/PROXY
STATEMENT IS DATED , 2001. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THE JOINT PROSPECTUS/PROXY STATEMENT IS ACCURATE AS OF ANY DATE
OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS JOINT PROSPECTUS/PROXY
STATEMENT TO SHAREHOLDERS NOR THE ISSUANCE OF USA COMMON STOCK, USA PREFERRED
STOCK, USA WARRANTS, EXPEDIA CLASS B COMMON STOCK OR NEW EXPEDIA WARRANTS IN THE
MERGER OR THE RECAPITALIZATION SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
18
RISK FACTORS
RISK FACTORS RELATING TO THE TRANSACTIONS
USA WILL EXERCISE SIGNIFICANT CONTROL OVER EXPEDIA
When the transactions are completed, USA will own between 67% and 75% of the
outstanding Expedia common equity, depending on the number of Expedia
shareholders who elect to receive Expedia Class B common stock in the
recapitalization, and in excess of 90% of the total voting power of Expedia. As
a result, USA generally will have the ability to control the outcome of any
matter submitted for the vote or consent of Expedia shareholders, except where a
separate vote of the holders of Expedia common stock is required by Washington
law. In addition, USA will also control the board of directors of Expedia.
Subject to applicable Washington law and agreements entered into as part of the
transactions, USA generally will not be restricted with regard to its ability to
control the election of directors of Expedia, to cause the amendment of
Expedia's articles of incorporation or bylaws, or generally to exercise a
controlling influence over the business and affairs of Expedia. As a result of
USA's controlling interest in Expedia, USA will have the power to prevent, delay
or cause a change in control of Expedia and could take other actions that might
be favorable to USA but not necessarily favorable to other Expedia shareholders.
In addition, because the Expedia board of directors has approved the
transactions, Expedia shareholders may not benefit from certain protections
afforded by the Washington anti-takeover statute in respect of future agreements
with USA or its affiliates. See "Comparison of Rights of Shareholders of Expedia
and USA--Summary of Material Differences Between the Current Rights of Expedia
Shareholders, the Rights of Expedia Shareholders Following the Transactions and
the Rights of USA Stockholders--Business Combination Restrictions" for a more
detailed description of the Washington anti-takeover statute.
CONFLICTS OF INTEREST MAY ARISE BETWEEN USA AND EXPEDIA, WHICH MAY NOT BE
RESOLVED IN A MANNER THAT DOES NOT ADVERSELY AFFECT EXPEDIA'S BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS
Conflicts of interest may arise between Expedia, on the one hand, and USA
and its other affiliates, on the other hand, in areas relating to past, ongoing
and future relationships, including corporate opportunities, potential
acquisitions or financing transactions, sales or other dispositions by USA of
its interest in Expedia and the exercise by USA of its ability to control the
management and affairs of Expedia. Conflicts, disagreements or other disputes
between Expedia and USA may arise and may not be resolved in a manner that does
not adversely affect the business, financial condition or results of operations
of Expedia.
For instance, USA is engaged in a diverse range of media and
entertainment-related businesses, including businesses that may compete in one
or more businesses with Expedia, including Hotel Reservations Network. In
addition, USA or its affiliates may acquire additional businesses that may
conflict or compete with Expedia. Subject to applicable Washington law, USA is
under no obligation, and has not indicated any intention, to share any future
business opportunities available to it with Expedia. Expedia's amended and
restated articles of incorporation will also include provisions that provide
that (1) neither USA nor any of its affiliates will have any duty to refrain
from engaging in the same or similar activities or lines of business of Expedia,
thereby competing with Expedia, and (2) neither USA nor any of its affiliates
will have any duty to communicate or offer corporate opportunities to Expedia
and none of them will be liable for breach of any fiduciary duty to Expedia, as
a shareholder of Expedia or otherwise, in connection with such opportunities,
provided that procedures provided for in Expedia's articles of incorporation are
followed.
19
EXPEDIA'S DIRECTORS AND OFFICERS MAY HAVE INTERESTS IN USA AND ITS
SUBSIDIARIES WHICH COULD CREATE POTENTIAL CONFLICTS OF INTEREST
Ownership interests of directors or officers of Expedia in USA common stock,
or ownership of directors or officers of USA in Expedia common stock or service
as both a director or officer of Expedia and a director, officer or employee of
USA, could create or appear to create potential conflicts of interest when
directors and officers are faced with decisions that could have different
implications for Expedia and USA. Following completion of the transactions,
Mr. Diller will become Chairman of the board of directors of Expedia. A number
of other members of Expedia's board of directors are also expected to be
directors, officers or employees of USA. In addition, following the completion
of the transactions and the appointment of the USA nominees to Expedia's board
of directors, interlocking relationships may exist between certain members of
the board of directors of Expedia and members of the boards of directors of
other USA subsidiaries with which Expedia directly competes, including Hotel
Reservations Network, Inc., and important suppliers of Expedia which also have
strong business relationships with direct competitors of Expedia, including
National Leisure Group, Inc. See "Proposal No. 1--Approval of the Merger
Agreement--Expedia after the Merger--Management and Operations of Expedia after
the Transactions."
AN ACTIVE TRADING MARKET FOR THE SHARES OF USA PREFERRED STOCK, USA WARRANTS
AND NEW EXPEDIA WARRANTS MAY NOT DEVELOP
The shares of USA preferred stock, USA warrants and new Expedia warrants to
be issued in the merger or to Expedia optionholders are each a new type of
security for which there is currently no public market. If these securities are
traded after their initial issuance, they may trade at a discount from their
initial valuations, depending on prevailing interest rates, the market for
similar securities, the price of USA common stock and Expedia common stock, as
applicable, the performance of USA or Expedia, as applicable, and other factors.
In addition, neither USA nor Expedia knows whether an active trading market will
develop for any of these securities.
Microsoft will be receiving a large part of the USA securities issued in the
merger. While USA has agreed to have in place a registration statement covering
USA securities received by Microsoft in the transactions, we cannot assure you
that Microsoft will sell its USA securities or predict the timing or degree of
any sales, hedging or other transactions in these securities. If Microsoft does
not sell the USA securities it receives in the transactions, the market for the
USA preferred stock and USA warrants will be extremely limited even if the
maximum number of shares of Expedia Class B common stock is issued in the
recapitalization and, as a result, the maximum number of USA securities are
issued in the merger. Regardless of the size of the market for these securities,
sales, hedging or other transactions by Microsoft and others may also cause
these securities to trade at a discount from their initial valuations.
THE PRICE OF USA SECURITIES MAY BE AFFECTED BY FACTORS DIFFERENT FROM THOSE
AFFECTING THE PRICE OF EXPEDIA COMMON STOCK
Upon completion of the merger, holders of Expedia Class B common stock will
become holders of USA common stock, USA preferred stock and USA warrants. USA's
business differs from that of Expedia, and USA's results of operations, as well
as the price of USA common stock, USA preferred stock and USA warrants may be
affected by factors different from those affecting Expedia's results of
operations and the price of Expedia common stock. For a discussion of USA's and
Expedia's businesses and certain factors to consider in connection with such
businesses, see USA's Annual Report on 10-K for the fiscal year ended
December 31, 2000 and Expedia's Annual Report on Form 10-K for the fiscal year
ended June 30, 2001, which are incorporated by reference in this joint
prospectus/proxy statement.
20
THE EXCHANGE RATIOS RELATING TO THE NUMBERS OF SHARES OF USA COMMON STOCK
AND USA WARRANTS THAT THE HOLDERS OF EXPEDIA CLASS B COMMON STOCK WILL
RECEIVE IN THE MERGER MAY FLUCTUATE AND MAY NOT REFLECT THE VALUE OF THE USA
SECURITIES AT THE CLOSING OF THE TRANSACTIONS
The exact number of shares of USA common stock and warrants to acquire USA
common stock that USA will issue in exchange for shares of Expedia Class B
common stock will vary based on the average closing price of USA common stock
over the ten consecutive trading days ending on the second full trading day
prior to the annual meeting. The USA common stock and USA warrants are both
subject to a collar during the ten trading day measurement period, which
provides that the exchange ratio for the common stock will vary based on a USA
stock price between $23.00 and $31.00 and the exchange ratio for the warrants
will fluctuate based on a USA stock price between $25.75 and $28.25. If the
price of the USA common stock at the time of the merger is different from the
price set during the measurement period, holders of Expedia Class B common stock
will receive securities with a market value that may be higher, or lower, than
the values reflected during the measurement period. We cannot tell you what the
price of USA common stock will be during the measurement period, at the time we
complete the merger or at any other time. We urge you to obtain current market
quotations and to call MacKenzie Partners, Inc. toll-free at (800) 322-2885 at
any time to obtain updated information concerning the exchange ratios in the
merger.
SHAREHOLDERS ELECTING TO RECEIVE SHARES OF EXPEDIA CLASS B COMMON STOCK ARE
SUBJECT TO PRORATION IN THE EVENT THAT MORE THAN 37,500,000 SHARES OF
EXPEDIA COMMON STOCK ELECT TO RECEIVE EXPEDIA CLASS B COMMON STOCK
Because of possible proration in the recapitalization, holders of Expedia
common stock that elect to exchange some or all of their shares for shares of
Expedia Class B common stock may not receive Expedia Class B common stock in
respect of all of their shares covered by the election form and letter of
transmittal. If more than 37,500,000 shares of Expedia common stock have been
surrendered for exchange, then the number of shares of Expedia common stock that
are exchanged for Expedia Class B common stock will be reduced pro rata, in
which event each electing holder will receive his proportionate share of Expedia
Class B common stock and retain the rest in Expedia common stock.
THE MIX OF USA COMMON STOCK AND USA PREFERRED STOCK ISSUED IN THE MERGER
WILL VARY DEPENDING ON WHETHER FEWER THAN 37,500,000 SHARES OF EXPEDIA
CLASS B COMMON STOCK ARE ISSUED IN THE RECAPITALIZATION
The exchange ratio for the USA common stock and USA preferred stock issued
for each share of Expedia Class B common stock varies based on the number of
shares of Expedia Class B common stock. Generally, the exchange ratio for the
USA common stock increases, and the exchange ratio for the USA preferred stock
decreases, as the number of shares of Expedia Class B common stock that is
issued increases up to 37,500,000. For example, assuming a USA common stock
price of $27.00:
- if only Microsoft receives the Expedia Class B common stock with respect
to its 33,722,710 shares of Expedia common stock, then each share of
Expedia Class B common stock would be converted into 0.5755 of a share of
USA common stock, 0.3892 of a share of USA preferred stock and 0.4176 of a
USA warrant;
- if a total of 35,500,000 shares of Expedia Class B common stock are issued
in the recapitalization, then each share of Expedia Class B common stock
would be converted into 0.6116 of a share of USA common stock, 0.3697 of a
share of USA preferred stock and 0.4176 of a USA warrant; and
- if the maximum number of shares of Expedia Class B common stock
(37,500,000) is issued in the recapitalization, then each share of Expedia
Class B common stock would be converted into
21
0.6481 of a share of USA common stock, 0.3500 of a share of USA preferred
stock and 0.4176 of a USA warrant.
At the time you make your election whether to retain some or all of your
shares of Expedia common stock or to receive shares of Expedia Class B common
stock in the recapitalization, these exchange ratios will not yet be fixed. The
actual package of USA securities you would receive in respect of shares of
Expedia Class B common stock that you may elect to receive will be announced by
USA as promptly as possible after the annual meeting. For a further description
of these exchange ratios, see "What Expedia Shareholders Will Receive in the
Merger" and "Proposal No. 1--Approval of the Merger Agreement--Structure of the
Transactions--Merger."
VALUE OF USA SECURITIES TO BE RECEIVED IN THE MERGER MAY FLUCTUATE
The number of shares of USA common stock, shares of USA preferred stock and
USA warrants to be received in the merger for each share of Expedia Class B
common stock will be fixed as of the date of the annual meeting. Therefore,
because the market price of USA common stock is subject to fluctuation, the
value at the time of the merger of the consideration to be received by the
holders of Expedia Class B common stock will depend on the market price of USA
common stock at that time. Because of this fluctuation, we cannot assure you
that the value at the time of the merger of the consideration to be received by
holders of Expedia Class B common stock will be equal to the fair market value.
For historical and current market prices of USA common stock, see "Summary--
Comparative Per Share Market Price Information."
THE EXCHANGE RATIO RELATING TO THE NUMBER OF USA WARRANTS YOU MAY RECEIVE IN
THE MERGER MAY ALSO FLUCTUATE DUE TO A TAX ADJUSTMENT
In order to preserve the tax-free nature of the transactions, USA may, under
certain circumstances, decrease the USA warrant exchange ratio and increase the
USA common stock exchange ratio. If this occurs, you will receive fewer USA
warrants and more shares of USA common stock. Because the replacement of USA
warrants with USA common stock will be determined according to a valuation
mechanism that includes certain variables, it is possible that the value of the
USA common stock received under this adjustment will be greater than or less
than the value of the USA warrants being replaced. At the time that you make
your election whether to remain a shareholder of Expedia or to receive shares of
Expedia Class B common stock in the recapitalization, this exchange ratio will
not yet be fixed. The actual package of USA securities you would receive in
respect of shares of Expedia Class B common stock that you may elect to receive
will be announced by USA promptly after the annual meeting.
USA/EXPEDIA MAY NOT REALIZE ALL OF THE ANTICIPATED BENEFITS OF THE
TRANSACTIONS
The success of the transactions will depend, in part, on the ability of USA
and Expedia to realize certain anticipated growth opportunities from integrating
the businesses of Expedia with the businesses of USA and its affiliates. We
cannot assure you that this integration will result in the realization of the
full anticipated benefits of the growth opportunities or that these benefits
will be achieved within the anticipated time frame or at all. In addition, legal
arrangements between USA or its affiliates and certain third parties may
restrict the ability of the parties to integrate parts of their businesses with
the businesses of USA or its affiliates.
MICROSOFT WILL BE ABLE TO COMPETE WITH EXPEDIA
In connection with the merger, Expedia and Microsoft have agreed to
terminate the shareholder agreement between Microsoft and Expedia, which
agreement includes, among other things, an
22
agreement by Microsoft not to compete with Expedia. As a result Microsoft will
be able to compete with Expedia after the transactions, which could have a
negative impact on Expedia's business.
FAILURE TO COMPLETE THE TRANSACTIONS COULD NEGATIVELY IMPACT EXPEDIA'S STOCK
PRICE AND FUTURE BUSINESS AND OPERATIONS
If the merger is not completed for any reason, Expedia may be subject to the
following material risks:
- the price of Expedia common stock may decline to the extent that the
current market price of Expedia common stock reflects a market assumption
that the transactions will be completed;
- costs related to the transactions, such as certain legal, accounting and
financial advisor fees, must be paid even if the transactions are not
completed; and
- Microsoft may agree to a subsequent transaction in which some or all of
the outstanding shares of Expedia common stock may be transferred with or
without the consent and approval of Expedia's board of directors on terms
which may be less favorable to Expedia shareholders than the terms
contemplated by the merger agreement.
RISK FACTORS RELATING TO USA
USA DEPENDS ON ITS KEY PERSONNEL
USA is dependent upon the continued contributions of its senior corporate
management, particularly Barry Diller, and certain key employees for its future
success. Mr. Diller is the Chairman of the Board and Chief Executive Officer of
USA. Mr. Diller does not have an employment agreement with USA, although he has
been granted options to purchase a substantial number of shares of USA common
stock.
If Mr. Diller no longer serves in his positions at USA, the business of USA,
as well as the market price of USA common stock, could be substantially
adversely affected. In addition, under the terms of a governance agreement,
dated as of October 19, 1997, among Universal Studios, Inc., HSN, Inc. (now
USA), Mr. Diller and Liberty Media Corporation, if Mr. Diller no longer serves
as Chief Executive Officer of USA, then certain restrictions on Universal
Studios' conduct will be eliminated, and Universal Studios' ability to increase
its equity interest in USA will be accelerated. Due to current regulatory
restrictions of the Federal Communications Commission (the "FCC") on foreign
ownership and on the ability of Liberty Media and Universal Studios, which is
owned by Vivendi Universal S.A., to exercise voting control over entities that
hold broadcast licenses, in the event that Mr. Diller were no longer Chief
Executive Officer of USA, became disabled or otherwise no longer exercised
control over USA, USA would be required either to divest itself of its broadcast
licenses, if any, so that Universal Studios and Liberty Media could exercise
control over USA or otherwise enter into arrangements relating to the control of
USA in compliance with FCC law. We cannot assure you that USA will be able to
retain the services of Mr. Diller or any other members of senior management or
key employees of USA.
USA IS CONTROLLED BY MR. DILLER AND IN HIS ABSENCE, WILL BE CONTROLLED BY
VIVENDI UNIVERSAL AND LIBERTY MEDIA
Mr. Diller, through entities he controls, currently beneficially owns or has
the right to vote 100% of the shares of Expedia Class B common stock, par value
$.01 per share, of USA, which is sufficient to control the outcome of any matter
submitted to a vote or for the consent of USA shareholders with respect to which
holders of USA common stock and USA Class B common stock vote together as a
single class. See "Description of USA Capital Stock." As of July 31, 2001 (but
without giving effect to
23
the issuance of any USA securities upon exercise of options held by Mr. Diller
or upon exchange of shares of USANi LLC or Home Shopping Network, Inc.,
Mr. Diller owns or has the right to vote approximately 14.5% of the outstanding
USA common stock, 100% of the outstanding USA Class B common stock and 71.6% of
the outstanding total voting power of USA common stock and USA Class B common
stock. Mr. Diller, subject to the terms of a stockholders agreement, dated as of
October 19, 1997 (the "STOCKHOLDERS AGREEMENT"), among Universal Studios,
Liberty Media, Mr. Diller, USA and The Seagram Company Ltd. (now controlled by
Vivendi Universal S.A.), effectively controls the outcome of all matters
submitted to a vote or for the consent of USA shareholders (other than with
respect to the election by the holders of USA common stock of 25% of the members
of the board of directors of USA (rounded up to the nearest whole number) and
certain matters as to which a separate class vote of the holders of USA common
stock is required under Delaware law).
Under the Stockholders Agreement, Mr. Diller, Universal Studios and Liberty
Media have agreed that USA securities owned by any of Mr. Diller, Universal
Studios, Liberty Media and certain of their affiliates will not be voted in
favor of the taking of any action with respect to certain fundamental changes
relating to USA, except with the consent of each of Mr. Diller, Universal
Studios and Liberty Media. Accordingly, in respect of these matters, each of
Mr. Diller, Universal Studios and Liberty Media has the ability to veto, in his
or its sole discretion, the taking of any action with respect to these matters.
In addition, we cannot assure you that Mr. Diller, Universal Studios and Liberty
Media will agree in the future on any such transaction or action, in which case
USA would not be able to engage in such transaction or take such action.
In addition to the specific requirements of the Stockholders Agreement, the
existence of a controlling shareholder of USA may have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from seeking to acquire, a majority of the outstanding USA securities. A third
party would be required to negotiate any such transaction with Mr. Diller,
Universal Studios and Liberty Media, and the interests of any one or more of
such persons as shareholders may be different from the interests of other USA
shareholders.
Upon Mr. Diller's permanent departure from USA, USA may change in various
fundamental respects. For example, generally, Vivendi Universal, through
Universal Studios, would be able to control USANi LLC, through which a
substantial portion of USA's businesses are owned, and also would have the
ability to seek to cause a spinoff or other disposition of USA's broadcast
businesses, if any, after which Vivendi Universal could directly control USA.
USA currently is in the process of selling its broadcast stations and, upon such
sale, there would no longer be any foreign ownership restrictions on the ability
of Vivendi Universal to control USA. In addition, Universal Studios and Liberty
Media have certain agreements relating to the management and governance of USA,
as well as the voting and disposition of their shares of USA stock.
RISK FACTORS RELATING TO EXPEDIA
EXPEDIA'S OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT
Expedia's annual and quarterly operating results have fluctuated in the past
and may fluctuate significantly in the future due to a variety of factors, many
of which are outside of its control. Because Expedia's operating results are
volatile and difficult to predict, Expedia believes that quarter-to-quarter
comparisons of its operating results are not a good indication of its future
performance. It is likely that in some future quarter its operating results will
fall below the expectations of securities analysts or investors. In this event,
the trading price of Expedia's common stock may decline significantly.
Factors that may cause Expedia to fail to meet the expectations of
securities analysts or investors include the following:
- its inability to obtain travel products on satisfactory terms from its
travel suppliers;
24
- the ability of its competitors to offer new or enhanced websites, services
or products or similar services or products with lower prices;
- its inability to obtain new customers at reasonable cost, retain existing
customers or encourage repeat purchases;
- decreases in the number of visitors to its websites or its inability to
convert visitors to its websites into customers;
- its inability to adequately maintain, upgrade and develop its websites,
the systems that it uses to process customers' orders and payments or its
computer network;
- its inability to retain existing airlines, hotels, rental car companies
and other suppliers of travel services or to obtain new travel suppliers;
- fluctuating gross margins due to a changing mix of revenues;
- the termination of existing relationships with key service providers or
failure to develop new ones;
- the amount and timing of operating costs relating to expansion of its
operations; and
- economic conditions specific to the Internet, online commerce and the
travel industry.
EXPEDIA DEPENDS ON ITS RELATIONSHIPS WITH TRAVEL SUPPLIERS AND COMPUTER
RESERVATION SYSTEMS AND ADVERSE CHANGES IN THESE RELATIONSHIPS COULD AFFECT
ITS INVENTORY OF TRAVEL OFFERINGS
Expedia's business model relies on relationships with travel suppliers, and
it would be negatively affected by adverse changes in these relationships.
Expedia depends on travel suppliers to enable it to offer its customers
comprehensive access to travel services and products. Consistent with industry
practices, Expedia currently has few agreements with its travel suppliers
obligating them to sell services or products through Expedia's websites. It is
possible that travel suppliers may choose not to make their inventory of
services and products available through online distribution. Travel suppliers
could elect to sell exclusively through other sales and distribution channels or
to restrict Expedia's access to their inventory, either of which could
significantly decrease the amount or breadth of Expedia's inventory of available
travel offerings. Of particular note is Orbitz, the airline direct-distribution
website, which was launched in June 2001 and is owned by American Airlines,
Continental Airlines, Delta Air Lines, Northwest Airlines and United Air Lines.
Forester Research reports that Orbitz is the only website for consumers to find
unpublished special fares on these and at least 23 other airlines. Additionally,
American Airlines, United Air Lines, Northwest Airlines, Continental Air Lines,
US Airways Group and America West Airlines entered into a joint venture to
launch a separate site known as "Hotwire," which offers unpublished special
fares on certain carriers. If a substantial number of Expedia's airline
suppliers collectively agree or choose to restrict their special fares solely to
Orbitz or Hotwire, such action may have a material adverse affect on Expedia's
business. Expedia also depends on travel suppliers for advertising revenues.
Adverse changes in any of these relationships, whether due to Orbitz, Hotwire or
otherwise, could reduce the amount of inventory that Expedia is able to offer
through its websites.
A DECLINE IN COMMISSION RATES AND FEES OR THE ELIMINATION OF COMMISSIONS
COULD REDUCE EXPEDIA'S REVENUES AND MARGINS
A substantial majority of Expedia's online revenues depends on the
commissions and fees paid by travel suppliers for bookings made through its
online travel service. Generally, Expedia does not have written commission
agreements with its suppliers. As is standard practice in the travel industry,
Expedia relies on informal arrangements for the payment of commissions. Travel
suppliers are not obligated to pay any specified commission rate for bookings
made through its websites. Expedia cannot assure you
25
that airlines, hotel chains or other travel suppliers will not reduce current
industry commission rates or eliminate commissions entirely, either of which
could reduce Expedia's revenues and margins.
EXPEDIA EXPECTS ITS ACCOUNTING LOSSES TO CONTINUE
To date, Expedia has incurred substantial net losses due mainly to
stock-based compensation and acquisitions made by Expedia since its initial
public offering. For the fiscal year ended June 30, 2001, Expedia had a net loss
of $78.1 million. If its revenues do not grow as expected, or if increases in
its expenses are not in line with its plans, there could be a material adverse
effect on Expedia's business, operating results and financial condition.
EXPEDIA COMPETES WITH A VARIETY OF COMPANIES WITH RESPECT TO EACH PRODUCT OR
SERVICE IT OFFERS
These competitors include:
- Internet travel agents such as Travelocity.com, Orbitz.com and American
Express Interactive, Inc.;
- local, regional, national and international traditional travel agencies;
- consolidators and wholesalers of airline tickets, hotels and other travel
products, including Hotwire.com, Cheaptickets.com, Priceline.com and Hotel
Reservations Network, Inc.;
- airlines, hotels, rental car companies, cruise operators and other travel
service providers, whether working individually or collectively, some of
which are suppliers to Expedia's websites; and
- operators of travel industry reservation databases.
In addition to the traditional travel agency channel, many travel suppliers
also offer their travel services as well as third-party travel services directly
through their own websites. These travel suppliers include many suppliers with
which Expedia does business. Suppliers also sell their own services directly to
consumers, predominantly by telephone. As the market for online travel services
grows, Expedia believes that travel suppliers, traditional travel agencies,
travel industry information providers and other companies will increase their
efforts to develop services that compete with Expedia's services by selling
inventory from a wide variety of suppliers. Expedia cannot assure you that its
online operations will compete successfully with any current or future
competitors.
Many of Expedia's competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than Expedia has and may enter into strategic or
commercial relationships with larger, more established and better-financed
companies. Some of Expedia's competitors may be able to secure services and
products from travel suppliers on more favorable terms, devote greater resources
to marketing and promotional campaigns and commit more resources to website and
systems development than Expedia is able to devote. In addition, the
introduction of new technologies and the expansion of existing technologies may
increase competitive pressures. Increased competition may result in reduced
operating margins, as well as loss of market share and brand recognition.
Expedia cannot assure you that it will be able to compete successfully against
current and future competitors. Competitive pressures faced by Expedia could
have a material adverse effect on its business, operating results and financial
condition.
IF EXPEDIA FAILS TO INCREASE ITS BRAND RECOGNITION AMONG CONSUMERS, IT MAY
NOT BE ABLE TO ATTRACT AND EXPAND ITS ONLINE TRAFFIC
Expedia believes that maintaining and enhancing the
Expedia-Registered Trademark- brand is a critical aspect of its efforts to
attract and expand its online traffic. The number of Internet sites that offer
competing services increases the importance of maintaining and enhancing brand
recognition. Promotion of the Expedia brand will depend largely on its success
in providing a high-quality online experience
26
supported by a high level of customer service. In addition, Expedia intends to
spend substantial amounts on marketing and advertising with the intention of
continuing to expand its brand recognition to attract and retain online users
and to respond to competitive pressures. However, Expedia cannot assure you that
these expenditures will be effective to promote its brand or that its marketing
efforts generally will achieve its goals.
DECLINES OR DISRUPTIONS IN THE TRAVEL INDUSTRY GENERALLY COULD REDUCE
EXPEDIA'S REVENUES
Expedia relies on the health and growth of the travel industry. Travel is
highly sensitive to business and personal discretionary spending levels, and
thus tends to decline during general economic downturns. In addition, other
adverse trends or events that tend to reduce travel are likely to reduce its
revenues. These may include:
- price escalation in the airline industry or other travel-related
industries;
- increased occurrence of travel-related accidents;
- airline or other travel-related strikes;
- political instability;
- regional hostilities and terrorism; and
- bad weather.
INTERRUPTIONS IN SERVICE FROM THIRD PARTIES COULD IMPAIR THE QUALITY OF
EXPEDIA'S SERVICE
Expedia relies on third-party computer systems and third-party service
providers, including the computerized central reservation systems of the
airline, hotel and car rental industries to make airline ticket, hotel room and
car rental reservations and credit card verifications and confirmations.
Currently, a majority of Expedia's transactions are processed through
Worldspan, L.P. and Pegasus Solutions, Inc. Expedia relies on TRX, Inc. and
PeopleSupport, Inc. to provide a significant portion of its telephone and email
customer support, as well as to print and deliver airline tickets as necessary.
Microsoft also services a significant amount of Expedia's information systems as
part of an amended and restated services agreement, which Microsoft has agreed
to extend through September 2002. Any interruption in these third-party services
or a deterioration in their performance could impair the quality of Expedia's
service. If its arrangement with any of these third parties is terminated,
Expedia may not find an alternate source of systems support on a timely basis or
on commercially reasonable terms. In particular, any migration from the
Worldspan system could require a substantial commitment of time and resources
and hurt Expedia's business.
EXPEDIA'S SUCCESS DEPENDS ON MAINTAINING THE INTEGRITY OF EXPEDIA'S SYSTEMS
AND INFRASTRUCTURE
In order to be successful, Expedia must continue to provide reliable,
real-time access to its systems for its customers and suppliers. As its
operations continue to grow in both size and scope, domestically and
internationally, Expedia will need to improve and upgrade its systems and
infrastructure to offer an increasing number of customers and travel suppliers
enhanced products, services, features and functionality. The expansion of
Expedia's systems and infrastructure will require it to commit substantial
financial, operational and technical resources before the volume of business
increases, with no assurance that the volume of business will increase.
Consumers and suppliers will not tolerate a service hampered by slow delivery
times, unreliable service levels or insufficient capacity, any of which could
have a material adverse effect on Expedia's business, operating results and
financial condition.
27
In this regard, Expedia's operations face the risk of systems failures.
Expedia's systems and operations are vulnerable to damage or interruption from
fire, flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. Expedia's business interruption insurance may not adequately
compensate it for losses that may occur. The occurrence of a natural disaster or
unanticipated problems at Expedia's facilities in Washington or Travelscape's
facilities in Nevada could cause interruptions or delays in Expedia's business,
loss of data or render it unable to process reservations. In addition, the
failure of Expedia's computer and communications systems to provide the data
communications capacity required by it, as a result of human error, natural
disaster or other operational disruptions, could result in interruptions in its
service. The occurrence of any or all of these events could adversely affect
Expedia's reputation, brand and business.
EXPEDIA'S BUSINESS IS EXPOSED TO RISKS ASSOCIATED WITH ONLINE COMMERCE
SECURITY AND CREDIT CARD FRAUD
Consumer concerns over the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To transmit confidential information such as customer credit
card numbers securely, Expedia relies on encryption and authentication
technology. Unanticipated events or developments could result in a compromise or
breach of the systems Expedia uses to protect customer transaction data.
Furthermore, Expedia's servers may also be vulnerable to viruses transmitted via
the Internet. While Expedia proactively checks for intrusions into its
infrastructure, a new and undetected virus could cause a service disruption.
To date, Expedia's results have been impacted due to reservations placed
with fraudulent credit card data. Expedia records these reserves because, under
current credit card practices and the rules of the Airline Reporting
Corporation, Expedia may be held liable for fraudulent credit card transactions
on its websites and other payment disputes with customers. Since discovering
this fraudulent activity, Expedia has put additional anti-fraud measures in
place above and beyond its existing credit card verification procedures;
however, a failure to control fraudulent credit card transactions adequately
could further adversely affect its business.
RAPID TECHNOLOGICAL CHANGES MAY RENDER EXPEDIA'S TECHNOLOGY OBSOLETE OR
DECREASE THE COMPETITIVENESS OF ITS SERVICES
To remain competitive in the online travel industry, Expedia must continue
to enhance and improve the functionality and features of its websites. The
Internet and the online commerce industry are rapidly changing. In particular,
the online travel industry is characterized by increasingly complex systems and
infrastructures. If competitors introduce new services embodying new
technologies, or if new industry standards and practices emerge, Expedia's
existing websites and proprietary technology and systems may become obsolete.
Expedia's future success will depend on its ability to do the following:
- enhance its existing services;
- develop and license new services and technologies that address the
increasingly sophisticated and varied needs of its prospective customers
and suppliers; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
Developing Expedia's websites and other proprietary technology entails
significant technical and business risks. Expedia may use new technologies
ineffectively or Expedia may fail to adapt its websites, transaction-processing
systems and network infrastructure to customer requirements or emerging industry
standards. If Expedia faces material delays in introducing new services,
products and
28
enhancements, its customers and suppliers may forego the use of Expedia's
services and use those of its competitors.
EXPEDIA'S INTERNATIONAL OPERATIONS INVOLVE RISKS RELATING TO TRAVEL PATTERNS
AND PRACTICES AND INTERNET-BASED COMMERCE
Expedia operates in the United Kingdom, Germany, Canada and Belgium and
intends to expand its operations to other countries. In order to achieve
widespread acceptance in each country Expedia enters, Expedia believes that it
must tailor its services to the unique customs and cultures of that country.
Learning the customs and cultures of various countries, particularly with
respect to travel patterns and practices, is a difficult task and Expedia's
failure to do so could slow its growth in those countries.
In addition, Expedia faces additional risks in operating internationally,
such as:
- delays in the development of the Internet as a broadcast, advertising and
commerce medium in international markets;
- difficulties in managing operations due to distance, language and cultural
differences, including issues associated with establishing management
systems infrastructures in individual foreign markets;
- unexpected changes in regulatory requirements;
- tariffs and trade barriers and limitations on fund transfers;
- difficulties in staffing and managing foreign operations;
- potential adverse tax consequences;
- exchange rate fluctuations; and
- increased risk of piracy and limits on Expedia's ability to enforce its
intellectual property rights.
Any of these factors could harm its business. Expedia does not currently
hedge its foreign currency exposures.
EXPEDIA MAY BE FOUND TO HAVE INFRINGED ON INTELLECTUAL PROPERTY RIGHTS OF
OTHERS WHICH COULD EXPOSE IT TO SUBSTANTIAL DAMAGES AND RESTRICT ITS
OPERATIONS
Expedia could face claims that it has infringed the patents, copyrights or
other intellectual property rights of others. In addition, Expedia may be
required to indemnify travel suppliers for claims made against them. Any claims
against Expedia could require it to spend significant time and money in
litigation, delay the release of new products or services, pay damages, develop
new intellectual property or acquire licenses to intellectual property that is
the subject of the infringement claims. These licenses, if required, may not be
available on acceptable terms or at all. As a result, intellectual property
claims against Expedia could have a material adverse effect on its business,
operating results and financial condition.
BECAUSE EXPEDIA'S MARKET IS SEASONAL, ITS QUARTERLY RESULTS WILL FLUCTUATE
Expedia's business experiences seasonal fluctuations, reflecting seasonal
trends for the products and services offered by its websites. For example,
demand for travel bookings may increase in anticipation of summer vacations and
holiday periods, but online travel bookings may decline with reduced Internet
usage during the summer months. These factors could cause Expedia's revenues to
fluctuate from quarter to quarter. Expedia's results may also be affected by
seasonal fluctuations in the inventory made available to its service by travel
suppliers.
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EXPEDIA'S SUCCESS DEPENDS IN LARGE PART ON THE CONTINUING EFFORTS OF A FEW
INDIVIDUALS AND ITS ABILITY TO CONTINUE TO ATTRACT, RETAIN AND MOTIVATE
HIGHLY SKILLED EMPLOYEES
Expedia depends substantially on the continued services and performance of
its senior management, particularly Richard N. Barton, its chief executive
officer and president. These individuals may not be able to fulfill their
responsibilities adequately and may not remain with Expedia. The loss of the
services of any executive officers or other key employees could hurt Expedia's
business.
As of June 30, 2001, Expedia employed a total of 846 full-time employees. In
order to achieve its anticipated growth, Expedia will need to hire additional
qualified employees. If Expedia does not succeed in attracting new employees and
retaining and motivating its current personnel, its business will be adversely
affected.
EXPEDIA'S WEBSITES RELY ON INTELLECTUAL PROPERTY, AND EXPEDIA CANNOT BE SURE
THAT THIS INTELLECTUAL PROPERTY IS PROTECTED FROM COPY OR USE BY OTHERS,
INCLUDING POTENTIAL COMPETITORS
Expedia regards much of its content and technology as proprietary and tries
to protect its proprietary technology by relying on trademarks, copyrights,
trade secret laws and confidentiality agreements with consultants. In connection
with its license agreements with third parties, Expedia seeks to control access
to and distribution of its technology, documentation and other proprietary
information. Even with all of these precautions, it is possible for someone else
to copy or otherwise obtain and use Expedia's proprietary technology without its
authorization or to develop similar technology independently. Effective
trademark, copyright and trade secret protection may not be available in every
country in which Expedia's services are made available through the Internet, and
policing unauthorized use of its proprietary information is difficult and
expensive. Expedia cannot be sure that the steps it has taken will prevent
misappropriation of its proprietary information. This misappropriation could
have a material adverse effect on Expedia's business. In the future, Expedia may
need to go to court to enforce its intellectual property rights, to protect its
trade secrets or to determine the validity and scope of the proprietary rights
of others. This litigation might result in substantial costs and diversion of
resources and management attention.
Expedia currently licenses from third parties, including Microsoft, some of
the technologies incorporated into its websites. As Expedia continues to
introduce new services that incorporate new technologies, it may be required to
license additional technology from Microsoft and others. Expedia cannot be sure
that these third-party technology licenses will continue to be available on
commercially reasonable terms, if at all.
30
THE ANNUAL MEETING
This joint prospectus/proxy statement is furnished in connection with the
solicitation of proxies by Expedia's board of directors from the holders of
Expedia common stock for use at the annual meeting. This joint prospectus/proxy
statement, other than "Proposal No. 4--Election of Directors" and "Proposal
No. 5--Adoption of 2001 Stock Plan," is also furnished to Expedia shareholders
as a prospectus of USA in connection with the issuance by USA of the shares of
USA common stock, shares of USA preferred stock and USA warrants in connection
with the merger and as a prospectus of Expedia in connection with the issuance
by Expedia of the Expedia Class B common stock in the recapitalization and the
new Expedia warrants in the merger.
TIME AND PLACE; PURPOSES
The annual meeting will be held at , on , 2001, at a.m., local
time. At the annual meeting (and any adjournment or postponement thereof),
Expedia shareholders will be asked to consider and vote upon the following
proposals relating to the transactions:
- a proposal to approve the merger agreement and the transactions
contemplated thereby. Under the terms of the merger agreement, among other
things:
-- USA will contribute to Taipei travel and media-related assets;
-- Expedia will be recapitalized to have two classes of common stock,
with shareholders of Expedia electing to (1) retain some or all of
their shares of Expedia common stock, which will remain outstanding
following the merger and will entitle their holder to receive new
Expedia warrants in the merger, or (2) exchange some or all of their
shares of common stock for shares of Expedia Class B common stock,
which will then be converted into a package of USA securities in the
merger; and
-- Taipei will merge with and into Expedia, with Expedia surviving as a
public company controlled by USA;
- a proposal to amend and restate Expedia's articles of incorporation to,
among other things, create a new class of common stock, Expedia Class B
common stock, and conform Expedia's articles of incorporation to those of
USA's other public subsidiaries; and
- a proposal to terminate the shareholder agreement, dated as of October 1,
1999, between Expedia and Microsoft Corporation.
At the annual meeting (and any adjournment or postponement thereof), Expedia
shareholders will also be asked to consider and vote upon the following
proposals:
- a proposal to elect seven directors to serve until the 2002 annual meeting
of Expedia shareholders, four of whom will be replaced upon closing of the
transactions;
- a proposal to adopt the Expedia, Inc. 2001 Stock Plan; and
- any other matter that may properly come before the annual meeting.
Representatives from Deloitte & Touche, independent certified public
accountants for Expedia, are expected to be present at the annual meeting, to
have an opportunity to make a statement if they so desire and to be available to
respond to appropriate questions.
RECORD DATE; VOTING RIGHTS
The board of directors of Expedia has fixed the close of business on ,
2001 as the record date for the determination of the holders of Expedia common
stock entitled to receive notice of and to vote at the annual meeting. Only
holders of record of shares of Expedia common stock on the record
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date are entitled to vote at the annual meeting. On , 2001, the record
date, there were shares of Expedia common stock outstanding and entitled
to vote at the annual meeting held by approximately holders of record.
VOTES REQUIRED FOR APPROVAL
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Expedia common stock is necessary to constitute a quorum
at the annual meeting. The affirmative vote of holders of a majority of the
outstanding shares of Expedia common stock entitled to vote is required to
approve each of the proposals relating to the transactions being presented to
Expedia shareholders at the annual meeting. The affirmative vote of holders of a
plurality of the outstanding shares of common stock represented in person or by
proxy at the meeting is required to elect the seven nominees to the board of
directors of Expedia. The affirmative vote of holders of a majority of the
outstanding shares of common stock represented in person or by proxy at the
meeting is required to approve the proposed adoption of the Expedia, Inc. 2001
Stock Plan.
The directors and officers of Expedia beneficially own approximately
7,182,888 shares of Expedia common stock, representing approximately 13% of
Expedia's total voting power and Microsoft and its affiliates beneficially own
approximately 33,722,710 shares of Expedia common stock, representing
approximately 67% of Expedia's total voting power as of , 2001. Under the
voting and election agreement, Microsoft and its affiliates are obligated to
vote in favor of each of the proposals relating to the transactions and to elect
to receive Expedia Class B common stock in respect of all their Expedia common
stock. Accordingly, approval of each of the proposals relating to the
transactions is assured.
VOTING AND REVOCATION OF PROXIES
All shares of Expedia common stock represented by properly executed proxies
received prior to or at the annual meeting and not revoked will be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated on a properly executed returned proxy, such proxies will be voted
FOR the approval of each of the proposals described above. Proxies voted against
all of the proposals will not be voted in favor of any adjournment or
postponement of the annual meeting for the purpose of soliciting additional
proxies.
Abstentions may be specified on all proposals. A properly executed proxy
marked ABSTAIN with respect to any proposal will be counted as present for
purposes of determining whether there is a quorum. Because the affirmative votes
required for approval of each of the proposals relating to the transactions are,
as described above, a percentage of the combined voting power of the outstanding
shares entitled to vote, whether or not voted, a proxy marked ABSTAIN with
respect to any proposal relating to the transactions will have the effect of a
vote against such proposal. In addition, the failure of a shareholder of Expedia
to return a proxy and to vote in person at the annual meeting will have the
effect of a vote against the proposals relating to the transactions. Abstentions
with respect to the proposals to elect directors and to adopt the Expedia, Inc.
2001 Stock Plan will not have the effect of counting for or against these
proposals.
Shares represented by "broker non-votes," which are shares held by brokers
or nominees that are represented at a meeting but with respect to which the
broker or nominee is not empowered to vote on a particular proposal, will also
be counted for purposes of determining whether there is a quorum at the annual
meeting but will not be voted. Those shares will be counted for purposes of
determining the combined voting power of Expedia common stock outstanding on the
record date and, accordingly, will have the same effect as a vote cast against
each of the proposals relating to the transactions.
A shareholder may revoke its proxy at any time prior to its use by
delivering to the Secretary of Expedia a signed notice of revocation or a
later-dated, signed proxy or by attending the annual meeting
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and voting in person. Attendance at the annual meeting will not in itself
constitute the revocation of a proxy.
The cost of solicitation of proxies will be paid by Expedia. In addition to
solicitation by mail, officers and regular employees of Expedia may solicit
proxies in person or by mail, telephone, facsimile or other means of electronic
transmission. The extent as to which this is necessary depends entirely upon how
promptly proxy cards are returned. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send the proxy
materials to beneficial owners and Expedia will, upon request, reimburse such
brokerage houses and custodians for their reasonable expenses in so doing.
Shareholders are urged to send in their proxies without delay.
SHAREHOLDERS THAT DESIRE TO ELECT TO EXCHANGE THEIR SHARES OF EXPEDIA COMMON
STOCK FOR EXPEDIA CLASS B COMMON STOCK IN THE RECAPITALIZATION, AND AS A RESULT,
RECEIVE USA SECURITIES IN THE MERGER, MUST, PRIOR TO THE ELECTION DEADLINE, SEND
IN THEIR STOCK CERTIFICATES COVERED BY THE ELECTION AND/OR ANY OTHER REQUIRED
DOCUMENTATION TOGETHER WITH THE ELECTION FORM AND LETTER OF TRANSMITTAL ENCLOSED
WITH THIS DOCUMENT.
SHAREHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
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PROPOSAL NO. 1--APPROVAL OF THE MERGER AGREEMENT
STRUCTURE OF THE TRANSACTIONS
Each of the Boards of Directors of USA, Expedia and Microsoft has approved
and adopted the merger agreement and the transactions. The transactions will
consist of the following steps:
CONTRIBUTION BY USA OF TRAVEL AND MEDIA-RELATED ASSETS
Prior to the effective time of the merger, but subject to the conditions set
forth in the merger agreement being satisfied or waived, USA will contribute or
cause to be contributed to Taipei, the entity which will merge with Expedia, the
following assets, each of which is described in further detail below:
- NLG OPTION--a two-year option to acquire, at USA's purchase price
therefor, all of the outstanding equity of National Leisure Group, Inc., a
provider of vacation and cruise packages, which USA has entered into an
agreement to acquire;
- TRAVEL CHANNEL OPTION--a two-year option to purchase one third of USA's
initial equity interest in a travel channel for a U.S. audience that USA
is currently developing. The exercise price of the travel channel option
will equal one-third of the development costs USA incurs, plus interest,
up to the date of exercise in developing the travel channel; and
- USA MEDIA, LLC--all of the outstanding equity of USA Media, LLC, a wholly
owned subsidiary of USA, which has as its sole asset the right to
advertising, marketing and promotion time, valued at $15 million for each
of the next five years, on the various media outlets owned by USA or its
controlled subsidiaries.
NLG OPTION. This option is a two-year option commencing on the completion
of the merger to acquire 100% of the equity of National Leisure Group then owned
by USA. USA has entered into an agreement to acquire 100% of the equity of
National Leisure Group. The terms of this option are attached as an exhibit to
the registration statements of USA and Expedia of which this joint prospectus/
proxy statement is a part.
The exercise price for the option will be equal to the price, whether
comprised of stock, cash and and/or other consideration, paid by USA to acquire
National Leisure Group. The exercise price will be payable in cash and Expedia
common stock, in the same cash to stock ratio used by USA to acquire National
Leisure Group, PROVIDED that Expedia will not be required to pay more than 50%
of the exercise price in cash. If Expedia elects, USA will lend Expedia the cash
portion of the consideration at USA's costs of funds not to exceed the prime
rate plus 1%. The stock portion, which will be registered by Expedia upon USA's
request, will be based on the average closing share price of Expedia common
stock on Nasdaq for the five trading days preceding Expedia's acquisition of
National Leisure Group.
In the event that USA desires to transfer all or a part of its interest in
National Leisure Group to a non-affiliate of USA during the term of the option,
either alone or as a part of a larger transaction, Expedia would have, at its
choice, (1) a right of first refusal with respect to that transfer, or (2) the
right to exercise the option to acquire National Leisure Group prior to the time
that USA enters into a definitive agreement relating to its transfer. If Expedia
declines to exercise either of these choices, the option as it relates to the
piece of National Leisure Group covered by the transfer would expire immediately
when USA enters into a definitive agreement relating to the transfer having
terms no less favorable to USA than the terms declined by Expedia.
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In the event that USA does not acquire National Leisure Group within six
months of the merger with Expedia described in this document, USA will be
required to pay Expedia $20 million plus interest accrued at an annual rate of
7%.
TRAVEL CHANNEL OPTION. This option is a two-year option commencing upon
completion of the merger to acquire one-third of the original equity and
economic interest in a travel channel currently under development by USA. The
terms of this option are attached as exhibit to the registration statements of
USA and Expedia of which this joint prospectus/proxy statement is a part.
The travel channel will be USA's exclusive vehicle in the United States
whose primary activities are the sale of travel and travel-related services,
such as airline tickets, hotel rooms, cruises, vacation packages and other
travel services (which we refer to in this document collectively as "TRAVEL
SERVICES") to customers over the television, regardless of the medium through
which such travel services are purchased. USA has agreed to provide the travel
channel with support for cable affiliation relationships, as well as various
other operating activities, all at USA's cost plus overhead attributable to the
travel channel. Expedia will be entitled to on-air branding arrangements and
rights for sales of travel packages on the travel channel equivalent to those of
any third party.
The exercise price for this option will be reimbursement of one-third of
USA's cost to date of exercise, including attributable overhead that USA's
subsidiaries incur, plus interest at USA's cost of funds not to exceed the prime
rate plus 1%. To the extent that USA's costs are cash-based, that portion of the
exercise price will be paid in cash, and to the extent that USA's costs are
media contributions, that portion of the exercise price will be paid by Expedia
by reducing the equivalent dollar amount of media to be provided by USA to USA
Media, LLC, which we describe in further detail below.
USA MEDIA, LLC. USA Media is a direct and indirect wholly owned subsidiary
of USA that has as its only asset the right to receive, at no cost to USA Media,
$15 million in advertising, marketing and promotion, which we refer to in this
document as "MEDIA VALUE," at fair market value rates then in effect, for each
of the five consecutive years commencing no later than July 15, 2002. The terms
of USA Media's right to media value are attached as exhibit to the registration
statements of USA and Expedia of which this joint prospectus/proxy statement is
a part.
USA will deliver the media value in the United States or internationally
through, at the sole discretion of USA Media, a combination of various media
outlets owned by USA or its controlled subsidiaries. These media outlets include
USA's basic cable networks, USA's syndicated television shows, USA and its
subsidiaries' websites and/or other media properties of USA and its affiliates
that are made available to comparable purchasers of media value from USA and its
subsidiaries. For purposes of negotiation, placement and scheduling of
advertising, USA Media will be treated equivalently to cash-paying comparable
purchasers of advertising. The right to media value owned by USA Media does not
accrue from year to year, cannot be accelerated from a future year and is
forfeited to the extent that USA Media does not use it in any given year. USA
Media's right to media value can only be used to promote the business of USA
Media and its affiliates and, subject to limited exceptions, their respective
partners, business affiliates and suppliers.
RECAPITALIZATION
GENERAL. Following the contribution described above and immediately prior
to the merger with Expedia, Expedia will:
- amend and restate its articles of incorporation in the form attached as
Annex B to this document to, among other things, create a new class of
common stock, Expedia Class B common stock, which is entitled to 15 votes
per share. We describe the other changes to
35
Expedia's articles of incorporation in further detail under "Proposal
No. 2--Amendment and Restatement of Expedia's Articles of Incorporation;"
and
- issue up to 37,500,000 shares of Expedia Class B common stock to Expedia
shareholders who elect to exchange, on a share-for-share basis, their
shares of Expedia common stock for shares of Expedia Class B common stock,
subject to proportional allocation in the event of oversubscription.
Shares of Expedia Class B common stock will automatically be converted in
the merger into the right to receive the package of USA securities.
ELECTION PROCEDURES. Accompanying this joint prospectus/proxy statement is
an election form and letter of transmittal, which includes instructions on how
to elect to exchange all or a portion of your shares of Expedia common stock for
shares of Expedia Class B common stock in the recapitalization. All elections
must be validly made on the election form and letter of transmittal.
Shareholders and warrant holders may submit multiple election forms and letters
of transmittal.
Any election form and letter of transmittal submitted by a dissenting
shareholder will be invalid and will be rejected. Expedia shareholders who
exercise dissenters' rights will be treated as non-electing shareholders. If any
dissenting shareholder ceases to be a dissenting shareholder but does not submit
a valid election form and letter of transmittal prior to the election deadline,
then each share of Expedia common stock held by that dissenting shareholder will
remain outstanding without any interest or other value due other than the right
to receive new Expedia warrants in the merger.
If you hold Expedia common stock in "street name" through a broker or other
nominee, your broker or other nominee must make an election on your behalf. You
will receive separate instructions from your broker or other nominee instructing
you on how to instruct your broker or other nominee to fill out the election
form and letter of transmittal. You will need to provide these instructions to
your broker sufficiently in advance of the deadline for making an election in
the recapitalization to permit your broker to deliver the election form and
letter of transmittal together with your Expedia stock certificates prior to the
deadline.
You may change or revoke your election by submitting a properly completed
and signed election form and letter of transmittal (together with Expedia common
stock certificates, as required) to the exchange agent prior to the election
deadline. You may revoke your election and withdraw the stock certificates
representing your Expedia common stock by providing written notice to the
exchange agent by 5:00 p.m., eastern time, on the day prior to the election
deadline. If your shares are held in "street name," you must follow the
directions provided by your broker to change your election.
IF YOU HOLD EXPEDIA SHARES: For an election to receive Expedia Class B
common stock in exchange for your shares of Expedia common stock in the
recapitalization to be validly made, the exchange agent must have received a
valid, properly completed and executed form of election by the election
deadline. An election will be validly made only if the form of election is
properly completed and executed by the shareholder in accordance with the
instructions contained in that form (with the signature or signatures guaranteed
to the extent required by the form of election) and is accompanied by the stock
certificate or certificates representing the Expedia common stock owned by that
shareholder for which the shareholder is electing to receive shares of Expedia
Class B common stock, duly endorsed in blank or in another form acceptable to
USA. If stock certificates are not available when the form of election is sent
to the exchange agent, the shareholder may provide a Guarantee of Delivery from
a member of a national securities exchange, a member of the National Association
of Securities Dealers, Inc. or a commercial bank or trust company located in the
United States. A Guarantee of Delivery in effect guarantees to USA that those
stock certificates will be delivered to the exchange agent at a later date.
IF YOU HOLD OUTSTANDING EXPEDIA WARRANTS: If you hold outstanding Expedia
warrants, you have the right to elect to exchange some or all of your warrants
for Expedia Class B common stock in the
36
recapitalization. In order for your election to be effective, you must exercise
your warrants prior to the recapitalization. In addition, you must complete and
submit the enclosed election form and letter of transmittal, together with a
copy of your warrant, payment of your exercise price and an executed notice to
exercise your warrant to the exchange agent by the election deadline of
5:00 p.m., eastern time, on , 2001, the date of the annual meeting.
IF YOU HOLD EXPEDIA OPTIONS: THE FOLLOWING ONLY APPLIES TO EXPEDIA STOCK
OPTIONS THAT WERE GRANTED ON OR PRIOR TO AUGUST 2, 2001. IF YOU WERE GRANTED
OPTIONS AFTER THIS DATE, YOUR OPTIONS WILL REMAIN UNCHANGED AND YOU WILL BE
ISSUED ONLY EXPEDIA COMMON STOCK UPON EXERCISE.
If your options are vested and you exercise prior to the date on which new
Expedia warrants will be distributed to Expedia optionholders, which date will
be approximately 10 days prior to the date of the annual meeting (which we refer
to in this document as the "DISTRIBUTION DATE"), you have the right to elect to
exchange some or all the Expedia shares issued upon exercise for Expedia Class B
common stock in the recapitalization by following the election procedure for
shareholders described in this document. If you elect not to exchange your
shares in the recapitalization, you will retain your shares of Expedia common
stock and if you continue to hold these shares as of the effective time, you
will receive in the merger 0.1920 Expedia warrants for each share.
If you continue to hold Expedia stock options, vested or unvested, on the
distribution date, Expedia will distribute to you 0.1920 Expedia warrants for
each option you hold on the distribution date, provided that you agree not to
exercise or transfer your underlying options until the earlier of the completion
of the transactions and the termination of the merger agreement. The Expedia
warrants to be distributed to optionholders on the distribution date have terms
identical to the terms of the Expedia warrants being distributed in the merger
to holders of Expedia common stock, except that the warrants being distributed
to Expedia optionholders are subject to the same vesting schedule as the options
in respect of which the warrants are being issued and will be non-transferable
and non-exercisable for a period of 90 days following the date of their issue.
THE ELECTION DEADLINE IS 5:00 P.M., EASTERN TIME, ON , 2001, THE DATE
OF THE ANNUAL MEETING.
USA has the right to make reasonable determinations and to establish
reasonable procedures in guiding the exchange agent in its determination as to
the validity of forms of election. None of Expedia, USA or the exchange agent is
under any obligation to notify any Expedia shareholder of any defect in a form
of election. If you have questions related to the form of election and letter of
transmittal, or if you require additional copies of the form of election and
letter of transmittal, please contact the proxy solicitor, MacKenzie Partners,
Inc., at (800) 322-2885.
THE FORM OF ELECTION AND LETTER OF TRANSMITTAL IS INCLUDED WITH THIS JOINT
PROSPECTUS/PROXY STATEMENT. YOU SHOULD COMPLETE IT IN ACCORDANCE WITH ITS
INSTRUCTIONS AND RETURN IT TO THE EXCHANGE AGENT PRIOR TO THE ELECTION DEADLINE.
IN ORDER FOR AN ELECTION AND/OR OTHER DOCUMENTATION FORM AND LETTER OF
TRANSMITTAL TO BE EFFECTIVE, YOU MUST ALSO INCLUDE YOUR STOCK CERTIFICATES AS
SET FORTH IN THE FORM OF ELECTION. IF YOU DO NOT PROPERLY COMPLETE AND RETURN TO
THE EXCHANGE AGENT A FORM OF ELECTION PRIOR TO THE ELECTION DEADLINE, YOUR
SHARES OF EXPEDIA COMMON STOCK WILL BE TREATED AS THOUGH NO ELECTION TO RECEIVE
EXPEDIA CLASS B COMMON STOCK IN RESPECT TO THOSE SHARES HAD BEEN MADE AND AS A
RESULT THOSE SHARES WILL REMAIN OUTSTANDING FOLLOWING THE MERGER.
If you did not receive a copy of the election form and letter of transmittal
because you acquired Expedia shares after the record date, you should call the
proxy solicitor, MacKenzie Partners, Inc., at (800) 322-2885 and a copy of each
will be mailed to you free of charge.
37
MERGER
Following the recapitalization of Expedia, Taipei will merge with and into
Expedia, with Expedia surviving as a public company controlled by USA. In the
merger:
- Each share of Expedia common stock that is owned by Expedia as treasury
stock, if any, and all shares of Expedia common stock that are owned by
USA and any of its wholly owned subsidiaries immediately prior to the
effective time of the merger will be cancelled and no consideration will
be delivered for the cancellation.
- Each share of Expedia common stock, other than shares held by dissenting
shareholders and shares cancelled as specified above, issued and
outstanding immediately prior to the effective time of the merger will
remain outstanding and will entitle its holder to receive 0.1920 of a new
Expedia warrant having the terms described under "Description of Expedia
Capital Stock--New Expedia Warrants."
- Each share of Expedia Class B common stock issued and outstanding
immediately prior to the effective time of the merger shall be converted
into the right to receive a combination of:
(a) a number of shares of USA common stock equal to the quotient, rounded
to the nearest ten thousandth (or if there is no nearest ten
thousandth, the next higher thousandth) obtained by dividing (1)(A)
$35.00 less (B) the product of the number of shares of USA preferred
stock received in respect to each share of Expedia Class B common
stock calculated in accordance with (b) below and 50, by (2) the
average of the daily closing prices (as of 4:00 p.m., eastern time)
per share of USA common stock, as reported on Nasdaq for the ten
consecutive trading days immediately preceding the second trading day
prior to the date of the election deadline; PROVIDED that for
purposes of this calculation, the average closing price of USA common
stock calculated above shall not be greater than $31.00 or less than
$23.00;
(b) a number of shares of USA preferred stock equal to the quotient,
rounded to the nearest ten thousandth (or if there is no nearest ten
thousandth, the next higher thousandth) obtained by dividing
13,125,000 by the number of shares of Expedia Class B common stock
exchanged in the merger; and
(c) a number of warrants to purchase USA common stock equal to the
exchange rate corresponding to the USA share price set forth on Annex
F to this document.
In the event that the parties to the merger agreement reasonably
determine that the requirements of Section 368(a)(2)(E)(ii) of the Internal
Revenue Code would not be satisfied, then the exchange ratio relating to the
USA warrants determined in accordance with (c) above will be reduced and the
number of shares of USA common stock to be received in the merger will be
adjusted in accordance with the formula set forth in the merger agreement.
Because the replacement of warrants with common stock will be pursuant to a
valuation mechanism that includes certain fixed variables, it is possible
that the value of the USA common stock received under this adjustment will
be greater than or less than the value of the warrants being replaced.
- The outstanding shares of Taipei, which are all held by USA, will be
converted into the right to receive an aggregate number of shares of
Expedia Class B common stock equal to the number of shares of Expedia
Class B common stock issued in the recapitalization. After the merger, no
Expedia shareholder other than USA will hold Expedia Class B common stock.
- No fractional shares will be issued in the merger, and cash equal to the
value of any fraction of a share or warrant will be paid in its place.
38
The merger will become effective when the articles of merger are filed with
the Secretary of State of the State of Washington or at such other time may be
specified in the articles of merger. We expect the merger to occur in the fourth
quarter of 2001. Because the merger is subject to governmental approvals,
however, we cannot predict the exact timing.
BACKGROUND
Expedia became a public company in November 1999 when Microsoft, Expedia's
sole shareholder at that time, sold approximately 20% of its interest in Expedia
in an initial public offering of the company's common stock. Microsoft's
interest has since been diluted as a result of option exercises, subsequent
share offerings and shares issued in connection with acquisitions. Since
July 2000, Expedia and Microsoft had discussed the possibility of Microsoft
further reducing its holdings in Expedia.
From time to time beginning in February 2001, management of USA and Expedia
spoke informally regarding their companies and discussed, at a general level,
whether there was any interest in a possible strategic transaction involving
Expedia and USA. On April 27, 2001, members of Expedia's senior management met
in Los Angeles, California with members of USA's senior management to generally
explore potential merits of a strategic combination involving the two companies.
Expedia and USA also executed a confidentiality agreement.
Following the meeting in Los Angeles, senior management of Expedia and USA
had a series of telephone conversations to discuss issues related to how a
possible transaction might be structured. Expedia management also contacted
Microsoft and Expedia's board of directors, as well as Expedia's financial and
legal advisors, to inform them of the preliminary discussions that USA and
Expedia were having. From May 4, 2001 to June 6, 2001, Expedia's management had
discussions with its advisors and with Microsoft to review possible transaction
structures.
In early June 2001, Expedia's Chairman of the Board and its management had
further talks with USA's management regarding a potential transaction and
possible transaction structures. These discussions focused on general structural
issues, including whether a tax-free transaction could be achieved, as well as
the merits of a business combination. Some of these discussions included
Microsoft and its advisors.
In mid-June 2001, the parties commenced due diligence. Expedia management
also updated its board of directors on developments in the discussions.
The parties continued to hold discussions regarding the terms and structure
of a proposed transaction periodically throughout the rest of June 2001 and in
early July 2001. During that period, on July 6, 2001, Expedia management
distributed an update to members of the board of directors of Expedia outlining
the points of discussion and noting the outstanding issues that management was
discussing with USA and Microsoft. Later that day, USA's outside legal counsel
delivered an initial draft of the merger agreement.
On July 11, 2001, the Expedia board of directors met to consider the terms
of the proposed transaction with USA. Expedia's management reported on the
negotiations with USA and Microsoft, as well as the nature of Expedia's
operations as a majority-owned subsidiary of USA. The board of directors then
listened to presentations from Expedia's outside legal counsel and financial
advisor regarding the financial and legal elements of the transaction. During
this meeting, the board of directors directed management to seek from USA
additional terms and protections before it would approve the proposed
transaction. Following the board of directors meeting, Expedia's management
conveyed this message to USA. In response, USA made a counteroffer that evening
that aimed to address the concerns of Expedia's board of directors.
39
On July 13, 2001, USA's board of directors held a special meeting to
consider the proposed transactions. At the meeting, USA's senior management and
financial and legal advisors presented to the board of directors the background
of the proposed transactions, the outline of the terms and conditions of the
proposed transaction, a strategic and financial analysis of the proposed
transactions and a summary of the legal issues relating to the proposed
transactions. Following discussion by the board of directors, USA's board of
directors unanimously approved the proposed transactions, including the proposed
merger agreement and related agreements, subject to finalization by USA's
management and its legal advisors of the necessary documentation.
On July 15, 2001, Expedia's board of directors, other than one director, who
was excused, considered USA's most recent proposal and all other elements of the
transaction as it had developed since their last meeting. Expedia's financial
advisor reviewed with the board of directors the financial terms of the
transaction and rendered to the Expedia board of directors its oral opinion,
subsequently confirmed in writing, that as of that date, the consideration to be
received by holders of shares of Expedia common stock (other than Microsoft)
pursuant to the terms of the merger agreement was fair from a financial point of
view to such holders. Expedia's outside legal counsel then reviewed with the
board of directors the legal elements of the transaction and again reviewed the
board of directors' fiduciary duties in the context of the transaction. The
directors present then unanimously resolved to approve the transaction and
recommend it to Expedia shareholders.
From July 6 to July 15, 2001, the parties negotiated and finalized the terms
of the transaction agreements, including the merger agreement. Upon completion
of these negotiations, the parties executed the merger agreement and certain
ancillary documents, copies of which have been filed as exhibits to this joint
prospectus/proxy statement, and USA and Expedia issued a joint press release
announcing the execution of the merger agreement on July 16, 2001.
RECOMMENDATIONS OF THE EXPEDIA BOARD OF DIRECTORS
At a meeting held on July 15, 2001, the board of directors of Expedia, with
one director excused, unanimously:
- determined that the transactions are consistent with, and in furtherance
of, the long-term business strategy of Expedia and are fair to, and in the
best interests of, Expedia and its shareholders;
- directed that each of the proposals relating to the transactions be
submitted for consideration by the Expedia shareholders; and
- recommended that the Expedia shareholders vote FOR approval and adoption
of each of the proposals relating to the transactions.
However, for the reasons described below, the Expedia board of directors has
not taken a position as to whether Expedia shareholders should elect to exchange
their shares of Expedia common stock for shares of Expedia Class B common stock
in the recapitalization, and as a result receive USA securities in the merger,
or remain shareholders of Expedia and, in addition, receive new Expedia warrants
in the merger.
INFORMATION AND FACTORS CONSIDERED BY THE EXPEDIA BOARD OF DIRECTORS
RECOMMENDATION OF THE PROPOSALS
In reaching its decision to recommend to shareholders the adoption and
approval of each of the proposals relating to the transactions, the Expedia
board of directors consulted with Expedia's
40
management, as well as its legal counsel and its financial advisor, and
carefully considered the following material factors:
(1) the financial terms and structure of the transactions, which permit each
holder of Expedia common stock to choose among:
- remaining as a shareholder of Expedia and continuing to participate in
the growth of Expedia's business while at the same time receiving
additional equity in Expedia in the form of new Expedia warrants;
- becoming a stockholder of USA, a more diversified company in the media
industry with a larger public float, by receiving the package of USA
securities, which includes USA common stock, a security with a higher
trading volume and greater liquidity than Expedia common stock, but
which also includes new issues of preferred stock and warrants, which
may have significantly less trading volume and liquidity than Expedia
common stock; and
- allocating Expedia shares in the recapitalization to be able to take
advantage of both of the above options;
(2) the presentation of Morgan Stanley and the opinion of Morgan Stanley,
which opinion was subsequently confirmed in writing, to the effect that,
as of July 15, 2001, and subject to the qualifications and limitations
set forth in the written opinion, the consideration to be received by the
holders of shares of Expedia common stock (other than Microsoft) pursuant
to the merger agreement was fair from a financial point of view to such
holders. A copy of Morgan Stanley's written opinion is attached as Annex
D to this joint prospectus/proxy statement;
(3) the board of directors' knowledge of Expedia and the industry in which
it competes and its belief that USA's contributions to Expedia in the
transactions of media advertising and promotion time, the option to
purchase National Leisure Group and the option to purchase a one-third
interest in USA's proposed travel channel are beneficial to the long-term
prospects of Expedia and its ability to develop new lines of business;
(4) USA's historical financial and operating condition, the trading history
of the USA common stock and the performance of certain USA-controlled
public subsidiaries, of which Expedia would become one as a result of the
transactions, as well as the strong business and investment community
reputation of Barry Diller, the chairman and chief executive officer of
USA;
(5) the fact that Expedia would join the USA umbrella of entertainment,
television, interactive media, travel and other businesses, enabling
Expedia to potentially realize greater strategic business relationships
with, and benefit from the resources of, the USA group of companies;
(6) the fact that USA agreed in the merger agreement to certain protections
regarding the independence of Expedia with respect to certain important
decisions of Expedia. These provisions include USA's agreement that:
(a) Expedia or its subsidiaries will not be restricted from engaging in
or owning an interest in any business which competes with USA or its
affiliates; (b) for so long as USA owns 50.1% of the aggregate voting
power of Expedia, Expedia will not enter into any material contract,
arrangement or transaction with USA or its affiliates without the prior
approval of a majority of Expedia's independent directors; (c) there will
be meaningful consultation between USA and Expedia's chief executive
officer in the selection of Expedia's independent directors; and
(d) Expedia's independent directors will have the right, on behalf of
Expedia, to enforce the above provisions and any waiver or amendment of
the above provisions requires the approval of the majority of Expedia's
independent directors;
41
(7) the fact that Microsoft had indicated to the Expedia board of directors
its desire to transfer its controlling interest in Expedia for strategic
purposes and to achieve greater liquidity in its investment and the fact
that Microsoft could pursue a divestiture with or without the support of
the Expedia board of directors and the Expedia board of directors' belief
that the transactions would permit Microsoft to divest its controlling
interest with minimal impact on Expedia's public shareholders and in a
manner that the Expedia board of directors believes maximizes Expedia's
prospects for long-term growth while at the same time affording
shareholders choices and benefits which may not have been available in
alternative divestiture strategies that Microsoft could have elected to
pursue;
(8) the terms of the voting and election agreement between Microsoft and USA
and the fact that Microsoft has irrevocably committed to approve the
transactions and each of the proposals, coupled with Microsoft's
controlling ownership interest which assures the approval of the
transactions and each of the proposals;
(9) consistent with the terms of the tag-along rights set forth in the
shareholder agreement, dated October 1, 1999, between Expedia and
Microsoft, the fact that the public shareholders of Expedia have the
choice to receive the same consideration to be received by Microsoft in
the transactions. See "Proposal No. 3--Termination of the Shareholder
Agreement" for a more detailed description of these tag-along rights;
(10) Expedia's continued existence as a public company, which will permit it
to continue granting Expedia stock options to its employees thereby
enabling Expedia to continue to attract and retain qualified employees
and enabling these employees to continue participating in the earnings
and growth of Expedia's business;
(11) the fact that although the voting power of Expedia's public
shareholders will be diluted pursuant to the transactions, the Expedia
public shareholders never exercised voting control due to Microsoft's
majority ownership position;
(12) the possibility that an active public trading market for the USA
warrants, the USA preferred stock and the new Expedia warrants may not
develop or be sustained following the transactions and that the prices
for such securities in any such market may trade at a discount from the
initial or anticipated valuations for such securities;
(13) the ability to complete the merger as a reorganization for United
States federal income tax purposes in which Expedia shareholders
generally will not recognize any gain or loss, except for any gain or
loss recognized in connection with cash received for fractional shares of
USA common stock, USA preferred stock, USA warrants or new Expedia
warrants;
(14) the board of directors' belief, after considering the advice of
counsel, that the parties should be able to satisfy all conditions to the
completion of the transactions, including the receipt of the necessary
regulatory approvals in accordance with the terms of the merger
agreement, while recognizing the possibility that regulators might not
grant approval or may impose conditions on the grant of their approval;
(15) the terms of the merger agreement regarding third party proposals,
considered together with the terms and provisions of the voting and
election agreement, including provisions in the merger agreement that
provide (a) that the Expedia board of directors may not solicit, furnish
information to a party making, or enter into discussions regarding, a
third party proposal without the prior consent of USA, (b) that the
Expedia board of directors must use its reasonable best efforts to obtain
from the Expedia shareholders a vote in favor of the transactions and
each of the proposals relating to the transactions and must recommend to
the Expedia shareholders that they so vote, (c) that the Expedia board of
directors shall not be required to continue to recommend the transactions
and the proposals relating to the transactions only in specific limited
circumstances and (d) that Expedia cannot terminate the
42
merger agreement in order to enter into a transaction with a third party,
and the potential effect of such provisions on possible efforts by other
parties to acquire or otherwise combine with Expedia. In evaluating these
terms of the merger agreement, the Expedia board of directors also
considered the terms of the voting and election agreement described in
paragraph (8) above and USA's position that it was not prepared to
consider a transaction that did not include the terms in paragraph (8)
and in this paragraph (15); and
(16) the interests that certain executive officers and directors of Expedia
have with respect to the transactions in addition to their interests as
shareholders of Expedia generally. See "--Other Interests of Expedia
Officers and Directors in the Transactions."
The Expedia board of directors did not find it necessary to, and did not
quantify or otherwise assign relative weights to, the foregoing factors or
determine that any factor was of particular importance. Rather, the Expedia
board of directors views its recommendation as being based on the totality of
the information presented to, and considered by, it. The Expedia board of
directors considered all these factors and determined that these factors, as a
whole, supported the conclusions and recommendations described above. In
reaching this determination, the factors described above generally figured
positively, as advantages or opportunities, with the exception of the factors
described in clauses (8) and (15) above, which figured both positively and
negatively, and factors described in clauses (11), (12) and (16) above, which
the Expedia board of directors considered to be neutral.
In considering the recommendation of the Expedia board of directors to
approve and adopt the transactions and each of the proposals relating to the
transactions, you should be aware that certain officers and directors of Expedia
have interests in the proposed transactions that are different from and in
addition to the interests of Expedia shareholders generally. The Expedia board
of directors was aware of these interests and considered them in approving the
proposals. See "--Other Interests of Expedia Officers and Directors in the
Transactions."
NO RECOMMENDATION ON THE ELECTION
For the reasons described below, the Expedia board of directors has not
taken a position as to whether Expedia shareholders should elect to exchange
their shares of Expedia common stock for shares of Expedia Class B common stock
in the recapitalization, and as a result receive USA securities in the merger,
or retain their Expedia common shares and therefore remain as shareholders of
Expedia and also receive new Expedia warrants in the merger:
(1) the transactions were specifically structured to provide Expedia
shareholders with a choice as to whether to remain shareholders of
Expedia, become shareholders of USA or split their current investment in
some proportion between Expedia securities and USA securities;
(2) the relative values of (x) the package of USA securities to be received
in the merger in exchange for a share of Expedia Class B common stock and
(y) a share of Expedia common stock, together with 0.1920 of a new
Expedia warrant to be issued to each Expedia shareholder who does not
elect to exchange his shares, will vary from time to time based, in part,
on the trading values of USA common stock and Expedia common stock. As a
result, the relative values of the USA securities and the Expedia
securities at the time that the Expedia board of directors approved the
transactions will likely differ from the relative values on the date of
the mailing of this joint prospectus/proxy statement, the election
deadline and the date we complete the transactions. Accordingly, any
recommendation by the Expedia board of directors with respect to the
election at the time it approved the transactions would have been based
on information which could quickly become dated and could be confusing or
misleading to Expedia shareholders; and
(3) Expedia shareholders are best suited to determine whether continuing as
Expedia shareholders under USA's control or making an investment in USA
is the appropriate course of action,
43
after taking into account, among other things, their views of the two
companies and the financial and operating condition and growth prospects
of the two companies, as well as their individual investment portfolios.
You should consult your financial advisor in connection with making the
decision to determine the most appropriate election for you with respect to the
recapitalization.
MICROSOFT'S ELECTION NOT A RECOMMENDATION
The terms of the USA securities reflect in part negotiations between
Microsoft and USA to provide Microsoft with securities that would be more liquid
than its controlling interest in Expedia. Microsoft has agreed to make an
election to convert all of its interest into Expedia Class B common stock in the
recapitalization and receive the package of USA securities in the merger,
subject to proration. Because of its controlling interest in Expedia, the
relatively large number of Expedia shares owned by Microsoft and the relatively
small public market for Expedia common stock, Microsoft is subject to both
regulatory and economic restrictions on its disposition of Expedia common stock
that do not apply to other shareholders of Expedia. Microsoft's election should
not be viewed as a recommendation of the suitability of the USA securities for
any other person or as a recommendation concerning the investment merits of the
USA securities in comparison to Expedia securities. Microsoft specifically
disclaims any such recommendations.
OPINION OF EXPEDIA'S FINANCIAL ADVISOR
Under an engagement letter dated June 20, 2001, Expedia retained Morgan
Stanley to provide it with financial advisory services and a financial fairness
opinion in connection with the transactions. Expedia's board of directors
selected Morgan Stanley to act as its financial advisor based on Morgan
Stanley's qualifications, expertise and reputation and its knowledge of the
business and affairs of Expedia. At the meeting of the Expedia board of
directors on July 15, 2001, Morgan Stanley rendered its oral opinion,
subsequently confirmed in writing, that as of July 15, 2001, based upon and
subject to the assumptions and considerations set forth in its opinion, the
consideration to be received by the holders of shares of Expedia common stock
(other than Microsoft) pursuant to the terms of the merger agreement was fair
from a financial point of view to such holders.
THE FULL TEXT OF MORGAN STANLEY'S OPINION, DATED AS OF JULY 15, 2001, IS
ATTACHED AS ANNEX D HERETO. THE OPINION SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION. WE
URGE YOU TO READ THE ENTIRE OPINION CAREFULLY. MORGAN STANLEY'S OPINION IS
DIRECTED TO EXPEDIA'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF
SHARES OF EXPEDIA COMMON STOCK (OTHER THAN MICROSOFT) PURSUANT TO THE TERMS OF
THE MERGER AGREEMENT AS OF THE DATE OF THE OPINION. THE OPINION DOES NOT ADDRESS
ANY OTHER ASPECTS OF THE TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY HOLDER OF EXPEDIA COMMON STOCK AS TO HOW TO VOTE AT THE EXPEDIA ANNUAL
MEETING OR WHETHER OR NOT TO ELECT TO RECEIVE SHARES OF EXPEDIA CLASS B COMMON
STOCK IN THE RECAPITALIZATION. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET
FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Expedia and USA;
- reviewed certain internal financial statements and other financial and
operating data concerning Expedia prepared by the management of Expedia;
- reviewed certain financial projections prepared by the management of
Expedia;
44
- discussed the past and current operations and financial condition and the
prospects of Expedia and USA with senior executives of Expedia and USA,
respectively;
- reviewed the reported prices and trading activity for the Expedia common
stock and the USA common stock;
- compared the financial performance of Expedia and USA and the prices and
trading activity of the Expedia common stock and the USA common stock with
that of certain other comparable publicly traded companies and their
securities;
- participated in discussions and negotiations among representatives of
Expedia and USA and their financial and legal advisors;
- reviewed the draft merger agreement dated July 15, 2001 and certain
related documents;
- reviewed the terms of the new Expedia warrants, USA preferred stock and
USA warrants with the management of Expedia and the terms of other
comparable securities;
- reviewed the terms of the recapitalization, including governance and
voting rights associated with the recapitalization; and
- considered such other factors and performed such other analyses as Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the financial projections, Morgan Stanley assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
Expedia. Morgan Stanley was not provided with financial projections for USA and
instead relied upon publicly available projections of securities research
analysts for USA. In addition, Morgan Stanley assumed that the transactions
contemplated by the merger agreement will be consummated in accordance with the
terms set forth in the merger agreement, including, among other things, that the
merger will be treated as a tax-free reorganization and/or exchange, each
pursuant to the Internal Revenue Code. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of Expedia or
USA, nor was Morgan Stanley furnished with any such appraisals. Morgan Stanley's
opinion was necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to it as of,
July 15, 2001.
In arriving at its opinion, Morgan Stanley was not authorized to solicit,
and did not solicit, interest from any party with respect to the acquisition of
Expedia or any of its assets.
Morgan Stanley noted that under the terms of the merger agreement, holders
of shares of the Expedia common stock (other than Microsoft) are not required
to, but are entitled to, elect to exchange their shares of Expedia common stock
for shares of Expedia Class B common stock. Morgan Stanley also noted that
shareholders whose shares are not exchanged in the recapitalization will
continue to hold their shares of Expedia common stock and would receive, in
addition, new Expedia warrants. In connection with this election, Morgan Stanley
performed various analyses of Expedia, USA, the merger consideration to be
exchanged for the Expedia Class B common stock and the new Expedia warrants to
be issued to the holders of Expedia common stock who retain their shares in the
merger.
The following is a brief summary of the material financial analyses
performed by Morgan Stanley in connection with its oral opinion and in the
preparation of its written opinion. Some of these summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses.
45
EXPEDIA
TRADING RANGE. Morgan Stanley reviewed the range of closing prices of the
Expedia common stock for various periods ending on July 13, 2001, the last
trading day prior to the announcement of the transactions. Morgan Stanley
observed the following:
PERIOD ENDING JULY 13, 2001 RANGE OF CLOSING PRICES
--------------------------- -----------------------
Since January 2, 2001................................... $ 9.25 - $48.70
60 Days................................................. $ 20.91 - $48.70
30 Days................................................. $ 29.73 - $48.70
Morgan Stanley also reviewed the stock price performance of Expedia common
stock during the period of January 2, 2001 to July 13, 2001 and compared that
performance with the performance of the following companies during that period.
STOCK PRICE PERFORMANCE
COMPANY SINCE JANUARY 2, 2001
------- -----------------------
Expedia................................................. +423%
Priceline............................................... +519%
Travelocity............................................. +172%
Hotel Reservations Network.............................. +80%
Nasdaq Index............................................ -9%
COMPARABLE COMPANY ANALYSIS. Morgan Stanley compared publicly available
financial information of Expedia with publicly available information for
selected companies comparable to the business of Expedia. For this analysis,
Morgan Stanley examined estimates from securities research analysts and, where
appropriate, made adjustments for comparability purposes. The following table
presents, as of July 13, 2001, the following statistics:
- the ratio of aggregate value, defined as market capitalization plus total
debt less cash and cash equivalents to calendar year 2001 gross bookings;
- the ratio of aggregate value to calendar year 2001 revenue;
- the ratio of aggregate value to calendar year 2001 gross profit; and
- the ratio of price to calendar year 2002 estimated earnings per share,
commonly known as EPS.
AGGREGATE VALUE TO
---------------------------------------------
CY2001 GROSS CY2001 CY2001 GROSS
COMPANY BOOKINGS REVENUE PROFIT CY2002 P/E
------- ------------ ------------ --------------- ----------
Expedia............... 1.0x 5.7x 18.4x 69.0x
Priceline............. 1.6x 1.6x 10.0x 87.0x
Travelocity........... 0.4x 5.9x 9.7x 53.5x
Hotel Reservations
Network............. 5.6x 5.6x 22.9x 44.4x
High.............. 5.6x 5.9x 22.9x 87.0x
Median............ 1.3x 5.7x 14.2x 61.3x
Low............... 0.4x 1.6x 9.7x 44.4x
Morgan Stanley noted that the ratio of Expedia's aggregate value to calendar
year 2001 gross bookings, revenue and gross profit and the ratio of the price of
Expedia common stock to calendar year 2002 estimated earnings per share was, in
each case, within the range of comparable ratios of the comparable companies.
46
No other company utilized in the comparable company analysis is identical to
Expedia. In evaluating the comparable companies, Morgan Stanley made judgments
and assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Expedia, such as the impact of competition on the businesses of
Expedia and the industry in general, industry growth and the absence of any
material adverse change in the financial condition and prospects of Expedia or
the industry or in the financial markets in general. Mathematical analysis, such
as determining the average or median, is not in itself a meaningful method of
using comparable company data.
SUM-OF-THE-PARTS ANALYSIS. Morgan Stanley performed a hypothetical
"sum-of-the-parts" analysis of Expedia's merchant, agency and other business
segments on a stand-alone basis using securities research analyst projections
that were publicly available as of July 15, 2001. Based on a range of multiples
of estimated calendar year 2001 gross bookings, revenue and gross profit for
Expedia's merchant and agency and other business segments, which multiples were
derived from the analysis of comparable companies, Morgan Stanley calculated the
implied value per share of the Expedia common stock.
EXPEDIA FINANCIAL
STATISTICS IMPLIED
----------------------------- VALUE PER
AGENCY & MULTIPLE FOR SHARE OF
MERCHANT OTHER MULTIPLE FOR AGENCY & EXPEDIA
CALENDAR YEAR BUSINESS BUSINESS MERCHANT OTHER COMMON
FINANCIAL STATISTICS (IN MILLIONS) (IN MILLIONS) BUSINESS BUSINESS STOCK
-------------------- ------------- ------------- ------------ ------------ ---------
2001 Gross Bookings... $351 $2,610 5.6x 0.4x $51.74
2001 Revenue.......... $335 $ 174 5.6x 5.9x $48.45
2001 Gross Profit..... $ 55 $ 105 22.9x 9.7x $38.20
MERGER CONSIDERATION--USA COMMON STOCK
TRADING RANGE. Morgan Stanley reviewed the range of closing prices of the
USA common stock for various periods ending on July 13, 2001, the last trading
day prior to the announcement of the transactions. Morgan Stanley observed the
following:
PERIOD ENDING JULY 13, 2001 RANGE OF CLOSING PRICES
--------------------------- -----------------------
Since January 2, 2001................................... $ 18.00 - $28.00
60 Days................................................. $ 22.55 - $28.00
30 Days................................................. $ 24.59 - $28.00
Morgan Stanley noted that the range of market prices of the USA common stock
for the 30-day period ending July 13, 2001 was within the range of prices of the
USA common stock implied by the USA common exchange ratio described in the
merger agreement.
COMPARABLE COMPANY ANALYSIS. Morgan Stanley compared publicly available
financial information of USA with publicly available information for selected
companies with businesses comparable to the business of USA. For this analysis,
Morgan Stanley examined estimates from securities research analysts, where
appropriate. The following table presents, as of July 13, 2001, the following
statistics:
- the ratio of aggregate value, defined as market capitalization plus total
debt and minority interest less cash and cash equivalents to calendar year
2001 earnings before interest, taxes, depreciation and amortization,
commonly known as EBITDA; and
- the ratio of aggregate value to calendar year 2002 EBITDA.
47
AGGREGATE VALUE TO
-----------------------------
COMPANY CY2001 EBITDA CY2002 EBITDA
------- ------------- -------------
USA............................................ 19.8x 14.9x
Rainbow........................................ 46.2x 30.2x
AOL Time Warner................................ 23.4x 18.7x
FOX............................................ 20.4x 16.1x
Viacom......................................... 16.8x 15.0x
Disney......................................... 12.7x 11.7x
High......................................... 46.2x 30.2x
Median....................................... 20.1x 15.6x
Low.......................................... 12.7x 11.7x
Morgan Stanley noted that the ratio of USA's aggregate value to calendar
year 2001 and 2002 EBITDA was, in each case, within the range of comparable
ratios of the comparable companies.
No other company utilized in the comparable company analysis is identical to
USA. In evaluating the comparable companies, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of USA, such as the impact of competition on the businesses of USA and
the industry in general, industry growth and the absence of any material adverse
change in the financial condition and prospects of USA or the industry or in the
financial markets in general. Mathematical analysis, such as determining the
average or median, is not in itself a meaningful method of using comparable
company data.
MERGER CONSIDERATION--TOTAL CONSIDERATION
In addition to analyzing the USA common stock, Morgan Stanley also reviewed
the terms of the USA preferred stock and the USA warrants to be exchanged for
Expedia Class B common stock in the merger. Morgan Stanley also reviewed the
terms of the new Expedia warrants to be issued to holders of the Expedia common
stock in connection with the merger. Morgan Stanley analyzed the theoretical
values implied by the Black-Scholes model using a range of volatility, risk-free
rate and maturity assumptions for the USA preferred stock, USA warrants and new
Expedia warrants to be received in the transactions. The table below summarizes
the total consideration implied by the sum of the USA common stock, USA
preferred stock and USA warrants to be exchanged for shares of the Expedia
Class B common stock in the merger. The consideration to be exchanged for the
Expedia Class B common stock is presented both on (X) a "Notional Value" basis
assuming market value of $25.26 for the USA common stock as of July 13, 2001 and
pursuant to the USA common exchange ratio as defined in the merger agreement and
face value for the USA preferred stock and (Y) an "Estimated Value" basis
assuming market value of $27.00 for the USA common stock and pursuant to the USA
common exchange ratio as defined in the agreement and the Black-Scholes
theoretical values for the USA preferred stock and the USA warrants assuming a
range of assumptions made by Morgan Stanley. In each case, the theoretical
values of the USA preferred stock, USA warrants and new Expedia warrants exclude
any dilutive effects of such securities.
48
CONSIDERATION PER SHARE OF EXPEDIA CLASS B COMMON STOCK, EXCEPT WHERE NOTED
(ASSUMING 37,500,000 SHARES OF EXPEDIA CLASS B COMMON STOCK ARE ISSUED IN THE
RECAPITALIZATION)
AGGREGATE
NOTIONAL VALUE NOTIONAL ESTIMATED
(IN MILLIONS) VALUE/SHARE VALUE/SHARE*
-------------- ----------- -----------------------
USA common stock........................... $656 $17.50 $ 17.50 - $17.50
USA preferred stock........................ $656 $17.50 $ 18.19 - $18.66
USA warrants............................... -- -- $ 3.07 - $ 4.08
-----------------------
Total...................................... $ 38.76 - $40.24
------------------------
* As determined by Morgan Stanley's analysis
Shareholders of Expedia who do not receive shares of Expedia Class B common
stock in the recapitalization will continue to hold their shares of Expedia
common stock, which had a market value equal to $48 45/64 per share on July 13,
2001. In addition, those shareholders will receive in the merger for each share
of Expedia common stock 0.1920 of a new Expedia warrant with an estimated value
per share, as determined by Morgan Stanley's analysis, to be between
$3.39-$4.61.
The analyses performed on the USA common stock, USA preferred stock, USA
warrants and new Expedia warrants are theoretical valuations based on a range of
assumptions. No specific analysis is identical to the actual prices at which the
USA common stock, USA preferred stock, USA warrants and new Expedia warrants may
trade. There is currently no public market for the USA preferred stock, USA
warrants and the new Expedia warrants. In evaluating the theoretical valuations,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial and other matters,
many of which are beyond the control of USA and Expedia, such as the impact of
the competition on the business of USA and Expedia and the industry in general,
industry growth and the absence of any material adverse change in the financial
condition and prospects of USA and Expedia or the industry or in the financial
markets in general.
In connection with the review of the transactions by Expedia's board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of rendering its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to a partial
analysis or summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor it considered. Morgan Stanley
believes that selecting any portion of its analyses, without considering all
analyses as a whole, would create an incomplete view of the process underlying
its analyses and opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions. As a result, the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of Expedia or USA. In performing its analyses, Morgan Stanley made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters. Many of these assumptions are beyond the
control of Expedia or USA. Any estimates contained in Morgan Stanley's analyses
are not necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as part of its
analysis of the fairness of the consideration to be received by holders of
Expedia common stock (other than Microsoft) pursuant to the terms of the merger
agreement from a financial point of view to those holders and in connection with
the delivery of its opinion dated July 15, 2001 to Expedia's board of directors.
These analyses do not purport to be appraisals or to address the prices at which
the USA common stock, USA preferred stock, USA warrants, Expedia common stock or
new Expedia warrants may trade at any time.
49
The consideration to be received by holders of Expedia common stock pursuant
to the terms of the merger agreement was determined through arm's-length
negotiations between Expedia, Microsoft and USA and was approved by Expedia's
board of directors. Morgan Stanley provided advice to Expedia during these
negotiations. Morgan Stanley did not, however, recommend any specific
consideration to Expedia or its board of directors or that any specific
consideration constituted the only appropriate consideration for the
transactions.
In addition, Morgan Stanley's opinion and its presentation to Expedia's
board of directors was one of many factors taken into consideration by Expedia's
board of directors in deciding to approve the transactions. Consequently, the
analyses described above should not be viewed as determinative of the opinion of
Expedia's board of directors with respect to the consideration or of whether
Expedia's board of directors would have been willing to agree to a different
consideration.
Expedia's board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate, estate and other purposes. In the past, Morgan
Stanley and its affiliates have provided financial advisory services for Expedia
and Microsoft. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, may trade or otherwise effect transactions, for its own account or
for the account of customers in the senior loans, equity and other securities of
Expedia, USA, Microsoft or any other parties involved in the transactions.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the transactions
and Expedia agreed to pay Morgan Stanley for its services an agreed upon fee, a
portion of which was paid at the time of execution of the merger agreement, and
the remainder of which will be paid upon the completion of the transactions.
Expedia has also agreed to reimburse Morgan Stanley for its expenses incurred in
performing its services. In addition, Expedia has agreed to indemnify Morgan
Stanley and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities and expenses, including certain
liabilities under the federal securities laws, related to or arising out of
Morgan Stanley's engagement.
EXPEDIA AFTER THE MERGER
CAPITAL STOCK
Immediately after the transactions, Expedia capital stock will consist of
- Expedia common stock, which will be held by shareholders of Expedia who
did not elect to receive Expedia Class B common stock in the
recapitalization and shareholders who did so elect but were prorated;
- Expedia Class B common stock, all of which will be held by USA;
- outstanding new Expedia warrants, which in accordance with their terms do
not terminate upon the effective time of the merger, to the extent that
holders of these warrants have not elected to exercise them prior to the
recapitalization;
- new Expedia warrants which will be issued in the merger to shareholders of
Expedia who retain their Expedia common stock in the recapitalization; and
- new Expedia warrants which will be distributed as part of the transactions
prior to the annual meeting to Expedia optionholders who were granted
options on or prior to August 2, 2001 and who continue to hold such
options on the date of the distribution.
For a more detailed description of the rights of the holders of Expedia
stock, see "Description of Expedia Capital Stock."
50
OWNERSHIP OF EXPEDIA AFTER THE TRANSACTIONS
Immediately after giving effect to the transactions, USA will hold between
67% to 75% of the outstanding equity (depending on the number of shareholders
who remain as shareholders of Expedia after the recapitalization) and in excess
of 90% of the outstanding voting power of Expedia, with the former holders of
Expedia owning the remaining interests in Expedia. All percentages are based on
Expedia shares outstanding as of , 2001, but after giving effect to the
transactions.
MANAGEMENT AND OPERATIONS OF EXPEDIA AFTER THE TRANSACTIONS
Following the transactions, USA will control Expedia, Mr. Diller will become
Chairman of the Board of Expedia and Mr. Barton will continue in his role as
President and Chief Executive Officer of Expedia. At the effective time of the
merger and through the one-year anniversary of such time, the board of directors
of Expedia will consist of 11 members, six of whom will be appointed by USA. The
remaining five members will be Expedia's Chief Executive Officer and Chief
Financial Officer and three independent directors mutually agreed to by USA and
Expedia. Messrs. Maffei and Hoag, both of whom currently are directors of
Expedia, will constitute two of the three independent directors following the
transactions. USA expects to select its designees, and USA and Expedia expect to
select the remaining independent designee, shortly before the transactions are
completed.
RELATIONSHIP WITH USA
Following the transactions, USA will have voting control of Expedia and will
designate a majority of the Expedia directors. In addition, USA and Expedia have
agreed that their relationship would be governed by the following principles,
none of which can be amended or waived without the approval of a majority of
Expedia's independent directors:
- USA or any of its subsidiaries, on the one hand, and Expedia or any of its
subsidiaries, on the other hand, may engage in or own interests in
businesses that compete with the other;
- as long as USA owns 50.1% of Expedia's total voting power, Expedia would
not enter into or amend any material arrangements with USA or any of its
affiliates without the approval of a majority of Expedia's independent
directors; and
- there will be meaningful consultation between USA and Expedia's Chief
Executive Officer in the selection of Expedia's independent directors.
OTHER INTERESTS OF EXPEDIA OFFICERS AND DIRECTORS IN THE TRANSACTIONS
In considering the recommendation of the Expedia board of directors with
regard to the proposals relating to the transactions, you should be aware that,
as described below, members of the management and board of directors of Expedia
may have interests in the transactions that are different from, or in addition
to, your interests, and that may create potential conflicts of interest. Richard
N. Barton, the president and chief executive officer of Expedia, is a member of
the seven-person Expedia board of directors that approved the transactions.
CONTINUING BOARD POSITIONS
As mentioned above in "Expedia after the Merger--Management and Operations
of Expedia after the Transactions," through the first anniversary of the
effective time of the merger, the Expedia board of directors will consist of 11
members: Mr. Barton, Mr. Stanger, six directors appointed by USA, and three
additional independent directors mutually agreed to by USA and Expedia, two of
which will be Messrs. Maffei and Hoag, who are currently directors of Expedia.
USA generally expects to fill a majority of the Expedia director positions with
designees of USA.
51
EMPLOYMENT AGREEMENT TERM SHEET WITH MR. BARTON
On July 15, 2001, Expedia entered into a binding term sheet with
Mr. Barton, setting forth the material terms of his employment pursuant to an
employment agreement that will be entered into prior to the effective time and
supercede his current employment agreement. The agreement will be effective on
the effective date of the merger and have a three-year term, and six months
prior to the end of the term, Expedia and Mr. Barton will enter into good-faith
negotiations to extend the employment term. Pursuant to the term sheet,
Mr. Barton will remain as chief executive officer of Expedia and will be a
member of the board of directors of Expedia. If the transactions are terminated,
the term sheet will be of no further force or effect.
COMPENSATION. Mr. Barton will receive an annual base salary of $266,000 and
will be eligible to receive an annual bonus of 200% of his salary, payable 50%
in cash and 50% in Expedia stock options based on achieving agreed-upon Expedia
budget goals. $133,000 of the cash portion of Mr. Barton's bonus is guaranteed.
Following the effective date, all of Mr. Barton's outstanding and
unexercised Expedia stock options will remain outstanding in accordance with
their terms. On the effective date, Mr. Barton will receive a grant of options
to purchase 100,000 shares of USA's common stock at a fair market value exercise
price. Mr. Barton will also receive on the effective date a grant of options to
purchase 375,000 shares of Expedia's common stock at a fair market value
exercise price. Such options will have a ten-year term and will vest in four
equal annual installments commencing on the first anniversary of the effective
date contingent upon Mr. Barton's continued employment with Expedia. Mr. Barton
will also receive on the effective date an initial grant of 25,000 shares of
Expedia restricted stock, vesting contingent upon Mr. Barton's continued
employment with Expedia through the third anniversary of the effective date.
Mr. Barton will be evaluated for future option grants in a manner consistent
with similarly situated executives of USA and its subsidiaries.
Mr. Barton will be entitled to participate in welfare, health and life
insurance and pension benefit and incentive programs adopted by Expedia on the
same basis as similarly situated executives of Expedia, USA and their respective
subsidiaries.
SEVERANCE. Upon a termination of Mr. Barton's employment by Expedia without
"cause" or by Mr. Barton for "good reason" (as each term is defined in the term
sheet), Expedia will continue to pay Mr. Barton his salary for the remainder of
the term, as well as pay any earned, but unpaid, base salary and will pay
Mr. Barton his deferred compensation balance. Expedia will also pay Mr. Barton
the pro rata portion of his annual bonus following the end of the fiscal year of
his termination of employment (based upon satisfaction of performance goal
formulas). In addition, he will immediately vest in all options and such options
will remain exercisable for one year following his date of termination of
employment. Although Mr. Barton is not obligated to mitigate any severance
amounts, such amounts will be reduced by any compensation earned by Mr. Barton
in the event that Mr. Barton becomes employed during the remainder of the term.
CHANGE OF CONTROL. The term sheet provides that upon a change of control of
Expedia, all of Mr. Barton's Expedia options (and the USA options granted on the
effective date) and other Expedia equity compensation will vest immediately, and
such options will remain exercisable for one year from the date of the change of
control, notwithstanding any termination of employment.
RESTRICTIVE COVENANTS. The term sheet provides for Mr. Barton to be bound by
a covenant not to compete with the business of Expedia (or any of its
subsidiaries or affiliates) during the term of his employment and for two years
after termination of employment for any reason; but if the non-compete period
extends beyond the severance period (under circumstances in which Mr. Barton had
been entitled to severance pay), Expedia will pay Mr. Barton $100,000 per year
(pro rated on a monthly basis) to the extent it determines to continue the
non-compete period beyond the severance period. In addition, Mr. Barton is bound
by a two-year covenant not to solicit employees or customers of Expedia
52
(or any of its subsidiaries or affiliates) and a confidentiality covenant. The
term sheet also provides that Expedia will not restrict Mr. Barton's ability to
elect to receive any shares of Expedia Class B common stock in connection with
the recapitalization of Expedia.
EMPLOYMENT AGREEMENT TERM SHEET WITH MR. STANGER
On July 15, 2001, Expedia entered into a binding term sheet with
Mr. Stanger setting forth the material terms of his employment pursuant to an
employment agreement that will be entered into prior to the effective date. The
agreement will be effective on the effective date and have a three-year term. If
the transactions are terminated, the term sheet will be of no further force or
effect.
COMPENSATION. Mr. Stanger will receive an annual base salary of $175,000 and
will be eligible to receive an annual bonus of 100% of his salary, payable 50%
in cash and 50% in Expedia stock options based on achieving agreed-upon Expedia
budget goals.
Mr. Stanger will receive on the effective date an initial grant of options
to purchase 50,000 shares of Expedia common stock at a fair market value
exercise price. Such options will have a ten-year term and will vest in four
equal annual installments commencing on the first anniversary of the effective
date contingent upon Mr. Stanger's continued employment with Expedia.
Mr. Stanger will also receive on the effective date a grant of 10,000 shares of
Expedia restricted stock, vesting contingent upon Mr. Stanger's continued
employment with Expedia through the third anniversary of the effective date.
Mr. Stanger will be entitled to participate in welfare, health and life
insurance and pension benefit and incentive programs adopted by Expedia on the
same basis as similarly situated executives of Expedia, USA and their respective
subsidiaries.
SEVERANCE. Upon a termination of Mr. Stanger's employment by Expedia without
"cause" or by Mr. Stanger for "good reason" (as each term is defined in the term
sheet), Expedia will continue to pay Mr. Stanger his salary for the remainder of
the term, as well as pay his earned, but unpaid, base salary and will pay
Mr. Stanger his deferred compensation balance. In addition, Mr. Stanger will
automatically and immediately vest in all of his then-outstanding equity-based
compensation awards granted on or prior to August 2, 2001, and such options
shall remain exerciseable for one year following his date of termination of
employment. Mr. Stanger is obligated to use reasonable best efforts to mitigate
any severance payable to him.
CHANGE OF CONTROL. The term sheet provides that upon a change of control of
Expedia, all of Mr. Stanger's Expedia options and other Expedia equity
compensation will vest immediately, and such options will remain exercisable for
one year from the date of the change of control, notwithstanding any termination
of employment.
RESTRICTIVE COVENANTS. Pursuant to the term sheet, Mr. Stanger will be
bound by covenants not to compete with businesses of Expedia (or its
subsidiaries or affiliates) and not to solicit employees or customers of Expedia
(or its subsidiaries or affiliates) during the term of his employment and for
two years after termination of employment for any reason. In addition,
Mr. Stanger has agreed not to divulge or disclose any confidential information
of Expedia or its affiliates.
OTHER EMPLOYMENT AGREEMENTS
Expedia and USA agreed in a binding term sheet that Mr. Barton may, in his
discretion, cause Expedia to enter into employment agreements with the following
members of senior management of Expedia and Travelscape.com, Inc., a wholly
owned subsidiary of Expedia, with the terms described below for a term of three
years following the effective time:
David Beitel, Vice President, Transportation
Byron D. Bishop, Senior Vice President, Transportation and Core
Development
Erik C. Blachford, Senior Vice President, Marketing and Programming
53
Simon J. Breakwell, Senior Vice President, International and Managing
Director,
Expedia Europe
Tom Breitling, President, Travelscape.com, Inc.
Mark S. Britton, Senior Vice President, General Counsel and Secretary
Michael Day, Senior Vice President, Operations
Kathleen K. Dellplain, Senior Vice President, Human Resources
Seth E. Eisner, Senior Vice President, Advertising Revenue
Dhiren Fonseca, Vice President, Transportation
Lloyd Frink, Vice President, Destinations
Allyson Henry, Vice President, International
Robert Hohman, Vice President, Destinations
Howard Mendelsohn, Vice President, Controller
Steve Murch, Vice President, Destinations
Gregory E. Slyngstad, Senior Vice President, Destinations
Under those agreements, upon a termination of the employee by Expedia
without "cause" or a resignation by the employee with "good reason" (as each
term is defined in the term sheet), the employee will be entitled to: (a) the
acceleration and immediate vesting of all unvested Expedia options granted to
him on or prior to August 2, 2001, and any attendant warrants granted in
connection with the merger; and (b) receive the salary, target bonus and welfare
benefits (and any other damages to which he would be entitled) for the remainder
of the term, less an offset equal to any amounts earned during the term from
other employment, with no obligation to mitigate.
As a condition to entering into the agreements, each of these individuals
will agree to a non-compete for a period of one year from the date of
termination for any reason. The non-compete will apply to general online travel
providers such as Travelocity, Orbitz and Priceline. Each of these individuals
will also agree to a one-year non-solicitation covenant and standard
confidentiality covenant.
The base salaries to be provided in the employment agreements will be the
individuals' respective current salary, as it may be increased during Expedia's
currently pending semi-annual performance review in a manner consistent with
past practice, unless otherwise agreed by USA and Expedia, and subject to
further review and increase at the discretion of Expedia's chief executive
officer, any such increases to be approved by Expedia's compensation committee.
Each individual will be entitled to participate in stock option grants after
August 2, 2001 (except that such options would not accelerate and vest upon
termination without cause or resignation with good reason).
STOCK OPTIONS
All options held by Expedia's non-employee directors pursuant to the 1999
Stock Option Plan for Non-Employee Directors who are not continuing as directors
after the effective time, or who cease to be directors for any reason within one
year following the effective time of the merger, will become fully exercisable.
Pursuant to the merger agreement, each Expedia optionee, including members
of management and the board of directors of Expedia, will be entitled to receive
warrants to purchase 0.1920 shares of Expedia for each Expedia option share with
respect to options issued on or prior to August 2, 2001 that remain outstanding
as of the time of the warrant distribution (see "The Transaction Agreements--
The Merger Agreement"). In the event the merger agreement is terminated
following the warrant distribution to optionholders, Expedia has agreed that all
holders of Expedia common stock (other than holders of Expedia options who have
already become entitled to receive the new Expedia warrants) will receive 0.1920
new Expedia warrants for each share of Expedia common stock owned by such
holder. Each new Expedia warrant issued with respect to a stock option will be
subject to the same vesting schedule as the underlying stock option, which will
be unchanged by the merger. Messrs. Barton, Stanger, Bishop, Breakwell and
Slyngstad would, based on current option holdings, receive 268,929,
54
103,527, 196,284, 45,356 and 23,616 warrants, respectively, and the non-employee
members of the Expedia board of directors as a group would receive 190,152
warrants.
On August 2, 2001, the compensation committee of the Expedia board of
directors issued an aggregate of 1,509,145 options to acquire shares of Expedia
common stock pursuant to the Expedia 1999 Stock Option Plan and the Expedia 1999
Amended and Restated Stock Option Plan for Non-Employee Directors, at exercise
prices of $44.55 and $48.70.
As part of this grant, Expedia granted to Messrs. Barton, Stanger, Bishop,
Breakwell and Slyngstad 125,000, 50,000, 25,000, 25,000 and 50,000 stock
options, respectively. Mr. Maffei was granted 100,000 stock options and each of
the remaining non-employee directors was granted 5,000 stock options on such
date. As noted above, provided that these options are outstanding as of the
warrant distribution date, these holders will be entitled to receive the
warrants in respect of their options on the same terms as described above.
MICROSOFT'S INTERESTS IN THE TRANSACTIONS
Prior to completing its initial public offering in November 1999, Expedia
was a wholly owned subsidiary of Microsoft. Expedia currently is controlled by
Microsoft, which owns approximately 67% of the outstanding equity and voting
power of Expedia. None of Expedia's directors is currently a director, officer
or employee of Microsoft.
As part of Expedia's initial public offering, Expedia entered into various
agreements with Microsoft relating to the provision of operating and
administrative services to it by Microsoft, its licensing of intellectual
property from Microsoft and the allocation of certain tax liabilities between
Microsoft and Expedia. The merger agreement provides that certain of these
agreements will be amended effective upon closing of the merger. The amendments
to these agreements are described under "Proposal No. 4--Election of
Directors--Certain Relationships and Related Transactions."
Also, in connection with Expedia's initial public offering, Microsoft
entered into the shareholder agreement, which includes, among other things, an
agreement by Microsoft not to compete with Expedia, various restrictions on the
transfer by Microsoft of its Expedia shares and registration rights for
Microsoft. The termination of the shareholder agreement is a condition to the
completion of the transactions and is described under "Proposal
No. 3--Termination of the Shareholder Agreement."
In connection with the transactions, each of USA and Expedia agreed to grant
to Microsoft customary registration rights, including the right to underwritten
offerings, relating to USA securities and Expedia securities, if any, owned by
Microsoft following completion of the transactions. As part of the registration
rights, each of USA and Expedia agreed to file a registration statement on
Form S-3 with respect to Microsoft's USA securities and Expedia securities,
respectively, and to use its reasonable best efforts to make such registration
statement effective as promptly as practicable following the completion of the
transactions. Microsoft's registration rights relating to its USA securities are
set forth in the voting and election agreement between USA and Microsoft and are
described in more detail under "The Transaction Agreements--Other Transaction
Agreements--Voting and Election Agreement." Microsoft's registration rights
relating to its Expedia securities are set forth in a registration rights
agreement that was executed on July 15, 2001. Each of the voting and election
agreement and the Microsoft/Expedia registration rights agreement is attached as
an exhibit to USA's and Expedia's registration statements of which this joint
prospectus/proxy statement is a part.
In addition, Microsoft has had in the past, and expects to continue to have
in the future, a range of business agreements and transactions with one or more
of Expedia, USA and their respective affiliates.
ACCOUNTING TREATMENT
USA will account for the transactions as a purchase in accordance with
generally accepted accounting principles. The purchase price by USA will be
allocated to Expedia's identifiable assets and
55
liabilities based on their estimated fair market values at the date of the
completion of the transactions, and any excess of the purchase price over those
fair market values will be accounted for as goodwill. As a result of the
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," goodwill resulting from a business combination completed
subsequent to June 30, 2001 will not be amortized but instead will be required
to be tested for impairment at least annually. The final allocation has not yet
been completed. We may revise the allocation of the purchase price when
additional information becomes available.
As the transaction is currently structured, Expedia will reflect in its
financial statements the purchase price paid by USA for the voting stock
acquired in accordance with generally accepted accounting principles.
Accordingly, the purchase price paid by USA will be used to revalue the assets
and liabilities of Expedia, including goodwill and identifiable intangibles,
using purchase accounting. Expedia and USA are considering certain changes to
the merger agreement that would enable Expedia to qualify for recapitalization
accounting. If those changes are made and provided Expedia does not elect to
apply purchase accounting, Expedia would be able to account for the transaction
as a recapitalization. In a recapitalization, purchase accounting adjustments
including goodwill and other changes in the carrying value of assets and
liabilities would not be recognized by Expedia.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion describes the material federal income tax
consequences of the recapitalization and the merger to holders of Expedia common
stock that hold their shares of Expedia common stock and will hold their shares
of Expedia Class B common stock, if any, as a capital asset at the effective
time of the merger. The discussion is based upon the Internal Revenue Code, U.S.
Treasury regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect on the date of this document, and is
subject to any changes in these or other laws occurring after such date. The
discussion does not address the effects of any state, local or foreign tax laws
or of any federal tax laws other than federal income tax laws.
The tax consequences of the recapitalization and the merger to an individual
shareholder may vary depending upon such shareholder's particular situation, and
certain shareholders (particularly any shareholder which, at the effective time
of the recapitalization and the merger, is a tax-exempt entity, securities
dealer, broker-dealer, insurance company or financial institution, is an
investor in a pass-through entity or is an individual who acquired his or her
shares of Expedia common stock pursuant to an employee stock option or otherwise
as compensation or holds shares of Expedia common stock as part of a hedge,
straddle, constructive sale or conversion transaction) may be subject to special
rules not discussed below. If a partnership holds Expedia common stock, the tax
treatment of a partner will generally depend upon the status of the partner and
upon the activities of the partnership. Partners of partnerships holding Expedia
common stock should consult their tax advisors.
EACH EXPEDIA SHAREHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF THE RECAPITALIZATION AND THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY CHANGES IN ANY APPLICABLE TAX LAWS.
The obligations of the parties to consummate the recapitalization and the
merger are conditioned on Expedia's receipt of an opinion of Shearman &
Sterling, special counsel to Expedia, dated the closing date of the
recapitalization and the merger, substantially to the effect that (1) each of
the recapitalization and the merger will, taking into account all of the
transactions contemplated under the merger agreement, constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and (2) no gain or loss will be recognized by the shareholders of Expedia
upon the receipt of USA common stock, USA preferred stock and USA warrants in
exchange for their shares of Expedia Class B common stock in the merger.
56
Shareholders should be aware that an opinion of counsel is not binding on
the Internal Revenue Service or the courts. Shareholders should also be aware
that the opinion of Shearman & Sterling will be based upon current laws and on
certain representations regarding factual matters made by USA and its wholly
owned subsidiary, by Expedia and by Microsoft, which, if incorrect in certain
material respects, might jeopardize the conclusions reached by such counsel in
its opinion.
Assuming that each of the recapitalization and the merger will qualify as a
reorganization within Section 368(a) of the Internal Revenue Code, the
recapitalization and the merger will have the federal income tax consequences
discussed below.
TAX CONSEQUENCES OF THE RECAPITALIZATION AND THE MERGER TO EXPEDIA
SHAREHOLDERS THAT RETAIN THEIR EXPEDIA COMMON STOCK IN THE RECAPITALIZATION
Expedia shareholders that retain their Expedia shares should not recognize
any gain or loss in the recapitalization or the merger as a result of the
receipt of the new Expedia warrants in the merger. However, a risk exists that
the Internal Revenue Service may take the position that such Expedia
shareholders have taxable gain or other income with respect to a portion of the
consideration received. Assuming that the Expedia shareholders do not recognize
any gain or other income, an Expedia shareholder's aggregate basis in the
Expedia common stock and new Expedia warrants (including any new Expedia
warrants sold by the exchange agent on behalf of the Expedia shareholder in lieu
of the issuance of fractional new Expedia warrants) will be the same as the
shareholder's aggregate tax basis in the Expedia common stock retained in the
recapitalization. This basis will be allocated between the shares of Expedia
common stock the new Expedia warrants in proportion to their relative fair
market values on the date that the transactions are consummated. An Expedia
shareholder's holding period in the Expedia common stock and new Expedia
warrants (including any new Expedia warrants sold by the exchange agent on
behalf of the Expedia shareholder in lieu of the issuance of fractional new
Expedia warrants) will include the holding period of the Expedia common stock
retained in the recapitalization.
An Expedia shareholder will recognize capital gain or loss on the sale of
new Expedia warrants by the exchange agent on its behalf in lieu of the issuance
of fractional new Expedia warrants. The gain or loss will be the difference
between the amount realized by the Expedia shareholder on the sale and the
portion of the Expedia shareholder's basis in its Expedia shares that is
allocable to the new Expedia warrants sold. The gain or loss will be long-term
capital gain or loss if the Expedia shareholder's holding period in the new
Expedia warrants (determined as described above) is more than one year at the
effective time of the merger.
A holder of new Expedia warrants will not recognize gain on the exercise of
new Expedia warrants. The holder's basis in the Expedia common stock received on
the exercise of the new Expedia warrants will equal the holders basis in the new
Expedia warrants, plus the price paid for the Expedia common stock (which will
be equal to the strike price of the new Expedia warrants). The holders holding
period in the Expedia common stock received on the exercise of the new Expedia
warrants will begin on the date the new Expedia warrants are exercised.
TAX CONSEQUENCES OF THE RECAPITALIZATION AND THE MERGER TO EXPEDIA
SHAREHOLDERS THAT EXCHANGE THEIR EXPEDIA COMMON STOCK FOR EXPEDIA CLASS B
COMMON STOCK IN THE RECAPITALIZATION
Expedia shareholders that exchange their shares of Expedia common stock for
shares of Expedia Class B common stock in the recapitalization will not
recognize any gain or loss on that exchange. An Expedia shareholder's aggregate
basis in the Expedia Class B common stock received in the recapitalization will
be the same as the shareholder's aggregate tax basis in the Expedia common stock
surrendered in the recapitalization. An Expedia shareholder's holding period in
the Expedia Class B
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common stock received in the recapitalization will include the shareholder's
holding period of the Expedia common stock surrendered in the recapitalization.
On the exchange of shares of Expedia Class B common stock in the merger for
USA common stock, USA preferred stock and USA warrants, exchanging Expedia
shareholders will not recognize gain or loss. The aggregate tax basis of the USA
common stock, USA preferred stock and USA warrants received in the merger
(including shares of USA common stock, USA preferred stock or USA warrants sold
by the exchange agent on behalf of the shareholder in lieu of the issuance of
fractional shares of USA common stock and USA preferred stock and fractional USA
warrants) will be the same as the shareholder's aggregate tax basis in the
Expedia Class B common stock surrendered in the merger (determined as described
above). This basis will be allocated among the USA common stock, USA preferred
stock and USA warrants in proportion to their relative fair market values on the
date that the transactions are consummated. The holding period of the USA common
stock, USA preferred stock and USA warrants received in the merger (including
shares of USA common stock, USA preferred stock or USA warrants sold by the
exchange agent on behalf of the shareholder in lieu of the issuance of
fractional shares of USA common stock and USA preferred stock and fractional USA
warrants) will include the shareholder's holding period in the Expedia Class B
common stock surrendered in the merger (determined as described above).
An Expedia shareholder will recognize capital gain or loss on the sale of
USA common stock, USA preferred stock or USA warrants by the exchange agent on
its behalf in lieu of the issuance of fractional shares of USA common stock or
USA preferred stock or fractional USA warrants. The gain or loss will be the
difference between the amount realized by the Expedia shareholder on the sale
and the portion of the Expedia shareholder's basis in its Expedia shares that is
allocable to the USA common stock, USA preferred stock or USA warrants sold. The
gain or loss will be long-term capital gain or loss if the Expedia shareholder's
holding period in the USA common stock, USA preferred stock or USA warrants
(determined as described above) is more than one year at the effective time of
the merger.
POTENTIAL DEEMED DISTRIBUTIONS ON USA PREFERRED STOCK
At the time of conversion, the conversion price of the USA preferred stock
will be reduced for each $1.00 that the price of USA common stock exceeds $35.10
at such time in accordance with the formula described under "Description of USA
Capital Stock--USA Preferred Stock--Conversion Rights." In general, a reduction
in the conversion price of a convertible preferred stock, such as the USA
preferred stock, may be treated as a deemed distribution. Applicable U.S.
Treasury regulations provide that a change in conversion ratio or any
transaction having a similar effect on the interest of any shareholder may be
treated as a distribution with respect to any shareholder whose proportionate
interest in the earnings and profits or assets of the corporation is increased
by such change or similar transaction. A reduction in the conversion price of a
convertible preferred stock will increase the preferred shareholder's
proportionate interest in the earnings and profits or assets of USA.
A reduction in conversion price will not result in a deemed distribution if
it represents an adjustment of the price to be paid by the issuer of the
convertible preferred stock in acquiring property, including through a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. However, the authorities treating an adjustment to a conversion price or
conversion ratio as a purchase price adjustment generally have involved an
adjustment at single, fixed date based on the earnings of the acquired business
for a specified period after the closing of the acquisition. In contrast, the
conversion price of the USA preferred stock will be adjusted at the time of
conversion, which could occur at any time at the election of the holder.
Moreover, the adjustment of the conversion price of the USA preferred stock is
based upon the performance of USA common stock, not the post-merger earnings of
Expedia. As a result, it is possible that this exception from deemed
distribution treatment would not apply.
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If the reduction in conversion price is treated as a deemed distribution, a
converting shareholder will have dividend income, taxable at ordinary income
rates, to the extent of USA's current or accumulated earnings and profits. Any
excess will be treated as a non-taxable return of capital to the extent of the
shareholder's basis in the USA preferred stock, and thereafter as capital gain.
USA currently intends, absent a change in applicable authorities, to treat
the reduction to the conversion price as a deemed dividend taxable to the
converting shareholder at the time of conversion, in an amount equal to the fair
market value of the additional shares of USA common stock received (and the
amount of any cash received in lieu of additional fractional shares of USA
common stock) as a result of the reduction in the conversion price. Generally,
dividends paid to a non-U.S. shareholder will be subject to U.S. withholding tax
at a 30% rate or, if a tax treaty applies, a lower rate specified by the treaty,
provided that the non-U.S. holder furnishes to USA or its payment agent a duly
completed Internal Revenue Service Form 8BEN (or substitute form). USA, as a
withholding agent, would be liable for any withholding taxes if it should have,
but did not, properly collect and pay over U.S. withholding tax. Dividends that
are effectively connected with the conduct of a trade or business within the
U.S. and, if a tax treaty applies, are attributable to a U.S. permanent
establishment of the non-U.S. holder, are exempt from U.S. withholding tax,
provided that the non-U.S. holder furnishes to USA or its payment agent a duly
completed Internal Revenue Service Form W-8ECI (or substitute form) certifying
the exemption.
Expedia shareholders that elect to receive USA preferred stock in the merger
are urged to consult their advisors concerning the proper treatment of the
potential reduction in the conversion price of the USA preferred stock. Expedia
shareholders that are corporations should also consult their tax advisors
concerning the availability of the dividends received deduction in the event
that the potential reduction in the conversion price of USA preferred stock is
treated as a deemed distribution, as well as the applicability of Section 1059
of the Internal Revenue Code, which would limit the benefit of the
dividends-received deduction by requiring a shareholder to reduce its basis in
its USA preferred stock with respect to certain extraordinary dividends.
BACKUP WITHHOLDING
Under the U.S. backup withholding rules, an Expedia shareholder may be
subject to backup withholding, unless the shareholder (1) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (2) provides a correct taxpayer identification number, certifies
that the shareholder is not subject to backup withholding and otherwise complies
with applicable requirements of the backup withholding rules. Any amount
withheld under these rules will be credited against the shareholder's federal
income tax liability. An Expedia shareholder that does not provide the exchange
agent with its correct taxpayer identification number may be subject to
penalties imposed by the Internal Revenue Service.
REGULATORY MATTERS
The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR ACT") which prevents some transactions from
being completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and specified waiting periods have expired or been terminated. On August 1,
2001, USA and Microsoft filed their Premerger Notification and Report Forms
under the HSR Act with the Antitrust Division and the FTC. The waiting period
was terminated early on August 10, 2001. Even though the waiting period has been
terminated, either the Antitrust Division of the DOJ or the FTC could take
action under the antitrust laws as it deems necessary or desirable in the public
interest, or other persons could take action under the antitrust laws, including
seeking to enjoin the transactions. Additionally, at any time before or after
the completion of the merger, notwithstanding that the waiting period ended, any
state could take action under the antitrust laws as it
59
deems necessary or desirable in the public interest. There can be no assurance
that a challenge to the transaction will not be made or that, if a challenge is
made, we will prevail.
We also may be required to make filings and obtain regulatory approvals from
various other governmental authorities. Where necessary, USA, Expedia and/or
Microsoft intend to make such filings.
The obligations of USA, Microsoft and Expedia to consummate the transactions
are subject to there being no requirement to divest any of their respective
assets or limit the ownership or operations of their respective businesses. The
obligations of USA, Microsoft and Expedia to consummate the transactions are
also subject to the condition that there be no injunction or other order by any
court or governmental entity preventing consummation of the transactions or
statute, rule, regulation, order or decree prohibiting, materially restricting
or making illegal consummation of any or all of the transactions.
DISSENTERS' RIGHTS
THE FOLLOWING IS A BRIEF SUMMARY OF THE RIGHTS OF HOLDERS OF EXPEDIA COMMON
STOCK TO DISSENT FROM THE RECAPITALIZATION AND/OR MERGER AND RECEIVE CASH EQUAL
TO THE FAIR VALUE OF THEIR EXPEDIA COMMON STOCK INSTEAD OF RECEIVING SHARES OF
EXPEDIA CLASS B COMMON STOCK IN THE RECAPITALIZATION, OR IN THE MERGER RECEIVING
USA SECURITIES OR RETAINING THEIR SHARES OF EXPEDIA COMMON STOCK AND ALSO
RECEIVING NEW EXPEDIA WARRANTS. THIS SUMMARY IS NOT EXHAUSTIVE, AND YOU SHOULD
READ THE APPLICABLE SECTIONS OF CHAPTER 23B.13 OF THE WASHINGTON BUSINESS
CORPORATION ACT, WHICH IS ATTACHED TO THIS JOINT PROSPECTUS/PROXY STATEMENT AS
ANNEX G.
If you wish to dissent from the recapitalization and/or merger, you should
carefully review the text of Annex G, particularly the procedural steps required
to perfect dissenters' rights, which are complex. You should also consult your
legal counsel. If you do not fully and precisely satisfy the procedural
requirements of Washington Law, you will lose your dissenters' rights.
REQUIREMENTS FOR EXERCISING DISSENTERS' RIGHTS
Under Washington law, you have the right to dissent from the
recapitalization and/or merger and to receive payment in cash for the fair value
of your shares of Expedia common stock. To preserve your right if you wish to
exercise your statutory dissenters' rights, you must:
- deliver to Expedia, before the vote on the proposal to approve the merger
agreement is taken at the annual meeting, written notice of your intent to
demand the fair value for your Expedia common stock if the
recapitalization and/or merger, as applicable, is consummated and becomes
effective; and
- not vote your shares of Expedia common stock at the annual meeting in
favor of the proposal to approve the merger agreement and the transactions
contemplated by the merger agreement, including the recapitalization and
merger.
Merely voting against the merger agreement, including the recapitalization
and merger, will not preserve your dissenters' rights. Chapter 23B.13 of the
Washington Business Corporation Act is reprinted in its entirety and attached to
this joint prospectus/proxy statement as Annex G. Failure to precisely comply
with all procedures required by Washington law will result in the loss of your
dissenters' rights. If you do not satisfy each of the statutory requirements,
you cannot exercise dissenters' rights and you will be bound by the terms of the
merger agreement.
Submitting a proxy card that does not direct how the Expedia common stock
represented by that proxy is to be voted will constitute a vote in favor of each
of the proposals being presented to Expedia shareholders at the annual meeting
and a waiver of your statutory dissenters' rights. In addition, voting
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against the proposal to approve the merger agreement will not satisfy the notice
requirement referred to above. You must file the written notice of the intent to
exercise dissenters' rights with Expedia at: Expedia, Inc., 18310 SE Eastgate
Way, Suite 400, Bellevue, WA 98005, Attn: Corporate Secretary.
DISSENTERS' NOTICE PROCEDURE
Within ten days after the proposed merger has been effected, Expedia will
send written notice to all shareholders who have properly given written notice
under the dissenters' rights provisions and have not voted in favor of the
merger agreement as described above. The notice will contain:
- the address where the demand for payment and certificates representing
shares of Expedia common stock must be sent and the date by which they
must be received;
- any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
- a form for demanding payment that states the date of the first
announcement to the news media or to shareholders of the proposed
transactions and requires certification of the date the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired
the Expedia common stock or an interest in it;
- a date by which Expedia must receive the payment demand; and
- a copy of the dissenters' rights provisions of Washington law.
If you wish to assert dissenters' rights, you must demand payment and
deposit your Expedia certificates within 30 days after the notice is given. If
you fail to make demand for payment and deposit your Expedia certificates within
the 30-day period, you will lose the right to receive fair value for your shares
under the dissenters' rights provisions, even if you filed a timely notice of
intent to demand payment.
Except as provided below, within 30 days of the later of the effective time
of the recapitalization and/or merger, as applicable, or Expedia's receipt of a
valid demand for payment, Expedia will remit to each dissenting shareholder who
complied with the requirements of Washington law the amount Expedia estimates to
be the fair value of the shareholder's Expedia common stock, plus accrued
interest. Expedia will include the following information with the payment:
- financial data relating to Expedia;
- Expedia's estimate of the fair value of the shares and the accrued
interest and a brief description of the methods used to reach those
estimates;
- an explanation of how the interest was calculated;
- a statement of the dissenter's right to demand payment under Chapter
23B.13.280 of the Washington Business Corporation Act;
- a copy of Chapter 23B.13 of the Washington Business Corporation Act; and
- a brief description of the procedures to be followed in demanding
supplemental payment.
For dissenting shareholders who were not the beneficial owner of the shares
of Expedia common stock before , 2001, Expedia may withhold payment
and instead send a statement setting forth its estimate of the fair value of
their shares and offering to pay such amount, with interest, as a final
settlement of the dissenting shareholder's demand for payment. Expedia will also
send an explanation of how it estimated the fair value of the shares and
calculated the interest, and a statement
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of the dissenter's right to payment under Chapter 23B.13.280 of the Washington
Business Corporation Act.
If you are dissatisfied with your payment or offer, you may, within 30 days
of the payment or offer for payment, notify Expedia in writing of and demand
payment of your estimate of the fair value of your shares and the amount of
interest due. If any dissenting shareholder's demand for payment is not settled
within 60 days after receipt by Expedia of the payment demand,
Section 23B.13.300 of the Washington Business Corporation Act requires that
Expedia commence a proceeding in King County Superior Court and petition the
court to determine the fair value of the shares and accrued interest, naming all
the dissenting shareholders whose demands remain unsettled as parties to the
proceeding.
The court may appoint one or more appraisers to receive evidence and make
recommendations to the court as to the amount of the fair value of the shares.
The fair value of the shares as determined by the court is binding on all
dissenting shareholders and may be less than, equal to or greater than the
market price of the Expedia common stock and new Expedia warrants to be retained
and issued to nondissenting and nonelecting shareholders for their Expedia
common stock. The dissenters have the same discovery rights as parties in other
civil proceedings. If the court determines that the fair value of the shares is
in excess of any amount remitted by Expedia, then the court will enter a
judgment for cash in favor of the dissenting shareholders in an amount by which
the value determined by the court, plus interest, exceeds the amount previously
remitted.
The court will determine the costs and expenses of the court proceeding and
assess them against Expedia, except that the court may assess part or all of the
costs against any dissenting shareholders whose actions in demanding
supplemental payments are found by the court to be arbitrary, vexatious or not
in good faith. If the court finds that Expedia did not substantially comply with
the relevant provisions of Sections 23B.13.200 through 23B.13.280 of the
Washington Business Corporation Act, the court may also assess against Expedia
any fees and expenses of attorneys or experts that the court deems equitable.
The court may also assess those fees and expenses against any party if the court
finds that the party has acted arbitrarily, vexatiously or not in good faith in
bringing the proceedings. The court may award, in its discretion, fees and
expenses of an attorney for the dissenting shareholders out of the amount
awarded to the shareholders, if it finds the services of the attorney were of
substantial benefit to the other dissenting shareholders and that those fees
should not be assessed against Expedia.
A shareholder of record may assert dissenters' rights as to fewer than all
of the shares registered in the shareholder's name only if he or she dissents
with respect to all shares beneficially owned by any one person and notifies
Expedia in writing of the name and address of each person on whose behalf he or
she asserts dissenters' rights. The rights of the partial dissenting shareholder
are determined as if the shares as to which he or she dissents and his or her
other shares were registered in the names of different shareholders. Beneficial
owners of Expedia common stock who desire to exercise dissenters' rights
themselves must obtain and submit the registered owner's written consent at or
before the time they file the notice of intent to demand fair value.
For purposes of Washington law, "fair value" means the value of Expedia
common stock immediately before the effective time of the merger, excluding any
appreciation or depreciation in anticipation of the merger, unless that
exclusion would be inequitable. Under Section 23B.13.020 of the Washington
Business Corporation Act, an Expedia shareholder has no right, at law or in
equity, to set aside the approval and adoption of the merger or the consummation
of the merger except if the approval, adoption or consummation fails to comply
with the procedural requirements of Chapter 23B.13 of the Washington statute,
Revised Code of Washington Sections 25.10.900 through 25.10.955, Expedia's
articles of incorporation or Expedia's By-laws, or was fraudulent with respect
to that shareholder or Expedia.
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FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of USA common stock, USA preferred stock, USA warrants and new
Expedia warrants that will be issued in connection with the merger will be
freely transferable, except for certain restrictions on "affiliates" of USA or
Expedia. Shares of USA common stock, USA preferred stock and USA warrants and
new Expedia warrants received by persons who are deemed to be affiliates of
Expedia may be resold by them only in transactions permitted by the resale
provisions of Rule 145 (or Rule 144 in the case of such persons who become
affiliates of USA) or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of USA or Expedia generally include certain
officers, directors and significant shareholders of USA or Expedia,
respectively. The merger agreement requires Expedia to use its reasonable best
efforts to cause each of its affiliates to execute a written agreement to the
effect that such persons will not offer or sell or otherwise dispose of any of
the shares of USA securities issued to them in the merger in violation of the
Securities Act or the rules and regulations promulgated by the SEC thereunder.
This joint prospectus/proxy statement does not cover resales of USA common
stock, USA preferred stock, USA warrants or new Expedia warrants to be received
by the shareholders of Expedia in the merger, and no person is authorized to
make any use of this joint prospectus/proxy statement in connection with any
such resale. In addition, this joint prospectus/proxy statement does not cover
the issuance of new Expedia warrants to Expedia optionholders prior to the
annual meeting or the subsequent resales of those new Expedia warrants.
THE TRANSACTION AGREEMENTS
The following is a description of the material terms of the transaction
agreements, copies of which are attached as Annexes to this joint
prospectus/proxy statement or as exhibits to the registration statements of USA
and Expedia of which this joint prospectus/proxy statement is a part and are
incorporated in this document by reference. To receive copies of the
incorporated documents, see "Summary--Where You Can Find More Information."
THE MERGER AGREEMENT
THE DESCRIPTION OF THE MERGER AGREEMENT INCLUDED BELOW DESCRIBES THE
MATERIAL TERMS OF THE MERGER AGREEMENT THAT ARE NOT PREVIOUSLY DESCRIBED IN
"PROPOSAL NO. 1--APPROVAL OF THE MERGER AGREEMENT." THE FULL TEXT OF THE MERGER
AGREEMENT IS ATTACHED AS ANNEX A TO THIS JOINT PROSPECTUS/ PROXY STATEMENT. ALL
SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE
COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE MERGER.
EFFECTIVE TIME AND THE SURVIVING CORPORATION
EFFECTIVE TIME OF THE MERGER AND CLOSING. The merger will become effective
at the time and date the articles of merger relating to the merger are filed
with the Secretary of State of the State of Washington. The closing will be on
the third business day immediately following the satisfaction or waiver of the
conditions to the merger (other than those conditions to be satisfied or waived
at the closing) or on another date as USA, Expedia and Microsoft agree.
CERTIFICATE OF INCORPORATION AND BY-LAWS. At the effective time of the
merger, Expedia's amended and restated articles of incorporation, which are
attached as Annex B to this joint prospectus/proxy statement will be the
articles of incorporation of the surviving corporation. At the effective time of
the merger, Taipei's amended and restated bylaws, which are attached as Annex C
to this joint prospectus/ proxy statement, will be the bylaws of the surviving
corporation.
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DIRECTORS AND OFFICERS. Following the transactions, Barry Diller will
become Chairman of Expedia and Richard N. Barton will continue in his role as
President and Chief Executive Officer of Expedia. At the effective time of the
merger and through the one-year anniversary of such time, the board of directors
of Expedia will consist of 11 members, six of whom will be appointed by USA. The
remaining five members will be Expedia's Chief Executive Officer and Chief
Financial Officer and three independent directors, of whom two will be Gregory
B. Maffei and Jay C. Hoag, current directors of Expedia. The officers of Expedia
immediately prior to the effective time of the merger will be the officers of
the surviving corporation until their successors are duly appointed or elected.
TREATMENT OF SECURITIES IN THE MERGER
CONVERSION OF EXPEDIA SHARES. At the effective time of the merger (other
than the distribution of new Expedia warrants to optionholders as discussed
below) and without any action on the part of the shareholders, each share of
Expedia capital stock shall be treated as follows (subject to the treatment of
fractional shares described below):
- Each share of Expedia common stock that is owned by Expedia as treasury
stock, if any, and all shares of Expedia common stock that are owned by
USA and any of its wholly owned subsidiaries immediately prior to the
effective time of the merger will be cancelled and will cease to exist and
no consideration will be delivered for the cancellation.
- Each share of Expedia Class B common stock issued in the recapitalization
and outstanding immediately prior to the effective time of the merger will
be converted into the right to receive a combination of:
-- a number of validly issued, fully paid and nonassessable shares of
USA common stock equal to the quotient, rounded to the nearest ten
thousandth (or if there is no nearest ten thousandth, the next higher
thousandth) obtained by dividing (1)(A) $35.00 less (B) the product
of the number of shares of USA preferred stock received for each
share of Expedia Class B common stock (as determined below) and 50,
by (2) the average of the daily closing prices (as of 4:00 p.m.,
eastern time) per share of USA common stock, as reported on the
Nasdaq Stock Market for the ten consecutive full trading days
immediately preceding the second full trading day prior to the date
of the election deadline; PROVIDED that for the purposes of this
calculation the average of the daily closing prices, as determined
above shall not be greater than $31.00, nor less than $23.00;
-- a number of validly issued, fully paid and nonassessable shares of
USA preferred stock equal to the quotient, rounded to the nearest ten
thousandth (or if there is no nearest ten thousandth, the next higher
thousandth) obtained by dividing (A) 656,250,000 divided by the
number of shares of Expedia Class B common stock exchanged in the
merger, by (B) 50; and
-- a number of validly issued, fully paid and nonassessable USA warrants
equal to the ratio corresponding to the USA share price as set forth
on Annex F to this joint prospect/proxy statement.
- Each share of Expedia common stock, other than shares held by dissenting
shareholders and shares cancelled as described above, issued and
outstanding immediately prior to the effective time of the merger will
remain outstanding and will entitle its holder to receive 0.1920 validly
issued, fully paid and nonassessable new Expedia warrants. The new Expedia
warrants are described under "Description of Expedia Capital Stock--New
Expedia Warrants."
TREATMENT OF OUTSTANDING EXPEDIA WARRANTS. Each outstanding Expedia warrant
for which no election has been made and that is not exercised prior to the
recapitalization will be terminated in accordance with its terms unless their
terms explicitly provide otherwise, in which case, if the warrant is exercised
after the recapitalization, the holder will receive both Expedia common stock
and 0.1920 of a
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new Expedia warrant for each share of Expedia common stock subject to the
outstanding Expedia warrant.
TREATMENT OF EXPEDIA OPTIONS. Each option to acquire Expedia common stock
issued under the Expedia stock option plans will remain outstanding in
accordance with its terms. On the distribution date, which will be prior to the
listing of the Expedia warrants on Nasdaq, the American Stock Exchange or
another exchange acceptable to Expedia, the holders of Expedia options, whether
vested or unvested, but which were issued under Expedia employee benefit plans
on or prior to August 2, 2001 will receive 0.1920 of a restricted Expedia
warrant for each outstanding option to acquire a share of Expedia common stock.
The additional restricted Expedia warrants to be distributed on the distribution
date will have economic terms identical to the terms of the new Expedia warrants
being distributed to holders of Expedia common stock in the merger, except that
the restricted Expedia warrants will be subject to vesting schedules identical
to those of the related Expedia options and will not be transferable or
exercisable for a period of 90 days from the date of their issue. Expedia will
take all reasonable steps necessary to ensure that no optionholder receives both
the distribution to optionholders on the distribution date and either the USA
securities or Expedia securities to be received in the merger.
CONVERSION OF TAIPEI SHARES. In the merger, USA will merge Taipei, its
wholly owned subsidiary, into Expedia. As a result, all of the issued and
outstanding shares of Taipei will be converted into the right to receive a
number of fully paid and nonassessable shares of Expedia Class B common stock
equal to the number of shares of Expedia Class B common stock issued in the
recapitalization, which shares of Expedia Class B common stock will, following
the merger, have the same rights and characteristics as the Expedia Class B
common stock possessed following the recapitalization and immediately prior to
the merger. Immediately following the merger, no Expedia shareholder other than
USA will hold Expedia Class B common stock. The rights and privileges of Expedia
Class B common stock are identical in all respects to those of Expedia common
stock, except that instead of one vote per share, Expedia Class B common stock
has 15 votes per share. See "Description of Expedia Capital Stock" for a more
detailed description of the classes of Expedia's common stock.
TAX ADJUSTMENT. In the event that counsel for the parties to the merger
agreement reasonably determine that the requirement of Section 368(a)(2)(E)(ii)
of the Internal Revenue Code would not otherwise be satisfied, then the number
of USA warrants received for each share of Expedia Class B common stock will be
reduced to the extent necessary to satisfy this requirement and the number of
shares of USA common stock to be received for each share of Expedia Class B
common stock shall be increased by an amount equal to the quotient obtained by
dividing (a) the product of (1) the reduction in the number of USA warrants
received for each share of Expedia Class B common stock multiplied by (2) the
Black-Scholes value of a USA warrant determined as of the closing date (assuming
40% volatility and a risk-free interest rate of 5.66%), by (b) the average of
the daily closing prices (as of 4:00 p.m. eastern time) per share of USA common
stock, as reported on the Nasdaq Stock Market for the ten consecutive full
trading days immediately preceding the closing date. Because the replacement of
warrants with common stock will be pursuant to this valuation mechanism that
includes variable factors, it is possible that the value of the USA common stock
received under this adjustment will be greater than or less than the value of
the warrants being replaced.
FRACTIONAL SHARES. No fractional shares of USA common stock, USA preferred
stock, USA warrants or new Expedia warrants will be issued in the merger.
Instead of any fractional shares of USA common stock, USA preferred stock and
USA warrants, each holder of shares of Expedia Class B common stock who would
otherwise be entitled to a fraction of a share of USA common stock, USA
preferred stock and/or USA warrants pursuant to the merger agreement will be
paid an amount in cash, without interest, equal to the holder's proportionate
interest in the net proceeds from the sale or sales in the open market by an
exchange agent agreeable to both USA and Expedia on behalf of all of the holders
of Expedia Class B common stock, of the aggregate fractional shares of USA
common
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stock, USA preferred stock and USA warrants issued pursuant to the merger.
Instead of any fractional shares of new Expedia warrants, each holder of shares
of Expedia common stock who would otherwise be entitled to a fraction of a share
of new Expedia warrants pursuant to the merger agreement will be paid an amount
in cash, without interest, equal to the holder's proportionate interest in the
net proceeds from the sale or sales in the open market by the exchange agent on
behalf of all of the holders of Expedia common stock (other than dissenting
shareholders), of the aggregate fractional shares of new Expedia warrants issued
pursuant to the merger.
EXCHANGE OF CERTIFICATES
DEPOSIT OF SECURITIES WITH THE EXCHANGE AGENT. As soon as practicable after
the effective time of the merger, USA will deposit with a bank or trust company
mutually agreeable to USA and Expedia, which will serve as the exchange agent
for the transactions, certificates representing shares of USA common stock,
shares of USA preferred stock and USA warrants, in each case sufficient to
effect the conversion of Expedia Class B common stock in the merger. At the same
time, Expedia will deposit with the exchange agent certificates representing new
Expedia warrants sufficient to effect the payment relating to Expedia common
stock in the merger. USA and Expedia will enter into an exchange agent agreement
with the exchange agent relating to the transactions.
EXCHANGE AND PAYMENT PROCEDURES. Included with this joint prospectus/proxy
statement is an election form and letter of transmittal, which is being sent to
each holder of record of Expedia common stock and outstanding Expedia warrants
as of the record date of the annual meeting. If you did not receive a copy of
the election form and letter of transmittal because you acquired Expedia shares
after the record date you should call the proxy solicitor, MacKenzie Partners,
Inc., at (800) 322-2885 and a copy of each will be mailed to you free of charge.
The election form and letter of transmittal contains instructions explaining the
procedure for exchanging all or a portion of a holder's shares of Expedia common
stock (including shares issuable upon exercise of outstanding Expedia warrants)
for shares of Expedia Class B common stock in the recapitalization, and as a
result, USA securities in the merger. Only Expedia shareholders and holders of
outstanding Expedia warrants of record as of , 2001, the record date of
the annual meeting, are entitled to make an election. Elections to receive
Expedia Class B common stock made by holders of outstanding Expedia warrants
will not be effective unless the warrants relating to the shares of Expedia
common stock covered by the election form and letter of transmittal are
exercised prior to the recapitalization. Once the recapitalization and merger
are complete, the former holders of Expedia Class B common stock will receive in
exchange for their Expedia Class B common stock certificates representing the
number of shares of USA securities determined in accordance with the conversion
formulas described above and cash in place of any fractional shares of USA
securities. Holders who elect to retain their Expedia common stock, or who are
not able to exchange all of their shares of Expedia common stock in the
recapitalization due to oversubscription, will retain their shares of Expedia
common stock and, following the effective time of the merger, will also receive
a certificate representing the new Expedia warrants to which the shareholder is
entitled and cash in place of any fractional new Expedia warrants. In the event
the merger consideration is to be delivered to any person who is not the person
in whose name the certificate surrendered is registered in the transfer records
of Expedia, the merger consideration may be delivered to a transferee if the
certificate is presented to the exchange agent, accompanied by all documents
required to evidence and effect the transfer and by evidence satisfactory to the
exchange agent that any applicable stock transfer taxes have been paid. No
interest will be paid or will accrue on any cash payable to holders of Expedia
stock certificates in connection with these payment procedures.
TERMINATION OF EXCHANGE AGENT. Any certificates representing USA securities
that are deposited with the exchange agent and not exchanged within six months
after the effective time of the merger will be returned by the exchange agent to
USA, which will serve as the exchange agent for those securities after that
time. All funds held by the exchange agent for payment to the holders of
unsurrendered
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certificates and unclaimed at the end of one year from the effective time of the
merger will be returned to USA, and after that time any holder of unsurrendered
certificates shall look as a general creditor only to USA for payment of any
funds to which the holder may be due, subject to applicable law.
ESCHEAT. Neither USA nor Expedia will be liable to any person for any
securities or funds delivered to a public official under any applicable
abandoned property, escheat or similar law.
LOST CERTIFICATES. In the event that any certificate has been lost, stolen
or destroyed, a person may make of an affidavit of that fact and, if USA
reasonably requires, post a bond in an amount that USA reasonably determines to
be necessary as indemnity against any claim that may be made against it with
respect to the lost, stolen or destroyed certificate. Following the affidavit
and posting of the bond, if any, the exchange agent will issue in exchange the
USA securities, if an election had properly been made with respect to the shares
underlying the certificate and was not subject to proration, or a replacement
certificate for Expedia common stock and the applicable number of new Expedia
warrants.
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES OF EXPEDIA. The merger agreement includes
standard representations and warranties, generally subject to materiality
qualifiers, of Expedia to USA, including, among other things, as to:
- corporate organization;
- capitalization of Expedia;
- authority, no violation;
- consents and approvals;
- SEC reports and financial statements;
- broker's fees;
- absence of certain changes or events;
- legal proceedings;
- taxes and tax returns;
- employees;
- compliance with applicable law;
- intellectual property, and proprietary rights, and related employee
restrictions;
- material contracts;
- no undisclosed liabilities;
- insurance;
- environmental liability;
- board of directors' approval of the transactions in accordance with
applicable Washington state anti-takeover laws;
- certain tax matters;
- accuracy of statements made in the registration statements of which this
joint prospectus/proxy statement is a part;
- transactions with affiliates; and
- opinion of Expedia's financial advisor.
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REPRESENTATIONS AND WARRANTIES OF USA. The merger agreement also contains
standard representations and warranties, generally subject to materiality
qualifiers, of USA to Expedia, including, among other things, as to:
- corporate organization of each of USA, Taipei, USA Media Corp. and USA
Media, LLC;
- capitalization of USA, Taipei, USA Media Corp. and USA Media, LLC;
- authority, no violation;
- SEC reports and financial statements;
- consents and approvals;
- conduct of business of Taipei;
- broker's fees;
- certain tax matters;
- absence of certain changes or events;
- legal proceedings;
- accuracy of statements made in the registration statements of which this
joint prospectus/proxy statement is a part; and
- agreements with Microsoft.
REPRESENTATIONS AND WARRANTIES OF MICROSOFT. The merger agreement also
contains standard representations and warranties, generally subject to
materiality qualifiers, of Microsoft to USA, Taipei and Expedia, including,
among other things, as to:
- corporate organization of each of Microsoft and Microsoft E-Holdings;
- authority, no violation;
- broker's fees;
- certain tax matters;
- accuracy of statements made in the registration statements of which this
joint prospectus/proxy statement is a part; and
- agreements with USA.
COVENANTS AND AGREEMENTS
CONDUCT OF BUSINESS OF EXPEDIA PENDING THE MERGER. The merger agreement
generally provides that, except as expressly contemplated or permitted in the
merger agreement or previously disclosed to USA by Expedia, during the period
between signing of the merger agreement through to the completion of the
transactions, Expedia will, and will cause each of its subsidiaries to:
- conduct its business in the ordinary course consistent with past practice;
- use its reasonable best efforts to maintain and preserve intact its
business organization and advantageous business relationships;
- use commercially reasonable efforts to retain the services of its key
officers and key employees; and
- take no action which would adversely affect or delay the ability of any of
the parties from obtaining any necessary regulatory or governmental
approvals required for the transactions, performing its covenants and
agreements or otherwise delaying or prohibiting consummation of the
transactions.
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Each of Expedia and Taipei has agreed, among other things, that, unless the
other parties to the merger agreement agree in writing or except as otherwise
permitted pursuant to the merger agreement or previously disclosed, prior to the
effective time of the merger, none of Expedia and Taipei will and Expedia will
not permit any of its subsidiaries to, among other things:
- incur any indebtedness for borrowed money or assume or guarantee any
obligations of another person or make any loan or advance, other than for
short term indebtedness not to exceed $50 million;
- except for the recapitalization, adjust, split, combine or reclassify any
capital stock;
- make, declare or pay any dividend, or make any other distribution on, or
directly or indirectly redeem purchase or otherwise acquire or encumber,
any shares of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital stock,
except in connection with cashless exercises or similar transactions
pursuant to the exercise of stock options issued and outstanding as of
July 15, 2001 under Expedia's stock option plans;
- grant any individual, corporation or other entity any right to acquire any
shares of its capital stock, other than individual option grants issued
under Expedia stock option plans to acquire up to 50,000 shares of Expedia
common stock to employees, individual option grants issued under Expedia
stock option plans, to acquire up to an aggregate of 200,000 shares of
Expedia common stock made in the ordinary course of business to new
employee hires, which in any calendar month will not exceed 100,000
shares, and automatic grants to directors in the ordinary course of
business consistent with past practice;
- issue any additional shares of its capital stock other than pursuant to
the exercise of stock options under the Expedia stock option plans, issued
and outstanding as of July 15, 2001 or permitted under the preceding
bullet, the operation of Expedia's 401(k) plan, and the operation of the
Expedia employee stock purchase plan;
- sell, transfer, mortgage, encumber or otherwise dispose of any of its
material properties or assets to a person or entity other than a wholly
owned subsidiary, or cancel, release or assign any indebtedness to any
such person or any claims held by any such person, except pursuant to
contracts or agreements in force on July 15, 2001;
- except pursuant to contracts or agreements in force on July 15, 2001 or
investments in treasury-grade securities made in the ordinary course, make
any material investment or acquisition, whether by purchase of stock or
securities, contributions to capital, property transfers or purchase of
any property or assets of any other individual, corporation or other
entity other than a subsidiary;
- except for transactions in the ordinary course of business, terminate,
amend or waive any material provision of Expedia's material contracts or
make any material change in any agreement governing the terms of any lease
or contract other than normal renewals of contracts or leases without a
material adverse change of terms, or its securities;
- grant any increases in the compensation or fringe benefits of any of its
employees, directors, consultants, independent contractors or service
providers, except in the ordinary course of business consistent with past
practice or in accordance with an existing agreement, pay any pension,
severance or retirement benefits not required or enter into, amend, alter
or commit itself to any pension, retirement, profit-sharing, bonus or
other employee benefit or welfare plan or employment or consulting
agreement with or for the benefit of any employee, director, consultant,
independent contractor or service provider or accelerate the vesting of,
or the lapsing of restrictions with respect to, any options or stock-based
compensation;
- settle any material claim, action or proceeding involving money damages;
- amend its articles of incorporation or its bylaws;
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- take any action that is intended or would reasonably be expected to result
in any of its representations and warranties set forth in the merger
agreement being or becoming untrue in any material respect prior to the
effective time of the merger, or in any conditions to the merger not being
satisfied or in violation of any provision of the merger agreement;
- enter into any "non-compete" or similar agreement that would materially
restrict the business of the surviving corporation or its subsidiaries or
that would in any way restrict the business of USA and its subsidiaries;
- other than in the ordinary course of business consistent with past
practice, sell or enter into any material license agreement with respect
to any Expedia intellectual property used by it with any person or entity,
or buy or enter into any material license agreement with respect to a
third party's intellectual property, or sell or transfer to any third
person any material rights to any Expedia intellectual property used by it
in its business, or materially amend or enter into any one of the
specified Expedia contracts, pursuant to which any other party is granted
marketing or distribution rights of any type or scope with respect to any
material products of it or any of its subsidiaries;
- enter into any new, amend or otherwise alter any current agreements with
affiliates other than as contemplated by the merger agreement; and
- agree to take, make any commitment to take, or adopt any resolution of its
board of directors in support of, any actions prohibit by the foregoing.
The parties to the merger agreement also covenant to each other that each
party shall use its reasonable best efforts to cause the merger to qualify and
none of them will knowingly take any action, cause any action to be taken, or
fail to take any commercially reasonable action, or cause any commercially
reasonable action to fail to be taken, which action or failure to act would
reasonably be expected to prevent the recapitalization and merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code.
NO SOLICITATION
Under the merger agreement, Expedia and Microsoft have agreed that, prior to
the effective time of the merger, without the prior written consent of USA,
neither Expedia nor Microsoft will, and each will cause its subsidiaries and
each of its and its subsidiaries' officers, director, agents, advisors and
affiliates not to, solicit or encourage inquiries or proposals with respect to,
or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any person relating to any tender
offer or exchange offer for, or any proposal for the acquisition of a
substantial equity interest in, or of a substantial portion of the assets of, or
any merger, consolidation or other business combination with, Expedia or any of
its subsidiaries. These restrictions will not prohibit the board of directors of
Expedia from, following receipt of a transaction proposal, taking and disclosing
to its shareholders information required under the proxy rules to the extent
permitted by the proviso set forth in the following paragraph.
Expedia will use reasonable best efforts to cause the annual meeting to be
held as soon as reasonably practicable after the date of the merger agreement.
The Expedia board of directors will recommend to its shareholders that they
approve the merger agreement and the transactions contemplated thereby,
including the recapitalization and the merger, the amended and restated articles
of incorporation of Expedia, and the termination of the shareholder agreement,
and the Expedia board of directors will use its reasonable best efforts to
obtain the foregoing approvals from its shareholders; PROVIDED that the board of
directors of Expedia will not be required to use such reasonable best efforts to
obtain the vote in favor of approval of the merger agreement or to make or
continue to make a recommendation if, after consultation with and consideration
of the advice of outside counsel, the board of directors has determined that the
making of a reasonable best effort to obtain the vote in
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favor of the adoption of the merger agreement or the making or continued making
of a recommendation would cause the members of the board of directors to breach
their fiduciary duties under applicable laws. Expedia has agreed that in any
event it will submit the proposals for approval at the annual meeting with or
without the recommendation of Expedia's board of directors and having recognized
that special circumstances, as provided in Section 23B.11.030 of the Washington
Business Corporation Act, may exist in light of the provisions of the voting and
election agreement, Expedia will not alter its recommendation in a manner that
would prevent Expedia from complying with its agreement to bring the proposals
before the annual meeting.
OTHER AUTHORIZATIONS
USA and Expedia have agreed to, and to cause their respective subsidiaries
to, use their reasonable best efforts to take or cause to be taken, all actions
necessary, proper or advisable, to comply promptly with all legal requirements
that may be imposed on such party or its subsidiaries with respect to the
merger, and obtain any material consent, authorization, order or approval of, or
any exemption by, any governmental entity and any third party that is required
to be obtained in connection with the transactions. However, none of USA,
Expedia or Microsoft or their respective affiliates will be required to divest
any of their respective assets or corporations or will be required to enter into
any agreements that in any way limit the ownership or operation of any of their
or their respective affiliates business in order to obtain any material consent,
authorization, order or approval of, or any exemption by, any governmental
entity and any other third party that is required to be obtained by Expedia or
USA or any of their respective subsidiaries. In addition, without the prior
written consent of USA and Microsoft, Expedia will not agree to divest any
assets or business of Expedia or its subsidiaries.
LISTING OF USA COMMON STOCK, USA PREFERRED STOCK, USA WARRANTS AND NEW
EXPEDIA WARRANTS
USA has agreed to use its reasonable best efforts to cause the shares of USA
common stock, shares of USA preferred stock and USA warrants that are to be
issued in the merger to be authorized for quotation on Nasdaq, or if the Nasdaq
eligibility requirements are not satisfied or waived, on the American Stock
Exchange or another exchange acceptable to USA and Microsoft, prior to the
effective time of the merger. In addition, Expedia has agreed to use its
reasonable best efforts to cause the shares of new Expedia warrants that are to
be issued in the merger to be authorized for quotation on Nasdaq, or if the
Nasdaq eligibility requirements are not satisfied or waived, on the American
Stock Exchange or another exchange acceptable to Expedia, prior to the
recapitalization. If the USA preferred stock, USA warrants and/or new Expedia
warrants do not meet the eligibility requirements for listing or quotation on an
acceptable exchange prior to the effective time of the merger or
recapitalization, as appropriate, USA and/or Expedia, as the case may be, will
use its reasonable best efforts to have the securities listed or quoted as soon
as the eligibility requirements are satisfied or waived.
EXPEDIA'S RELATIONSHIP WITH USA
USA and Expedia have agreed that following the transactions, their
relationship will be governed by the following principles:
- Neither anything contained in the merger agreement nor the ownership of
shares of Expedia common stock or Expedia Class B common stock, except as
may be provided in Expedia's amended and restated articles of
incorporation, shall restrict USA or any of its subsidiaries from engaging
in or owning an interest in any business which competes with Expedia or
any subsidiary of Expedia, or restrict Expedia or any of its subsidiaries
from engaging in or owning an interest in any business which competes with
USA or any of its subsidiaries;
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- For so long as USA owns at least 50.1% of the aggregate voting power of
Expedia, Expedia will not enter into any material contract, arrangement or
transaction with USA or any of its affiliates, or enter into any material
amendment of any of the foregoing, without the approval of a majority of
Expedia's independent directors;
- There shall be meaningful consultation between USA and Expedia's Chief
Executive Officer in the selection of the independent directors of
Expedia; and
- The independent directors of Expedia's board of directors will have the
right, on behalf of Expedia, to enforce the above provisions. Any
amendment or waiver to any of the above provisions will require the
approval of a majority of Expedia's independent directors.
FURTHER ASSURANCES
If after the transactions are completed any further action is necessary or
desirable to carry out the purposes of the merger agreement, the parties to the
merger agreement and their respective subsidiaries will take all necessary
action as may be reasonably requested by USA.
EXPEDIA WARRANT DISTRIBUTION
On the distribution date and prior to the listing on an exchange of the
Expedia warrants and subject to applicable law, Expedia will distribute to the
holders of options granted on or prior to August 2, 2001 under the Expedia stock
option plans, and who continue to hold such options on the distribution date,
0.1920 restricted Expedia warrants for each share of Expedia common stock
underlying such person's Expedia options, whether or not the option has vested.
Any Expedia warrants distributed in accordance with the previous sentence that
are unvested will be restricted and will become exercisable upon the vesting of
the related Expedia options. In addition, Expedia will take all steps necessary
to ensure that no optionholder receives both the distribution described in this
paragraph and either the USA securities or Expedia securities to be received in
the merger. The restricted Expedia warrants issued pursuant to this paragraph
will be non-exercisable and non-transferable for a period of 90 days after their
distribution. In the event that the merger agreement is terminated following the
distribution referred to in this paragraph, Expedia has agreed that all holders
of Expedia common stock and outstanding Expedia warrants (other than holders of
Expedia options who have already become entitled to receive or have received the
Expedia warrants and holders of outstanding Expedia warrants that by their terms
will be equitably adjusted to give effect to the distribution) shall receive
0.1920 Expedia warrants for each share of Expedia common stock owned by such
holder.
TAX COVENANT
The parties agreed that no tax sharing, allocation or indemnification
agreements with Microsoft will survive the effective time of the merger, other
than the tax allocation agreement, dated as of October 1, 1999, by and between
Microsoft and Expedia. The aggregate liability of Expedia, however, to make
payments after the date of the merger agreement under the Microsoft tax
allocation agreement will not exceed $36,300,000 with respect to any past
present or future taxable periods. In addition, the term "Inherent Bargain
Element," as used in the Microsoft tax allocation agreement, will not include
any amount with respect to any option to purchase Expedia common stock granted
on or after July 15, 2001. Microsoft also agreed to indemnify and hold harmless
USA and Expedia for certain tax liabilities.
ADVISE OF CHANGES
USA and Expedia have agreed that each will promptly advise the other parties
to the merger agreement of any change or event having a material adverse effect
on it, and each of USA, Expedia
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and Microsoft will each promptly advise the other parties to the merger
agreement of any change or event that it believes would or would be reasonably
likely to cause or constitute a material breach of any of its or its
subsidiaries representations, warranties or covenants contained in the merger
agreement.
REGISTRATION RIGHTS AGREEMENTS
The merger agreement provides that prior to the effective time of the
merger, USA and Expedia will enter into a registration rights agreement relating
to USA's shares of Expedia Class B common stock on no less favorable terms than
those contained in the shareholder agreement between Expedia and Microsoft. In
addition, Expedia and Microsoft have entered into the registration rights
agreement described under "Proposal No. 1--Approval of the Merger
Agreement--Microsoft's Interests in the Transactions."
CONDITIONS
The merger agreement generally provides that the respective obligations of
each party to consummate the transactions contemplated in the merger agreement
are subject to customary conditions, including the following:
SHAREHOLDER APPROVAL. Approval by the shareholders of Expedia of the merger
agreement and the transactions contemplated by the merger agreement, including
the recapitalization and the merger, the amended and restated articles of
incorporation of Expedia and the termination of the shareholder agreement.
NASDAQ CLEARANCE. Approval or indication of no-action in writing of Nasdaq
with respect to Expedia's dual class structure contemplated in the transactions.
(This approval has already been obtained.)
NASDAQ/AMERICAN STOCK EXCHANGE LISTINGS. Approval of shares of USA common
stock, shares of USA preferred stock, USA warrants and new Expedia warrants,
and, if required, Expedia Class B common stock to be issued in the merger, for
quotation or listing, as appropriate, to the extent eligible for such quotation
or listing, on Nasdaq or the American Stock Exchange or other exchange
acceptable to Microsoft and USA.
OTHER APPROVALS. The expiration or termination of any waiting period
applicable under the HSR Act, and all other material notifications, consents,
authorizations and approvals required to be made or obtained from any
competition or antitrust authority have been made or obtained for the
transactions contemplated by the merger. On August 10, 2001, Expedia and USA
received notification of early termination of the HSR Act waiting period.
NO INJUNCTION OR RESTRAINTS; ILLEGALITY. Absence of any injunction that
would prevent consummation of any or all of the transactions or of any statute,
rule, regulation, order, injunction or decree enacted, entered, promulgated or
enforced by any governmental entity which prohibits, materially restricts or
makes illegal consummation of any or all of the transactions.
EFFECTIVENESS OF REGISTRATION STATEMENTS. Declaration of effectiveness of
the registration statements of which this joint prospectus/proxy statement is a
part and no stop order suspending the effectiveness of the registration
statements shall have been initiated or threatened by the SEC.
TAX OPINION. Counsel to Expedia shall have delivered an opinion to the
effect that, among other things, each of the recapitalization and the merger
should be treated for U.S. federal income tax purposes as a tax-free
reorganization and that shareholders of Expedia will recognize no gain or loss
on the receipt of USA securities in the merger. Furthermore, the obligations of
Microsoft to consummate
73
the transactions contemplated in the merger agreement are conditioned on its
receipt of a similar opinion from its counsel.
REPRESENTATIONS AND WARRANTIES. The representations and warranties of each
of Expedia, USA and Microsoft contained in the merger agreement and, if
applicable, the voting and election agreement are, to the extent qualified by
materiality (including material adverse effect), true and correct, and to the
extent not so qualified, true and correct in all material respects, in each
case, when made and generally as of the closing date as though made on and as of
the closing date.
PERFORMANCE. Each of Expedia, USA and Microsoft shall have performed in all
material respects all obligations required to be performed by it at or prior to
the closing under the merger agreement and, if applicable, the voting and
election agreement.
SHAREHOLDER AGREEMENT TERMINATION. As a condition to Microsoft's consent to
the recapitalization and merger and USA's obligation to consummate the
recapitalization and merger, the termination of the shareholder agreement must
have been approved and effected.
USA/MICROSOFT REGISTRATION RIGHTS AGREEMENT. The registration rights
agreement between USA and Microsoft relating to USA securities owned by
Microsoft following the merger shall have been executed.
Each of the foregoing conditions is waivable by USA, Expedia or Microsoft,
as the case may be, to the extent legally permissible, except that Expedia must
obtain Microsoft's consent to waive any conditions solely applicable to Expedia.
TERMINATION
TERMINATION BY ANY OF USA, MICROSOFT OR EXPEDIA. The merger agreement may
be terminated by mutual consent of USA, Microsoft and Expedia, or by either USA,
Microsoft or Expedia if:
(a) any governmental entity that must grant a regulatory approval has denied
approval of the merger and such denial has become final and nonappealable
or any governmental entity of competent jurisdiction shall have issued a
final nonappealable order permanently enjoining or otherwise prohibiting
the consummation of any or all of the transactions;
(b) the merger has not been consummated by April 15, 2002, PROVIDED,
HOWEVER, that the party seeking to terminate did not fail to fulfill any
obligation causing the merger not to be consummated by that date, and
PROVIDED, FURTHER, that such date shall be automatically extended to
July 15, 2002 in the event that the delay is a direct result of the
failure to have obtained the requisite regulatory approvals;
(c) provided that the party desiring to terminate is not then in breach,
there has been a breach by any other party of any of its respective
covenants or agreements or, if applicable, any of its respective
representations and warranties in the merger agreement or in the voting
and election agreement, which breach, either individually or in the
aggregate, would constitute, if occurring or continuing on the closing
date, the failure of the conditions to the obligations of each of Expedia
and USA which is not cured within 30 days or which cannot by its nature
be cured prior to the closing date; or
(d) any litigation or proceeding is pending before any court or has been
threatened to be instituted by any governmental body, which in the good
faith judgment of the terminating party's board of directors, would
reasonably be likely to result in an order, decree or ruling seeking
substantial damages in respect of, or substantially impairing the
benefits to that party of, the transactions.
74
TERMINATION BY USA. The merger agreement may be terminated by USA if
Microsoft breaches any of its covenants or agreements set forth in the voting
and election agreement, which breach is not cured within ten days of written
notice or by its nature is not capable of being cured prior to the closing date,
or the Expedia board of directors does not submit the recapitalization and
merger and the transactions contemplated by the merger agreement for approval by
its shareholders at the annual meeting or alters its recommendation in a manner
which would prevent it from doing so.
CONSULTATION BETWEEN EXPEDIA AND MICROSOFT. The merger agreement provides
that prior to any decision of either Expedia or Microsoft to terminate pursuant
to (c) or (d) above, Expedia or Microsoft, as applicable, shall give notice to
the other of the proposed termination and shall consult with one another over
the proposed termination. The period of consultation will end on the earlier of
the receipt of consent from the other party to give the notice of termination or
20 days after delivery of the notice of proposed termination. Any termination
following the lapse of the 20-day period will be limited to one or more of the
grounds set forth in the notice.
EFFECT OF TERMINATION. The merger agreement generally provides that, in the
event of termination of the merger agreement, the merger agreement will become
void and have no effect and no party will have any liability or further
obligation to any other party to the merger agreement, except with regard to the
confidential treatment of information, the distribution of the new Expedia
warrants and the payment of expenses described below and except that no party
will be relieved of liability for any willful breach of the merger agreement.
EXPENSES
All cost and expenses incurred in connection with the merger agreement and
the transaction contemplated by the merger agreement shall be paid by the party
incurring such expense, except that the costs and expenses of printing and
mailing the joint prospectus/proxy statement, and all filing and other fees paid
to the SEC or in respect of antitrust filings, in connection with the
transactions, shall be borne equally by USA, Microsoft and Expedia.
AMENDMENT; EXTENSION; WAIVER
The parties to the merger agreement may by action taken or authorized by
their respective board of directors and signed in writing by USA, Expedia and
Microsoft, amend the merger agreement, and to the extent legally allowed, extend
the time for performance of any obligations of the other parties and waive
breaches or compliance with agreements, PROVIDED that, after the approval of the
merger agreement by Expedia shareholders, there can be no amendment, extension
or waiver that changes the amount or form of the consideration to be delivered
to the shareholders without further approval of Expedia's shareholders.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS DO NOT SURVIVE. None of the
representations, warranties, covenants or other agreements, other than
confidentiality agreements, will survive the completion of the transactions
other than those agreements which by their terms apply after that time.
OTHER TRANSACTION AGREEMENTS
VOTING AND ELECTION AGREEMENT
Concurrently with the execution of the merger agreement, USA, Microsoft and
Microsoft E-Holdings, Inc., a wholly owned subsidiary of Microsoft which holds
Microsoft's Expedia shares, entered into the voting and election agreement.
Pursuant to the voting and election agreement, Microsoft and Microsoft
E-Holdings generally agreed to vote all Expedia common stock and Expedia
Class B common stock that each owns or has the right to vote for approval and
adoption of the merger agreement and the transactions contemplated by the merger
agreement, the amended and restated
75
articles of incorporation of Expedia, the termination of the shareholder
agreement and any other matters submitted to the holders of Expedia capital
stock in furtherance of the transactions contemplated by the merger agreement at
any meeting at which the matters are considered or any adjournment thereof or by
written consent and also to irrevocably appoint USA as its proxy. As of ,
2001, Microsoft and Microsoft E-Holdings collectively beneficially owned or had
the right to vote or direct the voting of Expedia common stock constituting
approximately 67% of the outstanding voting power of Expedia. Microsoft and
Microsoft E-Holdings also agreed in the voting and election agreement to
irrevocably and unconditionally elect to receive Expedia Class B common stock in
respect of all of the shares they own in Expedia, subject to potential
proration.
In addition, each of Microsoft and Microsoft E-Holdings agreed in the voting
and election agreement that, until the termination of the voting and election
agreement or the effective time of the merger:
- to vote against any transaction proposal and against any action or
agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement
of Expedia under the merger agreement or that would otherwise be
inconsistent with, prevent or materially delay the consummation the
transactions or of the transactions contemplated by the merger agreement;
- not to sell, transfer, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding
with respect to the sale, transfer, pledge, encumbrance, assignment or
other disposition of, or limitation on the voting rights of Expedia shares
held by, or the shares of Expedia Class B common stock to be received in
the recapitalization by Microsoft and Microsoft E-Holdings;
- not to grant any proxies or powers of attorney, deposit any Expedia shares
held by, or the shares of Expedia Class B common stock to be received in
the recapitalization by Microsoft and Microsoft E-Holdings, into a voting
trust or enter into a voting agreement with respect to such shares;
- not to take any action that would cause any representation or warranty of
Microsoft or Microsoft E-Holdings in the voting and election agreement to
become untrue or incorrect or have the effect of preventing or disabling
either of them from performing their obligations under the voting and
election agreement;
- not to commit or agree to take any of the actions in the previous three
bullets.
Any transfer of Expedia shares held by, or the shares of Expedia Class B
common stock to be received in the recapitalization by Microsoft and Microsoft
E-Holdings in contravention of the above will be null and void and may be
enjoined. In addition, Microsoft and Microsoft E-Holdings have consented to the
placement of a stop transfer order on their Expedia shares.
The voting and election agreement will be terminated automatically on the
termination of the merger agreement and shall be deemed satisfied in full and
terminated upon the consummation of the transactions; PROVIDED that if the
effective time of the merger occurs some provisions shall survive.
The voting and election agreement also provides that USA shall prepare and
file as soon as reasonably practicable a registration statement on Form S-3 with
respect to the USA securities to be received by Microsoft and Microsoft
E-Holdings in the merger and shall use its reasonable best efforts to cause such
registration statement to become effective within two business days of the date
of the closing and keep it effective until the earlier of (1) the date Microsoft
and Microsoft E-Holdings no longer own any shares of USA securities received in
the merger or upon exercise of such securities and (2) the one-year anniversary
of the effective time of the merger if USA has filed all reports required to be
filed by the Securities Exchange Act in the 12 months preceding such date, and
otherwise the
76
two-year anniversary of the date of the closing; PROVIDED that USA may suspend
the effectiveness of such registration for certain periods.
Expedia is a third party beneficiary to, and therefore has the right to
enforce, the following provisions of the voting and election agreement:
- Microsoft's and Microsoft E-Holdings' agreements to vote in favor of the
transactions and against any other transaction proposal, to appoint USA as
their proxy, and to elect to receive shares of Expedia Class B common
stock in the recapitalization;
- the restrictions on transfer; and
- the placement of the stop transfer order.
AMENDMENTS TO OPERATING AGREEMENTS BETWEEN MICROSOFT AND EXPEDIA
Microsoft and Expedia are parties to various operating agreements relating
to Expedia's business. Pursuant to an agreement between Microsoft and Expedia,
certain of these agreements have been or will be amended prior to the closing of
the merger. In addition, Microsoft and Expedia recently entered into two
additional agreements. Each of these agreements has been or will be filed by
Expedia with the SEC as an exhibit to its periodic reports and is or will be
available as further described under "Where You Can Find More Information." The
agreement between Microsoft and Expedia to amend these operating agreements is
attached as Annex H to this document. For further information regarding each of
the agreements between Expedia and Microsoft, see "Proposal No. 4--Election of
Directors--Certain Relationships and Related Transactions."
77
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
USA
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the acquisition by USA of Expedia as well
as other transactions completed by USA during the twelve months ended
December 31, 2000 and during the six months ended June 30, 2001. USA will
account for its acquisition of Expedia under the purchase method of accounting.
The other transactions made by USA in 2000 and 2001 include:
(1) on April 5, 2000, USA acquired Precision Response Corporation ("PRC"), a
leader in outsourced customer care for both large corporations and high
growth internet-focused companies;
(2) on July 27, 2000, USA and Styleclick.com Inc., completed the merger of
Internet Shopping Network and Styleclick.com ("STYLECLICK"), forming a
new company named Styleclick, Inc.; and
(3) on January 31, 2001, Ticketmaster Online-Citysearch, Inc. ("TMCS") and
Ticketmaster Corporation ("TM"), both of which are subsidiaries of USA,
completed a transaction which combined the two companies.
The pro forma combined condensed financial statements of USA reflect some
assumptions regarding the transactions and are based on the historical financial
statements of USA and the historical and pro forma financial statements of
Expedia. The combined condensed financial statements of USA, including the notes
accompanying them, are qualified in their entirety by reference to, and should
be read in conjunction with, USA's and Expedia's audited and unaudited financial
statements, including the notes accompanying them, which are incorporated by
reference into this joint prospectus/ proxy statement, and Expedia's pro forma
combined condensed financial statements, which follow these pro forma combined
financial statements of USA in this document.
The pro forma combined condensed balance sheet as of June 30, 2001 gives
effect to the acquisition of Expedia as if it had occurred on June 30, 2001.
The pro forma combined condensed statement of operations for the six months
ended June 30, 2001 reflects USA's and Expedia's unaudited statements of
operations for the six months ended June 30, 2001, adjusted for the pro forma
effects of the acquisition of Expedia, as well as the completion of the other
USA transactions listed above, as if such transactions had occurred as of
January 1, 2000.
The pro forma combined condensed statement of operations for the year ended
December 31, 2000 reflects USA's audited statements of operations for the year
ended December 31, 2000 and Expedia's results for the twelve months ended
December 31, 2000, derived from the audited statement of operations for the year
ended June 30, 2000 and the unaudited statement of operations for the six months
ended December 31, 2000, adjusted for the pro forma effects of the acquisition
of Expedia, as well as the completion of the other transactions listed above, as
if such transactions had occurred as of January 1, 2000.
USA is in the process of evaluating the fair value of Expedia's assets
acquired and liabilities assumed in order to make a final allocation of the
excess purchase price, including allocation to intangibles other than goodwill.
Accordingly, the purchase accounting information is preliminary and has been
made solely for the purpose of developing such unaudited pro forma combined
condensed financial information. Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," provides that goodwill
resulting from a business combination completed subsequent to June 30, 2001 will
not be amortized but instead is required to be tested for impairment at least
annually.
THE PRO FORMA COMBINED CONDENSED BALANCE SHEET AND STATEMENTS OF OPERATIONS
ARE NOT NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS OR FINANCIAL
POSITION, WHICH ACTUALLY WOULD HAVE BEEN REPORTED HAD THESE TRANSACTIONS
OCCURRED AS OF JUNE 30, 2001 OR AS OF JANUARY 1, 2000, NOR ARE THEY NECESSARILY
INDICATIVE OF USA'S FUTURE FINANCIAL RESULTS OF OPERATIONS.
78
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 2001
(IN THOUSANDS)
USA
PRO FORMA PRO FORMA
USA EXPEDIA(1) ADJUSTMENTS COMBINED
----------- ---------- ----------- -----------
ASSETS
Current Assets:
Cash and short-term investments....................... $ 632,316 $182,161 $ 814,477
Restricted cash....................................... 3,173 -- 3,173
Marketable securities................................. 101,334 -- 101,334
Accounts and notes receivable, net.................... 727,494 29,716 757,210
Inventories, net...................................... 388,312 -- 388,312
Other................................................. 184,207 41,812 226,019
----------- -------- ---------- -----------
Total current assets.............................. 2,036,836 253,689 -- 2,290,525
Property, plant and equipment, net.................... 426,805 16,778 443,583
Intangible assets including goodwill, net............. 7,419,236 118,079 $1,521,857 (2) 8,941,093
(118,079)(8)
Cable distributions fees, net......................... 156,890 -- 156,890
Long-term investments................................. 128,618 -- 128,618
Advance to Universal.................................. 44,808 -- 44,808
Inventories, net...................................... 487,624 -- 487,624
Deferred charges and other............................ 110,440 1,298 111,738
----------- -------- ---------- -----------
Total assets...................................... $10,811,257 $389,844 $1,403,778 $12,604,879
=========== ======== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................. $ 35,657 $ 45 $ 35,702
Accounts payable, accrued and other current
liabilities......................................... 231,604 75,626 $ 10,000 (2) 317,230
Accounts payable, client accounts..................... 125,027 -- 125,027
Obligations for program rights and film costs......... 257,411 -- 257,411
Deferred revenue...................................... 143,492 1,545 145,037
Cable distribution fees payable....................... 34,886 -- 34,886
Other accrued liabilities............................. 450,383 80,326 530,709
----------- -------- ---------- -----------
Total current liabilities......................... 1,278,460 157,542 10,000 1,446,002
----------- -------- ---------- -----------
Long-term debt........................................ 552,572 1,303 553,875
Obligation for program rights and film costs.......... 277,365 -- 277,365
Other long-term liabilities........................... 244,220 -- 244,220
Minority interest..................................... 4,915,889 -- 28,527 (6) 4,944,416
Stockholders' equity.................................. 3,542,751 230,999 1,596,250 (2) 5,139,001
(230,999)(3)
----------- -------- ---------- -----------
Total liabilities and stockholders' equity........ $10,811,257 $389,844 $1,403,778 $12,604,879
=========== ======== ========== ===========
79
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USA USA EXPEDIA USA
OTHER PRO FORMA OTHER PRO FORMA PRO FORMA
USA TRANSACTIONS(4) COMBINED EXPEDIA(1) TRANSACTIONS(4) ADJUSTMENTS COMBINED
---------- --------------- ---------- ---------- --------------- ------------ ----------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios...... $1,530,464 $1,530,464 $1,530,464
Emerging networks...... 20,332 20,332 20,332
Filmed entertainment... 86,084 86,084 86,084
USA ELECTRONIC RETAILING
Electronic retailing... 1,778,986 1,778,986 1,778,986
USA INFORMATION AND
SERVICES
Ticketing operations... 518,565 518,565 518,565
HRN.................... 327,977 327,977 327,977
Expedia................ $ 148,686 $ 7,971 156,657
Teleservices........... 212,471 $ 69,649 282,120 -- -- 282,120
Citysearch, Match.com
and related.......... 80,012 -- 80,012 -- -- 80,012
Electronic commerce
solutions............ 24,293 -- 24,293 -- -- 24,293
Styleclick............. 22,308 1,889 24,197 -- -- 24,197
---------- -------- ---------- --------- -------- --------- ----------
Total net revenues... 4,601,492 71,538 4,673,030 148,686 7,971 4,829,687
---------- -------- ---------- --------- -------- --------- ----------
OPERATING COSTS AND
EXPENSES
Cost of sales.......... 2,072,901 54,489 2,127,390 61,116 2,386 2,190,892
Other costs............ 1,730,789 18,553 1,749,342 121,065 11,030 1,881,437
Amortization of cable
distribution fees.... 36,322 -- 36,322 -- -- -- 36,322
Non-cash distribution
and marketing
expense.............. 11,512 -- 11,512 -- -- -- 11,512
Non-cash compensation
expense.............. 0 -- 64,204 -- -- 64,204
Depreciation and
amortization......... 693,642 16,133 709,775 53,187 13,175 -- (5) 776,137
---------- -------- ---------- --------- -------- --------- ----------
Total operating costs
and expenses....... 4,545,166 89,175 4,634,341 299,572 26,591 4,960,504
---------- -------- ---------- --------- -------- --------- ----------
Operating income
(loss)............. 56,326 (17,637) 38,689 (150,886) (18,620) -- (130,817)
Interest income
(expense), net....... (34,218) (740) (34,958) 4,620 (159) -- (30,497)
Gain on sale of
subsidiary stock..... 108,343 -- 108,343 -- -- 108,343
Miscellaneous.......... (59,046) (2) (59,048) -- -- -- (59,048)
---------- -------- ---------- --------- -------- --------- ----------
Earnings (loss) before
income taxes and
minority interest...... 71,405 (18,379) 53,026 (146,266) (18,779) -- (112,019)
Income tax (expense)..... (112,869) 9,948 (102,921) -- -- -- (102,921)
0
Minority interest........ (47,124) (34,151) (81,275) -- -- 41,696 (6) (39,579)
---------- -------- ---------- --------- -------- --------- ----------
EARNINGS (LOSS) FROM
CONTINUING
OPERATIONS............. (88,588) (42,582) (131,170) (146,266) (18,779) 41,696 (254,519)
Discontinued operations,
net of tax............. (59,395) -- (59,395) -- -- -- (59,395)
---------- -------- ---------- --------- -------- --------- ----------
NET EARNINGS (LOSS)
BEFORE PREFERRED STOCK
DIVIDEND............... (147,983) (42,582) (190,565) (146,266) (18,779) 41,696 (313,914)
Preferred stock
dividends.............. -- -- -- -- (13,059)(7) (13,059)
---------- -------- ---------- --------- -------- --------- ----------
NET EARNINGS (LOSS)
AVAILABLE TO COMMON
SHAREHOLDERS........... ($ 147,983) ($42,582) ($ 190,565) ($146,266) ($18,779) $ 28,637 ($ 326,973)
========== ======== ========== ========= ======== ========= ==========
Loss per share from
Continuing Operations
Basic and diluted...... ($ 0.25) ($ 0.36) ($ 0.65)
========== ========== ==========
Net loss per common share
before preferred stock
dividend
Basic and diluted...... ($ 0.41) ($ 0.52) ($ 0.80)
========== ========== ==========
Net loss available to
common shareholders
Basic and diluted...... ($ 0.41) ($ 0.52) ($ 0.84)
========== ========== ==========
Weighted average shares
outstanding............ 359,688 366,045 390,592
========== ========== ==========
Weighted average diluted
shares outstanding..... 359,688 366,045 390,592
========== ========== ==========
80
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USA USA USA
OTHER PRO FORMA PRO FORMA PRO FORMA
USA TRANSACTIONS(4) COMBINED EXPEDIA(1) ADJUSTMENTS COMBINED
--------- --------------- ---------- ---------- ----------- ---------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios.................... $ 881,854 $ 881,854 $ 881,854
Emerging networks.................... 12,341 12,341 12,341
Filmed entertainment................. 113,567 113,567 113,567
USA ELECTRONIC RETAILING
Electronic retailing................. 910,801 910,801 910,801
USA INFORMATION AND SERVICES
Ticketing operations................. 314,007 314,007 314,007
HRN.................................. 243,588 243,588 243,588
Expedia.............................. $135,696 135,696
Teleservices......................... 156,316 156,316 -- 156,316
Citysearch, Match.com and related.... 43,982 43,982 -- 43,982
Electronic commerce solutions........ 10,743 10,743 -- 10,743
Styleclick........................... 6,457 6,457 -- 6,457
Intersegment elimination........... (6,531) (6,531) -- (6,531)
--------- ------- ---------- -------- -------- ---------
Total net revenues............... 2,687,125 -- 2,687,125 135,696 -- 2,822,821
--------- ------- ---------- -------- -------- ---------
OPERATING COSTS AND EXPENSES
Cost of sales........................ 1,229,319 1,229,319 41,248 1,270,567
Other costs.......................... 978,069 978,069 72,163 1,050,232
Amortization of cable distribution
fees............................... 19,398 19,398 -- 19,398
Amortization of non-cash
compensation....................... 4,163 4,163 10,416 14,579
Non-cash distribution and marketing
expense............................ 14,648 14,648 -- 14,648
Depreciation and amortization........ 284,129 284,129 35,618 (5) 319,747
--------- ------- ---------- -------- -------- ---------
Total operating costs and
expenses......................... 2,529,726 -- 2,529,726 159,445 -- 2,689,171
--------- ------- ---------- -------- -------- ---------
Operating income (loss).............. 157,399 157,399 (23,749) 133,650
Interest income (expense), net....... (24,331) (24,331) 1,781 (22,550)
Miscellaneous........................ (20,253) (20,253) -- (20,253)
--------- ------- ---------- -------- -------- ---------
Earnings (loss) before income taxes and
minority interest.................... 112,815 112,815 (21,968) 90,847
Income tax (expense) benefit........... (49,290) $ 1,005 (48,285) -- (48,285)
Minority interest...................... (91,186) (3,148) (94,334) -- $ 5,550(6) (88,784)
--------- ------- ---------- -------- -------- ---------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS........................... (27,661) (2,143) (29,804) (21,968) 5,550 (46,222)
Discontinued operations:
Gain on disposal of broadcasting
stations, net of tax................. 49,829 -- 49,829 -- -- 49,829
--------- ------- ---------- -------- -------- ---------
Earnings (loss) before cumulative
effect of accounting change........ 22,168 (2,143) 20,025 (21,968) 5,550 3,607
Cumulative effect of accounting change,
net of tax........................... (9,187) -- (9,187) -- -- (9,187)
--------- ------- ---------- -------- -------- ---------
NET EARNINGS (LOSS) BEFORE PREFERRED
STOCK DIVIDEND....................... 12,981 (2,143) 10,838 (21,968) 5,550 (5,580)
Preferred stock dividends.............. -- -- -- -- (6,530)(7) (6,530)
--------- ------- ---------- -------- -------- ---------
NET EARNINGS (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS......................... $ 12,981 ($2,143) $ 10,838 ($21,968) ($ 980) ($ 12,110)
========= ======= ========== ======== ======== =========
81
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USA USA USA
OTHER PRO FORMA PRO FORMA PRO FORMA
USA TRANSACTIONS(4) COMBINED EXPEDIA(1) ADJUSTMENTS COMBINED
--------- --------------- ---------- ---------- ----------- ---------
Loss per share from continuing
operations
Basic and diluted.................... ($ 0.07) ($ 0.08) ($ 0.12)
========= ========== =========
Earnings per share before cumulative
effect of accounting change
Basic and diluted.................... $ 0.06 $ 0.05 $ 0.01
========= ========== =========
Net earnings (loss) per common share
before preferred stock dividend
Basic and diluted.................... $ 0.03 $ 0.03 ($ 0.01)
========= ========== =========
Net earnings (loss) available to common
shareholders
Basic and diluted.................... $ 0.03 $ 0.03 ($ 0.03)
========= ========== =========
Weighted average shares outstanding.... 372,085 372,085 396,632
========= ========== =========
Weighted average diluted shares
outstanding.......................... 401,176 401,176 425,723
========= ========== =========
82
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) Represents the financial position and results of operations for Expedia,
which are based upon the financial position and results of operations of
Expedia.
(2) Acquisition costs and the preliminary determination of the unallocated
excess of merger consideration over net assets acquired are set forth below:
Value of equity securities expected to be issued by USA..... $1,596,250
Estimated transaction costs................................. 10,000
----------
Total acquisition costs..................................... 1,606,250
Less: majority ownership portion of net tangible assets
acquired.................................................. 84,393
----------
Unallocated excess of merger consideration over net assets
acquired preliminarily allocated to goodwill.............. $1,521,857
==========
Under the terms of the definitive agreement, Expedia shareholders will have
the option, subject to proration, to elect to exchange in a tax-free merger
transaction each Expedia share for:
- a fraction of a share of USA common stock ranging in value from $15.54 (if
Microsoft is the only shareholder that elects to receive Expedia Class B
common stock in the recapitalization) to $17.50 (if the maximum number of
37,500,000 shares of Expedia Class B common stock are issued in the
recapitalization) if the measurement period value of a share of USA common
stock ranges from $23.00 to $31.00. If the measurement period value is
either greater than $31.00 or less than $23.00, the exact USA common stock
exchange ratio will be based on the fraction obtained assuming the
measurement period value was $31.00 or $23.00, respectively. The
measurement period value for USA common stock is the average closing price
of USA common stock over a ten consecutive trading-day period ending on
the second trading day prior to the date of the annual meeting;
- a fraction of a share of USA preferred stock ranging from 0.3892 (if
Microsoft is the only shareholder that elects to receive Expedia Class B
common stock in the recapitalization) to 0.3500 (if the maximum number of
37,500,000 shares of Expedia Class B common stock are issued in the
recapitalization). Each share of USA preferred stock has a $50 face value,
a 1.99% annual dividend, two votes per share, and is convertible at any
time into USA common stock at a conversion price of $33.75 per USA share,
subject to downward adjustment to the extent that the average share price
of USA common stock over a ten trading-day period prior to conversion is
greater than $35.10; and
- a fraction of a USA warrant ranging from 0.3873 to 0.4524, the exact
fractional amount to be based on a measurement period value for USA common
stock ranging from $25.75 to $28.25 per share. The exact USA warrant
exchange ratio will be based on the measurement period value for USA
common stock as set forth in Annex F to this document. Each USA warrant
has a seven-year term and an exercise price of $35.10 per share of USA
common stock.
Expedia shareholders who do not exchange their shares for USA securities
will retain their shares of Expedia common stock and receive for each share of
Expedia common stock held 0.1920 of a new Expedia warrant with a seven-year term
and an exercise price of $52.00 per share. The amount reflects USA's
attributable share of Expedia, after giving effect to the minority interest in
Expedia.
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
The pro forma financial statements are prepared assuming that 37,500,000
shares of Expedia Class B common stock are issued in the recapitalization and
the measurement period value of a share of USA common stock is between $23.00
and $31.00. As a result the value of the USA common stock is assumed to be
$17.50 per Expedia share.
The value of the newly issued preferred shares and warrants to acquire USA
and Expedia common stock were determined based upon internal valuations. The
amount reflects USA's attributable share of Expedia, after giving effect to the
minority interest in Expedia.
In addition, USA will contribute $75 million in media time over five years,
an option to participate in USA's proposed travel channel and an option to
acquire NLG. Such amounts are not valued in the merger consideration and are not
reflected in the pro forma combined condensed financial statements.
(3) Reflects the elimination of Expedia's historical equity.
(4) Reflects the pro forma results of other transactions completed by USA in
2000 and 2001. The transactions include the acquisitions of PRC and
Styleclick by USA and the combination of TMCS and TM. All acquisitions,
except the TMCS/TM combination, were accounted for under the purchase method
of accounting. The TMCS/TM combination has been accounted for as entities
under common control in a manner similar to a pooling of interest. See USA's
Form 10-K for the year ended December 31, 2000 and Form 10-Q for the three
and six months ended June 30, 2001 for more information on the USA
transactions. The other transactions completed by Expedia in the twelve
months ended December 31, 2000 include the acquisition of Travelscape and
Vacation Spot on March 17, 2000. See Expedia's 10-K for the year ended
June 30, 2001 for more information on these transactions.
(5) The unallocated excess of acquisition costs over net assets acquired has
been preliminarily allocated to goodwill. Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets", provides that
goodwill resulting from business combinations completed subsequent to
June 30, 2001 will not be amortized but instead is required to be tested for
impairment at least annually. In connection with finalizing the purchase
price allocation, USA and Expedia are currently evaluating the fair value of
assets acquired and liabilities assumed in the transaction. Following the
conclusion of the evaluation, USA and Expedia will use this information to
make a final allocation of the purchase price, including allocation to
intangibles other than goodwill. Accordingly, the purchase accounting
information is preliminary. USA recorded $568.0 million and $201.0 million
of goodwill amortization during the year ended December 31, 2000 and the six
months ended June 30, 2001, respectively. Expedia recorded $16.1 million and
$10.2 million of goodwill amortization during the year ended December 31,
2000 and the six months ended June 30, 2001, respectively. No periodic
amortization of goodwill will be recorded subsequent to December 31, 2001.
(6) Represents the minority interest in the financial position and the results
of operations of Expedia, based upon a 74.7% expected equity ownership by
USA of Expedia.
(7) Represents the 1.99% preferred stock dividend.
(8) Reflects the elimination of Expedia's historical intangible assets.
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EXPEDIA
The following unaudited pro forma combined condensed financial statements of
Expedia have been prepared to give effect to the merger of Taipei, a wholly
owned subsidiary of USA, with and into Expedia. The acquisition of Expedia as
currently structured will be accounted for under the purchase method of
accounting. Accordingly, the purchase price paid by USA will be used to revalue
the assets and liabilities of Expedia, including goodwill and identifiable
intangibles, using the purchase method of accounting. Expedia and USA are
considering certain changes to the merger agreement that would enable it to
qualify for recapitalization accounting. If those changes are made and provided
Expedia does not elect to apply purchase accounting, Expedia would be able to
account for the transaction as a recapitalization. In a recapitalization,
purchase accounting adjustments including goodwill and other changes in the
carrying value of assets and liabilities would not be recognized by Expedia.
The pro forma combined condensed financial statements reflect some
assumptions regarding the transactions and are based on the historical financial
statements of Expedia. The combined condensed financial statements, including
the notes accompanying them, are qualified in their entirety by reference to and
should be read in conjunction with, Expedia's audited and unaudited financial
statements, including the notes accompanying them, which are incorporated by
reference into this proxy statement/ prospectus.
The pro forma combined condensed balance sheet as of June 30, 2001 gives
effect to the merger of Expedia and Taipei as if it had occurred on June 30,
2001.
The pro forma combined condensed statement of operations for the twelve
months ended June 30, 2001, reflects Expedia's results for the twelve months
ended June 30, 2001, derived from the audited statement of operations for the
year ended June 30, 2001, adjusted for the pro forma effects of the merger of
Taipei and Expedia, as if such transactions had occurred as of July 1, 2000.
USA is in the process of evaluating the fair value of Expedia's assets
acquired and liabilities assumed in order to make a final allocation of the
excess purchase price, including allocation to intangibles other than goodwill.
Accordingly, the purchase accounting information is preliminary and has been
made solely for the purpose of developing such unaudited pro forma combined
condensed financial information. Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," provides that goodwill
resulting from a business combination completed subsequent to June 30, 2001 will
not be amortized but instead is required to be tested for impairment at least
annually.
THE PRO FORMA COMBINED CONDENSED BALANCE SHEET AND STATEMENT OF OPERATIONS
ARE NOT NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS OR FINANCIAL
POSITION WHICH ACTUALLY WOULD HAVE BEEN REPORTED HAD THE MERGER OCCURRED AS OF
JUNE 30, 2001 OR OF JULY 1, 2000, NOR ARE THEY NECESSARILY INDICATIVE OF
EXPEDIA'S FUTURE FINANCIAL RESULTS OF OPERATIONS.
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EXPEDIA, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 2001
(IN THOUSANDS)
EXPEDIA
PRO FORMA PRO FORMA
EXPEDIA ADJUSTMENTS COMBINED
-------- ----------- ----------
ASSETS
Current assets
Cash and short-term investments........................ $182,161 $ 182,161
Accounts and notes receivable, net..................... 29,716 29,716
Other.................................................. 41,812 41,812
-------- ----------
Total current assets................................. 253,689 253,689
Property, plant and equipment, net..................... 16,778 16,778
Intangible assets including goodwill, net.............. 118,079 $1,521,857 (1) 1,521,857
(118,079)(4)
Deferred charges and other............................. 1,298 1,298
-------- ---------- ----------
Total assets......................................... $389,844 $1,403,778 $1,793,622
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt................... $ 45 $ 45
Accounts payable, accrued and other current
liabilities.......................................... 75,626 $ 10,000 (1) 85,626
Deferred merchant bookings............................. 80,326 80,326
Deferred revenue....................................... 1,545 1,545
-------- ---------- ----------
Total current liabilities............................ 157,542 10,000 167,542
Long-term debt......................................... 1,303 1,303
Minority interest...................................... 28,527 (5) 28,527
Stockholders' equity................................... 230,999 1,596,250 (1) 1,596,250
(230,999)(2)
-------- ---------- ----------
Total liabilities and stockholders' equity........... $389,844 $1,403,778 $1,793,622
======== ========== ==========
86
EXPEDIA, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL AND
PRO FORMA
--------------
Net revenues................................................ $ 222,220
Cost of sales............................................... 74,274
---------
Gross profit.............................................. 147,946
Operating costs and expenses
Other costs............................................... 130,695
Non-cash compensation expense............................. 31,183
Depreciation and amortization(3).......................... 68,712
---------
Total operating costs and expenses...................... 230,590
---------
Loss from operations.................................... (82,644)
Net interest income and other............................. 4,591
---------
NET (LOSS).................................................. $ (78,053)
=========
Loss per share
Basic and diluted......................................... $ (1.65)
Weighted average shares outstanding......................... 47,210
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) Acquisition costs and the preliminary determination of the unallocated
excess of merger consideration over net assets acquired are set forth below:
Value of equity securities expected to be issued by USA..... $1,596,250
Estimated transaction costs................................. 10,000
----------
Total acquisition costs..................................... 1,606,250
Less: majority ownership portion of net tangible assets
acquired.................................................. 84,393
----------
Unallocated excess of merger consideration over net assets
acquired preliminarily allocated to goodwill.............. $1,521,857
==========
Under the terms of the definitive agreement, Expedia shareholders will have
the option to elect to exchange in a tax-free merger transaction each Expedia
share for:
- a fraction of a share of USA common stock ranging in value from $15.54 (if
Microsoft is the only shareholder that elects to receive Expedia Class B
common stock in the recapitalization) to $17.50 (if the maximum number of
37,500,000 shares of Expedia Class B common stock are issued in the
recapitalization) if the measurement period value of a share of USA common
stock ranges from $23.00 to $31.00. If the measurement period value is
either greater than $31.00 or less than $23.00, the exact USA common stock
exchange ratio will be based on the fraction obtained assuming the
measurement period value was $31.00 or $23.00, respectively. The
measurement period value for USA common stock is the average closing price
of USA common stock over a ten consecutive trading-day period ending on
the second trading day prior to the date of the annual meeting;
- a fraction of a share of USA preferred stock ranging from 0.3892 (if
Microsoft is the only shareholder that elects to receive Expedia Class B
common stock in the recapitalization) to 0.3500 (if the maximum number of
37,500,000 shares of Expedia Class B common stock are issued in the
recapitalization). Each share of USA preferred stock has a $50 face value,
a 1.99% annual dividend, two votes per share, and is convertible at any
time into USA common stock at a conversion price of $33.75 per USA share,
subject to downward adjustment to the extent that the average share price
of USA common stock over a ten trading-day period prior to conversion is
greater than $35.10; and
- a fraction of a USA warrant ranging from 0.3873 to 0.4524, the exact
fractional amount to be based on a measurement period value for USA common
stock ranging from $25.75 to $28.25 per share. The exact USA warrant
exchange ratio will be based on the measurement period value for USA
common stock as set forth in Annex F to this document. Each USA warrant
has a seven-year term and an exercise price of $35.10 per share of USA
common stock.
Expedia shareholders who do not elect to exchange their shares for USA
securities will retain their shares of Expedia common stock and receive for each
share of Expedia common stock held 0.1920 of a new Expedia warrant with a
seven-year term and an exercise price of $52 per share. The amount reflects
USA's attributable share of Expedia, after giving effect to the minority
interest in Expedia.
The pro forma financial statements are prepared assuming that 33,750,000
shares of Expedia Class B common stock are issued in the recapitalization and
the measurement period value of a share of USA common stock in between $23.00 to
$31.00. As a result the value of the USA common stock is assumed to be $17.50
per share. The value of the newly issued preferred shares and warrants to
acquire
88
USA and Expedia common stock were determined based upon internal valuations. The
amount reflects USA's attributable share of Expedia, after giving effect to the
minority interest in Expedia.
In addition, USA will contribute $75 million in media time over five years,
an option to participate in USA's proposed travel channel and an option to
acquire NLG.
(2) Reflects the elimination of Expedia's historical equity.
(3) The unallocated excess of acquisition costs over net assets acquired has
been preliminarily allocated to goodwill. Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets", provides that
goodwill resulting from business combinations completed subsequent to
June 30, 2001 will not be amortized but instead is required to be tested for
impairment at least annually. In connection with finalizing the purchase
price allocation, USA and Expedia are currently evaluating the fair value of
assets acquired and liabilities assumed in the transaction. Following the
conclusion of the evaluation, USA and Expedia will use this information to
make a final allocation of the purchase price, including allocation to
intangibles other than goodwill. Accordingly, the purchase accounting
information is preliminary. Expedia recorded $16.1 million and
$10.2 million of goodwill amortization during the year ended December 31,
2000 and the six months ended June 30, 2001, respectively. No periodic
amortization of goodwill will be recorded subsequent to December 31, 2001.
(4) Reflects the elimination of Expedia's historical intangible assets.
(5) Represents the minority interest in the financial position and the results
of operations of Expedia, based upon a 74.7% expected equity ownership by
USA of Expedia.
89
PROPOSAL NO. 2--AMENDMENT AND RESTATEMENT
OF EXPEDIA'S ARTICLES OF INCORPORATION
As part of the transactions, Expedia is proposing to adopt the amended and
restated articles of incorporation of Expedia to, among other things, create two
classes of common stock and to make other changes as provided in the proposed
amended and restated articles of Expedia attached as Annex B to this joint
prospectus/proxy statement. We urge you to read the amended and restated
articles of incorporation of Expedia in its entirety.
The following is a description of the material differences between Expedia's
current articles of incorporation and the proposed amended and restated articles
of incorporation of Expedia. Expedia will continue to be a corporation
incorporated in the State of Washington and otherwise subject to the laws of
Washington, including the Washington Business Corporation Act.
CAPITAL STOCK
If the proposal to amend and restate Expedia's articles of incorporation is
adopted, Expedia's articles of incorporation will be amended and restated to
authorize for issuance 770,000,000 shares of capital stock, consisting of
20,000,000 shares of Expedia preferred stock and 750,000,000 common shares, of
which 600,000,000 common shares will be Expedia common stock and 150,000,000
common shares will be Expedia Class B common stock.
Expedia's current articles authorize for issuance 130,000,000 shares of
capital stock, consisting of 10,000,000 shares of Expedia preferred stock and
120,000,000 shares of one class of common stock.
The following provisions, which are included in the amended and restated
articles of incorporation, describe the relative rights of the Expedia common
stock and the Expedia Class B common stock. Where applicable, we have described
both the proposed new provision reflected in the amended and restated Expedia
articles of incorporation and the current provision in the Expedia articles.
VOTING RIGHTS
AMENDED ARTICLES. Holders of Expedia common stock will be entitled to one
vote for each share of such stock held, and holders of Expedia Class B common
stock will be entitled to 15 votes for each share of such stock held, on all
matters presented to Expedia shareholders.
The amended and restated articles of incorporation of Expedia also provide
that, except as otherwise required by law, the holders of USA common stock and
Expedia Class B common stock will vote together as one class.
CURRENT EXPEDIA ARTICLES. Currently, each share of Expedia common stock is
entitled to one vote per share.
DIVIDEND RIGHTS
AMENDED ARTICLES. Subject to the rights of holders of all classes of stock
outstanding at the time and having prior rights as to dividends, to the extent
the board of directors of Expedia declares dividends on the common shares of
Expedia, the holders of Expedia common stock and Expedia Class B common stock
will each be entitled to receive such dividends, on a share for share basis,
when, as and if declared by the board of directors.
STOCK DIVIDENDS, STOCK SPLITS OR COMBINATIONS
AMENDED ARTICLES. In the event that a stock dividend, stock split or
combination of stock is declared or made with respect to the Expedia common
stock and/or Expedia Class B common stock all
90
shares of Expedia common stock and Expedia Class B common stock then outstanding
shall be treated equally.
LIQUIDATION
AMENDED ARTICLES. Subject to the rights of holders of all classes of stock
at the time outstanding having prior liquidation rights, upon the liquidation,
dissolution or winding up of Expedia, the assets of Expedia shall be distributed
to the holders of Expedia common stock and Expedia Class B common stock, on a
share for share basis.
ACTION BY MAJORITY VOTE
AMENDED ARTICLES. Except as otherwise set forth in the Expedia articles, to
the maximum extent permitted under Chapter 23B of the RCW, any corporate action
that would otherwise require the affirmative vote of more than a simple majority
of the voting power of the shareholders of the Corporation entitled to vote on
such action, including amending its articles, approving a merger or share
exchange, or the sale of assets, other than in the regular course of business,
may be approved by the affirmative vote of a simple majority of the voting power
of the shareholders of the Corporation entitled to vote on such action.
CURRENT EXPEDIA ARTICLES. The current Expedia articles of incorporation
provide that a merger, share exchange, sale of substantially all of Expedia's
assets or dissolution must be approved by the affirmative vote of a majority of
Expedia's outstanding shares entitled to vote, or if separate voting by voting
groups is required then by not less than a majority of all the votes entitled to
be cast by that voting group.
ACTION BY SHAREHOLDERS WITHOUT A MEETING
Under Washington law, shareholders of a public company, of which Expedia
currently is and will be after the merger, may only act by written consent where
the action is unanimously approved by all shareholders.
CONDUCT OF CERTAIN AFFAIRS OF EXPEDIA
AMENDED ARTICLES. The amended and restated articles of Expedia include the
following provisions governing the relationship of USA and its affiliates, on
the one hand, and Expedia and its subsidiaries, on the other hand. Provisions
governing the relationship between Expedia and Microsoft have been eliminated.
COMPETING ACTIVITIES. Except as otherwise expressly agreed, the
shareholders of Expedia, including USA and its affiliates, may engage or
invest in any business activity of any type or description, including those
that might be the same or similar to Expedia's business or the business of
one of its subsidiaries and neither Expedia nor its subsidiaries or
shareholders shall have any rights with respect to such engagement or
investment or any income or proceeds derived from the business activity.
CORPORATE OPPORTUNITY. For so long as USA owns common stock of Expedia
representing at least 20% of the voting power of all classes of outstanding
capital stock of Expedia and at least one person who is a director or
officer of Expedia is also a director or officer of USA, Expedia shall have
no interest in any investment or business opportunity or prospective
economic advantage which is received by USA or an affiliate of USA and that
Expedia could but for this provision have an interest or expectancy, except
that any person who is an officer of Expedia and who is also a director of
USA but not an officer or employee of USA and receives an opportunity in
such person's capacity as an officer of Expedia may not take such
opportunity for himself or herself.
91
The Amendment also provides that this provision, so long as USA owns common
stock representing at least 20% of the voting power of all classes of
outstanding capital stock of Expedia, cannot be amended or terminated
prospectively without the approval of 80% of the total voting power of all
classes of outstanding capital of Expedia.
CURRENT ARTICLES. Expedia's articles of incorporation currently contain
provisions governing the relationship between Expedia and Microsoft relating to
the contractual relations and other business relations of Expedia and Microsoft
and certain other entities and to the rights, duties and liabilities of Expedia
in connection with these agreements.
NO PREEMPTIVE RIGHTS
Under both the proposed and current Expedia articles, holders of Expedia
common stock (and, after the closing, Expedia Class B common stock) do not have
any preemptive rights to subscribe for any additional shares of capital stock or
other obligations convertible into or exercisable for shares of capital stock
that may hereafter be issued by Expedia.
The affirmative vote of a majority of all votes entitled to be cast will be
required to approve the amended and restated articles of incorporation. The
amendment and restatement of the articles of incorporation is conditioned on
approval of all of the other proposals relating to the transactions to be
considered at the annual meeting. Under the voting and election agreement,
Microsoft is obligated to vote in favor of the amended and restated articles of
incorporation of Expedia. Accordingly, approval and adoption of the amended and
restated articles of incorporation of Expedia is assured.
THE EXPEDIA BOARD OF DIRECTORS, WITH ONE DIRECTOR EXCUSED, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION.
92
DESCRIPTION OF EXPEDIA CAPITAL STOCK
Set forth below is a description of Expedia's capital stock. The following
statements are brief summaries of, and are subject to the provisions of, the
amended and restated articles of incorporation and amended and restated bylaws
of Expedia (each as in effect after the effective time of the merger, the
Expedia warrant agreement and the relevant provisions of the Business
Corporation Act of the State of Washington. The following description assumes
that the amended and restated articles of incorporation and bylaws of Expedia
have been adopted.
GENERAL
Expedia is authorized to issue up to 770,000,000 shares of capital stock,
consisting of 600,000,000 shares of Expedia common stock, par value $0.01 per
share, 150,000,000 shares of Expedia Class B common stock, par value $0.01 per
share, and 20,000,000 shares of preferred stock, par value $0.01 per share. As
of , 2001, there were shares of Expedia common stock outstanding
held of record by approximately persons and no shares of Expedia Class B
common stock or Expedia preferred stock outstanding. After the completion of the
merger, there will be outstanding approximately shares of Expedia common
stock, up to 37,500,000 shares of Expedia Class B common stock and no shares of
Expedia preferred stock. If preferred stock is issued, Expedia's board of
directors may fix the designation, relative rights, preferences and limitations
of the shares of each series.
EXPEDIA COMMON STOCK AND EXPEDIA CLASS B COMMON STOCK
Expedia has a "dual class" common stock structure, consisting of Expedia
common stock and Expedia Class B common stock. The rights and preferences of the
Expedia common stock and the Expedia Class B common stock are identical to each
other, except that holders of Expedia Class B common stock have 15 votes per
share, compared with one vote per share for the Expedia common stock. No holders
of either class of Expedia's common stock have cumulative voting rights,
preemptive or conversion rights. There are no redemption or sinking fund
provisions available to either class of Expedia common stock. All outstanding
shares of each class of Expedia common stock are fully-paid and non-assessable.
Taking into consideration preferences that may be applicable to any
then-outstanding Expedia preferred stock, holders of either class of Expedia
common stock will be entitled to receive ratably any dividends that may be
declared by the board of directors of Expedia out of funds legally available for
these dividends. In the event of a liquidation, dissolution or winding up of
Expedia, holders of either class of Expedia common stock will be entitled to
share ratably in all assets remaining after payment of liabilities and any
liquidation preference to any then-outstanding holders of Expedia preferred
stock.
NEW EXPEDIA WARRANTS
New Expedia warrants will be issued under a warrant agreement to be dated as
of , 2001 between Expedia and , as warrant agent, a form of which
has been filed as an exhibit to the registration statements of which this joint
prospectus/proxy statement is a part.
Each Expedia shareholder who retains his shares of Expedia common stock in
the recapitalization will receive, after the completion of the merger, 0.1920 of
a new Expedia warrant for each retained share of Expedia common stock. There are
currently no new Expedia warrants outstanding. Each new Expedia warrant will
entitle its holder to purchase one share of Expedia common stock at an exercise
price of $52.00 per share of Expedia common stock. The exercise price must be
paid in cash. Each new Expedia warrant may be exercised on any business day on
or after its date of issuance until the seventh anniversary of its date of
issuance. Any new Expedia warrant not exercised before the expiration of this
period will become void, and all rights of the holder of the new Expedia warrant
will cease. Holders of
93
new Expedia warrants will not be entitled, by virtue of being such holders, to
have any rights of holders of Expedia common stock until they exercise their
warrants.
The number of shares of Expedia common stock issuable upon exercise of the
new Expedia warrants and the exercise price of the new Expedia warrants will be
subject to adjustment from time to time upon the occurrence of any of the
following events after the completion of the merger: any stock split; any stock
consolidation, combination or subdivision; any stock dividend or other
distribution; and any repurchase, reclassification, recapitalization or
reorganization.
Expedia will keep in reserve at all times before the expiration date of the
new Expedia warrants sufficient authorized but unissued shares of Expedia common
stock for issuance in the event of exercises by the holders of new Expedia
warrants. In addition, the new Expedia warrants and any Expedia common stock
issued upon exercise of the new Expedia warrants will be registered under the
Securities Act.
TRANSFER AGENT
The transfer agent for the shares of Expedia common stock is Mellon Investor
Services LLC.
DESCRIPTION OF USA CAPITAL STOCK
Set forth below is a description of USA's capital stock. The following
statements are brief summaries of, and are subject to the provisions of, USA's
certificate of incorporation and bylaws, the USA warrant agreement and the
relevant provisions of the Delaware General Corporation Law.
As of the date of this joint prospectus/proxy statement, the authorized
capital stock of USA consists of 1,600,000,000 shares of USA common stock, par
value $0.01 per share, 400,000,000 shares of USA Class B common stock, par value
$0.01 per share, and 15,000,000 shares of preferred stock, par value $0.01 per
share.
USA COMMON STOCK AND USA CLASS B COMMON STOCK
As of the record date, there were shares of USA common stock
outstanding held of record by approximately 37,000 stockholders and 63,033,452
shares of USA Class B common stock outstanding held of record by six
stockholders. Upon consummation of the transactions, there would be outstanding
approximately shares of USA common stock and 63,033,452 shares of USA
Class B common stock.
With respect to matters that may be submitted to a vote or for the consent
of the USA stockholders, including the election of directors, each holder of USA
Class B common stock is entitled to ten votes for each share of USA Class B
common stock held and will vote together with the holders of USA common stock as
a single class. Each holder of USA common stock is entitled to one vote for each
share of USA common stock held. Notwithstanding the foregoing, the holders of
USA common stock, acting as a single class, are entitled to elect 25% of the
total number of directors, and, in the event that 25% of the total number of
directors shall result in a fraction of a director, then the holders of USA
common stock, acting as a single class, are entitled to elect the next higher
whole number of directors.
Shares of USA Class B common stock are convertible into shares of USA common
stock at the option of the holder thereof at any time on a share-for-share
basis. Such conversion ratio will in all events be equitably preserved in the
event of any recapitalization of USA by means of a stock dividend on, or a stock
split or combination of, outstanding USA common stock or USA Class B common
stock, or in the event of any merger, consolidation or other reorganization of
USA with another corporation. Upon the conversion of USA Class B common stock
into shares of USA common stock, those shares
94
of USA Class B common stock will be retired and will not be subject to reissue.
Shares of USA common stock are not convertible into shares of USA Class B common
stock.
In all other respects, the USA common stock and the USA Class B common stock
are identical. The holders of USA common stock and the holders of USA Class B
common stock are entitled to receive, share for share, such dividends as may be
declared by USA's board of directors out of funds legally available therefor. In
the event of a liquidation, dissolution, distribution of assets or winding-up of
USA, the holders of USA common stock and the holders of USA Class B common stock
are entitled to share ratably in all the assets of USA available for
distribution to its stockholders, after the rights of the holders of the USA
preferred stock, if any, have been satisfied.
In connection with its acquisition of Studios USA from Universal Studios,
USA granted to Universal Studios and Liberty Media preemptive rights which
generally provide that each of Universal Studios and Liberty Media may elect to
purchase a number of shares of USA stock, or shares of a subsidiary of USA
exchangeable for shares of USA stock, referred to as LLC shares, so that the
percentage equity interest such entity owned of USA after its acquisition of
Studios USA will be the same as before such acquisition, in each case, assuming
the exchange of all LLC shares owned by Universal Studios and Liberty Media and
shares of Home Shopping Network owned by a subsidiary of Liberty Media. The
purchase price for shares of USA stock pursuant to a preemptive right election
is the fair market value of the USA stock, or LLC share, purchased. Subject to
specified limits set forth in the governance agreement, Universal Studios may
elect to receive shares of USA common stock or USA Class B common stock in
connection with a preemptive exercise, or LLC shares exchangeable for shares of
USA stock; Liberty's preemptive exercises are for USA common stock only, or LLC
shares exchangeable for shares of USA common stock.
The USA certificate of incorporation provides that there can be no stock
dividends or stock splits or combinations of stock declared or made on USA
common stock or USA Class B common stock unless the shares of USA common stock
and USA Class B common stock then outstanding are treated equally and
identically.
The shares of USA common stock to be issued in connection with the merger
will be validly issued, fully paid and non-assessable.
USA PREFERRED STOCK
As of the record date, there were no shares of preferred stock of USA
outstanding. Shares of preferred stock of USA may be issued from time to time in
one or more series. The USA board of directors has authority, by resolution, to
designate the powers, preferences, rights and qualifications, limitations and
restrictions of preferred stock of USA.
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
GENERAL. In connection with the transactions, the board of directors of USA
has designated and will issue an aggregate of 13,125,000 shares of preferred
stock, par value $0.01 per share, of USA as "Series A Convertible Redeemable
Preferred Stock," each having a $50.00 face value and a term of 20 years. We
refer to Series A Convertible Redeemable Preferred Stock in this document as USA
preferred stock.
THE FOLLOWING IS A DESCRIPTION OF THE MATERIAL TERMS OF THE USA PREFERRED
STOCK, THE POWERS, PREFERENCES, RIGHTS AND QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS OF WHICH ARE SET FORTH IN THE CERTIFICATE OF DESIGNATIONS OF THE
USA PREFERRED STOCK ATTACHED AN EXHIBIT TO THE REGISTRATION STATEMENTS OF USA
AND EXPEDIA OF WHICH THIS JOINT PROSPECTUS/PROXY STATEMENT IS A PART AND
INCORPORATED BY REFERENCE IN THIS DOCUMENT. WE URGE YOU TO READ THE CERTIFICATE
OF DESIGNATIONS IN ITS ENTIRETY.
VOTING RIGHTS. Holders of USA preferred stock will be entitled to two votes
for each share of USA preferred stock held on all matters presented to such
shareholders. Except as otherwise required by
95
Delaware law, or any special voting rights of USA preferred stock as described
in this document, the holders of USA common stock, USA Class B common stock and
USA preferred stock entitled to vote with the common shareholders will vote
together as one class. No separate class vote of USA preferred stock will be
required for the approval of any matter except as required by Delaware law.
DIVIDENDS. Each share of USA preferred stock is entitled to receive
dividends equal to the sum of (1) 1.99% of the face value per year, payable
quarterly in cash or USA common stock, at USA's option, plus (2) the excess, if
any, of the aggregate value of any dividends paid on the USA common stock
underlying the USA preferred stock over the amount described in (1). If USA
elects to pay the dividends in USA common stock, the price will be based on the
trailing ten day average price of USA common stock prior to the payment date. No
other preferred stock of USA will rank senior to USA preferred stock with
respect to payment of dividends.
CONVERSION RIGHTS. Each share of USA preferred stock is convertible, at the
option of the holder at any time after the effective time of the merger, into
that number of shares of USA common stock equal to the quotient obtained by
dividing $50 by the conversion price per share of USA common stock. The initial
conversion price is equal to $33.75 per share of USA common stock. The
conversion price will be adjusted downward if the share price of USA common
stock exceeds $35.10 at the time of conversion pursuant to the following formula
(rounded to the nearest cent):
$50 X (USAi)
-------------------------------------------------------
(USAi X 1.4815) + (0.4792 X (USAi-35.10))
where USAi = trailing ten-day average price of USA common stock.
The certificate of designations also includes an anti-dilution adjustment
provision so that the number of shares of USA common stock to be received upon
conversion of a share of USA preferred stock is adjusted from time to time in
the event of any stock split, stock consolidation, combination or subdivision,
stock dividend or other distribution and any repurchase, reclassification,
recapitalization or reorganization of USA.
REDEMPTION BY USA. Commencing on the tenth anniversary of the effective
time of the merger, USA shall have the right from time to time to redeem at
least 25% of the original aggregate face value and up to 100% of the original
aggregate face value of the outstanding USA preferred stock at a redemption
price per USA preferred stock equal to face value plus any accrued and unpaid
dividends. Any payment by USA pursuant to a redemption by USA may be made in
cash or USA common stock, at the option of USA.
REDEMPTION BY THE HOLDER OF USA PREFERRED STOCK. During the 20 business day
period preceding each of the fifth, seventh, tenth and fifteenth anniversaries
of the effective time of the merger, a holder of USA preferred stock shall have
the right to require USA to purchase all or a portion of the shares of USA
preferred stock held by such holder for face value plus any accrued and unpaid
dividends. Any payment by USA pursuant to a redemption by the holder of USA
preferred stock may be made in cash or USA common stock, at the option of USA.
LIQUIDATION RIGHTS. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of USA, holders of USA preferred stock shall be
entitled to receive in preference to any holder of USA common shares an amount
per share equal to all accrued and unpaid dividends plus the greater of
(a) face value, or (b) the liquidating distribution that would be received had
such holder converted the USA preferred stock into USA common stock immediately
prior to the liquidation, dissolution or winding up of USA. No other preferred
stock of USA will rank senior to USA preferred stock with respect to payment
upon liquidation.
96
RESERVATION OF SHARES OF USA COMMON STOCK. USA will keep in reserve at all
times during the term of the USA preferred stock sufficient authorized but
unissued shares of USA common stock for issuance in the event of exercises by
the holders of USA preferred stock.
REGISTRATION OF SHARES UNDER THE SECURITIES ACT OF 1933. The USA preferred
stock and any USA common stock issued upon conversion of the USA preferred stock
will be registered under the Securities Act of 1933.
USA WARRANTS
USA warrants will be issued under a warrant agreement to be dated as of
, 2001 between USA and , as warrant agent, a form of which has
been filed as an exhibit to the registration statements of which this joint
prospectus/proxy statement is a part.
Each Expedia shareholder who properly elects to receive and receives Expedia
Class B common stock in the recapitalization will automatically receive, among
other things, a fraction of a USA warrant equal to the exchange ratio
corresponding to the measurement period value of USA common stock set forth on
Annex F to this joint prospectus/proxy statement. There are currently no USA
warrants outstanding. Each USA warrant will entitle its holder to purchase one
share of USA common stock at an exercise price of $35.10 per share of USA common
stock. The exercise price must be paid in cash. Each USA warrant may be
exercised on any business day on or after its date of issuance until the seventh
anniversary of its date of issuance. Any USA warrant not exercised before the
expiration of this period will become void, and all rights of the holder of the
USA warrant will cease. Holders of USA warrants will not be entitled, by virtue
of being such holders, to have any rights of holders of USA common stock until
they exercise their warrants.
The number of shares of USA common stock issuable upon exercise of the USA
warrants and the exercise price of the USA warrants will be subject to
adjustment from time to time upon the occurrence of any of the following events
after the completion of the merger: any stock split; any stock consolidation,
combination or subdivision; any stock dividend or other distribution; and any
repurchase, reclassification, recapitalization or reorganization.
USA will keep in reserve at all times before the expiration date of the USA
warrants sufficient authorized but unissued shares of USA common stock for
issuance in the event of exercises by the holders of USA warrants. In addition,
the USA warrants and any USA common stock issued upon exercise of the USA
warrants will be registered under the Securities Act of 1933.
TRANSFER AGENT
The transfer agent for the shares of USA common stock is Bank of New York.
97
COMPARISON OF RIGHTS OF SHAREHOLDERS OF EXPEDIA AND USA
USA is incorporated under the laws of the State of Delaware, while Expedia
is incorporated under the laws of the State of Washington. After the completion
of the merger, Expedia shareholders who elect not to receive Expedia Class B
common stock in the recapitalization will remain shareowners of Expedia, and
their rights as such will continue to be governed by the Washington Business
Corporation Act (the "WBCA"), the amended and restated articles of incorporation
of Expedia and the amended and restated bylaws of Expedia. By contrast, Expedia
shareholders who elect to receive Expedia Class B common stock in the
recapitalization, and therefore the USA securities in the merger (to the extent
they are not prorated), will become stockholders of USA, and their rights as
such will be governed by the Delaware General Corporation Law (the "DGCL"), the
restated certificate of incorporation of USA and the amended and restated bylaws
of USA.
While there are substantial similarities between the WBCA and the DGCL as
well as between the charters and bylaws of USA and Expedia, a number of
differences do exist. The following is a summary of certain material differences
between the current rights of USA and Expedia shareowners under the DGCL and
WBCA, respectively, and under the respective charters and bylaws of USA and
Expedia. The identification of specific differences is not intended to indicate
that other equally or more significant differences do not exist. The following
summary does not purport to be a complete description of these rights and is
qualified in its entirety by reference to the DGCL, the WBCA, and the governing
corporate instruments of USA and Expedia. Copies of such governing corporate
instruments are available by following the instructions described under
"Summary--Where You Can Find More Information."
98
SUMMARY OF MATERIAL DIFFERENCES BETWEEN THE CURRENT RIGHTS OF EXPEDIA
SHAREHOLDERS, THE RIGHTS OF EXPEDIA SHAREHOLDERS FOLLOWING THE
TRANSACTIONS AND THE RIGHTS OF USA STOCKHOLDERS
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
AUTHORIZED CAPITAL 130,000,000 shares of 770,000,000 shares of 2,015,000,000 shares of
STOCK: capital stock, consisting capital stock, consisting capital stock, consisting
of (1) 120,000,000 shares of (1) 600,000,000 shares of (1) 1,600,000,000
of Expedia common stock, of Expedia common stock, shares of USA common
par value $0.01 per par value $0.01 per stock, par value $0.01
share, and (2) 10,000,000 share, (2) 150,000,000 per share, (2)
shares of Expedia shares of Expedia Class B 400,000,000 shares of USA
preferred stock, par common stock, par value Class B common stock, par
value $0.01 per share. $0.01 per share, and (3) value $0.01 per share,
20,000,000 shares of and (3) 15,000,000 shares
Expedia preferred stock, of USA preferred stock,
par value $0.01 per par value $0.01 per
share. share.
VOTING POWER OF COMMON Each share of Expedia Each share of Expedia Each share common stock
STOCK: common stock is entitled common stock is entitled is entitled to one vote
to one vote per share. to one vote per share. per share. Each share of
Each share of Expedia USA Class B common stock
Class B common stock is is entitled to ten votes,
entitled to 15 votes, generally voting together
generally voting together with the USA common stock
with the Expedia common on all matters submitted
stock on all matters for the vote or consent
submitted for the vote or of USA stockholders,
consent of Expedia except in cases where the
shareholders, except in DGCL provides for a
cases where the WBCA separate class vote and
provides for a separate except for the election
class vote. The WBCA of 25% of the USA
generally provides for a directors, which is
separate class vote on elected by the holders of
any proposal that would USA common stock. See
adversely impact one "--Board of Directors."
class of shareholders. Based on the number of
Based on the number of shares of USA Class B
shares of Expedia Class B common stock outstanding
common stock outstanding as of the record date for
as of the date of this the annual meeting, the
joint proxy holders of USA Class B
statement/prospectus and common stock will control
expected to be the vote of any matter
outstanding upon submitted to USA
consummation of the stockholders voting
merger, the holders of together as a single
Expedia Class B common class.
stock will control the
vote of any matter
submitted to Expedia
shareholders voting
together as a single
class.
99
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
BOARD OF DIRECTORS: The Expedia articles The Expedia bylaws The USA bylaws provide
provide that the number provide that the number that the USA board of
of directors shall be of directors shall be directors shall determine
fixed in the manner fixed from time to time the number of directors
specified in the Expedia pursuant to a resolution by resolution. Currently,
bylaws. The Expedia adopted by the board of the number of directors
bylaws provide that the directors, or by the is 13. The USA charter
board of directors shall shareholders or by provides that the holders
consist of not less than amendment to the of USA common stock,
three nor more than 11 articles. Through the acting as a single class,
members. The Expedia first anniversary of the elect 25% of the total
bylaws provide that the effective time of the number of directors, with
Expedia board of merger, the Expedia board the remaining directors
directors shall determine of directors will consist elected by the holders of
the number of directors of 11 members, six of USA common stock and USA
by resolution. whom are appointed by Class B common stock
USA, Expedia's chief voting together as a
executive officer, single class.
Expedia's chief financial
officer and three
independent directors.
REMOVAL OF DIRECTORS: Under the WBCA, Under the Expedia bylaws, Under the DGCL, the
shareholders may remove shareholders may remove affirmative vote of a
one or more directors one or more directors majority of the shares
with or without cause, with or without cause. entitled to vote for the
unless the articles election of directors is
provide otherwise. required to remove
Expedia's articles and directors, with or
bylaws do not address without cause, subject to
removal. exceptions that do not
apply to USA. The USA
bylaws provide that any
director may be removed
by the vote of a majority
of the voting power of
the shares of stock
issued and outstanding of
the class that elected
the director.
100
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
FILLING VACANCIES ON THE Under the WBCA, unless The Expedia bylaws The DGCL provides that,
BOARD OF DIRECTORS: the articles provide provide that vacancies unless the charter or
otherwise, a vacancy may should be filled in bylaws provide otherwise,
be filled by the accordance with the WBCA. vacancies and newly
shareholders or by the created directorships may
affirmative vote of a be filled by the
majority of the directors affirmative vote of a
then in office, even majority of the directors
though less than a then in office or a sole
quorum. remaining director, even
The Expedia articles though less than a
provide that vacancies quorum. USA's bylaws also
and newly created permit holders of a
directorships shall be majority of USA's voting
filled only by a majority power to fill vacancies.
of the directors then in
office, although less
than a quorum, unless
there are no directors,
in which case a special
election by shareholders
will take place.
INTERESTED DIRECTORS: The WBCA permits Same as current Expedia Under the DGCL, specified
transactions in which one shareholder rights. contracts or transactions
or more directors have a in which one or more of a
conflicting interest if: corporation's directors
- a majority, although has an interest are not
no fewer than two, of void or voidable solely
qualified directors because of such interest
on the board of if such contract or
directors, or on the transaction (1) is
committee considering ratified by the
the transaction, corporation's
approves the stockholders or a
transaction; majority of disinterested
- an affirmative vote members of the board of
of a majority of all directors or a committee
qualified shares thereof if the material
approves the facts of the contract or
transaction; or transaction are disclosed
- at the time of or known or (2) was fair
commitment, the to the corporation at the
transaction was fair time it was approved.
to the corporation.
Such vote must occur
after the directors have
received disclosure of
the conflicting interest,
with certain limited
exceptions, or the vote
will be invalid. Further,
a committee vote is valid
only
101
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
if all members of the
committee are qualified
directors and, either:
- are all the qualified
directors on the
board of directors;
or
- were appointed by
affirmative vote of a
majority of the board
of directors'
qualified directors.
A director is a qualified
director if he or she has
neither:
- a conflicting
interest regarding
the transaction; nor
- any familial,
financial,
professional or
employment
relationship with a
second director who
does have a
conflicting interest,
if the relationship
would reasonably be
expected to exert
influence on the
first director's
judgment in voting on
the transaction.
Qualified shares are
defined generally as
shares other than those
beneficially owned, or
the voting of which is
controlled, by a director
who has a conflicting
interest regarding the
transaction.
ACTION BY WRITTEN Under the WBCA, Same as current Expedia Under the DGCL, unless
CONSENT: shareholder action with shareholder rights. the charter provides
respect to a public otherwise, actions may be
company may be taken taken by the stockholders
without a meeting only if by written consent,
written consents setting provided that the written
forth such action are consent is signed by the
signed by all holders of
102
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
shareholders entitled to outstanding stock having
vote on the action. not less than the minimum
number of votes that
would be necessary to
authorize or take the
action at a meeting at
which all shares entitled
to vote on the matter
were present and voted.
AMENDMENT OF CERTIFICATE The WBCA generally The Expedia articles The DGCL generally
OF INCORPORATION AND requires that charter provide that Expedia's provides that the charter
ARTICLES OF amendments must be shareholders may amend amendments require the
INCORPORATION: approved by each voting the articles by the affirmative vote of a
group entitled to vote on affirmative vote of a majority of the
the amendment by a simple majority of the outstanding shares
majority of all the votes voting power of the entitled to vote, and in
entitled to be cast by shareholders entitled to certain circumstances, a
that voting group unless vote on such amendment, separate class vote. It
another percentage is except for the provisions also provides that a
specified (1) in the of Article VIII of the charter may provide for a
articles, (2) by the articles regarding the greater or lesser vote
board of directors as a relationship between than would otherwise be
condition to its Expedia and USA, which, required by the DGCL. The
recommendation or (3) by so long as USA owns at USA charter includes a
the provisions of the least 20% of the total supermajority (80%) vote
WBCA. The Expedia voting power, will of each of the board of
articles only specify a require the affirmative directors and the voting
vote of more than 80% to vote of more than 80% of power of the shareholders
amend or repeal the the total voting power of voting as a single class
provisions regarding the the shareholders of all to amend or repeal the
relations between Expedia classes of outstanding requirement that the
and Microsoft. capital stock to amend or Chief Executive Officer
repeal that article. may only be removed
without cause by the
affirmative vote of at
least 80% of the entire
board of directors.
103
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
SPECIAL MEETINGS: The WBCA provides that The Expedia bylaws The DGCL provision is
special meetings of the provide that only the generally the same as its
shareholders of a chairman of the board of WBCA counterpart. The USA
corporation may be called directors or a majority bylaws provide for the
by the board of directors of directors then serving same individuals as the
or the person or persons on the board of directors bylaws of Expedia
authorized to do so in may call a special following the
the articles or bylaws. meeting. transactions to be able
The Expedia bylaws to call a special
provide that the board of meeting.
directors, an authorized
committee of the board of
directors or a majority
of the shares of the
common stock may call an
special meeting.
INDEMNIFICATION OF Under the WBCA, the Same as current Expedia The DGCL generally
DIRECTORS AND OFFICERS: standards for allowing shareholder rights. permits indemnification
indemnification are of a person who acted in
substantially the same as good faith and in a
those used under the manner that he or she
DGCL. reasonably believed to be
in or not opposed to the
best interests of the
corporation or in the
case of a criminal
action, had no reason to
believe that his or her
conduct was unlawful. The
USA bylaws do not depart
from this standard.
VOTE ON CERTAIN Under the WBCA, a merger The Expedia articles The DGCL generally
FUNDAMENTAL ISSUES: or share exchange must be provide that, except as provides that, unless
approved by the otherwise set forth in otherwise specified in a
affirmative vote of a the Expedia articles, to corporation's charter or
majority of directors the maximum extent unless the provisions of
when a quorum is present permitted under the DGCL relating to
and by two-thirds of all Chapter 23B of the RCW, business combinations
votes entitled to be cast any corporate action that indicated herein are
by each voting group would otherwise require applicable, a sale or
entitled to vote as a the affirmative vote of other disposition of all
separate group, unless more than a simple or substantially all of
another percentage is majority of the voting the corporation's assets,
specified in the power of the shareholders a merger or consolidation
articles. The sale of all of the Corporation of the corporation with
or substantially all of a entitled to vote on such another corporation or a
corporation's assets action, including dissolution of the
other than in the regular amending its articles, corporation requires the
course of business or a approving a merger or affirmative vote of the
vote to dissolve the share exchange, or the board of directors plus
corporation must be sale of assets, other the
approved by the than in
104
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
affirmative vote of a the regular course of affirmative vote of a
majority of directors business, may be approved majority of the
when a quorum is present by the affirmative vote outstanding stock
and by two-thirds of all of a simple majority of entitled to vote on the
votes entitled to be cast the voting power of the matter. However, under
on the proposal unless shareholders of the the DGCL, unless required
another percentage is Corporation entitled to by its charter, no vote
specified in the vote on such action. of the stockholders of a
articles. constituent corporation
surviving a merger is
necessary to authorize
such merger if certain
requirements are met.
The Expedia articles Neither the USA charter
provide that a merger, nor the USA bylaws alter
share exchange or sale of the stockholder approval
substantially all of requirement described
Expedia's assets must be above.
approved by the
affirmative vote of a
majority of Expedia's
outstanding shares
entitled to vote or if
separate voting by voting
group is required then by
not less than a majority
of all the votes entitled
to be cast by that voting
group.
Under the WBCA, a merger
may also become effective
without the approval of
the surviving
corporation's
shareholders if certain
requirements are met.
BUSINESS COMBINATION Chapter 23B.19 of the Same as current Expedia Section 203 of the DGCL
RESTRICTIONS: WBCA, which applies to shareholder rights. limits specified business
Washington corporations combinations of Delaware
that have a class of corporations with
voting stock registered interested stockholders.
with the SEC under Under the DGCL, an
section 12 or 15 of the interested stockholder (a
Exchange Act, prohibits a stockholder whose
target corporation, with beneficial ownership in
certain exceptions, from the corporation is at
engaging in certain least 15% of the
significant business outstanding voting
transactions with a securities) cannot enter
person or group of specified business
persons who or which combinations with the
beneficially
105
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
owns ten percent or more corporation for a period
of the voting shares of of three years following
the target corporation the time that the
for a period of five stockholder became an
years after such share interested stockholder
acquisition, unless the unless:
transaction or - prior to that time, the
acquisition of shares is corporation's board of
approved by a majority of directors approved either
the members of the board the business combination
of directors of the or the transaction in
target corporation prior which the stockholder
to the time of the became an interested
initial acquisition by stockholder;
the acquiring person. - upon consummation of
These prohibited the transaction in
transactions include, which any person
among other things: becomes an interested
- a merger, share stockholder, the
exchange or interested
consolidation with, stockholder owned at
dispositions of a least 85% of the
certain amount of voting stock of the
assets to, or corporation
issuance or outstanding at the
redemption of shares time the transaction
to or from, the commenced, excluding
acquiror or its shares owned by
affiliates or specified employee
associates; stock ownership plans
- termination of 5% or and persons who are
more of the employees both directors and
of the target officers of the
corporation or its corporation; or
subsidiaries who are - at or subsequent to
employed in such time, the
Washington State business combination
following the is both approved by
acquiror's the board of
acquisition of 10% or directors and
more of the shares; authorized at an
or annual or special
- allowing the acquiror meeting of
to receive any stockholders, not by
disproportionate written consent, by
benefit as a the affirmative vote
shareholder. of at least
After the five-year two-thirds of the
period, a significant outstanding voting
business transaction may stock not owned by
take place if it complies the interested
with certain fair price stockholder.
provisions of the statute
or if it is approved
106
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
by disinterested
shareholders.
Expedia's board of
directors has expressly
approved the merger for
purposes of Chapter
23B.19 of the WBCA such
that the provisions of
Section 23B.19.040 of the
WBCA will not apply to
the merger or to any
future transactions
between Expedia and USA
and its affiliates.
DISSENTERS' OR APPRAISAL Under Chapter 23B.13 of Same as current Expedia Under the DGCL, a
RIGHTS: the WBCA, a shareholder shareholder rights. stockholder does not have
is entitled to dissent appraisal rights if the
from, and obtain the fair shares of the corporation
value of his or her are listed on a national
shares in connection with securities exchange or
certain corporate designated as a national
actions, including market system security by
certain mergers, share the National Association
exchanges, sale of all or of Securities Dealers,
substantially of the Inc. or held of by record
corporation's property, by more than 2,000
other than in the usual holders, or if the
and regular course of corporation will be the
business, or a reverse surviving corporation of
stock split, which a merger and the merger
require shareholder does not require the vote
approval. To the extent of the corporation's
that the articles, bylaws stockholders. A
or resolution of the stockholder will,
board of directors however, have the right
provide for dissenters' to demand and receive
rights, shareholders also payment in cash for the
may exercise these rights fair value of their stock
in connection with any in an appraisal
corporate action taken by proceeding in lieu of the
shareholder vote. consideration
Shareholders generally stockholders would
will not have such otherwise receive in a
dissenters' rights if merger or consolidation
shareholder approval is if in the merger the
not required to effect stockholder will receive
the corporate action. In anything other than
order to exercise shares of stock in the
dissenters' rights, an corporation surviving or
Expedia shareholder must resulting from the merger
comply with the or consolidation, shares
procedures of any other
107
EXPEDIA SHAREHOLDER
CURRENT EXPEDIA RIGHTS FOLLOWING THE
SHAREHOLDER RIGHTS TRANSACTIONS USA STOCKHOLDER RIGHTS
------------------------- ------------------------- -------------------------
set forth in chapter corporation that at the
23B.13 of the WBCA, which effective date of the
is described elsewhere in merger or consolidation
this joint will be either listed on
prospectus/proxy a national securities
statement under "Proposal exchange or designated as
No. 1--Approval of the a national market system
Merger Agreement-- security by the National
Dissenters' Rights". Association of Securities
Dealers, Inc., or held of
record by more than 2,000
holders, cash in lieu of
fractional shares, or any
combination thereof.
A Delaware corporation's
charter may also provide
that appraisal rights
shall be available in the
event of the sale of all
or substantially all of a
corporation's assets or
the adoption of an
amendment to its charter.
The USA charter does not
provide for such rights.
COMMUNICATIONS ACT Expedia has no comparable Expedia has no comparable The USA charter provides
TRANSFER RESTRICTIONS: provision. provision. that no transfer will be
effective that will
violate the
Communications Act of
1934, as amended. This
act restricts the
aggregate number of
shares of USA or any
controlling entity of USA
that may be owned by
foreign individuals or
entities.
CONDUCT OF CERTAIN Expedia's articles Expedia's articles USA has no comparable
AFFAIRS OF EXPEDIA: contain provisions contain provisions provision.
governing the governing the
relationship between relationship between
Expedia and Microsoft and Expedia and USA
certain other Microsoft regarding, among other
related entities relating things, the ability of
to the contractual USA and its affiliates to
relations and other engage in competing
business relations of activities and the
Expedia and Microsoft and ability of USA and its
the other related affiliates to take
entities and to the advantage of certain
rights, duties and business opportunities
liabilities of and to without concern for
Expedia in connection claims of interest or
with these agreements. expectancy by Expedia.
108
PROPOSAL NO. 3--TERMINATION OF THE SHAREHOLDER AGREEMENT
On October 1, 1999, Expedia and Microsoft entered into a shareholder
agreement that provided for, among other things, the following:
- tag-along rights for all Expedia shareholders with respect to any transfer
to a third party of Expedia common stock by Microsoft or any subsequent
holder of Expedia common stock. This requires that any such transfer be
conditioned on all of the holders of Expedia common stock being offered
the same per share consideration as that being received by Microsoft or
the subsequent holder;
- registration rights for Microsoft with respect to its shares of Expedia
common stock; and
- restrictions on Microsoft's ability to compete with Expedia.
As part of the transactions, each of USA and Microsoft has required, as a
condition to the completion of the transactions, that the shareholder agreement
be terminated. Upon consummation of the transactions, assuming the proposal to
terminate the shareholder agreement is approved by the requisite vote of Expedia
shareholders, the relationship between Microsoft and Expedia will be governed by
any ongoing agreements they may have and applicable law. The relationship
between Expedia and USA will be governed by certain terms of the amended and
restated articles of incorporation of Expedia, by the Washington Business
Corporation Act, any agreements between Expedia and USA, or their respective
affiliates, as well as other applicable law.
The affirmative vote of a majority of the outstanding Expedia common stock
entitled to vote is required to adopt and approve the termination of the
shareholder agreement. The termination of the shareholder agreement is
conditioned on approval of all of the other proposals relating to the
transactions to be considered at the annual meeting. Under the voting and
election agreement, Microsoft is obligated to vote in favor of the termination
of the shareholder agreement. Accordingly, approval and adoption of this
proposal is assured.
THE EXPEDIA BOARD OF DIRECTORS, WITH ONE DIRECTOR EXCUSED, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE TERMINATION OF THE SHAREHOLDER
AGREEMENT.
109
PROPOSAL NO. 4--ELECTION OF DIRECTORS
Expedia's board of directors currently consists of seven members. Expedia's
board of directors has nominated each of the seven persons named below to serve
for an additional one-year term. All seven directors are to be elected at the
annual meeting, to hold office until the 2002 annual meeting of shareholders and
until their successors are elected and qualified. However, as discussed below,
certain of the directors elected at the annual meeting will resign upon
consummation of the transactions. Expedia also expects that each of the nominees
will be available for election, but if any of them is not a candidate at the
time the election occurs, Expedia expects that proxies, unless otherwise
directed, will be voted for the election of another nominee to be designated by
the board of directors to fill the vacancy. Microsoft has agreed to vote all its
shares of Expedia common stock in favor of this Proposal No. 4 and has granted
Expedia an irrevocable proxy to vote its shares in favor of this Proposal
No. 4. The vote of Microsoft's shares is sufficient to ensure approval of
Proposal No. 4. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS.
Following the consummation of the transactions, Expedia's board of directors
will consist of eleven members, including Mr. Barton, Mr. Stanger, six directors
appointed by USA, one of whom will be Mr. Diller, chairman of the board and
chief executive officer of USA, who will serve as chairman of the board of
Expedia, and three additional independent directors mutually agreed to by USA
and Expedia, two of whom will be Messrs. Maffei and Hoag, who are currently
directors of Expedia. As a result, upon consummation of the transactions, Brad
Chase, Gerald Grinstein, Richard Nanula and Laurie McDonald Jonsson will resign
from Expedia's board of directors in order to permit Mr. Stanger and the USA
nominees to be appointed to the board of directors. Although it is currently
anticipated that the transactions will be consummated shortly after the approval
of the shareholders is obtained at the annual meeting, the parties cannot
guarantee that the transactions will be consummated as anticipated. If the
transactions are not consummated, the seven directors elected at the annual
meeting will hold office until the 2002 annual meeting of shareholders and until
their successors are elected and qualified.
NOMINEES
RICHARD N. BARTON, 34, founded Expedia in 1994. He has served as Expedia's
president and chief executive officer and as one of Expedia's directors since
September 1999. Prior to this, he worked for Microsoft from 1991 to 1994 in
various product management roles involving Windows and MS-DOS. Prior to joining
Microsoft in 1991, he worked as a strategy consultant for Alliance Consulting
Group. Mr. Barton received a B.S. in industrial engineering from Stanford
University.
GREGORY B. MAFFEI, 41, has served as chairman of Expedia's board of
directors since 1999. Since January 2000, Mr. Maffei has served as the president
and chief executive officer and a director of 360networks inc. From 1997 until
January 2000, he was the senior vice president, finance and administration and
chief financial officer of Microsoft. Previously, Mr. Maffei has held a number
of positions at Microsoft, including vice president of corporate development,
treasurer, and director of business development and investments. Prior to
joining Microsoft in 1993, he was with Citicorp Venture Capital, Pay 'N Pak
Stores and Dillon Read. Mr. Maffei received an A.B. from Dartmouth College and
an M.B.A. from Harvard Business School, where he was a Baker Scholar.
Mr. Maffei also serves on the board of directors of Starbucks Coffee Corporation
and ONI Systems Corp.
BRAD CHASE, 41, has served as one of Expedia's directors since 1999. He is
currently a consultant for Microsoft. From April 1999 to April 2001 he was
senior vice president of MSN for Microsoft. Prior to that and since joining
Microsoft in 1987, Mr. Chase held numerous management positions including
leading the windows marketing and developer relations group, heading the
marketing for the internet client and collaboration team, leading the worldwide
launch of Windows 95 and serving as general manager for MS-DOS. Mr. Chase
received a B.S. from the University of California at Berkeley and an M.B.A. from
Northwestern's Kellogg Graduate School of Management.
110
GERALD GRINSTEIN, 69, has served as one of Expedia's directors since 1999.
Mr. Grinstein has been non-executive chairman of Agilent Technologies since 1999
and served as non-executive chairman of Delta Air Lines, Inc. from 1997 to 1999.
He is also a principal of Madrona Investment Group, L.L.C., a Seattle-based
investment company. From 1985 to 1991, Mr. Grinstein held a number of positions
at Burlington Northern, Inc., including serving as chairman and chief executive
officer from 1991 until his retirement in 1995. He is also a director of Delta
Airlines, Inc., PACCAR Inc., Vans, Inc., The Pittston Company and Imperial Sugar
Corporation. He previously served as a director of Browning-Ferris
Industries, Inc. and Sundstrand Corporation.
JAY C. HOAG, 43, has served as one of Expedia's directors since
August 2000. Since June 1995, Mr. Hoag has been a general partner of Technology
Crossover Ventures. Mr. Hoag serves on the board of directors of eLoyalty
Corporation, EXE Technologies, Inc., and several privately held companies. He
received a B.A. in Economics and Political Science from Northwestern University
and an M.B.A. from the University of Michigan.
LAURIE MCDONALD JONSSON, 52, has served as one of Expedia's directors since
1999. Since 1987, she has served as chairperson and chief executive officer of
Stellar Travel, a Seattle-based travel agency specializing in family, business
and cruise vacation travel, and president and chief executive officer of Stellar
International, an international investment company. She also co-founded both
Sundance Cruises and Admiral Cruises. Ms. McDonald Jonsson serves on the board
of directors of the Commerce Bank, the Harvard University, John F. Kennedy
School of Government, Women's Leadership Board, and is also chair of Governor
Locke's Executive Women's Council, which sponsored the first all-women's trade
and study mission to Central Europe. She also serves as chair for the Center for
Women & Democracy at the University of Washington, an organization focused on
linking women from around the world. She received a B.A. from the University of
Washington, an M.S.W. from the University of Michigan and completed Stanford
University's Executive Business Program.
RICHARD D. NANULA, 41, has served as one of Expedia's directors since 1999.
Since May 2001, he has served as executive vice president, finance, strategy and
communications for Amgen Inc., a human therapeutics company. He has held the
position of chief financial officer of Amgen since August 2001. From 1999 to
2001, he served as chairman and chief executive officer of Broadband
Sports, Inc., an Internet-based media company focused on delivering unique
sports content to sports fans. Prior to this, Mr. Nanula was the president and
chief operating officer of Starwood Hotels & Resorts, Inc. from 1998 to 1999.
Previously, Mr. Nanula held a variety of positions at The Walt Disney Company
from 1986 to 1998, serving most recently as senior executive vice president and
chief financial officer from 1996 to 1998, as president of The Disney Stores
from 1994 to 1996 and as executive vice president and chief financial officer
from 1991 to 1994. Mr. Nanula received a B.S. from the University of California,
Santa Barbara and an M.B.A. from Harvard Business School.
INFORMATION REGARDING EXPEDIA'S BOARD OF DIRECTORS AND ITS COMMITTEES
Expedia's board of directors has an audit committee and a compensation
committee. There is no standing finance or nominating committee. The
responsibilities of Expedia's audit committee include recommending to the board
of directors the independent public accountants to be selected to conduct the
annual audit of Expedia's accounts; reviewing the proposed scope of such audit
and approving the audit fees to be paid; reviewing and discussing with
management and the independent accountants the financial statements to be
included in the quarterly and annual reports Expedia files with the Securities
and Exchange Commission; and reviewing the adequacy and effectiveness of
Expedia's internal auditing, accounting and financial controls with the
independent public accountants and Expedia's financial and accounting staff.
Expedia's compensation committee is responsible for establishing compensation
policies consistent with corporate objectives and shareholder interests and
approving and/or recommending to the board of directors levels of compensation
for Expedia's senior executives. Expedia's compensation committee also
administers grants under Expedia's stock-based and other incentive compensation
plans and adopts and/or recommends to Expedia's board of directors new plans or
changes in compensation programs.
111
During fiscal 2001, Messrs. Grinstein and Maffei and Ms. Jonsson served on
the audit committee, and Messrs. Chase, Maffei and Nanula served on the
compensation committee. All members of Expedia's audit committee, except
Mr. Maffei, are independent under the requirements of Rule 4200(a)(15) of the
National Association of Securities Dealers' listing standards. Mr. Maffei is not
considered to be an independent director for purposes of serving on the audit
committee as he was employed by Microsoft, an affiliate of Expedia, within the
past three years. Expedia's board of directors determined it to be required by
the best interests of Expedia and its shareholders for Mr. Maffei to serve on
Expedia's audit committee, due to his extensive experience in financial and
auditing matters, including his service as chief financial officer of Microsoft.
During fiscal 2001, the audit committee met four times and the compensation
committee met seven times. The entire board of directors met five times during
fiscal 2001. During fiscal 2001, none of Expedia's current directors attended
fewer than 75 percent of the aggregate of the total number of meetings held by
Expedia's board of directors and the total number of meetings held by all
committees of the board of directors on which each such director served.
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and the grant of stock options, directors are not
compensated for their services as directors. Directors who are not employees are
eligible to participate in Expedia's 1999 Stock Option Plan for Non-Employee
Directors. In addition, Messrs. Maffei and Chase are considered employees for
purposes of eligibility to participate in Expedia's 1999 Amended and Restated
Stock Option Plan and the Expedia, Inc. 1999 Employee Share Purchase Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Gregory Maffei, chairman of Expedia's board of directors, served on the
compensation committee during fiscal 2001. During fiscal 2001, Mr. Maffei was
considered an employee for purposes of his eligibility to receive grants under
the 1999 Amended and Restated Stock Option Plan.
BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS, DIRECTORS, AND MANAGEMENT
The following table presents information regarding the beneficial ownership
of Expedia's outstanding common stock as of August 3, 2001 for the following
shareholders:
- each shareholder known by Expedia to be the beneficial owner of more than
5% of Expedia's common stock;
- each of Expedia's directors;
- Expedia's chief executive officer and its four other most highly paid
executive officers in fiscal 2001; and
- all of Expedia's directors and executive officers as a group.
Percentage ownership calculations are based upon 50,618,808 shares of
Expedia's common stock outstanding as of August 3, 2001. Shares of Expedia's
common stock subject to options that are currently exercisable or exercisable
within 60 days of August 3, 2001 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
shareholder. To Expedia's knowledge, except as indicated in the footnotes to the
table and under applicable community property laws, the shareholders named in
the table have sole voting and investment power over all shares listed in the
table. Except as otherwise indicated in the table, the business address of all
persons listed is c/o Expedia, Inc., 13810 SE Eastgate Way, Suite 400, Bellevue,
WA 98005.
112
AMOUNT AND NATURE OF
NAMES BENEFICIAL OWNERSHIP PERCENT OF CLASS
----- -------------------- ----------------
Microsoft Corporation (1)................................... 33,722,710 66.5%
Entities affiliated with Technology Crossover Ventures
(2)....................................................... 4,304,302 8.4%
Richard N. Barton (3)....................................... 630,139 1.2%
Byron D. Bishop (4)......................................... 574,133 1.1%
Erik C. Blachford (5)....................................... 127,707 *
Simon J. Breakwell (6)...................................... 6,875 *
Mark S. Britton (7)......................................... 19,851 *
Michael Day (8)............................................. 131,572 *
Kathleen K. Dellplain (9)................................... 10,660 *
Seth E. Eisner (10)......................................... 130,173 *
Gregory E. Slyngstad (11)................................... 253,236 *
Gregory S. Stanger (12)..................................... 288,214 *
Gregory B. Maffei (13)...................................... 601,081 1.2%
Brad Chase (14)............................................. 164,705 *
Gerald Grinstein (15)....................................... 26,315 *
Laurie McDonald Jonsson (16)................................ 21,000 *
Richard D. Nanula (17)...................................... 21,400 *
Jay C. Hoag (18)............................................ 4,304,302 8.4%
All directors and officers as a group (19).................. 7,311,363 13.4%
------------------------
(1) Microsoft's address is One Microsoft Way, Redmond, WA, 98052. The number of
shares owned includes warrants to purchase 120,452 shares of Expedia common
stock currently exercisable within 60 days of August 3, 2001.
(2) Consists of 3,654 shares held by TCV III (GP), 17,358 shares held by TCV
III, L.P., 461,346 shares held by TCV III (Q), L.P. and 20,892 shares held
by TCV III Strategic Partners, L.P. (the foregoing four entities,
collectively, the "TCV III FUNDS"), 3,083,802 shares and 580,609 warrants
held by TCV IV, L.P. and 114,991 shares and 21,650 warrants held by TCV IV
Strategic Partners, L.P. (the latter two entities, collectively, the "TCV IV
FUNDS" and, together with the TCV III Funds, the "TCV FUNDS"). The 21,650
warrants to purchase common stock held by TCV IV Strategic Partners, L.P.
and 580,609 warrants in purchase common stock held by TCV IV, L.P. are
exercisable within 60 days. Mr. Hoag, a director of Expedia, is a Managing
Member of Technology Crossover Management IV, L.L.C., which is the Managing
General Partner of TCV III (GP) and the sole General Partner of TCV III,
L.P., TCV III (Q), L.P., and TCV III Strategic Partners, L.P. He is also a
Managing Member of Technology Crossover Management IV, L.L.C., which is the
General Partner of the TCV IV Funds. Mr. Hoag disclaims beneficial ownership
of such shares except to the extent of this pecuniary interest therein. The
address for each of these persons and entities is c/o Technology Crossover
Ventures, 528 Ramona Street, Palo Alto, California, 94301.
(3) Includes 627,218 shares that Mr. Barton has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(4) Includes 557,283 shares that Mr. Bishop has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(5) Includes 123,384 shares that Mr. Blachford has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(6) Includes 1,875 shares that Mr. Breakwell has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(7) Includes 19,375 shares that Mr. Britton has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(8) Includes 131,130 shares that Mr. Day has the right to purchase under options
that are currently exercisable or will be exercisable within 60 days of
August 3, 2001.
113
(9) Includes 10,660 shares that Ms. Dellplain has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(10) Includes 122,876 shares that Mr. Eisner has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(11) Includes 12,500 shares that Mr. Slyngstad has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(12) Includes 286,214 shares that Mr. Stanger has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(13) Includes 591,081 shares that Mr. Maffei has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(14) Includes 158,705 shares that Mr. Chase has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(15) Includes 18,097 shares that Mr. Grinstein has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(16) Includes 15,000 shares that Ms. Jonsson has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(17) Includes 15,000 shares that Mr. Nanula has the right to purchase under
options that are currently exercisable or will be exercisable within
60 days of August 3, 2001.
(18) Consists of 3,702,043 shares and 602,259 warrants to purchase common stock
held by the TCV Funds (see Footnote 2). The warrants are exercisable within
60 days of August 3, 2001.
(19) Includes shares, warrants and options held by all directors and officers
listed in footnotes 3 to 18. Includes 602,259 warrants and 2,690,398
options to purchase common stock that are currently exercisable or will be
exercisable within 60 days of August 3, 2001.
* Less than one percent of the outstanding shares of common stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
Expedia's directors, executive officers, and any persons holding more than ten
percent of Expedia's common stock are required to report to the SEC and Nasdaq
their initial ownership of Expedia's stock and any subsequent changes in that
ownership. Based on a review of Forms 3, 4 and 5 under the Securities Exchange
Act furnished to Expedia, Expedia believes that during fiscal year 2001,
Expedia's officers, directors and holders of more than 10 percent of Expedia's
common stock filed all Section 16(a) reports on a timely basis.
114
EXECUTIVE OFFICER COMPENSATION
CASH COMPENSATION
The following table discloses compensation received for the fiscal years
ended June 30, 2001, 2000 and 1999 by Expedia's chief executive officer and
Expedia's four other highest paid executive officers (collectively, the "NAMED
EXECUTIVE OFFICERS").
ANNUAL
COMPENSATION
-------------------
SALARY BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS(1) YEAR ($)(2) ($)(3) OPTIONS(4) COMPENSATION
------------------------------- -------- -------- -------- ---------- ------------
Richard N. Barton............................ 2001 183,333 166,500 225,000 --
President, Chief Executive Officer 2000 161,078 64,500 100,000 --
and Director 1999 119,072 50,000 -- --
Byron D. Bishop.............................. 2001 158,250 85,000 65,000 --
Senior Vice President, 2000 148,167 30,000 -- --
Transportation and Core Development 1999 128,231 49,000 -- --
Simon J. Breakwell........................... 2001 162,505 70,000 63,000 109,995(5)
Senior Vice President, International 2000 121,042 36,000 31,741 --
and Managing Director, Expedia Europe 1999 105,157 6,500 10,000 8,194(6)
Gregory E. Slyngstad......................... 2001 158,750 90,000 23,000 --
Senior Vice President, 2000 37,500 20,100 50,000 --
Destinations 1999 n/a n/a n/a --
Gregory S. Stanger........................... 2001 141,069 90,000 68,000 --
Senior Vice President and 2000 124,904 31,772 50,786 --
Chief Financial Officer 1999 101,427 35,591 40,000 --
------------------------
(1) Prior to October 1, 1999, each of these officers was employed by Microsoft
with the exception of Gregory E. Slyngstad, who joined Expedia as part of
the VacationSpot acquisition on March 17, 2000.
(2) Includes amounts deferred at the election of the Named Executive Officers
pursuant to Expedia's 401(k) Plan.
(3) Consists of bonuses earned in the respective fiscal year.
(4) The amounts stated for fiscal 1999 reflect the number of Microsoft options
received by each Named Executive Officer in that fiscal year. Upon Expedia's
initial public offering, the unvested portion of these options, which was
approximately 87.5%, converted to Expedia options at a rate of 6.3482 to 1.
The vested portion of these options did not convert and remained as
Microsoft options. The amounts stated for 2000 reflect: (a) the number of
Expedia options received by each Named Executive Officer in exchange for
Microsoft options granted in that fiscal year; plus (b) the number of
Expedia options received by each Named Executive Officer in that fiscal
year. The amounts stated for fiscal 2001 reflect the number of Expedia
options received by each Named Executive Officer in that fiscal year.
(5) Reflects reimbursements for moving expenses, housing allowance and a moving
bonus.
(6) Reflects reimbursements for moving expenses.
COMPENSATION PURSUANT TO STOCK OPTIONS
The following table provides information on option grants in fiscal 2001 to
the Named Executive Officers as of June 30, 2001. The Named Executive Officers
also received grants of stock options in
115
August, 2001, which are described under "Proposal No. 1--Approval of the Merger
Agreement--Other Interests of Expedia Officers and Directors in the
Transactions."
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
-------------------------- RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE EXPIRATION --------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
---- ------------- ------------ ----------- ---------- -------- ---------
Richard N. Barton.......... 75,000 2.1 10.88 1/16/08 332,041 773,797
150,000 4.1 16.06 8/10/07 809,367 2,048,315
Byron D. Bishop............ 20,000 0.6 10.88 1/16/08 88,544 206,346
40,000 1.1 16.06 7/28/07 261,562 609,551
5,000 0.1 16.06 8/10/07 26,979 68,277
Simon J. Breakwell......... 18,000 0.5 10.88 1/16/08 79,690 185,711
10,000 0.3 12.44 10/2/07 50,668 118,045
30,000 0.8 16.06 7/28/07 196,172 457,163
5,000 0.1 16.06 8/10/07 26,979 68,277
Gregory E. Slyngstad....... 23,000 0.6 10.88 1/16/08 101,826 237,298
Gregory S. Stanger......... 23,000 0.6 10.88 1/16/08 101,826 237,298
40,000 1.1 16.06 7/28/07 261,562 609,551
5,000 0.1 16.06 8/10/07 26,979 68,277
------------------------
(1) The amounts in this column reflect the number of Expedia options received by
each Named Executive Officer in fiscal 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information for the Named Executive Officers
regarding Expedia options exercised by them during the fiscal year ended
June 30, 2001 and exercisable and unexercisable Expedia stock options held by
them as of June 30, 2001. The "value realized" figures are based on the fair
market value of Expedia's common stock at the exercise date, minus the per share
exercise price, multiplied by the number of options exercised. The "value of
unexercised in-the-money options" figures in the right-hand column are based on
the fair market value of Expedia's common stock at June 30, 2001, of $46.60 per
share, minus the per share exercise price of the applicable option, multiplied
by the number of shares issuable upon exercise of the option.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED YEAR-END(#) AT FISCAL YEAR-END($)
ON EXERCISE VALUE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
Richard N. Barton...... 17,707 473,280 315,556 960,116 13,114,565 37,214,033
Byron D. Bishop........ 25,393 683,801 309,133 723,181 13,130,657 29,521,540
Simon J. Breakwell..... -- -- 77,449 133,782 3,129,762 4,705,006
Gregory E. Slyngstad... -- -- 6,250 66,750 137,344 1,783,081
Gregory S. Stanger..... 24,123 733,472 228,853 260,351 9,312,846 9,437,724
RICHARD N. BARTON EMPLOYMENT AGREEMENT
During fiscal 2001, Expedia had an employment agreement with Richard N.
Barton, which provides that, if he is terminated by Expedia during his first two
years of employment for reasons set forth in the agreement, he will receive the
salary and stock option vesting which he would have otherwise received as an
Expedia employee.
116
REPORT OF THE COMPENSATION COMMITTEE
During fiscal 2001, Expedia's compensation program for officers was designed
to attract and retain outstanding employees with a compensation package
including competitive salaries, incentive bonuses, benefits and stock options.
The compensation committee of the board of directors approves guidelines and
actual allocations for each officer's annual compensation package. These annual
compensation packages are targeted to be in line with the 50th percentile of
total compensation paid by comparable companies in high-technology and other
industries. The comparable companies selected for compensation comparison
purposes differ from the companies included in the Morgan Stanley Internet
Commerce Index, which is used in the Performance Graph included below.
The compensation program for executive officers focuses on long-term
incentives and, therefore, officers' salaries are generally less than those paid
by comparable companies in the Internet and technology industries. Individual
salary levels are based the officer's level of responsibility, historical
performance, relevant experience and breadth of knowledge. Pursuant to Expedia's
Annual Incentive Plan for Officers, the compensation committee established a
target bonus for Richard N. Barton, Expedia's president and chief executive
officer, equal to 50% of his salary for fiscal 2001 and for each of the other
officers equal to 30% of their respective salaries for fiscal 2001. Under the
plan, the compensation committee then took the sum of these target bonuses to
establish a target bonus pool. If Expedia met two objective performance metrics,
then the target bonus pool could be increased by a maximum of 100%. Executive
officers were eligible to receive anywhere from 0% to 200% of their target bonus
depending on the size of the target bonus pool and how the compensation
committee felt that officer performed over the fiscal year. Each officer is also
eligible for annual stock option grants under Expedia's 1999 Stock Option Plan
structured to promote Expedia's success by aligning employee financial interests
with long-term shareholder value. Stock option grants are based on various
subjective factors, including each officer's responsibilities, their expected
future contributions to Expedia, and their prior option grants.
The compensation committee reviews and approves stock option grants for
Mr. Barton on a semi-annual basis. The compensation committee reviews all other
compensation for Mr. Barton on an annual basis. As an executive officer of the
company, Mr. Barton is subject to the same compensation guidelines as all other
executive officers. In fiscal 2001, Mr. Barton received a bonus under the Annual
Incentive Plan for Officers, which was approximately 90% of his salary. The
compensation committee awarded this bonus based upon Mr. Barton's individual
performance and Expedia's overall performance during fiscal 2001, as well as the
fact that Mr. Barton's salary is significantly lower than that of chief
executive officers of comparable companies.
As indicated above, Expedia's compensation policy is primarily based upon
the practice of pay-for-performance. Section 162(m) of the Internal Revenue Code
imposes a limitation on the deductibility of nonperformance-based compensation
in excess of $1 million paid to the Named Executive Officers. The committee
believes that Expedia should be able to manage the stock option-related
compensation of the Named Executive Officers so as to preserve the related
federal income tax deductions, although exceptions may occur.
COMPENSATION COMMITTEE
Brad Chase
Gregory B. Maffei
Richard D. Nanula
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REPORT OF THE AUDIT COMMITTEE
August 16, 2001
To the Board of Directors:
We have reviewed and discussed with management Expedia's audited financial
statements as of and for the year ended June 30, 2001.
We have discussed with Deloitte & Touche LLP the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
We have received and reviewed the written disclosures and the letter from
Deloitte & Touche LLP required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with the auditors the auditors' independence.
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in Expedia's Annual Report on Form 10-K for the year ended June 30, 2001.
We have also considered whether the provision of services by Deloitte & Touche
LLP not related to the audit of the financial statements referred to above and
to the reviews of the interim financial statements included in Expedia's Forms
10-Q for the quarters ended September 30, 2000, December 31, 2000 and March 31,
2001 is compatible with maintaining Deloitte & Touche LLP's independence.
AUDIT COMMITTEE
Gerald Grinstein
Laurie McDonald Jonsson
Gregory Maffei
* * * * * *
The foregoing Report of Audit Committee shall not be deemed to be incorporated
by reference in any previous or future documents filed by Expedia with the
Securities and Exchange Commission under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that Expedia specifically
incorporates the Report by reference in any such document.
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PERFORMANCE GRAPH
The following Performance Graph compares, for fiscal 2001, the cumulative
total shareholder return for Expedia, The Nasdaq Stock Market (U.S. Companies)
Index (the "NASDAQ MARKET INDEX"), and The Morgan Stanley Internet Commerce
Index (the "MORGAN STANLEY INDEX"). The Performance Graph assumes that $100 was
invested beginning on the date of Expedia's initial public offering in each of
Expedia and the indexes. Total return performance for the Nasdaq Market Index
and the Morgan Stanley Index is weighted based on the market capitalization of
the companies included in each index and assumes that dividends are reinvested.
In fiscal 2001, Expedia did not declare or pay any dividends on the Expedia
common stock. Immediately following the Performance Graph is a chart of the
numerical plot-points that support the graph. The stock price performance shown
in the graph below should not be considered indicative of potential future stock
price performance of Expedia.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Dollars
11/10/99 6/30/2000 6/30/2001
Expedia, Inc. 100 105.81 332.86
Nasdaq Stock Market (U.S.) 100 125.57 68.07
Morgan Stanley Internet Commerce Index 100 55.58 41.89
11/10/1999 6/30/2000 6/30/2001
---------- --------- ---------
Expedia, Inc.................................... $100.00 $105.81 $332.86
Nasdaq Market Index............................. 100.00 125.57 68.07
Morgan Stanley Index............................ 100.00 55.58 41.89
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EXPEDIA RELATIONSHIP WITH MICROSOFT
In October 1996, Microsoft launched its online travel services through
Expedia. On October 1, 1999, Microsoft separated the Expedia assets and
contributed them to Expedia in exchange for 33,000,000 shares of common stock or
100% of Expedia's outstanding common stock at that date. As of August 3, 2001,
Microsoft owned approximately 67% of Expedia's outstanding common stock.
Following the completion of the transactions, Microsoft will no longer own a
controlling interest in Expedia.
At the time of Expedia's separation from Microsoft, Microsoft assigned to
Expedia a number of contracts having to do with the Expedia business. Many of
these have intellectual property components. Generally, where the contract only
impacted the Expedia business and no other units of Microsoft, it was assigned
to Expedia. To Expedia's knowledge, Microsoft obtained all necessary consents to
these assignments where applicable.
At the time of Expedia's separation from Microsoft, Expedia also entered
into a number of other agreements with Microsoft that were necessary to separate
the Expedia assets from Microsoft and to facilitate the operation of the Expedia
assets after such separation. As part of the transactions, and as provided by
the merger agreement, each of the agreements relating to Expedia's separation
from Microsoft has been amended and restated or will be amended and restated
prior to the closing of the transactions, except for the license agreement which
will only be amended and restated in the event Expedia and Microsoft do not
enter into a patent assignment agreement prior to the closing. In addition,
Expedia and Microsoft recently entered into two additional agreements that will
also govern their relationship following the closing of the transactions. Each
of these agreements is summarized below.
AMENDED AND RESTATED CARRIAGE AND CROSS PROMOTION AGREEMENT. In June 2001,
Expedia and Microsoft entered into an amended and restated carriage and cross
promotion agreement. Under this agreement, Microsoft's domestic and
international MSN websites promote co-branded versions of the Expedia websites
that include the logos of both Expedia and MSN in the United States, the United
Kingdom, Germany and Canada, the countries in which Expedia is currently
present. These co-branded websites are the preferred travel transaction services
offered on MSN, except in international markets where Expedia does not have a
presence. Under the agreement, the parties also agreed to certain restrictions
regarding the promotion of competitors on MSN.com and on the MSN Expedia
co-branded travel websites accessed via MSN.com. The amended and restated
agreement has a four-year term.
Expedia pays Microsoft slotting fees and performance fees under the amended
and restated carriage and cross promotion agreement. These fees are calculated
in accordance with the terms of the agreement and, in certain cases, a letter
agreement entered into by Expedia and Microsoft in July 2001. Expedia pays
Microsoft an annual slotting fee of $500,000 for the U.S. co-branded travel
website. This fee is credited toward the performance fees that Expedia is
required to pay Microsoft. Expedia pays Microsoft an annual slotting fee of
$250,000 for each non-U.S. co-branded travel website. These fees are credited
towards the performance fees Expedia is required to pay Microsoft only if these
non-U.S. websites exceed specified revenue targets. The performance fees Expedia
pays to Microsoft are based on the number of transactions of each transaction
type that occur on the co-branded websites multiplied by the average gross
profit per transaction achieved by Expedia for each transaction type multiplied
by the agreed percentage of gross profit to be shared for each transaction type.
AMENDED AND RESTATED SERVICES AGREEMENT. On October 1, 1999, Expedia and
Microsoft entered into a services agreement whereby Microsoft agreed to provide
Expedia with certain administrative and operational services. This agreement was
subsequently amended and restated effective January 1, 2001 and further amended
effective July 1, 2001. Expedia and Microsoft intend to amend further the terms
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under which Microsoft provides Expedia with these services by entering into a
second amended and restated services agreement prior to the completion of the
transactions.
Under the second amended and restated services agreement, Microsoft will
continue to provide Expedia with specified administrative and operational
services. In return, Expedia will pay Microsoft fees based on the total direct
and indirect costs incurred by Microsoft in providing these services to Expedia.
The current amended and restated services agreement is effective through
June 30, 2002 and the second amended and restated services agreement will be
effective through September 30, 2002. The amended and restated agreement is
cancelable by Expedia upon 30 days written notice and, in limited circumstances,
by Microsoft upon 180 days written notice. The second amended and restated
agreement will contain comparable termination provisions and will also provide
that Microsoft may terminate specified services if it determines in good faith,
after consultation with Expedia and USA, that it is inappropriate for Microsoft
to continue providing these services to an unaffiliated third party. Expedia has
been developing and will continue to develop its own resources in these areas
and currently intends to discontinue some or all of the services provided by
Microsoft before the end of the second amended and restated agreement.
HOSTING SERVICES AGREEMENT. On August 14, 2001, in connection with the
transactions, Expedia and Microsoft entered into a hosting services agreement
under which Microsoft provides Expedia with internet service provider services
for the Expedia websites. Microsoft previously provided these services to
Expedia under the amended and restated services agreement. The hosting services
agreement has a four-year term. Expedia pays Microsoft for the hosting services
on a cost basis.
LICENSE AGREEMENTS. On October 1, 1999, Expedia and Microsoft entered into
a license agreement under which Microsoft provides Expedia with rights to
intellectual property used in its business.
Microsoft assigned to Expedia the trademarks and domain names associated
with the name "Expedia." In addition, Microsoft assigned to Expedia copyrights
for software relating to online travel services.
Microsoft holds licenses to various third-party software programs, content
and data that are useful in Expedia's business. Where the license to Microsoft
permits, Microsoft has sublicensed these rights to Expedia. Expedia must
reimburse Microsoft for any fees due to the licensor for these sublicenses.
Expedia licenses the right to use some of Microsoft's retail products and
other technology under the license agreement with Microsoft. In addition,
Expedia has a license to all of Microsoft's patents relating to the operation of
Expedia's websites. All of the licenses relating to Expedia specific software
content and data and patents are royalty-free and perpetual. Prior to the
completion of the transactions, Expedia and Microsoft intend to enter into an
assignment agreement under which Microsoft will assign to Expedia all of
Microsoft's patents relating to the operation of Expedia's websites. The
assignment agreement will include a license of these patents from Expedia to
Microsoft that will limit the third parties to which Microsoft can grant the
right to use, license or sublicense these patents. In the event that Expedia and
Microsoft do not enter into an assignment agreement, the license agreement will
be amended prior to the completion of the transactions to provide certain
additional exclusivity rights to Expedia, including those rights discussed above
relating to the Expedia patents.
AMENDED AND RESTATED MAP SERVER LICENSE AGREEMENTS. On October 1, 1999,
Expedia and Microsoft entered into a map server agreement under which Microsoft
licenses to Expedia certain server technology related to the Expedia Maps
service. In connection with the transactions, Expedia and Microsoft entered into
an amended and restated map server agreement effective August 15, 2001 to amend
some of the terms under which Microsoft provides Expedia with such technology.
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Under the amended and restated map server agreement, Microsoft will develop,
maintain, host and serve maps to the Expedia websites. This agreement has a
four-year term. The maps will be customized for the Expedia websites and will
include both Expedia's logo and Microsoft's MapPoint.Net logo. Expedia has
agreed to pay Microsoft on a per transaction basis for each map served.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT. On July 15, 2001, in
connection with the transactions, Expedia and Microsoft entered into a
registration rights agreement. This agreement was subsequently amended and
restated by the parties. Under the amended and restated agreement, Expedia
agreed to grant to Microsoft customary registration rights, including the right
to underwritten offerings, relating to Expedia securities, if any, owned by
Microsoft following completion of the transactions. Expedia agreed to file a
registration statement on Form S-3 with respect to Microsoft's Expedia
securities and to use its reasonable best efforts to make such registration
statement effective as promptly as practicable following the completion of the
transactions.
TAX ALLOCATION AGREEMENT. Effective October 1, 1999, Expedia entered into a
tax allocation agreement with Microsoft. For periods during which Expedia was
included in Microsoft's consolidated U.S. federal tax return, the agreement
generally adopts the "percentage of tax liability" method of Regulations
section 1.1552-1(a)(2) as its "basic method" and the "percentage" method of
Regulations section 1.1502-33(d)(3) as its complementary method.
Under the "percentage of tax liability" method, a member's allocable share
of consolidated tax liability is equal to the tax liability of the group
multiplied by a fraction, the numerator of which is the separate return tax
liability of such member and the denominator of which is the sum of the separate
return tax liability of all the members.
This basic allocation method is modified by the complementary "percentage"
method. Under the percentage method, in the event a loss or credit is generated
by a member, such member is compensated at the time the loss or credit is
absorbed by the other members of the Microsoft group. In Expedia's case,
however, 7.5% of the benefit Expedia generates and is absorbed by the other
members of the Microsoft group will be retained by Microsoft as a "fee" because
Expedia is being paid for tax attributes prior to the time Expedia could have
used them to reduce Expedia's tax liability.
Under the terms of this agreement, Microsoft is entitled to deduct on its
separate tax return a portion of the cost attributable to the Microsoft stock
options that Expedia assumed at the time of Expedia's initial public offering.
Expedia and Microsoft take this deduction into account under the normal tax
accounting rules, so the deduction generally occurs on the exercise of the
options. The portion of this cost that Microsoft deducts is equal to the excess
of the fair market value of the shares to be acquired on exercise of the option
on the date Expedia employs the optionee over the exercise price of the assumed
option. Expedia determined this amount on the date that Expedia employed each
optionee.
Expedia may be reimbursed by Microsoft for tax losses incurred during the
period from October 1, 1999 to March 17, 2000 which are utilized on the
Microsoft consolidated U.S. federal tax return. On March 18, 2000, Microsoft's
investment in Expedia fell below 80% ownership. As such, from March 18, 2000
onward, Expedia must file a separate tax return. Any losses not utilized by
Microsoft during the period that Expedia was included in Microsoft's
consolidated return will be carried forward by Expedia and can be used on
Expedia's separate return to offset any future taxable income.
The parties have agreed that the aggregate liability of Expedia to make
payments after the date of the merger agreement to no more than $36,300,000 with
respect to any past, present or future taxable periods. In addition, the parties
have agreed that the term "Inherent Bargain Element," as used in the Microsoft
tax allocation agreement, will not include any amount with respect to any option
to purchase Expedia common stock granted on or after July 15, 2001. Microsoft
has also agreed to indemnify and
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hold harmless USA and Expedia for certain tax liabilities. For further
information regarding this amendment, see "The Transaction Agreements--The
Merger Agreement--Covenants and Agreements--Tax Covenant."
SHAREHOLDER AGREEMENT. Microsoft has entered into a shareholder agreement
with Expedia that provides for, among other things, the following:
- tag-along rights for all Expedia shareholders with respect to any transfer
to a third party of Expedia common stock by Microsoft or any subsequent
holder of Expedia common stock. This requires that any such transfer be
conditioned on all of the holders of Expedia common stock being offered
the same per share consideration as that being received by Microsoft or
the subsequent holder;
- registration rights for Microsoft with respect to its shares of Expedia
common stock; and
- restrictions on Microsoft's ability to compete with Expedia.
As part of the transactions, each of USA and Microsoft has required, as a
condition to the completion of the transactions, that the shareholder agreement
be terminated. Expedia's shareholders will be asked to approve a proposal to
terminate the shareholder agreement at the annual meeting. For further
information regarding this proposal, see "Proposal No. 3--Termination of the
Shareholder Agreement."
EXPEDIA'S RELATIONSHIP WITH TECHNOLOGY CROSSOVER VENTURES ("TCV") AND
MICROSOFT VENTURES RESULTING FROM THE PRIVATE PLACEMENT OF SHARES WITH TCV IV,
L.P., TCV IV STRATEGIC PARTNERS, L.P. AND MICROSOFT IN AUGUST 2000. Jay Hoag is
a founding general partner of TCV and a managing member of Technology Crossover
Management IV, L.L.C., which is the general partner of the TCV IV Funds. As part
of the private placement, Mr. Hoag became a director of Expedia.
CONFLICT OF INTEREST POLICIES. Expedia's articles of incorporation
currently contain provisions governing the relationship between Expedia and
Microsoft relating to the contractual relations and other business relations of
Expedia and Microsoft and certain other entities and to the rights, duties and
liabilities of Expedia in connection with these relations.
As part of the transactions, and as a condition to the completion of the
transactions, Expedia's articles of incorporation will be amended and restated.
Provisions governing the relationship between Expedia and Microsoft will be
eliminated in the amended and restated articles of incorporation that Expedia's
shareholders will be asked to approve at the annual meeting. In addition,
Expedia's amended and restated articles of incorporation will contain provisions
governing the relationship between USA and its affiliates, on the one hand, and
Expedia and its subsidiaries, on the other hand. For further information
regarding the proposal to amend and restate Expedia's articles of incorporation
and the provisions that will govern Expedia's relationship with USA, see
"Proposal No. 2--Amendment and Restatement of Expedia's Articles of
Incorporation."
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PROPOSAL NO. 5--ADOPTION OF 2001 STOCK PLAN
You are being asked to approve the Expedia, Inc. 2001 Stock Plan (the
"PLAN"), which was adopted by Expedia's board of directors, in August 2001,
subject to the approval of Expedia's shareholders. The Plan provides for the
issuance of up to shares of Expedia common stock. The Incentive Plan will
become effective immediately upon approval by Expedia's shareholders. Upon its
effectiveness, approximately individuals will be eligible to participate in
the Plan.
The following summary of the main features of the Plan is qualified in its
entirety by reference to the complete text of the Plan, which is set forth as
Annex I to this joint prospectus/proxy statement.
The purposes of the Plan are to attract and retain the best available
personnel for positions within Expedia, to provide additional incentive to
Expedia's employees, consultants and directors and to promote the success of
Expedia's business.
The Plan provides for the grant of incentive stock options to employees
(including officers and employee directors) of Expedia or any parent or
subsidiary of Expedia and for the grant of nonstatutory stock options,
restricted stock and stock purchase rights ("SPRS") to employees, consultants
and directors. The Plan will also provide for a one-time grant to holders of
Expedia stock options, prior to the date of the annual meeting, of 0.1920 of an
Expedia warrant for each unvested and vested Expedia option issued under the
Expedia employee benefit plans on or prior to August 2, 2001, who continue to
hold such options on the date of the grant of the warrants. The terms of the
Expedia warrants will be identical to the terms of the Expedia warrants being
distributed in the merger, except that the warrants issued under the Plan with
respect to unvested options will be subject to the same vesting schedule as the
options with respect to which they are being issued, and will not be
transferable for 90 days following the grant of the warrant. Unless terminated
sooner, the Plan will terminate automatically in , 2011.
The administrator of the Plan has the power to determine whether and to what
extent options, restricted stock and SPRs or any combination thereof are to be
granted, to grant options, restricted stock, SPRs, the terms of the options,
restricted stock or SPRs granted, the number of shares subject to each option,
grant of restricted stock or SPR, the exercisability of options and SPRs and the
form of consideration payable upon such exercise. In addition, the administrator
has the authority to amend, suspend or terminate the Plan, provided that no such
action may be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement applicable to the plan, and no
such action may be made without the consent of participants if such action would
impair the rights of such participant. No optionee may be granted options and
warrants for more than an aggregate of shares of Expedia common stock in any
calendar year. Directors who are not employees of Expedia or any of its
subsidiaries may be granted stock options with respect to a maximum of
shares of Expedia common stock in any calendar year. Participants in the Plan
may receive up to shares of restricted stock subject to performance-vesting
conditions in any calendar year.
Options, restricted stock and SPRs granted under the Plan are generally not
transferable by the optionee or grantee, other than by will or the laws of
descent or distribution, and each option, grant of restricted stock and SPR is
exercisable during the lifetime of the award holder only by such award holder.
Options granted under the Plan generally must be exercised within 90 days after
the end of the optionee's status as an employee, consultant or director of
Expedia, or within 12 months after such optionee's termination by death or
disability, but in no event later than the expiration of the option's term.
In the case of SPRs, unless the administrator determines otherwise, the
restricted stock purchase agreement will grant Expedia a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment relationship with Expedia for any reason (including death or
disability). The purchase price for shares repurchased pursuant to the
restricted stock purchase agreement will be the original price paid by the
purchaser and may be paid by cancellation of any
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indebtedness of the purchaser to Expedia. The repurchase option will lapse at a
rate determined by the administrator.
The exercise price of all incentive stock options granted under the Plan
must be at least equal to the fair market value of the Expedia common stock on
the date of grant. The exercise price of the warrants will be $52.00 per share.
The exercise price of nonstatutory stock options and SPRs granted under the Plan
is determined by the administrator, but with respect to nonstatutory stock
options and warrants intended to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code, the exercise price must be at
least equal to the fair market value of the Expedia common stock on the date of
grant. With respect to any participant who owns stock possessing more than 10%
of the voting power of all classes of Expedia's outstanding capital stock, the
exercise price of any incentive stock option granted must be at least equal to
110% of the fair market value on the grant date, and the term of such incentive
stock option must not exceed five years.
The administrator may provide at the time of grant that restricted stock
cannot vest unless applicable performance goals are satisfied. These performance
goals must be based on the attainment of one or any combination of the
following: earnings per share, sales, net profit after tax, gross profit,
operating profit, cash generation, unit volume, return on equity, change in
working capital, return on capital or shareholder return. Such performance goals
also may be based on the attainment of specified levels of Expedia's performance
under one or more of the measures described above relative to the performance of
other corporations. The provisions of restricted stock awards (including any
applicable performance goals) need not be the same with respect to each grantee.
Restricted stock may not be sold, assigned, transferred, pledged or otherwise
encumbered. Restricted stock will be forfeited upon termination of employment,
unless otherwise provided by the administrator. Other than these restrictions on
transfer and any other restrictions the administrator may impose, the
participant will have all the rights of a holder of stock holding the class or
series of stock that is the subject of the restricted stock award.
The Plan provides that in the event of a merger of Expedia with or into
another corporation, or a sale of substantially all of Expedia's assets, each
option, grant of restricted stock and SPR will be assumed or equivalent option
or shares of restricted stock substituted for by the successor corporation. If
the outstanding options, restricted stock and SPRs are not assumed or
substituted for by the successor corporation, the administrator will provide for
the optionee to vest and to have the right to exercise the option or SPR as to
all of the optioned stock, including shares as to which it would not otherwise
be vested or exercisable, and all restrictions on shares of restricted stock
will lapse. If the administrator makes an option or SPR vested and exercisable
in full in the event of a merger or sale of assets, the administrator will
notify the optionee that the option or SPR will be fully exercisable for a
period of 15 days from the date of such notice, and the option or SPR will
terminate upon the expiration of such period. In the event of a corporate
transaction described above, the warrants granted under the Plan will be treated
in the same manner as warrants held by Expedia shareholders.
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NEW PLAN BENEFITS
NAME AND POSITION DOLLAR VALUE NUMBER OF UNITS
----------------- ------------ ---------------
Richard N. Barton........................................... 375,000(4)
President and Chief Executive Officer 25,000(5)
268,929(6)
Byron D. Bishop ............................................ 196,284(6)
Senior Vice President, Transportation and Core Development
Simon J. Breakwell ......................................... 27,480(6)
Senior Vice President, International and Managing
Director,
Expedia Europe
Gregory E. Slyngstad ....................................... 23,616(6)
Senior Vice President, Destinations
Gregory S. Stanger ......................................... 50,000(4)
Senior Vice President and Chief Financial Officer
10,000(5)
103,527(6)
Executive Group(1).......................................... 824,863(6)
Non-Executive Director Group(2)............................. 190,152(6)
Non-Executive Officer Group(3).............................. 2,234,245(6)
------------------------
(1) all current executive officers as a group
(2) all current directors who are not executive officers as a group
(3) all employees, including all current officers who are not executive
officers, as a group
(4) Pursuant to term sheets entered into between Expedia and each of
Messrs. Barton and Stanger described more completely in the "Proposal
No. 1--Approval of the Merger Agreement--Other Interests of Expedia Officers
and Directors in the Transactions" section of this joint prospectus/proxy
statement, Messrs. Barton and Stanger will be granted initial option grants
as of the effective date to purchase, respectively, 375,000 and 50,000
shares of Expedia common stock.
(5) Pursuant to term sheets entered into between Expedia and each of
Messrs. Barton and Stanger described more completely in the "Proposal
No. 1--Approval of the Merger Agreement--Other Interests of Expedia Officers
and Directors in the Transactions" section of this joint prospectus/proxy
statement, Messrs. Barton and Stanger will be granted initial restricted
stock grants, respectively, of 25,000 and 10,000 shares of Expedia common
stock.
(6) Holders of Expedia stock options will be granted, prior to the date of the
annual meeting, 0.1920 of an Expedia warrant for each unvested and vested
Expedia option issued under the Expedia employee benefit plans on or prior
to August 2, 2001, if such holders continue to hold such options on the date
of the grant of the warrants.
Except as specifically described above, it is not presently possible to
determine the benefits or amounts that will be received by any particular
employee or groups in the future.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the federal income tax consequences of the Plan
is intended to be a summary of applicable federal law as currently in effect.
State and local tax consequences may differ, and tax laws may be amended or
interpreted differently during the term of the Plan or of awards or grants
thereunder. Because the federal income tax rules governing awards and related
payments are
126
complex and subject to frequent change, and they depend on the participant's
individual circumstances and the nature of the award, participants in the Plan
are advised to consult their tax advisors prior to exercise of options or other
awards or dispositions of stock acquired pursuant to awards.
Incentive stock options and nonstatutory stock options are treated
differently for federal income tax purposes. Incentive stock options are
intended to comply with the requirements of Section 422 of the Code.
Nonstatutory stock options need not comply with such requirements.
In general, an optionee is not taxed, and Expedia is not entitled to a tax
deduction, on the grant or, except as described below, exercise of an incentive
stock option. The difference between the exercise price and the fair market
value of the shares of Expedia common stock underlying the option on the
exercise date will, however, be a preference item for purposes of the
alternative minimum tax, and thus an optionee could be subject to the
alternative minimum tax as a result of the exercise of an incentive stock
option. If an optionee holds the shares acquired upon exercise of an incentive
stock option for at least two years following the option grant date and at least
one year following exercise, the optionee's gain, if any, upon a subsequent
disposition of such shares is long-term capital gain. The measure of the gain is
the difference between the proceeds received on disposition and the optionee's
basis in the shares (which generally equals the exercise price). If an optionee
disposes of shares acquired pursuant to exercise of an incentive stock option
before satisfying the one and two-year holding periods described above, the
optionee may recognize both ordinary income and capital gain in the year of
disposition and Expedia will generally be entitled to a tax deduction equal to
the amount of the ordinary income recognized by the optionee. The amount of the
ordinary income will be the lesser of (i) the excess of the amount realized on
disposition over the optionee's adjusted basis in the shares (usually the
exercise price) or (ii) the excess of the fair market value of the shares on the
exercise date over the exercise price. The balance of the consideration received
on such a disposition will be long-term capital gain if the stock had been held
for at least one year following exercise of the incentive stock option.
An optionee is not taxed on the grant of an nonstatutory stock option. On
exercise, however, the optionee generally recognizes ordinary income equal to
the excess of the fair market value of the shares acquired on the date of
exercise over the exercise price, and Expedia generally is entitled to a tax
deduction equal to such amount. Any gain on subsequent disposition of the shares
is long term capital gain if the shares are held for at least one year following
exercise. The warrants and the exercise of the warrants should be taxed and
Expedia should receive tax deductions in the same manner as the nonstatutory
stock options.
Options and SPRs granted under the Plan may provide for delayed vesting of
the recipient's rights to the shares purchasable thereunder. Unless the
recipient makes a valid election under Section 83(b) of the Code within 30 days
after the receipt of restricted shares of Expedia common stock, the recipient
generally will not be taxed on the receipt of such restricted shares until the
restrictions on such shares lapse or are removed. When the restrictions lapse or
are removed, the recipient will recognize ordinary income (and Expedia generally
will be entitled to a deduction) in an amount equal to the excess of the fair
market value of the shares at that time over the purchase price. However, if the
recipient makes a valid Section 83(b) election within 30 days of the receipt of
restricted shares of Expedia common stock, he or she will recognize ordinary
income (and Expedia will be entitled to a deduction) equal to the excess of the
fair market value of such shares on the date of receipt (determined without
regard to the effect on value of the restrictions) over the purchase price.
A recipient of a grant of restricted stock may make a Section 83(b) election
to have the grant taxed as compensation income at the date of receipt, with the
result that any future appreciation (or depreciation) in the value of the shares
of stock granted will be taxed as capital gains (or loss) upon a subsequent sale
of the shares. However, if the recipient does not make a Section 83(b) election,
then the grant will be taxed as compensation income at the full fair market
value on the date that the restrictions imposed on the shares expire. Unless a
recipient makes a Section 83(b) election, any
127
dividends paid on stock subject to the restrictions are compensation income to
the recipient and compensation expense to Expedia. Expedia is generally entitled
to an income tax deduction for any compensation income taxed to the participant,
subject to the provisions of Section 162(m) of the Code (see below).
Special rules will apply in cases where a recipient of an award under the
Plan pays the exercise or purchase price of the award or applicable withholding
tax obligations under the Plan by delivering previously owned shares or by
reducing the number of shares otherwise issuable pursuant to the award. The
surrender or withholding of such shares will in certain circumstances result in
the recognition of income with respect to such shares or a carryover basis in
the shares acquired, and may constitute a disposition for purposes of applying
the incentive stock option holding periods discussed above. Expedia generally
will be required to withhold any applicable income and employment taxes in
connection with the ordinary income recognized by a participant upon exercise or
payment of an award under the Plan, and may require the participant to pay such
taxes as a condition to exercise of an award under the Plan.
The terms of the agreements or other documents pursuant to which specific
awards are made under the Plan may provide for accelerated vesting or payment of
an award in connection with a change in ownership or control of Expedia. In that
event and depending upon the individual circumstances of the participant,
certain amounts with respect to such awards may constitute "excess parachute
payments" under the "golden parachute" provisions of the Code. Pursuant to these
provisions, a participant will be subject to a 20% excise tax on any "excess
parachute payments" and Expedia will be denied any deduction with respect to
such payments. Participants should consult their tax advisors as to whether
accelerated vesting of an award in connection with a change of ownership or
control of Expedia would give rise to an excess parachute payment.
As described above, options, warrants and restricted stock granted under the
Plan may qualify as "performance-based compensation" under Section 162(m) of the
Code in order to preserve federal income tax deductions by Expedia with respect
to any compensation relating to an award that is paid to a "covered employee"
(as defined in Section 162(m)). Compensation for any year that is attributable
to an award granted to a covered employee and that does not so qualify may not
be deductible by Expedia to the extent such compensation, when combined with
other compensation paid to such employee for the year, exceeds $1,000,000.
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of common stock represented
in person or by proxy at the annual meeting is required for adoption of the
Expedia, Inc. 2001 Stock Plan. THE EXPEDIA BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE PLAN.
Expedia expects that Microsoft will agree to vote all its shares of Expedia
common stock in favor of the adoption of the Plan and to grant Expedia an
irrevocable proxy to vote its shares in favor of the adoption of the Plan. The
vote of Microsoft's shares would be sufficient to ensure approval of the
adoption of the Plan.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 2002 annual
meeting of shareholders must be received by Expedia no later than June 12, 2002
to be included in our Proxy Statement and form of proxy related to that meeting.
AUDITORS
Representatives of Deloitte & Touche LLP, independent public auditors for
Expedia for fiscal 2001 and the current fiscal year, will be present at the
Annual Meeting, will have an opportunity to make a statement and will be
available to respond to appropriate questions.
128
FEES TO EXPEDIA ACCOUNTANTS FOR SERVICES RENDERED DURING FISCAL 2001
AUDIT FEES. The aggregate fees billed by Deloitte & Touche LLP for
professional services rendered for the audit of Expedia's annual financial
statements for the fiscal year ended June 30, 2001 and for the reviews of the
financial statements included in Expedia's Quarterly Reports on Form 10-Q for
that fiscal year were $234,755.
ALL OTHER FEES. The aggregate fees billed by Deloitte & Touche LLP for
services rendered to Expedia, other than services described above under "Audit
Fees," for the fiscal year ended June 30, 2001 were $159,756. No fees were paid
to Deloitte & Touche LLP for financial information systems design and
implementation.
OTHER MATTERS
The board of directors does not intend to bring any other business before
the meeting, and so far as is known to the board of directors, no matters are to
be brought before the meeting except as specified in the notice of the meeting.
However, as to any other business that may properly come before the meeting, we
expect that proxies, in the form enclosed, will be voted on these matters in
accordance with the judgment of the persons voting such proxies.
LEGAL MATTERS
The validity of the shares of USA common stock, USA preferred stock and USA
warrants to be issued in connection with the merger is being passed upon for USA
by Wachtell, Lipton, Rosen & Katz. The validity of Expedia Class B common stock
and Expedia warrants to be issued in connection with the recapitalization and
the merger is being passed upon for Expedia by .
Certain of the tax consequences of the transactions will be passed upon at
the closing of the transactions, as a condition to the transactions, for Expedia
by Shearman & Sterling, and for Microsoft by Preston, Gates & Ellis LLP.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of USA as set forth in their report, included in USA's
Annual Report on Form 10-K for the year ended December 31, 2000, which is
incorporated by reference in this joint prospectus/proxy statement. USA's
consolidated financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
The financial statements and the related financial statements schedule
incorporated in this joint prospectus/proxy statement by reference from
Expedia's Annual Report on Form 10-K for the year ended June 30, 2001, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This joint prospectus/proxy statement contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, cash flows,
dividends, financing plans, business strategies, operating efficiencies or
synergies, budgets, capital and other expenditures, competitive positions,
growth opportunities for existing products, benefits from new technology, plans
and objectives of management, markets for stock of USA and Expedia and other
matters. Statements in this document that are not historical facts are hereby
identified as "forward-looking statements" for the purpose of the safe harbor
provided by Section 21E of the Exchange Act and Section 27A of the Securities
Act. Forward-looking statements, including, without limitation, those relating
to the future business prospects, revenues, working capital, liquidity,
129
capital needs, interest costs and income, in each case relating to USA and
Expedia, wherever they occur in this joint prospectus/proxy statement, are
necessarily estimates reflecting the best judgment of the senior management of
USA and Expedia and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking
statements. These forward-looking statements should, therefor, be considered in
light of various important factors, including those set forth in this joint
prospectus/proxy statement. Important factors that could cause actual results to
differ materially from estimates or projections contained in the forward-looking
statements include without limitation:
- material adverse changes in economic conditions generally or in the
markets served by our companies;
- a significant delay in the expected closing of the transactions;
- material changes in inflation;
- future regulatory and legislative actions affecting our companies'
operating areas;
- competition from others;
- product demand and market acceptance;
- the ability to protect proprietary information and technology or to obtain
necessary licenses on commercially reasonable terms;
- the ability to expand into and successfully operate in foreign markets;
and
- obtaining and retaining skilled workers and key executives.
The words "estimate," "project," "intend," "expect," "believe" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this joint
prospectus/proxy statement and the other documents incorporated in this joint
prospectus/proxy statement by reference, including, but not limited to, the
December 31, 2000 Annual Report on Form 10-K of USA, including any amendments,
and the June 30, 2001 Annual Report on Form 10-K of Expedia, including any
amendments. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date stated, or if no
date is stated, as of the date of this joint prospectus/proxy statement. Neither
USA nor Expedia undertakes any obligation to publicly release any revisions to
these forward-looking statements to reflect events or circumstances after the
date of this joint prospectus/proxy statement or to reflect the occurrence of
unanticipated events.
130
ANNEX A
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-------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF RECAPITALIZATION
AND MERGER
BY AND AMONG
USA NETWORKS, INC.,
EXPEDIA, INC.,
TAIPEI, INC.,
MICROSOFT CORPORATION
AND
MICROSOFT E-HOLDINGS, INC.
-------------------------------------------------------------------
-------------------------------------------------------------------
DATED AS OF JULY 15, 2001
-------------------------------------------------------------------
-------------------------------------------------------------------
A-1
TABLE OF CONTENTS
PAGE
--------
ARTICLE I
THE TRANSACTIONS
Section 1.1 The Contribution................................ A-8
Section 1.2 The Recapitalization............................ A-8
Section 1.3 The Merger...................................... A-9
Section 1.4 Treatment of Existing Company Warrants.......... A-10
Section 1.5 Closing; Effective Time......................... A-10
Section 1.6 Tax Consequences................................ A-10
Section 1.7 Shareholders Agreement Termination.............. A-10
ARTICLE II
DIRECTORS, OFFICERS AND CHARTER DOCUMENTS
Section 2.1 Directors....................................... A-10
Section 2.2 Officers........................................ A-10
Section 2.3 Charter Documents............................... A-10
ARTICLE III
TREATMENT OF SHARES
Section 3.1 Effect of the Merger on Capital Stock........... A-11
Section 3.2 Exchange of Certificates........................ A-13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Corporate Organization.......................... A-15
Section 4.2 Capitalization.................................. A-16
Section 4.3 Authority; No Violation......................... A-16
Section 4.4 Consents and Approvals.......................... A-17
Section 4.5 Financial Statements............................ A-18
Section 4.6 Broker's Fees................................... A-19
Section 4.7 Absence of Certain Changes or Events............ A-19
Section 4.8 Legal Proceedings............................... A-19
Section 4.9 Taxes and Tax Returns........................... A-19
Section 4.10 Employees...................................... A-20
Section 4.11 SEC Reports.................................... A-21
Section 4.12 Compliance with Applicable Law................. A-22
Section 4.13 Intellectual Property; Proprietary Rights;
Employee Restrictions..................................... A-22
Section 4.14 Certain Contracts.............................. A-23
Section 4.15 Undisclosed Liabilities........................ A-23
Section 4.16 Insurance...................................... A-23
Section 4.17 Environmental Liability........................ A-24
Section 4.18 State Takeover Laws............................ A-24
Section 4.19 Certain Tax Matters............................ A-24
Section 4.20 Registration Statements........................ A-24
Section 4.21 Transactions with Affiliates................... A-24
Section 4.22 Opinion of Financial Advisors.................. A-24
A-2
PAGE
--------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 5.1 Corporate Organization of Parent................ A-25
Section 5.2 Corporate Organization of Merger Sub, USA Media
Corp. and USA Media, LLC.................................. A-25
Section 5.3 Capitalization.................................. A-25
Section 5.4 Authority; No Violation......................... A-26
Section 5.5 Financial Statements............................ A-27
Section 5.6 Consents and Approvals.......................... A-28
Section 5.7 Conduct of Business............................. A-28
Section 5.8 Broker's Fees................................... A-28
Section 5.9 SEC Reports..................................... A-28
Section 5.10 Certain Tax Matters............................ A-29
Section 5.11 Registration Statements........................ A-29
Section 5.12 Absence of Certain Changes or Events........... A-29
Section 5.13 Agreements with Stockholder.................... A-29
Section 5.14 Legal Proceedings.............................. A-29
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Section 6.1 Corporate Organization of Stockholder........... A-29
Section 6.2 Authority; No Violation......................... A-30
Section 6.3 Broker's Fees................................... A-30
Section 6.4 Certain Tax Matters............................. A-30
Section 6.5 Registration Statements......................... A-30
Section 6.6 Agreements with Parent.......................... A-30
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Businesses Prior to the Merger
Closing................................................... A-31
Section 7.2 Forbearances.................................... A-31
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Regulatory Matters.............................. A-33
Section 8.2 Access to Information........................... A-34
Section 8.3 No Solicitation................................. A-34
Section 8.4 Shareholders' Approval.......................... A-35
Section 8.5 Legal Conditions to the Merger.................. A-35
Section 8.6 Affiliates...................................... A-36
Section 8.7 Nasdaq Quotation................................ A-36
Section 8.8 Additional Agreements........................... A-36
Section 8.9 Advice of Changes............................... A-36
Section 8.10 Section 16..................................... A-36
Section 8.11 Relationship with Parent....................... A-36
Section 8.12 Company Warrant Distribution................... A-37
Section 8.13 Tax Covenant................................... A-37
Section 8.14 Reorganization................................. A-38
A-3
PAGE
--------
Section 8.15 Parent Registration Rights Agreement........... A-38
Section 8.16 Articles of Incorporation and By-Law
Amendment................................................. A-38
ARTICLE IX
CONDITIONS
Section 9.1 Conditions to Each Party's Obligation to Effect
the Transactions.......................................... A-38
Section 9.2 Conditions to Obligations of the Company........ A-39
Section 9.3 Conditions to Obligations of Parent............. A-39
Section 9.4 Conditions to Obligations of Stockholder........ A-40
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination.................................... A-40
Section 10.2 Effect of Termination.......................... A-41
Section 10.3 Amendment...................................... A-42
Section 10.4 Extension; Waiver.............................. A-42
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Nonsurvival of Representations, Warranties and
Agreements................................................ A-42
Section 11.2 Expenses....................................... A-42
Section 11.3 Notices........................................ A-42
Section 11.4 Interpretation................................. A-43
Section 11.5 Counterparts................................... A-44
Section 11.6 Entire Agreement............................... A-44
Section 11.7 Governing Law.................................. A-44
Section 11.8 Publicity...................................... A-44
Section 11.9 Assignment; Third Party Beneficiaries.......... A-44
Section 11.10 Specific Enforcement.......................... A-44
Exhibit A Terms of the Company Warrants
Exhibit B Designations, Preferences and Rights of the Parent Preferred
Stock
Exhibit C Terms of the Parent Warrants
Exhibit D Form of Voting and Election Agreement
Exhibit E-1 Individuals who have entered into Employment Term Sheets
Exhibit E-2 Forms of Employment Term Sheets
Exhibit F Stockholder Registration Rights Agreement
Exhibit G Terms of the NLG Option
Exhibit H Terms of the Travel LLC Option
Exhibit I Form of Certificate of Amended and Restated Articles of
Incorporation
Exhibit J List of Persons to Execute Affiliate Letter
Exhibit K Form of Affiliate Letter from the Company Affiliates
Company Disclosure Schedule
Parent Disclosure Schedule
A-4
INDEX OF DEFINED TERMS
TERM PAGE
---- --------
1999 Tax Allocation Agreement........ A-37
33 Act Registration Statements....... A-28
34 Act Registration Statements....... A-28
Agreement............................ A-7
Articles Amendment................... A-8
Articles of Merger................... A-10
Business Day......................... A-10
CERCLA............................... A-24
Certificate.......................... A-13
Class B Consideration................ A-11
Closing.............................. A-10
Closing Date......................... A-10
Code................................. A-7
Common Consideration................. A-11
Company.............................. A-7
Company Affiliate Transactions....... A-24
Company April Financials............. A-18
Company Audited Balance Sheets....... A-18
Company Audited Financial
Statements......................... A-18
Company Benefit Plans................ A-20
Company Capital Stock................ A-16
Company Charter...................... A-15
Company Class B Common Stock......... A-7
Company Common Stock................. A-7
Company Contract..................... A-23
Company December 10-Q................ A-18
Company Disclosure Schedule.......... A-15
Company ERISA Affiliate.............. A-21
Company Financial Statements......... A-18
Company Intellectual Property........ A-22
Company June Financials.............. A-18
Company Licensed Intellectual
Property........................... A-22
Company March 10-Q................... A-18
Company May Financials............... A-18
Company Merger Consideration......... A-13
Company Owned Intellectual
Property........................... A-22
Company Preferred Stock.............. A-16
Company Reports...................... A-21
Company S-3 Registration Statement... A-28
Company S-4 Registration Statement... A-28
Company September 10-Q............... A-18
Company Stock........................ A-7
Company Stock Plans.................. A-16
Company Warrant Exchange Ratio....... A-11
Company Warrants..................... A-7
Confidentiality Agreements........... A-34
Contribute........................... A-8
TERM PAGE
---- --------
Contribution......................... A-7
Dissenting Share..................... A-12
Distribution......................... A-37
Effective Time....................... A-10
Electing Shareholders................ A-8
Election............................. A-8
Election Deadline.................... A-9
Election Shares...................... A-9
Employment Term Sheets............... A-7
ERISA................................ A-21
Excess Company Warrants.............. A-14
Excess Parent Common Shares.......... A-14
Excess Parent Preferred Shares....... A-14
Excess Parent Securities............. A-14
Excess Parent Warrants............... A-14
Exchange Act......................... A-21
Exchange Agent....................... A-13
Exchanged Class B Share Number....... A-11
Existing Company Warrants............ A-16
Form of Election..................... A-8
GAAP................................. A-19
Government Approvals................. A-17
Governmental Entity.................. A-18
Holdings............................. A-7
HSR Act.............................. A-17
Intellectual Property................ A-22
Investment Agreement................. A-26
Joint Prospectus/Proxy Statement..... A-33
Liens................................ A-16
Material Adverse Effect.............. A-15
Maximum Election Number.............. A-8
Merger............................... A-7
Merger Consideration................. A-13
Merger Sub........................... A-7
Merger Sub Common Stock.............. A-12
Nasdaq............................... A-11
No Election Shares................... A-9
Parent............................... A-7
Parent Audited Balance Sheets........ A-27
Parent Audited Financial
Statements......................... A-27
Parent Capital Stock................. A-25
Parent Class B Common Stock.......... A-25
Parent Common Exchange Ratio......... A-11
Parent Common Stock.................. A-7
Parent Disclosure Schedule........... A-25
Parent Financial Statements.......... A-27
Parent March 10-Q.................... A-27
A-5
TERM PAGE
---- --------
Parent Merger Consideration.......... A-13
Parent Preferred Exchange Ratio...... A-11
Parent Preferred Stock............... A-7
Parent Registration Statement........ A-28
Parent Reports....................... A-28
Parent Share Price................... A-11
Parent Shares........................ A-13
Parent Warrant Exchange Ratio........ A-11
Parent Warrants...................... A-7
Recapitalization..................... A-7
Registration Statements.............. A-28
Representative....................... A-8
Requisite Regulatory Approval........ A-38
SEC.................................. A-17
Securities Act....................... A-21
Shareholder Agreement................ A-7
Shareholder Agreement Termination.... A-7
Shareholder Meeting.................. A-8
TERM PAGE
---- --------
Shareholder Proposals................ A-35
Stockholder.......................... A-7
Stockholder Registration Rights
Agreement.......................... A-7
Subsidiary........................... A-15
Surviving Corporation................ A-9
Surviving Existing Company Warrant... A-10
Tax.................................. A-20
Tax Return........................... A-20
Taxes................................ A-20
Termination Date..................... A-41
Third Party Intellectual Property.... A-22
Transaction Proposal................. A-35
Transactions......................... A-7
Voting and Election Agreement........ A-7
Voting Record Date................... A-9
WBCA................................. A-9
A-6
This AMENDED AND RESTATED AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER
is dated as of July 15, 2001 (this "AGREEMENT"), by and among USA
Networks, Inc., a Delaware corporation ("PARENT"), Expedia, Inc., a Washington
corporation (the "COMPANY"), Taipei, Inc, a Washington corporation and wholly
owned subsidiary of Parent ("MERGER SUB"), Microsoft Corporation, a Washington
corporation ("STOCKHOLDER"), and Microsoft E-Holdings, Inc., a Nevada
corporation and indirect wholly owned subsidiary of Stockholder ("HOLDINGS," and
where references to Stockholder relate to direct ownership of Company Stock,
Holdings shall be included in the term "Stockholder").
WHEREAS, the Boards of Directors of Parent, the Company, Stockholder,
Holdings and Merger Sub have adopted this Agreement pursuant to which, subject
to the terms and conditions set forth herein, and in the order specified:
(a) Parent shall contribute (the "CONTRIBUTION") to Merger Sub certain assets
specified herein; (b) the Company shall take all actions necessary to effect a
recapitalization (the "RECAPITALIZATION") of the Company, pursuant to which
shares of common stock, par value $.01 per share, of the Company ("COMPANY
COMMON STOCK") held by Electing Shareholders (as defined herein) shall be
exchanged for an equal number of shares of Company Class B common stock, par
value $.01 per share, of the Company ("COMPANY CLASS B COMMON STOCK," and
together with Company Common Stock, the "COMPANY STOCK"), subject to a maximum
exchange of 37,500,000 shares of Company Common Stock for Company Class B Common
Stock; and (c) Merger Sub shall merge with and into the Company (the "MERGER"
and together with the Contribution and the Recapitalization, the
"TRANSACTIONS"), pursuant to which each Company shareholder shall receive
(i) in exchange for each share of Company Common Stock, a combination of
(A) one share of Company Common Stock, and (B) warrants to acquire Company
Common Stock having the terms described on EXHIBIT A hereto (the "COMPANY
WARRANTS"), and (ii) in exchange for each share of Company Class B Common Stock,
a combination of (A) shares of common stock, par value $.01 per share, of Parent
("PARENT COMMON STOCK"), (B) shares of Series A preferred stock, par value $.01
per share, of Parent having the designations, preferences and other rights
described on EXHIBIT B hereto ("PARENT PREFERRED STOCK"), and (C) warrants to
acquire Parent Common Stock having the terms described on EXHIBIT C hereto (the
"PARENT WARRANTS").
WHEREAS, as a condition to, and simultaneously with, the execution of this
Agreement, Stockholder and Holdings are entering into an agreement in the form
attached hereto as EXHIBIT D (the "VOTING AND ELECTION AGREEMENT") with Parent,
pursuant to which Stockholder and Holdings have agreed to vote in favor of this
Agreement and the Transactions contemplated hereby, including the
Recapitalization, the Articles Amendment (as defined herein) and the Merger, and
to elect in the Recapitalization to exchange all of its shares of Company Common
Stock for shares of Company Class B Common Stock;
WHEREAS, as a condition to, and simultaneously with, the execution of this
Agreement, the Company and each of the individuals listed on EXHIBIT E-1 hereto
shall have entered into binding employment term sheets in the forms attached
hereto as EXHIBIT E-2 (collectively, the "EMPLOYMENT TERM SHEETS");
WHEREAS, in connection with the Transactions, Stockholder and the Company
desire to terminate the Shareholder Agreement, dated as of October 1, 1999,
between the Company and Stockholder ("SHAREHOLDER AGREEMENT") (the "SHAREHOLDER
AGREEMENT TERMINATION") and execute a Registration Rights Agreement in the form
attached hereto as EXHIBIT F (the "STOCKHOLDER REGISTRATION RIGHTS AGREEMENT");
WHEREAS, the parties intend that each of the Recapitalization and the Merger
shall constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE") and that this Agreement
shall constitute a plan of reorganization within the meaning of Sections 354 and
361 of the Code; and
A-7
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Transactions and the other transactions
contemplated hereby and also to prescribe certain conditions to the Transactions
and the other transactions contemplated hereby.
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE TRANSACTIONS
Section 1.1 THE CONTRIBUTION. Upon the terms and subject to the conditions
set forth herein, on the Closing Date and prior to the Effective Time (as
defined herein), Parent and Merger Sub shall effect the Contribution as follows:
Parent shall contribute, transfer, assign and convey (collectively,
"CONTRIBUTE") or cause to be Contributed to Merger Sub, (i) an option having the
terms set forth on EXHIBIT G hereto to acquire Parent's equity interest in the
entity listed on such EXHIBIT G, (ii) an option having the terms set forth on
EXHIBIT H hereto to acquire a one-third equity interest in the entity listed on
such EXHIBIT H, (iii) 100% of the equity interest in USA Media Corp., a Delaware
corporation and wholly owned Subsidiary (as defined herein) of Parent, and
(iv) 99% of the membership interests in USA Media, LLC, a Delaware limited
liability company.
Section 1.2 THE RECAPITALIZATION.
(a) GENERAL. Upon the terms and subject to the conditions set forth
herein, on the Closing Date (as defined herein), following the Contribution
and immediately prior to the Effective Time, the Company shall take all
actions necessary to effect the Recapitalization as follows: (i) the Company
shall amend its Articles of Incorporation pursuant to the Certificate of
Amended and Restated Articles of Incorporation (the "ARTICLES AMENDMENT")
substantially as set forth on EXHIBIT I hereto, which Articles Amendment
shall, among other things, create Company Class B Common Stock, and
(ii) immediately following the effectiveness of the Articles Amendment and
subject to the provisions of Section 1.2(b), 1.2(f) and 1.4, each share of
Company Common Stock (including shares issuable upon exercise of Existing
Company Warrants (as defined herein)) held of record by a shareholder of the
Company or warrant holder, as the case may be, who has elected to exchange
its shares of Company Common Stock for shares of Company Class B Common
Stock in accordance with the procedures set forth in this Section 1.2 (the
"ELECTING SHAREHOLDERS") shall be exchanged for one share of Company
Class B Common Stock.
(b) ELECTION. Subject to the immediately following sentence, each
record holder of shares of Company Common Stock and each record holder of
Existing Company Warrants shall, up to and including the date of the Special
Meeting of Shareholders (the "SHAREHOLDER MEETING"), be entitled to elect to
exchange each of its shares of Company Common Stock (including shares
issuable upon exercise of the Existing Company Warrants) for one share of
Company Class B Common Stock (an "ELECTION"). Notwithstanding the foregoing
and subject to Section 1.2(c), the maximum aggregate number of shares of
Company Common Stock (including shares issuable upon exercise of the
Existing Company Warrants) that will be exchanged into Company Class B
Common Stock shall be 37,500,000 (the "MAXIMUM ELECTION NUMBER"). Elections
shall be made on a form designed for that purpose (a "FORM OF ELECTION"). A
holder of record of shares of Company Common Stock or Existing Company
Warrants who holds such shares or Existing Company Warrants as nominee,
trustee or in another representative capacity (a "REPRESENTATIVE") may
submit multiple Forms of Election, and each such Form of Election may cover
all or a portion of the shares of Company Common Stock or Existing Company
Warrants held by such Representative for a particular beneficial owner. To
be effective a Form of Election relating to the
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election with respect to Company Common Stock (but not with respect to
Existing Company Warrants) must be accompanied by a Certificate or
Certificates representing all of the shares of Company Common Stock held by
the shareholder making an Election and a Letter of Transmittal as described
in Section 3.2(b).
(c) PRORATION OF ELECTION SHARES; NO FRACTIONAL SHARES. If the
aggregate number of shares of Company Common Stock (including Company Common
Stock issuable upon exercise of the Existing Company Warrants) covered by
Elections (the "ELECTION SHARES") exceeds the Maximum Election Number,
holders of Election Shares shall be reduced PRO RATA so that no greater than
the Maximum Election Number of Company Common Stock is exchanged for Company
Class B Common Stock in the Recapitalization. To the extent such proration
results in fractional Election Shares, following such proration, each such
fractional Election Share shall be rounded up to the nearest whole share,
following which the Exchange Agent shall select from among the Election
Shares, by random selection, a sufficient number of Election Shares that
will not be exchanged for Company Class B Common Stock such that the Company
issues exactly the Maximum Election Number of shares of Company Class B
Common Stock in the Recapitalization.
(d) FORM OF ELECTION. For an Election to be effective, a Form of
Election, Certificate or Certificates representing all of the shares of
Company Common Stock held by the shareholder making an Election and a Letter
of Transmittal must be properly completed, signed and submitted to the
Exchange Agent (as defined herein). Parent shall have the discretion, which
it may delegate in whole or in part to the Exchange Agent, to determine
whether Forms of Election and other required documentation have been
properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. The decision of Parent (or the
Exchange Agent) in such matters shall be conclusive and binding. Neither
Parent nor the Exchange Agent shall be under any obligation to notify any
person of any defect in a Form of Election submitted to the Exchange Agent.
The Exchange Agent shall also make all computations contemplated by this
Section 1.2, and all such computations shall be conclusive and binding on
the holders of shares of Company Common Stock.
(e) NO ELECTIONS. For the purposes hereof, a holder of shares of
Company Common Stock or Existing Company Warrants who does not submit a
proper Form of Election that is received by the Exchange Agent prior to the
Election Deadline ("NO ELECTION SHARES") shall be treated as not having made
an Election. All Dissenting Shares shall also be deemed No Election Shares.
If Parent or the Exchange Agent shall determine that any purported Election
was not properly made, the shares subject to such improperly made Election
shall be treated as No Election Shares.
(f) ELECTION DEADLINE. Unless otherwise agreed to by Parent and the
Company, Forms of Election and Letters of Transmittal shall be mailed to the
record holders of the shares of Company Common Stock as of the voting record
date for the Shareholder Meeting (the "Voting Record Date") together with
the Joint Prospectus/Proxy Statement (as defined herein), and shall also be
mailed to each holder of shares of Company Common Stock who so requests them
from the Exchange Agent (as defined herein). A Form of Election must be
received by the Exchange Agent by 5:00 p.m., New York City time, on the date
of the Shareholder Meeting (the "ELECTION DEADLINE") in order to be
effective. All elections may be revoked until the Election Deadline in
writing by the record holders or Representatives thereof submitting Forms of
Election.
Section 1.3 THE MERGER. Upon the terms and subject to the conditions set
forth herein, at the Effective Time, Merger Sub shall be merged with and into
the Company (the "MERGER") in accordance with the applicable provisions of the
Business Corporation Act of the State of Washington (the "WBCA"). The Company
shall be the surviving corporation in the Merger (the "SURVIVING CORPORATION")
and shall continue its corporate existence under the laws of the State of
Washington. As a result of the Merger, the Company shall become a Subsidiary of
Parent and the separate corporate
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existence of the Merger Sub shall terminate. The Merger shall have the effects
and consequences specified in Section 23B.11.060 of the WBCA.
Section 1.4 TREATMENT OF EXISTING COMPANY WARRANTS. In order for the
election of a holder of Existing Company Warrants to be effective, such holder
must comply with the provisions set forth in this Article I and must exercise
its Existing Company Warrants prior to the Recapitalization, it being understood
that all of the Existing Company Warrants, other than those Existing Company
Warrant(s) relating to an aggregate of 68,853 shares of Company Common Stock
which by their terms explicitly provide otherwise (each such Existing Company
Warrant, a "SURVIVING EXISTING COMPANY WARRANT"), shall, in accordance with
their terms, terminate immediately upon the Effective Time. In the event that
(i) a holder of a Surviving Existing Company Warrant neither makes a valid
Election nor exercises its Surviving Existing Company Warrant prior to the
Effective Time, and (ii) the terms of the Surviving Existing Company Warrant or
underlying warrant agreement do not provide for equitable adjustment with
respect to the Merger, the Company shall distribute, upon exercise, to the
holders of such Surviving Existing Company Warrants immediately prior to the
Effective Time, a number of Company Warrants equal to the Company Warrant
Exchange Ratio with respect to each such Surviving Existing Company Warrant.
Section 1.5 CLOSING; EFFECTIVE TIME. The closing of the Merger (the
"CLOSING") shall take place at the offices of Wachtell, Lipton, Rosen & Katz, at
10:00 a.m., Eastern time, on the third Business Day (as defined herein)
immediately following the date on which the last of the conditions set forth in
Article IX hereof is satisfied or waived (other than conditions that by their
nature are required to be performed on the Closing Date, but subject to
satisfaction of such conditions), or at such other time and date and place as
Parent, Stockholder and the Company shall mutually agree (the "CLOSING DATE").
The term "EFFECTIVE TIME" shall mean the time and date of the filing of the
articles of merger relating to the Merger ("ARTICLES OF MERGER") with the
Secretary of State of the State of Washington (or such other date and time as
may be specified in such articles as may be permitted by Washington law). The
term "BUSINESS DAY" shall mean any day, other than Saturday, Sunday or a day on
which the banks in the states of New York or Washington are closed.
Section 1.6 TAX CONSEQUENCES. It is intended that each of the
Recapitalization and the Merger constitute a reorganization within the meaning
of Section 368(a) of the Code and the parties hereto agree to treat such
transactions consistently with this intention for all purposes at all times
prior to and following the Closing, to the extent permitted by law.
Section 1.7 SHAREHOLDER AGREEMENT TERMINATION; STOCKHOLDER REGISTRATION
RIGHTS AGREEMENT. Immediately prior to the Effective Time, the Company and
Stockholder shall (i) terminate the Shareholder Agreement, and such Shareholder
Agreement Termination shall be submitted to the Company's shareholders for
approval at the Shareholder Meeting in accordance with Section 4.3 below, and
(ii) execute the Stockholder Registration Rights Agreement.
ARTICLE II
DIRECTORS, OFFICERS AND CHARTER DOCUMENTS
Section 2.1 DIRECTORS. The Board of Directors of the Surviving Corporation
at, and through the one-year anniversary of, the Effective Time shall consist of
eleven members as follows: six directors appointed by Parent, the Company's
Chief Executive Officer, the Company's Chief Financial Officer and three
additional directors who shall be independent, shall serve for at least a
one-year term and shall be mutually agreed to by Parent and the Company.
Section 2.2 OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law.
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Section 2.3 CHARTER DOCUMENTS. At the Effective Time, (i) the Amended and
Restated Articles of Incorporation of the Company, as in effect immediately
prior to the Effective Time (and after giving effect to the Recapitalization),
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law, and (ii) the by-laws of Merger Sub, as in
effect immediately prior to the Effective Time, and which by-laws shall be
substantially similar to the by-laws of other publicly-held Subsidiaries
controlled by Parent, shall be the by-laws of the Surviving Corporation until
thereafter amended as provided by law, the Articles of Incorporation of the
Surviving Corporation and such by-laws.
ARTICLE III
TREATMENT OF SHARES
Section 3.1 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
capital stock of the Company or Merger Sub:
(a) CANCELLATION OF CERTAIN COMPANY STOCK. Each share of Company Stock
that is owned by the Company as treasury stock, if any, and all shares of
Company Stock that are owned by Parent and any of its wholly owned
Subsidiaries immediately prior to the Effective Time shall be canceled and
shall cease to exist, and no stock of Parent or other consideration shall be
delivered in exchange therefor.
(b) CONVERSION OF COMPANY STOCK. By virtue of the Merger and without
any action on the part of the holder thereof:
(i) each share of Company Common Stock, other than Dissenting Shares and
shares canceled pursuant to Section 3.1(a), issued and outstanding
immediately prior to the Effective Time shall remain outstanding and the
holder of the Company Common Stock shall be entitled to receive a number of
validly issued, fully paid and nonassessable Company Warrants equal to the
Company Warrant Exchange Ratio (as defined below) (the "COMMON
CONSIDERATION"), and
(ii) each share of Company Class B Common Stock, other than shares
canceled pursuant to Section 3.1(a), issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive a
combination of (A) a number of validly issued, fully paid and nonassessable
shares of Parent Common Stock equal to the Parent Common Exchange Ratio (as
defined below), (B) a number of validly issued, fully paid and nonassessable
shares of Parent Preferred Stock equal to the Parent Preferred Exchange
Ratio (as defined below), and (C) a number of validly issued, fully paid and
nonassessable Parent Warrants equal to the Parent Warrant Exchange Ratio (as
defined below) ((A),(B) and (C) together, the "CLASS B CONSIDERATION").
The "COMPANY WARRANT EXCHANGE RATIO" shall be equal to 0.1920. The "PARENT
COMMON EXCHANGE RATIO" shall be equal to the quotient, rounded to the nearest
ten thousandth (or if there shall not be a nearest ten thousandth, the next
higher ten thousandth), obtained by dividing (i) (A) 35.00 less (B) the product
of (x) the Parent Preferred Exchange Ratio, and (y) 50, by (ii) the Parent Share
Price (as defined below); PROVIDED, HOWEVER, that for purposes of this
calculation, the Parent Share Price shall not be greater than $31.00 or less
than $23.00. The "PARENT PREFERRED EXCHANGE RATIO" shall be equal to the
quotient, rounded to the nearest ten thousandth (or if there shall not be a
nearest ten thousandth, the next higher thousandth), obtained by dividing
(A) 656,250,000 divided by the number of shares of Company Class B Common Stock
exchanged in the Merger (the "EXCHANGED CLASS B SHARE NUMBER"), by (B) 50. The
"PARENT WARRANT EXCHANGE RATIO" shall be equal to the Parent Warrant Exchange
Ratio corresponding to the Parent Share Price set forth on SCHEDULE A of
EXHIBIT C hereto. The "PARENT SHARE PRICE" shall be equal to the average of the
daily closing prices (as of 4:00 p.m. eastern time) per share of Parent Common
Stock, as applicable, as reported on the Nasdaq Stock Market ("NASDAQ") (as
published in The Wall Street Journal or, if not published therein or incorrectly
published therein, in
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another authoritative source mutually selected by Parent and the Company) for
the ten consecutive full trading days immediately preceding the second full
trading day prior to the date of the Election Deadline.
(c) TAX ADJUSTMENT OF CLASS B CONSIDERATION. In the event that counsel
for Parent, the Company and Stockholder reasonably determine (which
determination shall be based on a Black-Scholes valuation using an
appropriate volatility and risk-free interest rate as of the Closing Date)
that the requirement of Section 368(a)(2)(E)(ii) of the Code would not
otherwise be satisfied with respect to the Merger, the Parent Warrant
Exchange Ratio shall be reduced to the extent necessary, in the opinion of
counsel to Parent, the Company and Stockholder, to satisfy such requirement,
and the Parent Common Exchange Ratio shall be increased by an amount equal
to the quotient obtained by dividing (i) the product of (A) the reduction in
the Parent Warrant Exchange Ratio multiplied by (B) the Black-Scholes value
of a Parent Warrant as of the Closing Date (assuming 40% volatility and a
risk-free interest rate of 5.66%), by (ii) the average of the daily closing
prices (as of 4:00 p.m. eastern time) per share of Parent Common Stock, as
reported on Nasdaq (as published in The Wall Street Journal or, if not
published therein or incorrectly published therein, in another authoritative
source mutually selected by Parent and the Company) for the ten consecutive
full trading days immediately preceding the Closing Date; PROVIDED, HOWEVER,
that adjustments to the Parent Warrant Exchange Ratio in the manner provided
above shall, in the opinion of counsel to Parent, the Company and
Stockholder, be sufficient to cause the requirement of
Section 368(a)(2)(E)(ii) to be satisfied.
(d) CONVERSION OF MERGER SUB COMMON STOCK. All of the shares of common
stock, par value $.01 per share, of Merger Sub (the "MERGER SUB COMMON
STOCK") that are issued and outstanding immediately prior to the Effective
Time shall by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive an aggregate number
of fully paid and nonassessable shares of Company Class B Common Stock, par
value $.01 per share, of the Surviving Corporation equal to the Exchanged
Class B Share Number, which shares of Company Class B Common Stock shall,
following the Merger, have the same rights and characteristics as the
Company Class B Common Stock possessed following the Recapitalization and
immediately prior to the Merger.
(e) DISSENTING SHARES. Notwithstanding anything in this Agreement to
the contrary, with respect to each share of Company Stock as to which the
holder thereof shall have properly complied with the provisions of Chapter
23B.13 of the WBCA as to dissenters' rights (each a "DISSENTING SHARE"),
such holder will be entitled to payment, solely from the Surviving
Corporation, of the appraised value of such Dissenting Shares to the extent
permitted by and in accordance with the provisions of Chapter 23B.13 of the
WBCA; PROVIDED, HOWEVER, that (i) if any holder of Dissenting Shares, under
the circumstances permitted by the WBCA, affirmatively withdraws his demand
for appraisal of such Dissenting Shares, (ii) if any holder fails to
establish his entitlement to rights to payment as provided in such Chapter
23B.13, or (iii) if any holder of Dissenting Shares takes or fails to take
any action the consequence of such action or failure is that such holder is
not entitled to payment for his shares under Chapter 23B.13 of the WBCA,
such holder will forfeit such right to payment for such Dissenting Shares
pursuant to such Chapter 23B.13 and, such holder's certificate(s)
representing Company Stock will remain outstanding, without any interest
thereon or other value due. Any and all amounts paid by the Surviving
Corporation to holders of Dissenting Shares shall be paid by the Surviving
Corporation solely out of its cash on hand or its own borrowings. In no
event shall Parent or any of its affiliates (other than the Surviving
Corporation and its Subsidiaries) provide, directly or indirectly, any funds
to the Surviving Corporation in respect of payments to holders of Dissenting
Shares or the repayment of such borrowings. The Company shall not settle any
claim with respect to Dissenting Shares without the consent of Parent.
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(f) ANTI-DILUTION PROVISIONS. If, prior to the consummation of the
Merger, the outstanding shares of Company Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of
shares or securities as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization, in each case, other than the
Recapitalization, an appropriate and proportionate adjustment shall be made
to the Merger Consideration.
Section 3.2 EXCHANGE OF CERTIFICATES.
(a) DEPOSIT WITH EXCHANGE AGENT. As soon as practicable after the
Effective Time, Parent shall deposit with a bank or trust company mutually
agreeable to Parent and the Company (the "EXCHANGE AGENT"), pursuant to an
agreement in form and substance reasonably acceptable to Parent and the
Company, certificates representing (1) shares of Parent Common Stock,
(2) shares of Parent Preferred Stock and (3) Parent Warrants, in each case
sufficient, in the good faith estimate of Parent, to effect the conversion
of Company Stock in accordance with Section 3.1(b). Simultaneously with such
deposit, the Company shall deposit with the Exchange Agent, pursuant to the
same agreement certificates representing Company Warrants sufficient, in the
good faith estimate of the Company, to effect the conversion of Company
Stock in accordance with Section 3.1(b).
(b) EXCHANGE AND PAYMENT PROCEDURES. Parent shall cause the Exchange
Agent to mail to each holder of record as of the Voting Record Date for the
Shareholder Meeting as soon as practicable after the effective date of the
Joint Prospectus/Proxy Statement: (i) the Joint Prospectus/Proxy Statement,
(ii) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates shall pass, only
upon actual delivery of the certificates to the Exchange Agent) and
(iii) instructions for effecting the surrender of the certificates
representing shares of Company Common Stock (each a "CERTIFICATE") with
respect of which the holder wishes to make an Election. Following the
Merger, the former holders of Company Class B Shares shall be entitled to
receive in exchange therefor (i) a certificate representing that number of
shares of Parent Common Stock, Parent Preferred Stock and Parent Warrants
(together, the "PARENT SHARES") into which the shares of Company Stock
previously represented by such Certificates are converted in accordance with
Section 3.1(b), and (ii) cash in lieu of fractional Parent Shares to which
such holder has the right to receive pursuant to Section 3.2(d) (the shares
of Parent Common Stock, Parent Preferred Stock, Parent Warrants and cash
described in clauses (i) and (ii) above being referred to collectively as
the "PARENT MERGER CONSIDERATION"). Following the Merger, each holder of
Company Common Stock shall retain its Certificates and shall be entitled to
receive in respect of each share of Company Common Stock (i) a certificate
representing the Company Warrants to which the Shareholder has become
entitled and (ii) cash in lieu of fractional Warrant Shares to which such
holder has the right to receive pursuant to Section 3.2(d) (the Company
Warrants and cash described in clause (ii) above being referred to
collectively as the "COMPANY MERGER CONSIDERATION," and the Company Merger
Consideration or the Parent Merger Consideration, as appropriate, being
referred to as the "MERGER CONSIDERATION"). In the event the Merger
Consideration is to be delivered to any person who is not the person in
whose name the Certificate surrendered in exchange therefor is registered in
the transfer records of the Company, the Merger Consideration may be
delivered to a transferee if the Certificate is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence satisfactory to the Exchange Agent that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 3.2, each Certificate (other than a certificate
representing shares of Company Common Stock to be canceled in accordance
with Section 3.1(a)) shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
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Consideration contemplated by this Section 3.2. No interest will be paid or
will accrue on any cash payable to holders of Certificates pursuant to
provisions of this Article III.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time 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 Parent Shares
represented thereby and no cash payment in lieu of fractional shares shall
be paid to any such holder pursuant to Section 3.2(d) until the holder of
record of such Certificate shall surrender such Certificate. Subject to the
effect of unclaimed property, escheat and other applicable laws, following
surrender of any such Certificate, there shall be paid to the record holder
of the certificates representing whole Parent Shares issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
any cash payable in lieu of a fractional share of Parent Common Stock to
which such holder is entitled pursuant to Section 3.2(d) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole Parent Shares 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 surrender and a
payment date subsequent to surrender payable with respect to such whole
Parent Shares.
(d) NO FRACTIONAL SECURITIES. In lieu of any fractional securities,
each holder of Company Stock who would otherwise have been entitled to a
fraction of a share of Parent Common Stock, Parent Preferred Stock and/or
Parent Warrant, on the one hand, or Company Warrants, on the other hand,
upon surrender of Certificates for exchange pursuant to this Article III
will be paid an amount in cash (without interest) equal to such holder's
proportionate interest in the net proceeds from the sale or sales in the
open market by the Exchange Agent, on behalf of all such holders, of the
aggregate fractional shares of Parent Common Stock, Parent Preferred Stock
and/or Parent Warrants or Company Warrants issued pursuant to this
Article III. As soon as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (i) (A) the number of full
shares of Parent Common Stock, Parent Preferred Stock and/or Parent Warrants
delivered to the Exchange Agent by Parent over (B) the aggregate number of
full shares of Parent Common Stock, Parent Preferred Stock and/or Parent
Warrants to be distributed to holders of Company Stock (such excess
respectively being herein called the "EXCESS PARENT COMMON SHARES," the
"EXCESS PARENT PREFERRED SHARES," the "EXCESS PARENT WARRANTS" and
collectively, the "EXCESS PARENT SECURITIES"), and (ii) (A) the number of
full Company Warrants delivered to the Exchange Agent by the Company over
(B) the aggregate number of full Warrants to be distributed to holders of
Company Stock (such excess respectively being herein called the "EXCESS
COMPANY WARRANTS"). The Exchange Agent, as agent for the former holders of
Company Stock, shall sell the Excess Parent Securities and the Excess
Company Warrants at the prevailing prices on Nasdaq. The sales of the Excess
Parent Securities and the Excess Company Warrants by the Exchange Agent
shall be executed on the Nasdaq through one or more member firms of the
Nasdaq and shall be executed in round lots to the extent practicable. Parent
shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with such sale of Excess Parent Securities and
Excess Company Warrants. Until the net proceeds of such sale have been
distributed to the former holders of Company Stock that were converted into
the right to receive Parent Shares or Company Warrants, as applicable, the
Exchange Agent will hold such proceeds in trust for such former holders. As
soon as practicable after the determination of the amount of cash to be paid
to former holders of Company Stock in lieu of any fractional interests of
Parent Shares or Company Warrants, as applicable, the Exchange Agent shall
make available in accordance with this Agreement such amounts to such former
holders.
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(e) CLOSING OF TRANSFER BOOKS. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall either
(i) be canceled and exchanged for certificates representing the appropriate
number of Parent Shares or (ii) returned together the appropriate number of
Company Warrants, in each case, as provided in Section 3.1 and in this
Section 3.2.
(f) TERMINATION OF EXCHANGE AGENT. Any certificates representing
Parent Shares deposited with the Exchange Agent pursuant to Section 3.2(a)
and not exchanged within six months after the Effective Time pursuant to
this Section 3.2 shall be returned by the Exchange Agent to Parent, which
shall thereafter act as Exchange Agent. All funds held by the Exchange Agent
for payment to the holders of unsurrendered Certificates and unclaimed at
the end of one year from the Effective Time shall be returned to Parent,
after which time any holder of unsurrendered Certificates shall look as a
general creditor only to Parent for payment of such funds to which such
holder may be due, subject to applicable law.
(g) ESCHEAT. The Company shall not be liable to any person for such
shares or funds delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) LOST CERTIFICATES. In the event 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
reasonably required by Parent and the posting by such person of a bond in
such amount as Parent may determine is reasonably necessary as indemnity
against any claim that may be made against it with respect to such
certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed certificate the Merger Consideration deliverable in respect
thereof pursuant to this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company disclosure schedule delivered to Parent
concurrently herewith (the "COMPANY DISCLOSURE SCHEDULE"), the Company hereby
represents and warrants to Parent as follows:
Section 4.1 CORPORATE ORGANIZATION. (a) The Company is a corporation duly
organized and validly existing under the laws of the State of Washington. The
Company has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not, either individually or in the aggregate, have a Material Adverse
Effect on the Company. As used in this Agreement, the term "MATERIAL ADVERSE
EFFECT" means, with respect to Parent or the Company, as the case may be, a
material adverse effect on (i) the business, operations, results of operations
or financial condition of such entity and its Subsidiaries taken as a whole or
(ii) the ability of such entity to timely consummate the transactions
contemplated hereby. As used in this Agreement, the word "SUBSIDIARY" when used
with respect to any entity, means any corporation, partnership, limited
liability company, or other organization, whether incorporated or
unincorporated, which is consolidated with such entity for financial reporting
purposes. True and complete copies of the Articles of Incorporation of the
Company (the "COMPANY CHARTER") and the By-Laws of the Company, as in effect as
of the date of this Agreement, have previously been made available by the
Company to Parent.
(b) Each Company Subsidiary (i) is duly organized and validly existing under
the laws of its jurisdiction of organization, and (ii) is duly qualified to do
business and, where such status is
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recognized, in good standing in all jurisdictions (whether federal, state, local
or foreign) where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and in which the failure to be so
qualified would have a Material Adverse Effect on the Company, and (iii) has all
requisite corporate power and authority to own or lease its properties and
assets and to carry on its business as now conducted.
Section 4.2 CAPITALIZATION. (a) The authorized capital stock of the
Company consists of (i) 120,000,000 shares of Company Common Stock, of which, as
of June 29, 2001, 50,176,937 shares were issued and outstanding, and
(ii) 10,000,000 shares of preferred stock, par value $.01 per share, of the
Company (the "COMPANY PREFERRED STOCK" and, together with Company Common Stock,
the "COMPANY CAPITAL STOCK"), of which, as of June 29, 2001, no shares were
issued and outstanding. As of June 29, 2001, no shares of Company Common Stock
are held in the Company's treasury. As of June 29, 2001, no shares of Company
Common Stock or Company Preferred Stock were reserved for issuance, except for
16,027,262 shares of Company Common Stock reserved for issuance pursuant to the
exercise of options outstanding under the 1999 Stock Option Plan, the 1999
Directors' Stock Option Plan and the 1999 Company Employee Stock Purchase Plan
(the "COMPANY STOCK PLANS") and 796,781 shares of Company Common Stock reserved
for issuance pursuant to warrants (each warrant to acquire one share of Company
Common Stock, an "EXISTING COMPANY WARRANT"). All of the issued and outstanding
shares of Company Common Stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of this Agreement,
except for the Company Stock Plans, the Company does not have and is not bound
by any outstanding subscriptions, options, warrants, calls, preemptive rights,
commitments or agreements of any character calling for the purchase or issuance
of any shares of the Company Capital Stock or any other equity securities of the
Company or any securities representing the right to purchase or otherwise
receive any shares of the Company Capital Stock. Since June 29, 2001, the
Company has not issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock, other than
pursuant to the exercise of employee stock options granted prior to such date.
The Company has previously provided Parent with a list of the Company option
holders as of the date hereof, the date each option to purchase Company Common
Stock was granted, the number of shares subject to each such option, the
expiration date of each such option and the price at which each such option may
be exercised under an applicable Company Stock Plan.
(b) The Company owns, directly or indirectly, all of the issued and
outstanding shares of capital stock or other equity ownership interests of each
of the Company's Subsidiaries, free and clear of any liens, pledges, charges,
encumbrances and security interests whatsoever ("LIENS"), and all of such shares
or equity ownership interests are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. None of the Company's Subsidiaries
has or is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of capital stock or any other equity security of such Subsidiary
or any securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such Subsidiary.
Section 4.3 AUTHORITY; NO VIOLATION. (a) The Company has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, including the
Transactions, have been duly and validly authorized (including such
authorization as may be required so that no state anti-takeover statute or
similar statute or regulation, including, without limitation, Chapter 23B.19 of
the WBCA, is or becomes operative with Parent, its Affiliates or transferees,
this Agreement or the transactions contemplated hereby) and this Agreement has
been duly and validly adopted by the Company's Board of Directors. The Company's
Board of Directors has
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directed that this Agreement and the transactions contemplated thereby,
including the Recapitalization and the Merger, the Articles Amendment and the
Shareholder Agreement Termination, be submitted to the Company's shareholders
for approval at the Shareholder Meeting (as defined herein) and, except for the
filing of the Articles Amendment and the Articles of Merger with the Secretary
of State of the State of Washington pursuant to the WBCA and the approval of
this Agreement, the Articles Amendment and the Shareholder Agreement Termination
by the affirmative vote of the holders of a majority of the outstanding shares
of Company Common Stock, no other corporate proceedings on the part of the
Company are necessary to approve this Agreement, the Articles Amendment or the
Shareholder Agreement Termination or to consummate the transactions contemplated
hereby, including the Recapitalization and the Merger. The Company's Board of
Directors has adopted this Agreement and the Articles Amendment and the
transactions contemplated hereby and recommends that shareholders of the Company
approve this Agreement and the transactions contemplated hereby, including the
Recapitalization and the Merger, the Articles Amendment and the Shareholder
Agreement Termination. This Agreement has been duly and validly executed and
delivered by the Company and (assuming due authorization, execution and delivery
by the other parties hereto) constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies).
(b) Neither the execution and delivery of this Agreement by the Company, nor
the consummation by the Company of the transactions contemplated hereby, nor
compliance by the Company with any of the terms or provisions hereof, will
(i) violate any provision of the Company Charter or the Company By-Laws, or
(ii) subject to the making of the filings referred to in Section 4.4 and the
effectiveness of such filings and/or receipt of the consents and approvals in
connection therewith, (A) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or Injunction applicable to the
Company, any of its Subsidiaries or any of their respective properties or assets
or (B) violate, conflict with, result in a breach of any provision of or the
loss of any benefit under, constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, result in the creation of any Lien upon any of the
respective properties or assets of the Company or any of its Subsidiaries under,
or require any payment under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party, or by which they or any of their respective properties or assets may
be bound or affected, except (in the case of clause (ii) above) for such
violations, conflicts, breaches or defaults which, individually or in the
aggregate, will not have a Material Adverse Effect on the Company.
Section 4.4 CONSENTS AND APPROVALS. Except for (a) the filing of the
pre-merger notification report under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), (b) the filing of any
required applications or notices with any state or foreign agencies and approval
of such applications and notices ("GOVERNMENT APPROVALS"), (c) the filing with
the Securities and Exchange Commission (the "SEC") of (i) the Joint
Prospectus/Proxy Statement (as defined herein), and (ii) the Registration
Statements (as defined herein), (d) the filing of the Articles Amendment and the
filing of the Articles of Merger with the Secretary of State of the State of
Washington pursuant to the WBCA, (e) such filings and approvals as are required
to be made or obtained under the securities or "Blue Sky" laws of various states
in connection with the issuance of the Parent Shares or Company Warrants
pursuant to this Agreement, (f) the filing of applications for the authorization
of quotation on Nasdaq (or if listing requirements of Nasdaq are not satisfied
or waived with respect to the Parent Preferred Stock, the Parent Warrants and
the Company Warrants, the authorization of listing, if eligible, on the American
Stock Exchange or other exchange acceptable to Parent and Stockholder (with
respect to Parent Preferred Stock and Parent Warrants) and the Company (with
respect to the
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Company Warrants)) of the Parent Common Stock, the Parent Preferred Stock, the
Parent Warrants, the Company Warrants, and if required by the SEC, the Company
Class B Common Stock issued pursuant hereto and the approvals thereof, and
(g) the approval of this Agreement, the Articles Amendment and the Shareholder
Agreement Termination by the requisite vote of the shareholders of the Company,
no consents or approvals of or filings or registrations with any court,
administrative agency or commission or other governmental or regulatory
authority or instrumentality (each a "GOVERNMENTAL ENTITY") or third party are
necessary in connection with (A) the execution and delivery by the Company of
this Agreement and (B) the consummation by the Company of the transactions
contemplated hereby.
Section 4.5 FINANCIAL STATEMENTS. The Company has previously made
available to Parent copies of (a) the consolidated balance sheets (the "COMPANY
AUDITED BALANCE SHEETS") of the Company and its Subsidiaries as of June 30, 1999
and June 30, 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for the fiscal years ended June 30, 1999 and
June 30, 2000, as reported in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2000 filed with the SEC under the Exchange Act (as
defined herein) (such Annual Report on Form 10-K, together with the Company
Audited Balance Sheets, the "COMPANY AUDITED FINANCIAL STATEMENTS"), in each
case, accompanied by the audit report of Deloitte & Touche LLP, independent
public accountants with respect to the Company, (b) the unaudited consolidated
balance sheets of the Company and its Subsidiaries as of September 30, 2000 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the fiscal quarter ended September 30, 2000, as reported in the
Company's Quarterly Report on Form 10-Q/A for the three months ended
September 30, 2000 filed with the SEC under the Exchange Act (the "COMPANY
SEPTEMBER 10-Q"), (c) the unaudited consolidated balance sheets of the Company
and its Subsidiaries as of December 31, 2000 and the related consolidated
statements of operations, stockholders' equity and cash flows for the fiscal
quarter ended December 31, 2000, as reported in the Company's Quarterly Report
on Form 10-Q for the three months ended December 31, 2000 filed with the SEC
under the Exchange Act (the "COMPANY DECEMBER 10-Q"), (d) the unaudited
consolidated balance sheets of the Company and its Subsidiaries as of March 31,
2001 and the related consolidated statements of operations, stockholders' equity
and cash flows for the fiscal quarter ended March 31, 2001, as reported in the
Company's Quarterly Report on Form 10-Q for the three months ended March 31,
2001 filed with the SEC under the Exchange Act (the "COMPANY MARCH 10-Q"),
(e) the unaudited consolidated balance sheet of the Company and its Subsidiaries
as of April 30, 2001 and the related consolidated statements of operations,
stockholders' equity and cash flows for the month ended April 30, 2001 provided
to Parent prior to the date hereof (the "COMPANY APRIL FINANCIALS"), (f) the
unaudited consolidated balance sheet of the Company and its Subsidiaries as of
May 31, 2001, and the related consolidated statements of operations,
stockholders' equity and cash flows for the month ended May 31, 2001 provided to
Parent prior to the date hereof (the "COMPANY MAY FINANCIALS"), and (g) the
unaudited consolidated balance sheet of the Company and its Subsidiaries as of
June 30, 2001, and the related consolidated statements of operations,
stockholders' equity and cash flows for the month ended June 30, 2001 provided
to Parent prior to the date hereof (the "COMPANY JUNE FINANCIALS"). The Company
Audited Financial Statements, the Company September 10-Q, the Company
December 10-Q and the Company March 10-Q are referred to herein as the "COMPANY
FINANCIAL STATEMENTS." The Company April Financials, the Company May Financials
and the Company June Financials (including the related notes, if any) fairly
present management's good faith estimate of the consolidated financial position
and consolidated results of operations, as the case may be, of the Company and
its Subsidiaries as of the dates thereof or for the periods reflected therein,
and have been prepared consistent with the books and records of the Company and
its Subsidiaries and consistent with the Company's accounting policies and
procedures, each in a manner consistent with prior interim financial statements
of the Company. The Company Financial Statements (including the related notes,
where applicable) fairly present in all material respects the results of the
consolidated operations and changes in stockholders' equity and
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cash flows of the Company and its Subsidiaries for the respective fiscal periods
or as of the respective dates therein set forth, subject to normal fiscal
year-end audit adjustments in the case of unaudited statements, which will not
be material in amount; each of such statements (including the related notes,
where applicable) complies in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been prepared in all material respects in accordance with United
States generally accepted accounting principles ("GAAP") consistently applied
during the periods involved, except, in each case, as indicated in such
statements or in the notes thereto. The books and records of the Company and its
Subsidiaries have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transactions.
Section 4.6 BROKER'S FEES. Other than Morgan Stanley, neither the Company
nor any Company Subsidiary nor any of their respective officers or directors has
employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees payable on behalf of the Company in connection with
the Merger or related transactions contemplated by this Agreement. A true and
complete copy of Morgan Stanley's engagement letter with respect to the
Transactions has been previously delivered to Parent.
Section 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Except as publicly
disclosed in the Company Reports (as defined herein) filed prior to the date
hereof, since June 30, 2000, no event or events have occurred which have had or
would have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(b) Except as publicly disclosed in the Company Reports filed prior to the
date hereof, since June 30, 2000, the Company and its Subsidiaries have carried
on their respective businesses in all material respects in the ordinary course.
(c) Except as described in the Company's proxy statement relating to its
2000 Annual Meeting of Stockholders, neither the Company nor any of its
Subsidiaries has, since June 30, 2000, (i) except for such actions as are in the
ordinary course of business or except as required by applicable law,
(A) increased the wages, salaries, compensation, pension, or other fringe
benefits or perquisites payable to any executive officer, employee, or director
from the amount thereof in effect as of June 30, 2001, or (B) granted any
severance or termination pay, entered into any contract to make or grant any
severance or termination pay, or paid any bonuses (other than customary bonuses
for fiscal 2000) or (ii) suffered any strike, work stoppage, slowdown, or other
labor disturbance which has had or will have, either individually or in the
aggregate, a Material Adverse Effect on the Company.
(d) From the period beginning on June 1, 2001 through the date hereof, the
Company has not granted any stock options to any director, officer, employee, or
independent contractor of the Company or any of its Subsidiaries at an exercise
price per share below the fair market value per share of the common stock of the
Company on the date the Company took all necessary corporate action to
effectuate such grant.
Section 4.8 LEGAL PROCEEDINGS. (a) Except as disclosed in the Company
Reports filed prior to the date hereof, neither the Company nor any of its
Subsidiaries is a party to any, and there are no pending or, to the best of the
Company's knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of any
nature against the Company or any of its Subsidiaries or challenging the
validity or propriety of the transactions contemplated by this Agreement which
would, either individually or in the aggregate, have a Material Adverse Effect
on the Company.
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(b) There is no Injunction, order, judgment, decree, or regulatory
restriction imposed upon the Company, any of its Subsidiaries or the assets of
the Company or any of its Subsidiaries that has had or will have, either
individually or in the aggregate, a Material Adverse Effect on the Company.
Section 4.9 TAXES AND TAX RETURNS. (a) Except as would not, individually
or in the aggregate, have a Material Adverse Effect on the Company, (i) each of
the Company and its Subsidiaries has duly and timely filed all federal, state,
foreign and local information returns and Tax Returns (as defined herein)
required to be filed by it and has duly paid or made adequate provision for the
payment of all Taxes (as defined herein) and other governmental charges which
have been incurred or are due or claimed to be due from it by federal, state,
foreign or local taxing authorities (including, without limitation, if and to
the extent applicable, those due in respect of its properties, income, business,
capital stock, deposits, franchises, licenses, sales and payrolls), (ii) all
such Tax Returns are accurate and complete (it being understood that no
representation is being made as to the accuracy of the amount of net operating
loss carryforwards, capital loss carryforwards, tax credit carryforwards, tax
bases of assets or any similar tax attributes of the Company or any Subsidiary),
(iii) there are no disputes pending, or claims asserted for, Taxes or
assessments upon the Company or any of its Subsidiaries for which the Company
does not have adequate reserves, (iv) proper and accurate amounts have been
withheld by the Company and its Subsidiaries from their employees for all prior
periods in compliance with the tax withholding provisions of applicable federal,
state and local laws, (v) federal, state and local Tax Returns have been filed
by the Company and its Subsidiaries for all periods for which Tax Returns were
due with respect to income tax withholding, Social Security and unemployment
Taxes, (vi) the amounts shown on such federal, state or local Tax Returns to be
due and payable have been paid in full or adequate provision therefor has been
included by the Company in its consolidated financial statements, and
(vii) there are no Tax Liens upon any property or assets of the Company or its
Subsidiaries. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Taxes of the Company or any of
its Subsidiaries for any period. Neither the Company nor any of its Subsidiaries
has filed a consent to the application of Section 341(f) of the Code. Neither
the Company nor any of its Subsidiaries has been a "distributing corporation" or
a "controlled corporation" in a distribution intended to qualify under
Section 355(a) of the Code within the past five years. Other than the 1999 Tax
Allocation Agreement, neither the Company nor any of its Subsidiaries is a party
to any Tax sharing, allocation or indemnification agreement or arrangement.
Neither the Company nor any of its Subsidiaries has been a member of an
affiliated group filing a consolidated, combined or unitary Tax Return (other
than the affiliated group of which the Company is the common parent) or has any
liability for the Taxes of any person (other than the Company or its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law).
(b) As used in this Agreement, the term "TAX" or "TAXES" means all federal,
state, local, and foreign income, excise, gross receipts, gross income, AD
VALOREM, profits, gains, property, capital, sales, transfer, use, payroll,
employment, severance, withholding, duties, intangibles, franchise, backup
withholding, and other taxes, charges, levies or like assessments together with
all penalties and additions to tax and interest thereon, and the term "TAX
RETURN" means any return, declaration, report, claim for refund, information
return or statement relating to Taxes.
(c) No disallowance of a deduction under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by the Company or any
Subsidiary of the Company under any contract, plan, program, arrangement or
understanding will have, either individually or in the aggregate, a Material
Adverse Effect on the Company.
Section 4.10 EMPLOYEES. (a) Promptly following the date hereof, the
Company will deliver to Parent a true and complete list of each material
employee or director benefit plan, arrangement or agreement that is maintained,
or contributed to, as of the date of this Agreement (the "COMPANY BENEFIT
PLANS") by the Company or any of its Subsidiaries.
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(b) The Company has heretofore made or promptly following the date hereof
will make available to Parent true and complete copies of each of the Company
Benefit Plans and (i) the actuarial report for such Company Benefit Plan (if
applicable) for each of the last two years, (ii) the most recent determination
letter from the IRS (if applicable) for such Company Benefit Plan, (iii) the
summary plan description for such Company Benefit Plan (if any), and (iv) the
Form 5500 for such Company Benefit Plan (if applicable) for each of the last two
years.
(c)(i) Each of the Company Benefit Plans has been operated and administered
in all material respects in compliance with applicable laws, including, but not
limited to, ERISA (as defined herein) and the Code, (ii) each of the Company
Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code is so qualified, and there are no existing circumstances or any events
that have occurred that would be reasonably expected to affect adversely the
qualified status of any such Company Benefit Plan, (iii) no Company Benefit Plan
is subject to Title IV of ERISA, (iv) no Company Benefit Plan provides benefits,
including, without limitation, death or medical benefits (whether or not
insured), with respect to current or former employees or directors of Company or
its Subsidiaries beyond their retirement or other termination of service, other
than (A) coverage mandated by applicable law, (B) death benefits or retirement
benefits under any "employee pension plan" (as such term is defined in
Section 3(2) of the Employee Income Security Act of 1974, as amended ("ERISA"),
(C) deferred compensation benefits accrued as liabilities on the books of the
Company or its Subsidiaries, or (D) benefits the full cost of which is borne by
the current or former employee or director (or his beneficiary), (v) no material
liability under Title IV of ERISA has been incurred by the Company, its
Subsidiaries or any trade or business, whether or not incorporated (a "COMPANY
ERISA AFFILIATE"), which together with the Company would be deemed a "single
employer" within the meaning of Section 4001 of ERISA that has not been
satisfied in full, and no condition exists that presents a material risk to the
Company, its Subsidiaries or any Company ERISA Affiliate of incurring a material
liability thereunder, (vi) no Company Benefit Plan is a "multiemployer pension
plan" (as such term is defined in Section 3(37) of ERISA), (vii) all
contributions or other amounts payable by the Company or its Subsidiaries as of
the Effective Time with respect to each Company Benefit Plan in respect of
current or prior plan years have been paid or accrued in accordance with GAAP
and, if applicable, Section 412 of the Code, (viii) none of the Company, its
Subsidiaries or, to the Company's knowledge, any other person, including any
fiduciary, has engaged in a transaction in connection with which the Company,
its Subsidiaries or any Company Benefit Plan will be subject to either a
material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a
material Tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to
the best knowledge of the Company there are no pending, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against any of the Company Benefit Plans or any trusts related thereto that will
have, either individually or in the aggregate, a Material Adverse Effect on the
Company.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) (i) result (either alone or upon the
occurrence of any additional acts or events) in any payment (including, without
limitation, any severance or "excess parachute payments" (within the meaning of
Section 280G of the Code), forgiveness of indebtedness or otherwise) becoming
due to any director or any employee of the Company or any of its Subsidiaries
from the Company or any of its Subsidiaries under any Company Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any Company
Benefit Plan or (iii) result in any acceleration of the time of payment or
vesting of any such benefits.
Section 4.11 SEC REPORTS. The Company has previously made available to
Parent an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed by the Company
with the SEC since January 1, 1999 pursuant to the Securities Act of 1933, as
amended (the "SECURITIES ACT"), or the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") (the "COMPANY REPORTS") and prior to the date
hereof and (b) communication
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mailed by the Company to its shareholders since January 1, 1999 and prior to the
date hereof, and no such Company Report or communication, as of the date
thereof, contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances in which they were made,
not misleading, except that information as of a later date (but before the date
hereof) shall be deemed to modify information as of an earlier date. Since
January 1, 1999, as of their respective dates, all the Company Reports filed
under the Securities Act and the Exchange Act complied in all material respects
with the published rules and regulations of the SEC with respect thereto.
Section 4.12 COMPLIANCE WITH APPLICABLE LAW. Except as disclosed in the
Company Reports filed prior to the date hereof, the Company and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to each, and have complied in all material respects with and are not in
default in any material respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to the
Company or any of its Subsidiaries, except where the failure to hold such
license, franchise, permit or authorization or such noncompliance or default
will not, either individually or in the aggregate, have a Material Adverse
Effect on the Company.
Section 4.13 INTELLECTUAL PROPERTY; PROPRIETARY RIGHTS; EMPLOYEE
RESTRICTIONS. (a) All material (i) copyrights, including copyright
registrations and copyright applications, (ii) trademarks, including trademark
registrations and applications for registration, (iii) patents and patent
applications, (iv) service marks, including service mark registrations and
applications for registration, (v) trade names, (vi) Internet domain names,
(vii) databases, (viii) computer programs, including source code, object code,
algorithms, structure, display screens, layouts, development tools,
instructions, templates, and computer software user interfaces, (ix) know-how,
(x) trade secrets, (xi) customer lists, (xii) proprietary technology,
(xiii) processes and formulae, (xiv) marketing materials created by the Company
or its Subsidiaries, (xv) inventions, (xvi) trade dress, (xvii) logos and
(xviii) designs (collectively, "INTELLECTUAL PROPERTY") used by the Company or
its Subsidiaries in their respective businesses (collectively, "COMPANY
INTELLECTUAL PROPERTY") are owned by the Company or such Subsidiaries by
operation of law, or have been validly assigned to the Company or such
Subsidiaries ("COMPANY OWNED INTELLECTUAL PROPERTY") or the Company otherwise
has the right to use such Intellectual Property in its business as currently
conducted ("COMPANY LICENSED INTELLECTUAL PROPERTY"). The Company Intellectual
Property is sufficient to carry on the business of the Company as presently
conducted. The Company or one of its Subsidiaries has exclusive ownership of all
Company Owned Intellectual Property used by the Company or its Subsidiaries, or
is entitled to use all Company Licensed Intellectual Property, in the Company's
business as presently conducted, subject, in the case of Company Licensed
Intellectual Property, to the terms of the license agreements covering such
Company Licensed Intellectual Property. The Company and its Subsidiaries, and to
the knowledge of the Company, the other parties thereto are not in material
breach of any of the license agreements covering the Company Licensed
Intellectual Property. The present business activities or products of the
Company do not infringe any Intellectual Property of others ("THIRD PARTY
INTELLECTUAL PROPERTY"), except as would not have a Material Adverse Effect on
the Company. To its knowledge, the Company has not received any notice or other
claim from any third party asserting that any of the Company's present
activities infringe or may infringe any Third Party Intellectual Property of
such third party.
(b) Except as would not have a Material Adverse Effect on the Company or as
disclosed in the Company Reports filed prior to the date hereof, (i) the Company
has the right to use all trade secrets, customer lists, hardware designs,
programming processes, software and other information material to its business
as presently conducted, (ii) the Company has taken all reasonable measures in
accordance with customary industry practice to protect and preserve the security
and confidentiality of its trade secrets and other confidential information,
(iii) to the knowledge of the Company, all trade secrets and other confidential
information of the Company that are material to its business are not part of the
public domain or knowledge, nor, to the knowledge of the Company, have they been
misappropriated
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by any person having an obligation to maintain such trade secrets or other
confidential information in confidence for the Company; and (iv) to the
knowledge of the Company, no employee or consultant of the Company or any of its
Subsidiaries has used any trade secrets or other confidential information of any
other person in the course of their work for the Company or such Subsidiary.
(c) To the knowledge of the Company, no university or government agency
(whether federal or state) has any claim of right to or ownership in the Company
Owned Intellectual Property. The Company is not aware of any material
infringement, dilution or misappropriation by others of the Company Owned
Intellectual Property, or any material violation of the confidentiality of any
of its proprietary information. To the Company's knowledge, the Company is not
making unlawful use of any confidential information or trade secrets of any past
or present employees of the Company or any of its Subsidiaries.
Section 4.14 CERTAIN CONTRACTS. (a) Neither the Company nor any of its
Subsidiaries is a party to or bound by any contract, arrangement, commitment or
understanding (whether written or oral) (i) which is a "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the date of this Agreement that has not been filed or
incorporated by reference in the Company Reports, (ii) which materially
restricts the conduct of any line of business by the Company or upon
consummation of the Transactions will restrict the conduct of any line of
business by Parent, or Parent's Subsidiaries or the ability of Parent or any of
Parent's Subsidiaries to engage in any line of business, (iii) which upon
consummation of the Transactions will subject any of the Company or any of its
affiliates to any exclusivity arrangements with or to a labor union or guild
(including any collective bargaining agreement), or (vi) (other than any plan or
agreement covered by Section 4.10 hereof) any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any shareholder approval or the consummation of the Transactions,
or the value of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement. Each contract,
arrangement, commitment or understanding of the type described in this
Section 4.14(a), together with any material license or contract relating to
Company Intellectual Property, whether or not set forth in the Company
Disclosure Schedule, is referred to herein as a "COMPANY CONTRACT," and neither
the Company nor any of its Subsidiaries knows of, or has received notice of, any
violation of the above by any of the other parties thereto which will have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(b)(i) Each Company Contract is valid and binding on the Company or any of
its Subsidiaries, as applicable, and in full force and effect, (ii) the Company
and each of its Subsidiaries has in all material respects performed all
obligations required to be performed by it to date under each Company Contract,
except where such noncompliance, either individually or in the aggregate, will
not have a Material Adverse Effect on the Company, and (iii) no event or
condition exists which constitutes or, after notice or lapse of time or both,
will constitute, a material default on the part of the Company or any of its
Subsidiaries under any such Company Contract, except for such defaults, which,
either individually or in the aggregate, will not have a Material Adverse Effect
on the Company.
Section 4.15 UNDISCLOSED LIABILITIES. Except for those liabilities that
are disclosed in the footnotes to or reserved against on the Company March 10-Q
and for liabilities incurred in the ordinary course of business consistent with
past practice, since March 31, 2001, neither the Company nor any of its
Subsidiaries has incurred any liability of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to become due)
that, either individually or in the aggregate, has had or will have a Material
Adverse Effect on the Company.
Section 4.16 INSURANCE. The Company and its Subsidiaries have in effect
insurance coverage with reputable insurers or are self-insured, which, in
respect of amounts, premiums, types and risks insured, constitutes reasonably
adequate coverage against all risks customarily insured against by companies and
their Subsidiaries in the same or similar lines of business of the Company and
its Subsidiaries and comparable in size and operations to the Company and its
Subsidiaries.
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Section 4.17 ENVIRONMENTAL LIABILITY. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that reasonably could result
in the imposition, on the Company of any liability or obligation arising under
common law or under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), pending or, to the Company's knowledge, threatened against the
Company, which liability or obligation will have, either individually or in the
aggregate, a Material Adverse Effect on the Company. To the knowledge of the
Company, there is no reasonable basis for any such proceeding, claim, action or
governmental investigation that would impose any liability or obligation that
will have, either individually or in the aggregate, a Material Adverse Effect on
the Company. The Company is not subject to any agreement, order, judgment,
decree, letter or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any liability or obligation with
respect to the foregoing that will have, either individually or in the
aggregate, a Material Adverse Effect on the Company.
Section 4.18 STATE TAKEOVER LAWS. The Company's Board of Directors has
approved the transactions contemplated by this Agreement for purposes of Chapter
23B.19 of the WBCA such that the provisions of Section 23B.19.040 of the WBCA
will not apply to this Agreement or any of the transactions contemplated hereby
or to Parent or any of their affiliates or transferees.
Section 4.19 CERTAIN TAX MATTERS. As of the date of this Agreement, the
Company has no reason to believe that either the Recapitalization or the Merger,
taking into account all of the transactions contemplated by this Agreement, will
not constitute a reorganization within the meaning of Section 368(a) of the
Code.
Section 4.20 REGISTRATION STATEMENTS. None of the information supplied or
to be supplied by the Company in writing for inclusion or incorporation by
reference in the Registration Statement will, at the time such Registration
Statement becomes effective, 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 not misleading. If at any time prior to the
date of the Shareholder Meeting, or any adjournment thereof, any event with
respect to the Company, its officers and directors or any of its Subsidiaries
shall occur which is required to be described in an amendment of, or a
supplement to the Registration Statement, the Company shall notify Parent
thereof by reference to this Section 4.20 and such event shall be so described.
Any such amendment or supplement shall be promptly filed with the SEC and, as
and to the extent required by law, disseminated to the shareholders of the
Company, and such amendment or supplement shall comply in all material respects
with all provisions of the Securities Act.
Section 4.21 TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Company Reports, there are no material transactions, agreements, arrangements or
understandings between the Company or any of its Subsidiaries, on the one hand,
and any affiliate thereof (including without limitation, Stockholder and its
other Subsidiaries), but not including any wholly owned Subsidiary of the
Company, on the other hand, other than employment or other compensation
arrangements relating to employees of the Company or its Subsidiaries ("COMPANY
AFFILIATE TRANSACTIONS").
Section 4.22 OPINION OF FINANCIAL ADVISORS. The Company's Board of
Directors has received the opinion, dated as of the date hereof, of Morgan
Stanley to the effect that the consideration to be received by holders of
Company Common Stock (other than Stockholder) in the Merger, which consideration
shall be at the election of such shareholder as provided herein, is fair to such
holders from a financial point of view.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed in the Parent disclosure schedule delivered to the
Company and Stockholder concurrently herewith (the "PARENT DISCLOSURE
SCHEDULE"), Parent hereby represents and warrants to the Company as follows:
Section 5.1 CORPORATE ORGANIZATION OF PARENT. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. True and complete copies of the Certificate of Incorporation and
By-Laws of Parent have previously been made available by Parent to the Company.
Section 5.2 CORPORATE ORGANIZATION OF MERGER SUB, USA MEDIA CORP. AND USA
MEDIA, LLC. (a) Merger Sub is a corporation duly organized and validly existing
under the laws of the State of Washington. True and complete copies of the
Articles of Incorporation and By-Laws of Merger Sub have previously been made
available by Parent to the Company. Merger Sub has no Subsidiaries or
investments in any entity.
(b) USA Media Corp. is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. True and complete copies
of the Certificate of Incorporation and By-Laws of USA Media Corp. have
previously been made available by Parent to the Company. USA Media Corp. has no
Subsidiaries or investments in any entity other than a 1% interest in USA Media,
LLC.
(c) USA Media, LLC is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware. True and
complete copies of the Certificate of Formation and the limited liability
company agreement of USA Media, LLC, which shall not be amended without the
prior consent of the Company, has previously been made available by Parent to
the Company. USA Media, LLC has no Subsidiaries or investments in any entity.
Section 5.3 CAPITALIZATION. (a) The authorized capital stock of Parent
consists of (i) 1,600,000,000 shares of Parent Common Stock, of which, as of
June 30, 2001, 312,572,993 shares were issued and outstanding, (ii) 400,000,000
shares of Class B common stock, par value $.01 per share, of Parent ("PARENT
CLASS B COMMON STOCK" and together with Parent Common Stock, "PARENT CAPITAL
STOCK"), of which, as of June 30, 2001, 63,033,452 shares were issued and
outstanding, and (iii) 15,000,000 shares, par value $.01 per share, of Preferred
Stock, of which, as of June 30, 2001, no shares were issued and outstanding. As
of June 30, 2001, not more than 6,352,311 shares of Parent Common Stock and no
shares of Parent Class B Common Stock are held in Parent's treasury. As of
June 30, 2001, no shares of Parent Capital Stock were reserved for issuance,
except for (i) 181,366,238 shares of Parent Common Stock and 146,570,000 shares
of Parent Class B Common Stock reserved for issuance upon the exchange of shares
of USANi LLC, (ii) 31,620,064 shares of Parent Common Stock and 1,596,544 shares
of Parent Class B Common Stock reserved for issuance upon the exchange of shares
of Home Shopping Network, Inc., (iii) 1,137,498 shares of Parent Common Stock
reserved for issuance upon the conversion of Parent's 7% Convertible
Subordinated Debentures due July 1, 2003, (iv) 83,492,226 shares of Parent
Common Stock reserved for issuance upon the exercise of outstanding stock
options under various stock option plans of Parent, (v) 167,994 shares of Parent
Common Stock reserved for issuance upon the exercise of outstanding warrants,
and (vi) 419,500 shares of Parent Common Stock reserved for issuance under
various restricted stock grants. All of the issued and outstanding shares of
Parent and Warrants have been duly authorized and validly issued and are fully
paid, nonassessable and, except as set forth in the Parent Reports (as defined
herein), free of preemptive rights. Except in connection with this Agreement and
the transactions contemplated hereby or as disclosed in the Parent Reports, as
of June 30, 2001, Parent does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character
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calling for the purchase or issuance of any shares of capital stock or any other
equity securities thereof or any securities representing the right to purchase
or otherwise receive any shares of such capital stock other than as set forth in
Section 5.3 of the Parent Disclosure Schedule or this Section 5.3. When issued
in accordance with Article III hereof, all of the shares of Parent Common Stock,
Parent Preferred Stock and Parent Warrants issuable under Article III hereof
shall be duly authorized and validly issued free and clear of any liens or
encumbrances, fully paid, nonassessable and, except as set forth in the
Investment Agreement, dated October 19, 1997, as amended, among Universal
Studios, Inc., Parent, Home Shopping Network, Inc. and Liberty Media Corporation
(the "INVESTMENT AGREEMENT"), free of preemptive rights, with no personal
liability attaching to the ownership thereof. When issued in accordance with the
Warrants, all of the shares of Parent Common Stock issuable upon exercise of the
Warrants shall be duly authorized and validly issued free and clear of any liens
or encumbrances, fully paid, nonassessable and, except as set forth in the
Investment Agreement, free of preemptive rights, with no personal liability
attaching to the ownership thereof. Parent has reserved for issuance all of the
shares of Parent Common Stock issuable upon exercise of the Warrants and
issuable under Article III hereof and has reserved for issuance all of the
shares of Parent Preferred Stock issuable under Article III hereof.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $.01 per share. All of the issued and outstanding shares
of Merger Sub are owned by Parent free and clear of any Liens. All of the issued
and outstanding shares of Merger Sub have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. Merger Sub does not have
and is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of capital stock or any other equity securities thereof or any
securities representing the right to purchase or otherwise receive any shares of
such capital stock. As of the date hereof, no shares of capital stock of Merger
Sub were reserved for issuance.
(c) The authorized capital stock of USA Media Corp. consists of 1,000 shares
of common stock, par value $.01 per share. All of the issued and outstanding
shares of USA Media Corp. are owned by Parent free and clear of any Liens. All
of the issued and outstanding shares of USA Media Corp. have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. USA Media Corp. does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock or
any other equity securities thereof or any securities representing the right to
purchase or otherwise receive any shares of such capital stock. As of the date
hereof, no shares of capital stock of USA Media Corp. were reserved for
issuance.
(d) Parent owns 99% of the issued and outstanding membership interests of
USA Media, LLC, free and clear of any Liens. All of the issued and outstanding
membership interests of USA Media, LLC have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. USA Media, LLC does not
have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any additional membership interests or any other equity securities
thereof or any securities representing the right to purchase or otherwise
receive any such membership interests. As of the date hereof, no membership
interests of USA Media, LLC were reserved for issuance.
Section 5.4 AUTHORITY; NO VIOLATION. (a) Each of Parent and Merger Sub has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
including the Transactions, have been duly and validly authorized and this
Agreement has been duly and validly adopted by the Board of Directors of each of
Parent and
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Merger Sub and approved by Parent as the sole shareholder of Merger Sub. Except
for the matters contemplated by Articles I and II of this Agreement, no other
corporate proceedings on the part of Parent and Merger Sub are necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Parent and
Merger Sub and (assuming due authorization, execution and delivery by the other
parties hereto) constitutes a valid and binding obligation of each of Parent and
Merger Sub, enforceable against each in accordance with its terms (except as may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and the availability of equitable
remedies).
(b) Neither the execution and delivery of this Agreement by each of Parent
and Merger Sub, nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby, nor compliance by the Company with any of the
terms or provisions hereof, will violate any provision of the Restated
Certificate of Incorporation or bylaws of Parent or Articles of Incorporation or
bylaws of Merger Sub or, subject to the making of the filings referred to in
Section 4.4 and the effectiveness of such filings and/or receipt of the consents
and approvals in connection therewith, violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or Injunction applicable to
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or Injunction applicable to Parent or Merger Sub.
Section 5.5 FINANCIAL STATEMENTS. Parent has previously made available to
the Company copies of (i) the consolidated balance sheets (the "PARENT AUDITED
BALANCE SHEETS") of Parent and its Subsidiaries as of December 31, 1999 and
December 31, 2000 and the related consolidated statements of operations,
stockholders' equity and cash flows for the fiscal years ended December 31, 1999
and December 31, 2000, as reported in Parent's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 filed with the SEC under the Exchange
Act (such Annual Report on Form 10-K, together with the Parent Audited Balance
Sheets, the "PARENT AUDITED FINANCIAL STATEMENTS"), in each case, accompanied by
the audit report of Ernst & Young LLP, independent public accountants with
respect to Parent and (ii) the consolidated balance sheets of Parent and its
Subsidiaries as of March 31, 2001 and the related consolidated statements of
operations, stockholders' equity and cash flows for the period ended March 31,
2001, as reported in Parent's Quarterly Report on Form 10-Q for the three months
ended March 31, 2001 filed with the SEC under the Exchange Act (the "PARENT
MARCH 10-Q"). The Parent Audited Financial Statements and the Parent March 10-Q
are referred to herein as the "PARENT FINANCIAL STATEMENTS." The Parent
March 10-Q (including the related notes, where applicable) fairly present in all
material respects the consolidated financial position and consolidated financial
results of operations, as the case may be, of Parent and its Subsidiaries as of
the date thereof or for the period reflected therein and has been prepared
consistent with the books and records of Parent and its Subsidiaries, and have
been prepared consistent with Parent's accounting policies and procedures, each
in a manner consistent with prior interim financial statements of Parent. The
Parent Financial Statements (including the related notes, where applicable)
fairly present in all material respects the results of the consolidated
operations and changes in stockholders' equity and consolidated financial
position of Parent and its Subsidiaries for the respective fiscal periods or as
of the respective dates therein set forth, subject to normal fiscal year-end
audit adjustments in the case of unaudited statements, which will not be
material in amount; each of such statements (including the related notes, where
applicable) complies in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been prepared in all material respects in accordance with GAAP
consistently applied during the periods involved, except, in each case, as
indicated in such statements or in the notes thereto. The books and records of
Parent and its Subsidiaries have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
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Section 5.6 CONSENTS AND APPROVALS. Except for (a) the filing of the
pre-merger notification report under the HSR Act, (b) Government Approvals,
(c) the filing with the SEC of (i) the Joint Prospectus/Proxy Statement, (ii) a
Registration Statement of Parent on Form S-4 with respect to shares of Parent
Common Stock, Parent Preferred Stock and Parent Warrants (and shares of Parent
Common Stock issuable upon conversion of the Parent Preferred Stock and exercise
of the Parent Warrants) which may be issued to shareholders of the Company in
the Merger (together with any amendments or supplements thereto, the "PARENT
REGISTRATION STATEMENT"), (iii) a Registration Statement of the Company on
Form S-4 with respect to the shares of the Company Class B Common Stock to be
issued to shareholders of the Company in the Recapitalization (together with any
amendments or supplements thereto, the "COMPANY S-4 REGISTRATION STATEMENT"),
(iv) a Registration Statement of the Company on Form S-3 with respect to the
Company Warrants (and shares of Common Stock issuable upon exercise of the
Warrants) which may be issued to holders of Company options in the Distribution
(together with any amendments or supplements thereto, the "COMPANY S-3
REGISTRATION STATEMENT" and together with the Parent Registration Statement and
the Company S-4 Registration Statement, the "33 ACT REGISTRATION STATEMENTS"),
(v) a Registration Statement of Parent filed pursuant to the Exchange Act with
respect to the Parent Preferred Stock and the Parent Warrants, and (vi) a
Registration Statement of the Company filed pursuant to the Exchange Act with
respect to the Company Warrants (the Registration Statements referred to in
clauses (v) and (vi), the "34 ACT REGISTRATION STATEMENTS" and together with the
33 Act Registration Statements, the "REGISTRATION STATEMENTS"), (d) the filing
of the Articles Amendment and the Articles of Merger with the Secretary of State
of the State of Washington pursuant to the WBCA, (e) such filings and approvals
as are required to be made or obtained under the securities or "Blue Sky" laws
of various states in connection with the issuance of the shares of Parent Common
Stock, Parent Preferred Stock, Parent Warrants and Company Warrants pursuant to
this Agreement, (f) the filing of applications for the authorization of
quotation on Nasdaq (or if listing requirements of Nasdaq are not satisfied or
waived with respect to the Parent Preferred Stock, the Parent Warrants and the
Company Warrants, the authorization of listing, if eligible, on the American
Stock Exchange or other exchange acceptable to Parent and Stockholder) of the
Parent Common Stock, the Parent Preferred Stock, the Parent Warrants, the
Company Warrants, and if required, the Class B Common Stock issued pursuant
hereto and the approvals thereof, and (g) the approval of this Agreement, the
Articles Amendment and the Shareholder Agreement Termination by the requisite
vote of the shareholders of the Company, and (h) consents and approvals
previously obtained, no consents or approvals of or filings or registrations
with any Governmental Entity or third party are necessary in connection with
(A) the execution and delivery by Parent or Merger Sub of this Agreement and
(B) the consummation by Parent or Merger Sub of the transactions contemplated
hereby.
Section 5.7 CONDUCT OF BUSINESS. Merger Sub is a corporation formed solely
for the purpose of consummating the Transactions and the other Transactions
contemplated hereby and has not engaged in any business activity except as
contemplated by this Agreement.
Section 5.8 BROKER'S FEES. Other than Allen & Company Incorporated,
neither Parent nor Merger Sub nor any of their respective officers, directors or
affiliates has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with the Merger or
related transactions contemplated by this Agreement.
Section 5.9 SEC REPORTS. Parent has previously made available to the
Company an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed by Parent with
the SEC since January 1, 1999 pursuant to the Securities Act or the Exchange Act
(the "PARENT REPORTS") and prior to the date hereof and (b) communication mailed
by Parent to its shareholders since January 1, 1999 and prior to the date
hereof, and no such Parent Report or communication, as of the date thereof,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that
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information as of a later date (but before the date hereof) shall be deemed to
modify information as of an earlier date. Since January 1, 1999, as of their
respective dates, all the Parent Reports filed under the Securities Act and the
Exchange Act complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
Section 5.10 CERTAIN TAX MATTERS. As of the date of this Agreement, Parent
has no reason to believe that either the Recapitalization or the Merger, taking
into account all of the transactions contemplated by this Agreement, will not
constitute a reorganization within the meaning of Section 368(a) of the Code.
Neither Parent nor any affiliate of Parent has any plan or intention to cause
the Surviving Corporation within five years of the Effective Time to (i) cancel
or redeem any shares of Company Class B Common Stock of the Surviving
Corporation, (ii) otherwise reduce the number of outstanding shares of Company
Class B Common Stock of the Surviving Corporation, or (iii) alter the voting
rights of such shares of Company Class B Common Stock in relation to the voting
rights of shares of other classes of common stock of the Surviving Corporation.
Section 5.11 REGISTRATION STATEMENTS. None of the information supplied or
to be supplied by Parent in writing for inclusion or incorporation by reference
in either of the Registration Statements will, at the time any Registration
Statement or become effective, 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 not misleading. If at any time prior to the
date of the Shareholder Meeting, or any adjournment thereof, any event with
respect to Parent, its officers and directors or any of its Subsidiaries shall
occur which is required to be described in an amendment of, or a supplement to
the Registration Statements, Parent shall notify the Company thereof by
reference to this Section 5.11 and such event shall be so described. Any such
amendment or supplement shall be promptly filed with the SEC and, as and to the
extent required by law, disseminated to the shareholders of Parent, and such
amendment or supplement shall comply in all material respects with all
provisions of the Securities Act.
Section 5.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as publicly
disclosed in the Parent Reports filed prior to the date hereof, since
December 31, 2001, no event or events have occurred which have had or would
have, individually or in the aggregate, a Material Adverse Effect on Parent.
Section 5.13 AGREEMENTS WITH STOCKHOLDER. Other than as expressly
contemplated by this Agreement and the Transactions and other than business
agreements that are on an arm's-length basis, there are no material contracts,
arrangements, commitments or understandings (whether written or oral) between
Parent or its Affiliates, on the one hand, and Stockholder and its Affiliates
(other than the Company and its Subsidiaries), on the other hand.
Section 5.14 LEGAL PROCEEDINGS. Except as disclosed in the Parent Reports
filed prior to the date hereof, neither Parent nor any of its Subsidiaries is a
party to any, and there are no pending or, to the best of Parent's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental or regulatory investigations of any nature against
Parent or any of its Subsidiaries or challenging the validity or propriety of
the transactions contemplated by this Agreement, in each case which would,
either individually or in the aggregate, have a Material Adverse Effect on
Parent.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder hereby represents and warrants to Parent, Merger Sub and the
Company as follows:
Section 6.1 CORPORATE ORGANIZATION OF STOCKHOLDER AND HOLDINGS. Stockholder is
a corporation duly organized and validly existing under the laws of the State of
Washington. Holdings is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada.
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Section 6.2 AUTHORITY; NO VIOLATION. (a) Each of Stockholder and Holdings
has full corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby,
including the Transactions, have been duly and validly authorized and this
Agreement has been duly and validly adopted by the Board of Directors of
Stockholder and Holdings. Except for the matters contemplated by Articles I and
II of this Agreement, no other corporate proceedings on the part of Stockholder
or Holdings are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Stockholder and Holdings and (assuming due
authorization, execution and delivery by the other parties hereto) constitutes a
valid and binding obligation of Stockholder and Holdings, enforceable against
Stockholder in accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
rights of creditors generally and the availability of equitable remedies).
(b) Neither the execution and delivery of this Agreement by Stockholder or
Holdings, nor the consummation by Stockholder or Holdings of the transactions
contemplated hereby, nor compliance by Stockholder or Holdings with any of the
terms or provisions hereof, will violate any provision of the Articles of
Incorporation of Stockholder or Holdings or, subject to the making of the
filings referred to in Section 4.4 and the effectiveness of such filings and/or
receipt of the consents and approvals in connection therewith, violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
Injunction applicable to Stockholder or Holdings.
Section 6.3 BROKER'S FEES. Neither Stockholder nor Holdings nor any of
their respective officers, directors or affiliates (other than the Company) has
employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with the Merger or related
transactions contemplated by this Agreement for which any of the Company, Parent
or any of their respective Subsidiaries would be liable.
Section 6.4 CERTAIN TAX MATTERS. As of the date of this Agreement,
Stockholder has no reason to believe that either the Recapitalization or the
Merger, taking into account all of the transactions contemplated by this
Agreement, will not constitute a reorganization within the meaning of
Section 368(a) of the Code.
Section 6.5 REGISTRATION STATEMENTS. None of the information supplied or
to be supplied by Stockholder or Holdings in writing for inclusion or
incorporation by reference in the Registration Statement will, at the time such
Registration Statement becomes effective, 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 not misleading. If at any
time prior to the date of the Shareholder Meeting, or any adjournment thereof,
any event with respect to Stockholder, its officers and directors or any of its
Subsidiaries shall occur which is required to be described in an amendment of,
or a supplement to a Registration Statement, Stockholder shall notify Parent
thereof by reference to this Section 6.5 and such event shall be so described.
Section 6.6 AGREEMENTS WITH PARENT. Other than as expressly contemplated
by this Agreement and the Transactions and other than business agreements that
are on an arm's-length basis, there are no material contracts, arrangements,
commitments or understandings (whether written or oral) between Parent or its
Affiliates, on the one hand, and Stockholder and its Affiliates (other than the
Company and its Subsidiaries), on the other hand.
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ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 CONDUCT OF BUSINESSES PRIOR TO THE MERGER CLOSING. Commencing
upon execution of this Agreement and continuing through to the Closing, except
as expressly contemplated or permitted by this Agreement or as disclosed in the
Company Disclosure Schedule, the Company shall, and shall cause its Subsidiaries
to (a) conduct its business in the ordinary course consistent with past
practices, (b) use reasonable best efforts to maintain and preserve intact its
business organization and advantageous business relationships, (c) use
commercially reasonable efforts to retain the services of its key officers and
key employees, and (d) take no action which would adversely affect or delay the
ability of any of the parties from obtaining any necessary approvals of any
regulatory agency or other governmental authority required for the transactions
contemplated hereby, performing its covenants and agreements under this
Agreement or consummating the transactions contemplated hereby or otherwise
delay or prohibit consummation of the Transactions.
Section 7.2 FORBEARANCES. (a) Commencing upon execution of this Agreement
and continuing through to the Closing, except as set forth in the Company
Disclosure Schedule or as disclosed prior to the date hereof in the Company
Reports and, except as expressly contemplated by this Agreement, none of the
Company, and Merger Sub shall, and the Company shall not permit any of its
Subsidiaries to without the prior written consent of the other parties to this
Agreement (provided that the consent of Parent shall be deemed to be the consent
of Merger Sub):
(i) other than for short-term indebtedness not to exceed $50 million in
the aggregate, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity, or make
any loan or advance;
(ii) (a) except for the Recapitalization, adjust, split, combine or
reclassify any capital stock;
(b) make, declare or pay any dividend, or make any other distribution
on, or directly or indirectly redeem, purchase or otherwise acquire or
encumber, any shares of its capital stock or any securities or
obligations convertible (whether currently convertible or convertible
only after the passage of time or the occurrence of certain events) into
or exchangeable for any shares of its capital stock, except in connection
with cashless exercises or similar transactions pursuant to the exercise
of stock options issued and outstanding as of the date hereof under the
Company Stock Plans;
(c) grant any individual, corporation or other entity any right to
acquire any shares of its capital stock, other than (A) individual option
grants issued pursuant to the Company Stock Plans to acquire up to an
aggregate of 50,000 shares of Company Common Stock to employees,
(B) individual option grants issued pursuant to the Company Stock Plans
to acquire up to an aggregate of 200,000 shares of Company Common Stock
made in the ordinary course of business to new employee hires, which in
any calendar month shall not exceed 100,000 shares, and (C) automatic
grants to directors of the Company in the ordinary course of business
consistent with past practice; or
(d) issue any additional shares of capital stock except pursuant to
(A) the exercise of stock options under the Company Stock Plans, as the
case may be, issued and outstanding as of the date hereof (and any
additional options granted pursuant to Section 7.2(a)(ii)(c)(A)),
(B) the operation of the Company's 401(k) plan, and (D) the operation of
the Company's employee stock purchase plan.
(iii) sell, transfer, mortgage, encumber or otherwise dispose of any of
its material properties or assets to any individual, corporation or other
entity, other than to a wholly owned Subsidiary, or
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cancel, release or assign any indebtedness to any such person or any claims
held by any such person, except pursuant to contracts or agreements in force
at the date of this Agreement;
(iv) except pursuant to contracts or agreements in force at the date of
this Agreement or investments in treasury-grade securities made in the
ordinary course, make any material investment or acquisition, whether by
purchase of stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any other individual,
corporation or other entity other than a Subsidiary thereof;
(v) except for transactions in the ordinary course of business (which
shall include the relocation, or opening or closing, of call centers),
terminate, or amend or waive any material provision of, any Company
Contract, as the case may be, or make any material change in any instrument
or agreement governing the terms of any lease or contract other than normal
renewals of contracts and leases without material adverse changes of terms,
or its securities;
(vi) except in the ordinary course of business consistent with past
practice, or to the extent required by law or an existing agreement,
increase in any manner the compensation or fringe benefits of any of its
employees, directors, consultants, independent contractors or service
providers, pay any pension, severance or retirement benefits not required by
any existing plan or agreement to any such employees, directors,
consultants, independent contractors or service providers or enter into,
amend, alter or commit itself to any pension, retirement, profit-sharing,
bonus or other employee benefit or welfare benefit plan, policy, arrangement
or agreement or employment or consulting agreement with or for the benefit
of any employee, director, consultant, independent contractor or service
provider or accelerate the vesting of, or the lapsing of restrictions with
respect to, any stock options or other stock-based compensation or cause the
funding of any rabbi trust or similar arrangement;
(vii) settle any material claim, action or proceeding involving money
damages;
(viii) amend its certificate of incorporation or its bylaws;
(ix) take any action that is intended or would reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time prior
to the Effective Time, or in any of the conditions to the Merger set forth
in Article IX not being satisfied or in a violation of any provision of this
Agreement;
(x) other than in the ordinary course of business consistent with past
practice, (i) sell or enter into any material license agreement with respect
to any Company Intellectual Property used by it in its business with any
person or entity or buy or enter into any material license agreement with
respect to Third Party Intellectual Property of any person or entity;
(ii) sell or transfer to any person or entity any material rights to any
Company Intellectual Property Rights used by it in its business; or
(iii) enter into or materially amend any Company Contract, as the case may
be, pursuant to which any other party is granted marketing or distribution
rights of any type or scope with respect to any material products of its or
any of its Subsidiaries;
(xi) enter into any "non-compete" or similar agreement that would
materially restrict the businesses of the Surviving Corporation or its
Subsidiaries following consummation of the Transactions or that would in any
way restrict the businesses of Parent and its Subsidiaries (excluding the
Surviving Corporation and its Subsidiaries);
(xii) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of such entity (other than the Transactions);
(xiii) implement or adopt any change in its accounting principles,
practices or methods, other than as consistent with or as may be required by
GAAP or regulatory guidelines;
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(xiv) settle or compromise any material liability for Taxes, make any
material Tax election or change any method of accounting for Tax purposes;
(xv) except pursuant to the terms of Company Affiliate Transactions as
disclosed to Parent prior to the date hereof, enter into any new, or amend
or otherwise alter any current, Company Affiliate Transaction; or
(xvi) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited by this Section 7.2.
(b) Commencing upon execution of this Agreement and continuing through to
the Closing, each party hereto shall use its reasonable best efforts to cause
the Merger to qualify, and will not knowingly take any action, cause any action
to be taken, fail to take any commercially reasonable action or cause any
commercially reasonable action to fail to be taken, which action or failure to
act would reasonably be expected to prevent the Company Recapitalization or the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 REGULATORY MATTERS. (a) As promptly as practicable after the
date hereof, Parent and the Company shall prepare and file with the SEC, the
Registration Statements, which will contain (i) the prospectus of Parent
relating to the shares of Parent Common Stock (including shares issuable upon
conversion of Parent Preferred Stock and exercise of Parent Warrants), shares of
Parent Preferred Stock and Parent Warrants to be issued in the Merger, (ii) the
prospectus of the Company relating to shares of Company Class B Common Stock to
be issued in the Recapitalization, (iii) the prospectus of the Company relating
to the Company Warrants (and the shares of Company Common Stock issuable upon
conversion thereof) to be issued in the Distribution, and (iv) the proxy
statement of the Company relating to the Shareholder Meeting (collectively, the
"JOINT PROSPECTUS/PROXY STATEMENT"). Each of Parent and the Company shall use
their respective reasonable best efforts to have each Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing, and the Company shall thereafter mail or deliver the Joint
Prospectus/Proxy Statement to its shareholders in accordance with Section 3.2.
Each of Parent and the Company shall use its reasonable best efforts to obtain
all necessary state securities law or "Blue Sky" permits and approvals required
to carry out the transactions contemplated by this Agreement, and the Company
shall furnish all information concerning the Company and the holders of the
Company Capital Stock as may be reasonably requested in connection with any such
action.
(b) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement, and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Entities.
Parent, Stockholder and the Company shall have the right to review in advance,
and, to the extent practicable, each will consult the other on, in each case
subject to applicable laws relating to the exchange of information, all the
information relating to Parent, Stockholder or the Company, as the case may be,
and any of their respective Subsidiaries, which appears in any filing made with,
or written materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement, PROVIDED that
Parent, Stockholder or the Company can restrict access to such documents that
discuss the pricing or dollar value of the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto shall
act reasonably and as promptly as practicable. The parties hereto agree that
they will consult with each other with respect to the obtaining
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of all permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other apprised of
the status of matters relating to completion of the transactions contemplated
herein.
(c) Parent, Stockholder and the Company shall, upon request, furnish the
other parties hereto with all information concerning themselves, their
Subsidiaries and their and their Subsidiaries' affiliates, directors, officers
and shareholders and such other matters as may be reasonably necessary or
advisable in connection with the Joint Prospectus/Proxy Statement, the
Registration Statements or any other statement, filing, notice or application
made by or on behalf of Parent, Stockholder or the Company or any of their
respective Subsidiaries to any Governmental Entity in connection with the
Transactions contemplated by this Agreement.
(d) The Company, Stockholder and Parent shall, and Parent shall cause Merger
Sub to, promptly advise the other parties hereto upon receiving any
communication from any Governmental Entity whose consent or approval is required
for consummation of the transactions contemplated by this Agreement that causes
such party to believe that there is a reasonable likelihood that any Requisite
Regulatory Approval (as defined herein) will not be obtained or that the receipt
of any such approval will be materially delayed.
Section 8.2 ACCESS TO INFORMATION. (a) Upon reasonable notice and subject
to applicable laws relating to the exchange of information, each of the parties
hereto shall cause each of their respective Subsidiaries to, afford to the
officers, employees, accountants, counsel and other representatives of the other
parties, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and
records. Access shall be reasonably related to the purposes of verifying the
representations and warranties of the other and preparing for the Merger and the
other matters contemplated by this Agreement. During such period, each of the
parties hereto shall, and shall cause their respective Subsidiaries to, make
available to the other parties (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws (other than reports or documents
which such party is not permitted to disclose under applicable law) and
(ii) all other information concerning its business, properties and personnel as
such party may reasonably request. No party hereto shall be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of its customers, jeopardize the attorney-client
privilege of the institution in possession or control of such information or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or
binding agreement entered into prior to the date of this Agreement. The parties
hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
(b) Each of the parties hereto shall hold all information furnished by or on
behalf of any other party or any of such party's Subsidiaries or representatives
pursuant to Section 8.2(a) in confidence to the extent required by, and in
accordance with, the provisions of the non-disclosure agreement between Parent
and the Company, dated as of April 27, 2001, and the non-disclosure agreement
between Parent and Stockholder, effective as of July 7, 2001 (collectively, the
"CONFIDENTIALITY AGREEMENTS").
(c) No investigation by any of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein.
Section 8.3 NO SOLICITATION. Without the prior written consent of Parent,
neither the Company nor Stockholder shall, and each shall cause its Subsidiaries
and each of its and its Subsidiaries' officers, directors, agents, advisors and
affiliates not to, solicit or encourage inquiries or proposals with respect to,
or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any person relating to any tender
offer or exchange offer for, or any proposal for the acquisition of a
substantial equity interest in, or of a substantial portion of the assets of, or
any merger, consolidation or other business combination with, the Company or any
of its Subsidiaries (a
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"TRANSACTION PROPOSAL"), PROVIDED, that the foregoing shall not prohibit the
Company's Board of Directors from, following receipt of a Transaction Proposal
and after providing prior written notice to Parent, taking and disclosing to its
shareholders information required under the proxy rules to the extent permitted
by the proviso to the second sentence of Section 8.4. The Company or
Stockholder, as the case may be, shall promptly, but in any event within
24 hours, advise Parent of its receipt of any such proposal or inquiry, of the
substance thereof, and of the identity of the person making such proposal or
inquiry. Each of the Company and Stockholder shall immediately cease and cause
to be terminated any activities, discussions or negotiations conducted prior to
the date of this Agreement with any parties other than the parties hereto with
respect to any of the foregoing; PROVIDED, HOWEVER, that neither the Company nor
any of its affiliates (including Stockholder) shall waive any standstill or
confidentiality provisions.
Section 8.4 SHAREHOLDERS' APPROVAL. The Company shall use reasonable best
efforts to cause the Shareholder Meeting to be held as soon as reasonably
practicable after the date hereof for the purpose of obtaining the requisite
shareholder approval required in connection with this Agreement, the Articles
Amendment and the Shareholder Agreement Termination, and the other transactions
contemplated hereby (collectively, the "SHAREHOLDER PROPOSALS"). The Company's
Board of Directors shall use its reasonable best efforts to obtain from the
shareholders of the Company the vote required by the WBCA in favor of the
adoption of (i) this Agreement, including the transactions contemplated hereby,
including the Recapitalization and the Merger, (ii) the Articles Amendment, and
(iii) the Shareholder Agreement Termination, and shall recommend to the
shareholders of the Company that they so vote; PROVIDED that the Company's Board
of Directors shall not be required to use such reasonable best efforts to obtain
the vote in favor of the adoption of this Agreement or to make or continue to
make such recommendation if such Board of Directors, after having consulted with
and considered the advice of outside counsel, has determined that the making of
such reasonable best efforts to obtain the vote in favor of the adoption of this
Agreement or making or continuing to make such recommendation would cause the
members of the Company's Board of Directors to breach their fiduciary duties
under applicable laws. Notwithstanding anything to the contrary in this
Agreement, (i) the Company shall be required to submit the Shareholder Proposals
for approval by its shareholders at the Shareholder Meeting, whether with or
without the recommendation of the Company's Board of Directors, and
(ii) recognizing that special circumstances, as provided in Section 23B.11.030
of the WBCA, may exist in light of the provisions of the Voting and Election
Agreement, the Company shall not alter its recommendation in a manner that would
prevent the Company from complying with its agreement described in the preceding
clause (i) of this sentence.
Section 8.5 LEGAL CONDITIONS TO THE MERGER. Each of Parent and the Company
shall, and shall cause their respective Subsidiaries to, use their reasonable
best efforts (a) to take, or cause to be taken, all actions necessary, proper or
advisable to comply promptly with all legal requirements that may be imposed on
such party or its Subsidiaries with respect to the Merger and, subject to the
conditions set forth in Article IX, to consummate the transactions contemplated
by this Agreement, and (b) to obtain (and to cooperate with the other party to
obtain) any material consent, authorization, order or approval of, or any
exemption by, any Governmental Entity and any other third party that is required
to be obtained by Parent or the Company or any of their respective Subsidiaries
in connection with the Merger and the other transactions contemplated by this
Agreement. Notwithstanding anything to the contrary in this Agreement, (i) the
Company shall not, without the prior written consent of Parent and Stockholder,
agree to divest any assets or businesses of the Company or any of its affiliates
or to in any way limit the ownership or operation of any business of the Company
or its affiliates, (ii) none of Parent, Stockholder or the Company shall be
required to (x) divest any assets or corporations of Parent, Stockholder or the
Company, respectively, or any of their respective affiliates or (y) enter into
any agreements that in any way limit the ownership or operation of any business
of Parent, Stockholder or the Company, respectively, or any of their respective
affiliates.
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Section 8.6 AFFILIATES. The Company shall use its reasonable best efforts
to cause each person, listed on EXHIBIT J hereto (other than Stockholder) to
deliver to Parent, as soon as practicable after the date of this Agreement, and
in any event prior to the Effective Time, a written agreement, in the form of
EXHIBIT K hereto, as applicable, providing that such person will not sell,
pledge, transfer or otherwise dispose of any shares of Parent Common Stock,
Parent Preferred Stock or Parent Warrants to be received by such "affiliate" in
the Merger, other than as contemplated in such written agreement. Other than
those persons listed on EXHIBIT J, there are no "affiliates" (for purposes of
Rule 145 under the Securities Act) of the Company.
Section 8.7 NASDAQ QUOTATION. Parent shall use reasonable best efforts to
cause the shares of Parent Common Stock, shares of Parent Preferred Stock and
Parent Warrants to be issued in the Merger to be authorized for quotation on
Nasdaq (or if the eligibility requirements are not satisfied or waived, on the
American Stock Exchange or other exchange acceptable to Parent and Stockholder)
prior to the Effective Time, and the Company shall use reasonable best efforts
to cause the Company Warrants to be issued in the Merger to be authorized for
quotation on Nasdaq (or if the eligibility requirements are not satisfied or
waived, on the American Stock Exchange or other exchange acceptable to the
Company) prior to the Recapitalization. In the event that Parent Preferred
Stock, Parent Warrants and/or Company Warrants do not meet the eligibility
requirements for listing or quotation on an acceptable exchange prior to the
Effective Time or Recapitalization, as appropriate, Parent and/or the Company,
as the case may be, shall use its reasonable best efforts to have such
securities listed or quoted as soon as the eligibility requirements with respect
thereto are satisfied or waived.
Section 8.8 ADDITIONAL AGREEMENTS. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement and their respective Subsidiaries shall take all such necessary action
as may be reasonably requested by Parent.
Section 8.9 ADVICE OF CHANGES. Parent and the Company shall each promptly
advise the other parties hereto of any change or event having a Material Adverse
Effect on it, and each of Parent, the Company and Stockholder shall each
promptly advise the other parties hereto of any change or event that it believes
would or would be reasonably likely to cause or constitute a material breach of
any of its or its Subsidiaries' representations, warranties or covenants
contained herein.
Section 8.10 SECTION 16. Prior to the Effective Time, each of the Company
and Parent shall take all such steps as may be required to cause the
transactions contemplated by this Agreement, including any dispositions of
Company Stock (including derivative securities with respect to the Company
Stock) and acquisitions of Parent Common Stock, Parent Preferred Stock, Parent
Warrants and Company Warrants (including derivative securities with respect to
Parent Common Stock, Parent Preferred Stock, Parent Warrants and Company
Warrants) by each Person who is or will be subject to the reporting requirements
of Section 16(a) of the Exchange Act with respect to the Company or Parent, as
the case may be, to be exempt under Rule 16b-3 promulgated under the Exchange
Act.
Section 8.11 RELATIONSHIP WITH PARENT. (a) Neither anything contained in
this Agreement nor the ownership of shares of Company Common Stock or Company
Class B Common Stock (except as may be provided in the Company's Articles of
Incorporation) shall (i) restrict Parent or any of its Subsidiaries from
engaging in or owning an interest in any business which competes with the
Company or any Subsidiary of the Company, or (ii) restrict the Company or any of
its Subsidiaries from engaging in or owning an interest in any business which
competes with Parent or any of its Subsidiaries.
(b) For so long as Parent owns at least 50.1% of the aggregate voting power
of the Company, the Company shall not enter into any material contract,
arrangement or transaction with Parent or any of its affiliates, or enter into
any material amendment of any of the foregoing without the approval of a
majority of the Company's independent directors.
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(c) There shall be meaningful consultation between USA and the Company's CEO
in the selection of the independent directors of the Company.
(d) The independent directors of the Company's Board of Director shall have
the right, on behalf of the Company, to enforce the provisions of this
Section 8.11. Any amendment or waiver to any of the provisions of this
Section 8.11 shall require the approval of a majority of the independent
directors of the Company's Board of Directors.
Section 8.12 COMPANY WARRANT DISTRIBUTION. Prior to the listing of the
Company Warrants on Nasdaq, the American Stock Exchange or other exchange
acceptable to the Company, the Company shall, subject to applicable law,
distribute (the "DISTRIBUTION") to holders of the options issued under the
Company Stock Option Plans that are outstanding on the date of the Distribution
a number of Company Warrants equal to the Company Warrant Exchange Ratio with
respect to each share of Company Common Stock underlying any such Company option
that was outstanding as of August 2, 2001, whether or not then vested; PROVIDED,
HOWEVER, that, subject to the following sentence, Company Warrants distributed
in respect of unvested Company options shall be restricted and shall become
exercisable and transferable upon the vesting of the related Company option; and
PROVIDED, FURTHER, that the Company shall take all steps necessary to ensure
that no holder of Company options (for purposes hereof, subsequent holders of
shares of Company Common Stock issued in respect of Company options that were
the subject of the Distribution shall be treated as the holder of such Company
options) receives, in respect of a Company option (including shares of Company
Common Stock received upon exercise of such option), both the Company Warrants
contemplated hereby and either (i) the distribution contemplated by the last
sentence of this Section 8.12, or (ii) the Merger Consideration. With respect to
all Company Warrants issued in the Distribution, whether vested or unvested, the
Company shall instruct its transfer agent to place a stop transfer order on
certificates representing Company Warrants issued in the Distribution for a
period of 90 days following the date of Distribution and no Company Warrant
issued in the Distribution shall be exercisable during such 90-day period. The
Company agrees to terminate such stop transfer order immediately upon expiration
of such 90-day period. The Company shall take all reasonable steps necessary to
ensure that it is informed promptly by its transfer agent of any exercise or
disposition of Company Warrants. If the Recapitalization and the Merger shall
not have occurred and this Agreement shall have been terminated, the Company
shall cause to be distributed to all holders of Company Common Stock and
Existing Company Warrants (other than Existing Company Warrants which by their
terms or the terms of their underlying warrant agreements would be equitably
adjusted to give effect to such distribution), but not to holders of Company
options (including holders of shares of Company Common Stock received upon
exercise of Company options with respect to which the Distribution was made) a
number of Company Warrants equal to the Company Warrant Exchange Ratio with
respect to each such share of Company Stock and each such Existing Company
Warrant.
Section 8.13 TAX COVENANT. Any Tax sharing, allocation or indemnification
agreement between the Company or any of its Subsidiaries, on the one hand, and
Stockholder or any of its Subsidiaries, on the other hand, other than the Tax
Allocation Agreement dated as of October 1, 1999 by and between Stockholder and
the Company (the "1999 TAX ALLOCATION AGREEMENT") shall terminate as of the
Effective Time, and no party shall be required to make any further payments
thereunder with respect to any past, present or future taxable period. The 1999
Tax Allocation Agreement shall not be amended at or prior to the Effective Time
without Parent's prior written consent and shall remain in effect following the
Closing; PROVIDED, HOWEVER, that the aggregate liability of the Company to make
payment after the date of this Agreement under the 1999 Tax Allocation Agreement
with respect to any past, present or future taxable period shall not exceed
$36,300,000 and that the term "Inherent Bargain Element," as used in the 1999
Tax Allocation Agreement, shall not include any amount with respect to any
option to purchase Company Common Stock granted on or after the date of this
Agreement. Stockholder shall indemnify and hold harmless the Company and Parent
from and against (i) any and all liability for Taxes with respect to any
"Consolidated Return," "Foreign Combined Return" or "State/
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Local Combined Return" (as such terms are defined in the 1999 Tax Allocation
Agreement) and (ii) any and all liability under Treasury Regulation
Section 1.1502-6 (or any analogous provision of state, local or foreign law) as
a result of the Company's membership in any consolidated, combined or unitary
group of which Stockholder or any of its Subsidiaries is or was the common
parent; PROVIDED, HOWEVER, that nothing herein shall be deemed to give Company,
Parent or any party related thereto the right to review any Tax Return of the MS
Affiliated Group (as such term is defined in the 1999 Tax Allocation Agreement)
or any member thereof. Stockholder agrees not to carry back for federal, state,
local or foreign tax purposes any net operating loss, capital loss or credit
against Tax of the Company or any of its Subsidiaries for any "separate return
year" (as defined in Treasury Regulation Section 1.1502-1).
Section 8.14 REORGANIZATION. Following the Effective Time, neither
Stockholder, the Surviving Corporation, Parent nor any of their affiliates shall
knowingly take any action, cause any action to be taken, fail to take any
commercially reasonable action or cause any commercially reasonable action to
fail to be taken, which action or failure to act would reasonably be expected to
cause the Recapitalization or the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
Section 8.15 PARENT REGISTRATION RIGHTS AGREEMENT. At or prior to the
Effective Time, Parent and the Company shall enter into a registration rights
agreement relating to Parent's shares of Company Common Stock on no less
favorable terms than those contained in the Shareholder Agreement.
Section 8.16 ARTICLES OF INCORPORATION AND BY-LAW AMENDMENT. Promptly
following the date hereof, and no event later than thirty (30) days from the
date hereof, the Company shall (i) file with the Secretary of State of the State
of Washington Articles of Correction correcting the reference in Article VIII
thereof to "Class B Common Shares "to "Common Shares" and (ii) amend its bylaws
to permit a special meeting of the stockholders to be called by the holders of a
majority of the voting power of the Company.
ARTICLE IX
CONDITIONS
Section 9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
TRANSACTIONS. The respective obligations of the parties to effect the
Transactions shall be subject to the satisfaction at or prior to the effective
time of the Recapitalization of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby, including the Recapitalization and the Merger, the
Articles Amendment and the Shareholder Agreement Termination shall have been
approved by the respective requisite affirmative vote of the holders of
Company Common Stock entitled to vote thereon.
(b) NASD CLEARANCE. The NASD shall have approved or otherwise
indicated its no-action position in writing with respect to the dual voting
class structure contemplated in the Transactions.
(c) NASDAQ/AMERICAN STOCK EXCHANGE LISTINGS. The shares of Parent
Common Stock, shares of Parent Preferred Stock, Parent Warrants, Company
Warrants, and if required, Class B Common Stock to be issued in the Merger
shall, to the extent eligible for such authorization or listing, have been
authorized for quotation on Nasdaq, or the American Stock Exchange or other
exchange acceptable to Stockholder, as provided for in this Agreement.
(d) OTHER APPROVALS. Any waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have expired or been
terminated and all other material notifications, consents, authorizations
and approvals required to be made or obtained from any competition or
antitrust authority have been made or obtained for the transactions
contemplated by the Merger (all such approvals and the expiration of all
such waiting periods being referred to herein as the "REQUISITE REGULATORY
APPROVAL").
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(e) EFFECTIVENESS OF REGISTRATION STATEMENTS. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of any of the Registration Statements
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
(f) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No Injunction preventing
the consummation of any or all of the Transactions shall be in effect. No
statute, rule, regulation, order, Injunction or decree shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, materially restricts or makes illegal consummation of any or all
of the Transactions.
(g) FEDERAL TAX OPINION. The Company shall have received an opinion of
Shearman & Sterling, dated the Closing Date, substantially to the effect
that (a) each of the Company Recapitalization and the Merger will, taking
into account all of the transactions contemplated hereunder, constitute a
reorganization within the meaning of Section 368(a) of the Code, and (b) no
gain or loss will be recognized by the shareholders of the Company upon the
receipt of Parent Common Stock, Parent Preferred Stock and Parent Warrants
in exchange for their shares of Company Class B Common Stock in the Merger.
In rendering such opinion, such counsel may require and rely upon
representations provided and addressed to counsel for the Company, Parent
and Stockholder in certificates of officers of Parent, Stockholder, Merger
Sub and the Company.
Section 9.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of
the Company to effect the Transactions are also subject to the satisfaction, or
waiver by the Company (which waiver shall be subject to the consent of
Stockholder), at or prior to the Effective Time, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Stockholder set forth in this Agreement and the Voting and
Election Agreement that are qualified by materiality (including Material
Adverse Effect) shall be true and correct and all other representations and
warranties of Parent and Stockholder set forth in this Agreement and the
Voting and Election Agreement shall be true and correct in all material
respects, in each case as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified date) as
of the Closing Date as though made on and as of the Closing Date. The
Company shall have received certificates signed on behalf of Parent and
Stockholder by a respective appropriate executive officer to such effect.
(b) PERFORMANCE OF OBLIGATIONS. Parent and Stockholder shall have
performed in all material respects all obligations required to be performed
by them under this Agreement and the Voting and Election Agreement at or
prior to the Closing Date, and the Company shall have received certificates
signed on behalf of Parent and Stockholder by a respective appropriate
executive officer to such effect.
Section 9.3 CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of Parent
to effect the Transactions are also subject to the satisfaction or waiver by
Parent at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company and Stockholder set forth in this Agreement and the Voting
and Election Agreement that are qualified by materiality (including Material
Adverse Effect) shall be true and correct and all other representations and
warranties of the Company and Stockholder set forth in this Agreement and
the Voting and Election Agreement shall be true and correct in all material
respects, in each case as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date. Parent
shall have received certificates signed on behalf of the Company and
Stockholder by a respective appropriate officer to such effect.
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(b) PERFORMANCE OF OBLIGATIONS. Each of the Company and Stockholder
shall have performed in all material respects all obligations required to be
performed by it under this Agreement and the Voting and Election Agreement
at or prior to the Closing Date, and Parent shall have received certificates
signed on behalf of the Company and Stockholder by a respective appropriate
officer to such effect.
(c) STOCKHOLDER AGREEMENT TERMINATION. The Shareholder Agreement
Termination shall have been approved and effected as contemplated by
Section 1.7.
Section 9.4 CONDITIONS TO OBLIGATIONS OF STOCKHOLDER. Neither the
Recapitalization nor the Merger shall occur unless the following conditions are
satisfied or waived by Stockholder, at or prior to the effective time of the
Recapitalization:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent set forth in this Agreement that are qualified by materiality
(including Material Adverse Effect) shall be true and correct and all other
representations and warranties of Parent set forth in this Agreement shall
be true and correct in all material respects, in each case as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and as
of the Closing Date. Stockholder shall have received a certificate signed on
behalf of Parent by an appropriate officer to such effect.
(b) PERFORMANCE OF OBLIGATIONS. Each of the Company and Parent 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, and
Stockholder shall have received certificates signed on behalf of the Company
and Parent by a respective appropriate officer to such effect.
(c) SHAREHOLDER AGREEMENT TERMINATION; STOCKHOLDER REGISTRATION RIGHTS
AGREEMENT. The Shareholder Agreement Termination shall have been approved
and effected as contemplated by Section 1.7, and the Stockholders
Registration Rights Agreement shall have been executed as contemplated
hereby.
(d) Stockholder shall have received an opinion of Preston Gates & Ellis
LLP or another nationally recognized law firm, dated the Closing Date,
substantially to the effect that (a) each of the Company Recapitalization
and the Merger will, taking into account all of the transactions
contemplated hereunder, constitute a reorganization within the meaning of
Section 368(a) of the Code, and (b) no gain or loss will be recognized by
Stockholder upon the receipt of Parent Common Stock, Parent Preferred Stock
and Parent Warrants in exchange for Stockholder's shares of Company Class B
Common Stock in the Merger. In rendering such opinion, such counsel may
require and rely upon representations provided and addressed to counsel for
the Company and Parent in certificates of officers of the Company and
Parent.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the shareholders of the Company:
(a) by mutual consent of Parent, Stockholder and the Company in a
written instrument;
(b) by any of Parent, Stockholder or the Company if any Governmental
Entity that must grant a Requisite Regulatory Approval has denied approval
of the Merger and such denial has become final and nonappealable or any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order permanently enjoining or otherwise prohibiting the
consummation of any or all of the Transactions;
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(c) by Parent, Stockholder or the Company if the Effective Time shall
not have occurred on or before the nine month anniversary of the date of
this Agreement (the "TERMINATION DATE"), unless the failure of the Effective
Time to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein or in the Voting and Election
Agreement; PROVIDED, HOWEVER, that the Termination Date shall automatically
be extended for three months if the Merger shall not have been consummated
as a direct result of the Requisite Regulatory Approvals not having been
received;
(d) by Parent, Stockholder or the Company (provided that the
terminating party is not then in breach of any representation, warranty,
covenant or other agreement contained herein or in the Voting and Election
Agreement) if there shall have been a breach by any other party of any of
its respective covenants or agreements or any its respective representations
or warranties set forth or expressly incorporated in this Agreement or in
the Voting and Election Agreement, which breach, either individually or in
the aggregate, would constitute, if occurring or continuing on the Closing
Date, the failure of the conditions set forth in Section 9.2(a) or, 9.2(b),
in the case of termination by the Company or Stockholder, or Sections 9.3(a)
or 9.3(b), in the case of a termination by Parent, and which is not cured
within thirty (30) days following written notice to the party committing
such breach or by its nature or timing cannot be cured prior to the Closing
Date;
(e) by Parent, Stockholder or the Company if any litigation or
proceeding is pending before any court of competent jurisdiction or has been
threatened to be instituted by any governmental body, which in the good
faith judgment of the terminating party's Board of Directors, would
reasonably be likely to result in an order, decree or ruling seeking
substantial damages in respect of, or substantially impairing the benefits
to such party of, the Transactions;
(f) by Parent if there shall have been a breach by Stockholder of any
of the covenants or agreements set forth in the Voting and Election
Agreement, which breach is not cured within ten days following written
notice to Stockholder or by its nature or timing cannot be cured prior to
the Closing Date; or
(g) by Parent if the Company shall have breached its obligations
contained in the last sentence of Section 8.4.
(h) Before any notice of termination shall be given by either the
Company or Stockholder under Section 10.1(d) or 10.1(e), Company or
Stockholder, as applicable, shall give notice of a proposed termination to
the other, upon the receipt of which Stockholder and the Company shall
consult with one another. The period of consultation will end on the earlier
of (i) the delivery by the party to which the notice of proposed termination
was delivered of written consent to give the notice of termination or
(ii) 20 days after the delivery of the notice of proposed termination. The
notice of proposed termination shall set forth the grounds for giving the
notice of termination. If the period of consultation ends as a result of the
lapse of 20 days, the grounds for giving the notice of termination shall be
limited to one or more of the grounds set forth in the notice of proposed
termination.
Section 10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by Parent, Stockholder or the Company as provided in Section 10.1,
this Agreement shall forthwith become void and have no effect, and none of
Parent, Merger Sub or the Company, any of their respective Subsidiaries or any
of the officers or directors of any of them shall have any liability of any
nature whatsoever hereunder, or in connection with the transactions contemplated
hereby, except that (i) Sections 8.2(b), 8.12 and 11.2 and this Section 10.2
shall survive any termination of this Agreement, and (ii) notwithstanding
anything to the contrary contained in this Agreement, no party shall be relieved
or released from any liabilities or damages arising out of its willful breach of
any provision of this Agreement.
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Section 10.3 AMENDMENT. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented at the Shareholder Meeting by the shareholders of the
Company; PROVIDED, HOWEVER, that after any approval of the transactions
contemplated by this Agreement by the shareholders of the Company, there may not
be, without further approval of such shareholders, any amendment of this
Agreement that changes the amount or the form of the consideration to be
delivered hereunder to the holders of Company Stock other than as contemplated
by this Agreement. This Agreement may not be amended except by an instrument in
writing signed by Parent, Stockholder and the Company.
Section 10.4 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; PROVIDED, HOWEVER,
that after any approval of the transactions contemplated by this Agreement by
the shareholders of the Company, there may not be, without further approval of
such shareholders, any extension or waiver of this Agreement or any portion
thereof which reduces the amount or changes the form of the consideration to be
delivered to the holders of Company Stock hereunder, other than as contemplated
by this Agreement. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None
of the representations, warranties, covenants and agreements in this Agreement
or in any instrument delivered pursuant to this Agreement (other than the
Confidentiality Agreements, which shall terminate in accordance with their
terms) shall survive the Closing except for those covenants and agreements
contained herein which by their terms apply in whole or in part after the
Closing.
Section 11.2 EXPENSES. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense; PROVIDED, HOWEVER, that the costs and expenses of
printing and mailing the Joint Prospectus/Proxy Statement, and all filing and
other fees paid to the SEC or in respect of HSR, in each case in connection with
the Transactions, shall be borne equally by Parent, Stockholder and the Company.
Section 11.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) 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 the Company, to:
Expedia, Inc.
13810 SE Eastgate Way, Suite 400
Bellevue, WA 98005
Attention: General Counsel
Telecopier: (425) 564-7240
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with a copy to:
Shearman & Sterling
555 California Street, Suite 2000
San Francisco, CA 94104
Attention: Peter D. Lyons, Esq.
Telecopier: (415) 616-1199
(b) if to Parent, to:
USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Attention: General Counsel
Telecopier: (212) 314-7329
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Pamela S. Seymon, Esq.
Andrew J. Nussbaum, Esq.
Telecopier: (212) 403-2000
and
(c) if to Stockholder, to:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052
Attention: Deputy General Counsel, Finance and Operations
Telecopier: (425) 706-7329
and if to Holdings, to:
Microsoft E-Holdings, Inc.
101 Convention Center Drive, Suite 850
Las Vegas, NV 89016
Attention: Monte Miller, Esq.
Telecopier: (702) 598-3651
in either case, with a copy to:
Preston Gates & Ellis LLP
701 Fifth Avenue, Suite 5000
Seattle, WA 98104
Attention: Richard B. Dodd, Esq.
Telecopier: (206) 623-7022
Section 11.4 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule 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."
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Section 11.5 COUNTERPARTS. This Agreement may be executed by facsimile and
in counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
Section 11.6 ENTIRE AGREEMENT. This Agreement (including the documents and
the instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof other than the
Confidentiality Agreement.
Section 11.7 GOVERNING LAW. (a) This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without regard
to any applicable conflicts of law principles.
(b) Each party hereto irrevocably submits to the jurisdiction of any
Delaware state court or any federal court sitting in the State of Delaware in
any action arising out of or relating to this Agreement, and hereby irrevocably
agrees that all claims in respect of such action may be heard and determined in
such Delaware state or federal court. Each party hereto hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding. The parties
hereto further agree, to the extent permitted by law, that final and
unappealable judgment against any of them in any action or proceeding
contemplated above shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified copy of which shall be conclusive evidence of the fact and amount of
such judgment.
(c) To the extent that any party hereto has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
party hereto hereby irrevocably waives such immunity in respect of its
obligations with respect to this Agreement.
(d) Each party hereto waives, to the fullest extent permitted by applicable
laws, any right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of or relating to this Agreement. Each party hereto
certifies that it has been induced to enter into this Agreement by, among other
things, the mutual waivers and certifications set forth above in this
Section 11.7.
Section 11.8 PUBLICITY. Except as otherwise required by applicable law or
the rules of Nasdaq, none of the parties hereto shall, or shall permit any of
its Subsidiaries to, issue or cause the publication of any press release or
other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement without
the consent of the other parties hereto, which consent shall not be unreasonably
withheld (provided that the consent of Parent shall be deemed to be the consent
of and Merger Sub).
Section 11.9 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement
nor any of the rights, interests or obligations shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. This Agreement
(including the documents and instruments referred to herein) is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
Section 11.10 SPECIFIC ENFORCEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Voting and Election Agreement were not performed in accordance
with their specific terms or were otherwise breached in any material respect. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement or any related agreement,
including the Voting and Election
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Agreement, and to enforce specifically the terms and provisions of this
Agreement or any related agreement, including the Voting and Election Agreement.
A party is entitled to seek injunctive relief to prevent any breach and to
enforce terms or provisions if such breach would serve as a basis of terminating
this Agreement or the Voting and Election Agreement by such party. No party
seeking such relief shall be required to post bond or other security or to prove
the inadequacy of available remedies at law in order to obtain such relief. The
rights provided by this section are in addition to any other remedy to which
they are entitled at law or in equity including an action seeking damages.
IN WITNESS WHEREOF, Parent, the Company, Merger Sub, Holdings and
Stockholder have caused this Agreement to be executed by their respective
officers thereunto duly authorized as of the date first above written.
USA NETWORKS, INC.
By: /s/ JULIUS GENACHOWSKI
-----------------------------------------
Name: Julius Genachowski
Title: Senior Vice President, General
Counsel and Secretary
EXPEDIA, INC.
By: /s/ RICHARD BARTON
-----------------------------------------
Name: Richard Barton
Title: CEO and President
TAIPEI, INC.
By: /s/ JULIUS GENACHOWSKI
-----------------------------------------
Name: Julius Genachowski
Title: Vice President, General Counsel
and Secretary
MICROSOFT CORPORATION
By: /s/ RICHARD EMERSON
-----------------------------------------
Name: Richard Emerson
Title: Senior Vice President, Corporate
Development and Strategy
MICROSOFT E-HOLDINGS, INC.
By: /s/ THOMAS C. BAUMBACH
-----------------------------------------
Name: Thomas C. Baumbach
Title: President and Treasurer
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ANNEX B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
EXPEDIA, INC.
Pursuant to Section 23B.10.070 of the Revised Code of Washington (the
"RCW"), the following Amended and Restated Articles of Incorporation of
Expedia, Inc. (the "Corporation") are hereby submitted for filing:
ARTICLE I
The name of this corporation is Expedia, Inc. (the "Corporation").
ARTICLE II
SECTION 2.1 AUTHORIZED CAPITAL. The Corporation is authorized to issue an
aggregate of Seven Hundred Seventy Million (770,000,000) shares of capital
stock, consisting of three classes of shares to be designated, respectively,
"Common Stock", "Class B Common Stock" (collectively the Common Stock and the
Class B Common Stock are referred to herein as the "Authorized Common Stock")
and "Preferred Stock." The total number of shares of Common Stock that the
Corporation shall have authority to issue is Six Hundred Million (600,000,000)
shares, each with a par value of $0.01. The total number of shares of Class B
Common Stock that the Corporation shall have authority to issue is One Hundred
Fifty Million (150,000,000) shares, each with a par value of $0.01. The total
number of shares of Preferred Stock that the Corporation shall have authority to
issue is Twenty Million (20,000,000) shares, each with a par value of $0.01. The
Common Stock, Class B Common Stock and the Preferred Stock shall be sometimes
referred to herein as the "Authorized Shares".
SECTION 2.2 PREFERRED STOCK. The Preferred Stock may be issued from time to
time in one or more series, the shares of each series to have such voting
powers, full or limited, and such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof as are stated and expressed herein or in the resolution
or resolutions providing for the issue of such series adopted by the Board of
Directors (the "Board"). The authority of the Board with respect to each series
of Preferred Stock shall include, but not be limited to, the determination or
fixing of the following:
(a) The number of shares of such series;
(b) The designation of such series;
(c) The dividends of such series, the conditions and dates upon which such
dividends shall be payable, the relation which such dividends shall bear
to the dividends payable on any other class or classes of stock and
whether such dividends shall be cumulative or noncumulative;
(d) Whether the shares of such series shall be subject to redemption by the
Corporation and, if made subject to such redemption, the times, prices,
rates, adjustments, and other terms and conditions of such redemption;
(e) The terms and amounts of any sinking fund provided for the purchase or
redemption of the shares of such series;
(f) Whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes or of any other
series of any class or classes of stock of the
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Corporation and, if provision be made for conversion or exchange, the
times, prices, rates, adjustments, and other terms and conditions of such
conversion or exchange;
(g) The extent, if any, to which the holders of the shares of such series
shall be entitled to vote with respect to the election of the members of
the Board of Directors (the "Directors") or otherwise, including the
right to elect a specified number or class of directors, the number or
percentage of votes required for certain actions, and the extent to which
a vote by class or series shall be required for certain actions;
(h) The restrictions, if any, on the issue or reissue of any Preferred
Stock;
(i) The rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of the assets of, the
Corporation; and
(j) The extent, if any, to which any committee of the Board may fix the
designations and any of the preferences or rights of the shares of such
series relating to dividends, redemption, dissolution, any distribution
of assets of the Corporation or the conversion into or exchange of such
shares for shares of any other class or classes of stock of the
Corporation or any other series of the same or any other class or classes
of stock of the Corporation, or fix the number of shares of any such
series or authorize the increase or decrease in the shares of such
series.
SECTION 2.3 AUTHORIZED COMMON STOCK.
(a) DIVIDEND RIGHTS. Subject to the prior rights of holders of all classes
of stock at the time outstanding having prior rights as to dividends, the
holders of the Common Stock and the Class B Common Stock, on a share for share
basis, shall be entitled to receive, when, as and if declared by the Board, out
of any assets of the Corporation legally available therefor, such dividends as
may be declared from time to time by the Board.
(b) LIQUIDATION RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior liquidation rights, upon
the liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation shall be distributed to the holders of the Common Stock and the
Class B Common Stock, on a share for share basis.
(c) REDEMPTION. The Common Stock and the Class B Common Stock are not
redeemable; provided however, that the Company's repurchase of shares of its
capital stock pursuant to agreements approved by the Board shall not be deemed
"redemptions" and shall be allowed, subject to limitations on "distributions"
pursuant to corporate law.
(d) VOTING RIGHTS. Except as otherwise provided herein or required by
applicable law, (i) each holder of Common Stock shall be entitled to one
(1) vote for each share of Common Stock held as of the applicable record date on
any matter that is submitted to a vote or for the consent of the shareholders of
the Corporation, and (ii) each holder of Class B Common Stock shall be entitled
to fifteen (15) votes for each share of Class B Common Stock held as of the
applicable record date on any matter that is submitted to a vote or for the
consent of the shareholders of the Corporation. Holders of Common Stock and
Class B Common Stock shall be entitled to notice of any shareholders' meeting in
accordance with the Bylaws of the Corporation. Except as otherwise required by
applicable law, the Common Stock and the Class B Common Stock shall vote
together as a single class on all matters submitted to a vote or for the consent
of the shareholders of the Corporation. Holders of Common Stock and Class B
Common Stock shall not be entitled to cumulate their votes for the election of
directors or any other matter submitted to a vote of the shareholders.
(e) STOCK DIVIDENDS, STOCK SPLITS OR COMBINATIONS. In no event shall any
stock dividends or stock splits or combinations of stock be declared or made
with respect to the Common Stock and Class B
B-2
Common Stock unless all shares of Common Stock and Class B Common Stock then
outstanding are treated equally.
SECTION 2.4 ISSUANCE OF SHARES. The Corporation may from time to time issue
and dispose of any of the Authorized Shares for such consideration as may be
fixed from time to time by the Board, without action by the shareholders. The
Board may provide for payment therefor to be received by the Corporation in
cash, property, services or such other consideration as is approved by the
Board. Any and all such Authorized Shares of the Corporation, the issuance of
which has been so authorized, and for which consideration so fixed by the Board
has been paid or delivered, shall be deemed fully paid stock and shall not be
liable to any further call or assessment thereon.
ARTICLE III. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of the Corporation, except to the
extent provided by written agreement with the Corporation.
ARTICLE IV. ACTION BY MAJORITY VOTE
Except as otherwise set forth herein, to the maximum extent permitted under
Chapter 23B of the RCW, any corporate action that would otherwise require the
affirmative vote of more than a simple majority of the voting power of the
shareholders of the Corporation entitled to vote on an action may be approved by
the affirmative vote of a simple majority of the voting power of the
shareholders of the Corporation entitled to vote on such action. This
Article IV is specifically intended to reduce the voting requirements otherwise
prescribed under RCW 23B.10.030, 23B.11.030, 23B.12.020 and 23B.14.020, in
accordance with RCW 23B.07.270.
ARTICLE V. DIRECTORS
The number of directors of the Corporation shall be determined in the manner
provided by the Bylaws and may be increased or decreased from time to time in
the manner provided therein. Election of directors need not be by written ballot
except and to the extent provided by the Bylaws of the Corporation.
ARTICLE VI. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws subject to the power of the shareholders to amend or repeal such Bylaws.
The shareholders shall also have the power to amend or repeal the Bylaws and to
adopt new Bylaws.
ARTICLE VII. ACTION BY SHAREHOLDERS WITHOUT A MEETING
To the maximum extent permitted under Chapter 23B of the RCW, any action
required or permitted to be taken at any meeting of the Corporation's
shareholders may be taken without a meeting.
ARTICLE VIII. CONDUCT OF CERTAIN AFFAIRS OF THE CORPORATION
SECTION 8.1 DEFINITIONS. As used in this Article VIII, the following terms
shall have the following meanings:
(a) "AFFILIATE" shall mean any Person controlling, controlled by or
under common control with such Person. For the purposes of this definition
of "Affiliate," "control," when used with respect to any specified Person,
shall mean the power to direct or cause the direction of the management and
policies of such Person, directly or indirectly, whether through ownership
of voting securities or
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partnership or other ownership interests, by contract or otherwise; and the
terms "controlling" and "controlled" shall have correlative meanings.
(b) "CORPORATE OPPORTUNITY" shall mean an investment or business
opportunity or prospective economic advantage in which the Corporation
could, but for the provisions of this Article VIII, have an interest or
expectancy.
(c) "PARENT" shall mean USA Networks, Inc., a Delaware corporation, and
any of its Affiliates.
(d) "PERSON" shall mean any individual, corporation, partnership, firm,
group (as such term is used in Section 13(d)(3) of the Exchange Act of 1934,
as amended), joint venture, association, trust, limited liability company,
unincorporated organization, estate, trust or other entity.
(e) "SUBSIDIARY" shall mean any corporation, partnership, joint venture
or other legal entity of which such Person (either directly or through or
together with any other Subsidiary of such Person), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders
of which are generally entitled to vote for the election of the board of
directors or similar governing body of such corporation, partnership, joint
venture or other legal entity.
SECTION 8.2 COMPETING ACTIVITIES. Except as otherwise expressly provided in
an agreement between the Corporation and any shareholder or among the
Corporation and any two or more shareholders, (a) the shareholders of the
Corporation, including, without limitation, Parent and its officers, directors,
agents, employees, shareholders, members, partners and Affiliates, may engage or
invest in, independently or with others, any business activity of any type or
description, including without limitation those that might be the same as or
similar to the Corporation's business or the business of any Subsidiary of the
Corporation; (b) neither the Corporation, any Subsidiary of the Corporation nor
any shareholder of the Corporation shall have any right in or to such business
activities or ventures or to receive or share in any income or proceeds derived
therefrom; and (c) to the extent required by applicable law in order to
effectuate the purpose of this provision, the Corporation shall have no interest
or expectancy, and specifically renounces any interest or expectancy, in any
such business activities or ventures.
SECTION 8.3 CORPORATE OPPORTUNITIES.
(a) If Parent (or, as set forth below, any of its officers, directors,
agents, employees, shareholders, members, partners or Affiliates) acquires
knowledge of a potential transaction or matter which may be a Corporate
Opportunity or otherwise is then exploiting any Corporate Opportunity, the
Corporation shall have no interest in such Corporate Opportunity and no
expectancy that such Corporate Opportunity be offered to the Corporation,
any such interest or expectancy being hereby renounced, so that, as a result
of such renunciation, and for the avoidance of doubt, such Person (i) shall
have no duty to communicate or present such Corporate Opportunity to the
Corporation, (ii) shall have the right to hold any such Corporate
Opportunity for its (and/or its officers', directors', agents', employees',
shareholders', members', partners' or Affiliates') own account or to
recommend, sell, assign or transfer such Corporate Opportunity to Persons
other than the Corporation or any Subsidiary of the Corporation, and
(iii) shall not breach any fiduciary duty to the Corporation, in such
Person's capacity as a shareholder of the Corporation or otherwise, by
reason of the fact that such Person pursues or acquires such Corporate
Opportunity for itself, directs, sells, assigns or transfers such Corporate
Opportunity to another Person, or does not communicate information regarding
such Corporate Opportunity to the Corporation.
(b) Notwithstanding the provisions of Section 8.3(a) of this
Article VIII, the Corporation does not renounce any interest or expectancy
it may have in any Corporate Opportunity that is offered to any person who
is an officer of the Corporation and who is also a director, but not an
officer or
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employee, of Parent if such opportunity is expressly offered to such person
in his or her capacity as an officer of the Corporation.
(c) For purposes of this Article VIII only, (i) a director of the
Corporation who is Chairman of the Board of Directors of the Corporation or
of a committee thereof shall not be deemed to be an officer of the
Corporation by reason of holding such position (without regard to whether
such position is deemed an officer of the corporation under the Bylaws of
the Corporation), unless such person is a full-time employee of the
Corporation; and (ii) the term "Corporation" shall mean the Corporation and,
except where the context requires otherwise, shall also include all
corporations, partnerships, joint ventures, associations and other entities
in which the Corporation beneficially owns (directly or indirectly) 50% or
more of the outstanding voting stock, voting power, partnership interests or
similar voting interests.
(d) Anything in these Amended and Restated Articles of Incorporation to
the contrary notwithstanding, (i) this Section 8.3 shall expire on the date
that (A) Parent ceases to beneficially own Authorized Common Stock
representing at least 20% of the total voting power of all classes of
outstanding capital stock of the Corporation entitled to vote in the
election of directors and (B) no person who is a director or officer of the
Corporation is also a director or officer of Parent; and (ii) in addition to
any vote of the shareholders required by law, until the time that Parent
ceases to beneficially own Authorized Common Stock representing at least 20%
of the total voting power of all classes of outstanding capital stock of the
Corporation entitled to vote in the election of directors, the affirmative
vote of the holders of more than 80% of the total voting power of all such
classes of outstanding capital stock of the Corporation shall be required to
alter, amend or repeal in a manner adverse to the interests of Parent, or to
adopt any provision adverse to the interests of Parent and inconsistent
with, any provision of this Article VIII. Neither the alteration, amendment
or repeal of this Article VIII nor the adoption of any provision of this
Amended and Restated Articles of Incorporation inconsistent with this
Article VIII shall eliminate or reduce the effect of this Article VIII in
respect of any matter occurring, or any cause of action, suit or claim that,
but for this Article VIII, would accrue or arise prior to such alteration,
amendment, repeal or adoption.
SECTION 8.4 NOTICE TO HOLDERS. Any person purchasing or otherwise acquiring
any interest in shares of the capital stock of the Corporation shall be deemed
to have notice of and to have consented to the provisions of this Article VIII.
ARTICLE IX. LIMITATION OF DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for conduct as a director,
except for:
(a) Acts or omissions involving intentional misconduct by the director or a
knowing violation of law by the director;
(b) Conduct violating RCW 23B.08.310 (which involves certain distributions
by the Corporation);
(c) Any transaction from which the director will personally receive a
benefit in money, property, or services to which the director is not
legally entitled.
If the Washington Business Corporation Act is amended to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Washington Business Corporation Act, as so
amended. Any repeal or modification of the foregoing paragraph by the
shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation with respect to any acts or
omissions of such director occurring prior to such repeal or modification.
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ARTICLE X. INDEMNIFICATION
SECTION 10.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation
shall indemnify and hold harmless each individual who is or was serving as a
director or officer of the Corporation or who, while serving as a director or
officer of the Corporation, is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, against any and all liability incurred with respect to
any proceeding to which the individual is or is threatened to be made a party
because of such service, and shall make advances of reasonable expenses with
respect to such proceeding, to the fullest extent permitted by law, without
regard to the limitations in RCW 23B.08.510 through 23B.08.550; provided that no
such indemnity shall indemnify any director or officer from or on account of
(a) acts or omissions of the director or officer finally adjudged to be
intentional misconduct or a knowing violation of law; (b) conduct of the
director or officer finally adjudged to be in violation of RCW 23B.08.310; or
(c) any transaction with respect to which it was finally adjudged that such
director or officer personally received a benefit in money, property, or
services to which the director or officer was not legally entitled. If the
Washington Business Corporation Act is amended to authorize further
indemnification of directors or officers, then directors and officers of the
Corporation shall be indemnified to the fullest extent permitted by the
Washington Business Corporation Act as so amended.
SECTION 10.2 INSURANCE. The Corporation may purchase and maintain insurance
on behalf of an individual who is or was a director, officer, employee or agent
of the Corporation or, who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee, or agent, whether or not the Corporation would have power to indemnify
the individual against such liability under RCW 23B.08.510 or 23B.08.520.
SECTION 10.3 NON-EXCLUSIVE RIGHTS. To the extent permitted by law, the
rights to indemnification and advance of reasonable expenses conferred in this
Article X shall not be exclusive of any other right which any individual may
have or hereafter acquire under any statute, provision of the Bylaws, agreement,
vote of shareholders or disinterested directors, or otherwise. The right to
indemnification conferred in this Article X shall be a contract right upon which
each director or officer shall be presumed to have relied in determining to
serve or to continue to serve as such. Any amendment to or repeal of this
Article X shall not adversely affect any right or protection of a director or
officer of the Corporation for or with respect to any acts or omissions of such
director or officer occurring prior to such amendment or repeal.
ARTICLE XI. SAVINGS CLAUSE
If any provision of these Amended and Restated Articles of Incorporation or
any application thereof shall be invalid, unenforceable or contrary to
applicable law, the remainder of these Amended and Restated Articles of
Incorporation, and the application of such provisions to individuals or
circumstances other than those as to which it is held invalid, unenforceable or
contrary to applicable law, shall not be affected thereby.
ARTICLE XII. AMENDMENTS TO ARTICLES OF INCORPORATION
The Corporation reserves the right to amend or repeal any of the provisions
contained in these Amended and Restated Articles of Incorporation in any manner
now or hereafter permitted by law, and the rights of the shareholders of the
Corporation are granted subject to this reservation.
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The undersigned executes these Amended and Restated Articles of
Incorporation this day of , 2001.
Expedia, Inc.,
a Washington corporation
By: __________________________________
Its: _________________________________
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ANNEX C
AMENDED AND RESTATED BYLAWS
OF
TAIPEI, INC.
--------------------------------------------------------------------------------
ARTICLE I
DEFINITIONS
Section 1. As used in these Bylaws, unless the context otherwise requires,
the term:
1. "Articles of Incorporation" means the articles of incorporation of the
Corporation, as amended, supplemented or restated from time to time.
2. "Assistant Secretary" means an assistant secretary of the Corporation.
3. "Assistant Treasurer" means an assistant treasurer of the Corporation.
4. "Board of Directors" means the board of directors of the Corporation.
5. "Business Corporation Act" means the Business Corporation Act of the State
of Washington, as amended from time to time.
6. "Bylaws" means the bylaws of the Corporation, as amended or restated from
time to time.
7. "Chairman" means that person who has been appointed by the Board of
Directors as Chairman of the Board of Directors.
8. "Chief Executive Officer" means that person who has been appointed as the
Chief Executive Officer of the Corporation by the Board of Directors.
9. "Common Stock" means all shares of common stock collectively, regardless of
class or series.
10. "Corporation" means Taipei, Inc., a Washington corporation.
11. "Directors" means directors serving on the Board of Directors of the
Corporation.
12. "President" means the president of the Corporation.
13. "Secretary" means the secretary of the Corporation.
14. "Shareholders" or "shareholders" means shareholders of the Corporation.
15. "Treasurer" means the treasurer of the Corporation.
16. "Vice President" means a vice president of the Corporation.
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ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
Section 1. REGISTERED OFFICE AND REGISTERED AGENT. The registered office of
the Corporation shall be located in the State of Washington at such place as may
be fixed from time to time by the Board of Directors upon filing of such notices
as may be required by law, and the registered agent shall have a business office
identical with such registered office. A registered agent so appointed shall
consent to appointment in writing and such consent shall be filed with the
Secretary of State of the State of Washington.
Section 2. AMENDMENTS BY REGISTERED AGENT. If a registered agent changes the
street address of the agent's business office, the registered agent may change
the street address of the registered office of the Corporation by notifying the
Corporation in writing of the change and signing, either manually or in
facsimile, and delivering to the Secretary of State for filing a statement of
such change, as required by law.
Section 3. AMENDMENTS BY CORPORATION. The Corporation may change its
registered agent at any time upon the filing of an appropriate notice with the
Secretary of State, with the written consent of the new registered agent either
included in or attached to such notice.
Section 4. INITIAL PRINCIPAL OFFICE. The initial registered office of the
Corporation shall be established and maintained at the office of National
Registered Agents, Inc. at 1780 Barnes Blvd. S.W. Bldg. G in the City of
Tumwater, State of Washington 98512. National Registered Agents, Inc. shall be
the registered agent of the Corporation in charge thereof.
Section 5. OTHER OFFICES. The Corporation may have other offices, either
within or without the State of Washington, at such place or places as the Board
of Directors may from time to time select or the business of the Corporation may
require.
ARTICLE III
SHAREHOLDERS
Section 1. PLACE OF MEETING. Meetings of shareholders may be held at such
place, either within or without the State of Washington, as may be designated by
the Board of Directors. If no designation is made, the place of the meeting
shall be the principal executive office of the Corporation.
Section 2. ANNUAL MEETING. The annual meeting of the shareholders shall be
held at such date and time as may be fixed by resolution of the Board of
Directors.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called only by the Chairman or a majority of the Directors then serving on the
Corporation's Board of Directors.
Section 4. NOTICE. Written notice stating the date, time and place of the
meeting, and in case of a special meeting, the purpose or purposes thereof,
shall be given to each shareholder entitled to vote thereat not less than ten
(10) (unless a greater period of notice is required by law in a particular case)
nor more than sixty (60) days prior thereto, either personally or by mail or
facsimile, addressed to each shareholder at his address as it appears on the
records of the Corporation.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage thereon prepaid. If notice be by
facsimile or personally, such notice shall be deemed to be delivered when
confirmation of receipt is received by the sender. Such further notice shall be
given as may be required by law. Meetings may be held without notice if all
shareholders entitled to vote are present, or if notice is waived by those not
present. Any previously scheduled meeting of the shareholders may be postponed,
and (unless the Articles of Incorporation otherwise
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provides) any special meeting of the shareholders may be canceled, by resolution
of the Board of Directors upon public notice given prior to the date previously
scheduled for such meeting of shareholders.
Section 5. ADJOURNED MEETINGS. The Chairman or a majority of the voting
power of the shares so represented may adjourn the meeting from time to time,
whether or not there is a quorum. When a meeting is adjourned to another time or
place, except as required by law, notice of the adjourned meeting need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken, if the adjournment is for not more than thirty (30) days,
and if no new record date is fixed for the adjourned meeting. At the adjourned
meeting, the Corporation may transact any business that might have been
transacted at the original meeting.
Section 6. QUORUM. The holders of a majority of the voting power of the
Corporation entitled to vote thereat, present in person or represented by proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business; PROVIDED, HOWEVER, if the Articles of Incorporation or
the Business Corporation Act provides that any matter shall be decided by a vote
of a certain class or classes of stock, then the holders of a majority of the
voting power entitled to vote thereon, present in person or represented by proxy
shall constitute a quorum for the transaction of business on such matter. If,
however, such quorum shall not be present or represented at any meeting of the
shareholders, the shareholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. If at such adjourned meeting, a quorum shall be
present or represented, any business may be transacted that might have been
transacted at the meeting as originally notified. When a quorum is present at
any meeting, the affirmative vote of a majority of the voting power of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the matter shall be the act of the shareholders, unless the question is
one upon which by express provision of the Business Corporation Act or of the
Articles of Incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such matter.
Section 7. VOTING. Each shareholder shall at every meeting of the
shareholders be entitled to vote in person or by proxy each share of the class
of capital stock having voting power held by such shareholder.
Section 8. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
(A) ANNUAL MEETINGS OF SHAREHOLDERS.
(1) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders (a) pursuant
to the Corporation's notice of meeting, (b) by or at the direction of the
Board of Directors or (c) by any shareholder of the Corporation who was a
shareholder of record at the time of giving of notice provided for in these
Bylaws, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in these Bylaws.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of paragraph (A)(1)
of these Bylaws, the shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for shareholder action. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the 60th day nor earlier than the close of business on the 90th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than
30 days before or more than 60 days after such anniversary date, notice by
the shareholder to be timely must be so delivered not earlier than
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the close of business on the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th 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 by the Corporation.
In no event shall the public announcement of an adjournment of an annual
meeting commence a new time period for the giving of a shareholder's notice
as described above. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or reelection
as a Director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of Directors in an
election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as
a Director if elected); (b) as to any other business that the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the proposal
is made; and (c) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (i) the
name and address of such shareholder, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares
of the Corporation which are owned beneficially and of record by such
shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of these Bylaws to the contrary, in the event that the number of Directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the
nominees for Director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a shareholder's notice required by these Bylaws 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
Secretary at the principal executive offices of the Corporation not later
than the close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
(B) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be conducted
at a special meeting of shareholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
shareholders at which Directors are to be elected pursuant to the Corporation's
notice of meeting (a) by or at the direction of the Board of Directors or
(b) provided that the Board of Directors has determined that Directors shall be
elected at such meeting, by any shareholder of the Corporation who is a
shareholder of record at the time of giving of notice provided for in these
Bylaws, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in these Bylaws. In the event the Corporation calls
a special meeting of shareholders for the purpose of electing one or more
Directors to the Board of Directors, any such shareholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the shareholder's notice required by
paragraph (A)(2) of these Bylaws shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a shareholder's notice as described above.
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(C) GENERAL.
(1) Only such persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible to serve as Directors
and only such business shall be conducted at a meeting of shareholders as
shall have been brought before the meeting in accordance with the procedures
set forth in these Bylaws. Except as otherwise provided by law, the Chairman
of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was
made or proposed, as the case may be, in accordance with the procedures set
forth in these Bylaws and, if any proposed nomination or business is not in
compliance with these Bylaws, to declare that such defective proposal or
nomination shall be disregarded.
(2) For purposes of these Bylaws, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of these Bylaws, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in these
Bylaws. Nothing in these Bylaws shall be deemed to affect any rights (i) of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect Directors under specified
circumstances.
Section 9. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of
Directors at all meetings of the shareholders at which Directors are to be
elected shall be by ballot, and, subject to the rights of the holders of shares
of Common Stock to elect Directors under specified circumstances, a plurality of
the votes cast thereat shall elect Directors.
Section 10. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of shareholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of shareholders, the Chairman
shall appoint one or more inspectors to act at the meeting. Each inspector,
before discharging the duties of an inspector, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of the inspector's ability. The inspectors shall have the
duties prescribed by law.
The Chairman shall fix and announce at the meeting the date and time of the
opening and the closing of the polls for each matter upon which the shareholders
will vote at a meeting.
Section 11. ACTION WITHOUT MEETING. To the maximum extent permitted under
Chapter 23B of the RCW, any action required or permitted to be taken at any
meeting of the Corporation's shareholders may be taken without a meeting.
ARTICLE IV
DIRECTORS
Section 1. NUMBER AND TENURE. The business and affairs, property and
interests of the Corporation shall be managed by the Board of Directors. In
addition to the powers and authorities expressly conferred upon the Board of
Directors by these Bylaws and the Articles of Incorporation, the Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts as are
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not prohibited by the Business Corporation Act. The number of Directors shall be
fixed from time to time pursuant to a resolution adopted by a majority of the
Board of Directors or by the shareholders, or by a duly adopted amendment to the
Articles of Incorporation of the Corporation. Such number of Directors serving
on the Board of Directors may be increased or decreased at any time. Each
Director shall serve for a term ending on the date of the annual meeting of
shareholders following the annual meeting at which such Director was elected;
PROVIDED, HOWEVER, that each Director shall serve until his or her successor is
duly elected or until his or her death, resignation or removal. Directors need
not be shareholders or residents of the State of Washington.
Section 2. RESIGNATION OR REMOVAL. Any Director may at any time resign by
delivering to the Board of Directors his or her resignation in writing. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date; PROVIDED, HOWEVER, that no such notice of
resignation shall be deemed to take effect any later than ten days thereafter.
Any Director or the entire Board of Directors may at any time be removed
effective immediately, with or without cause, by the vote, either in person or
represented by proxy, of a majority of the voting power of shares of stock
issued and outstanding and entitled to vote at a special meeting held for such
purpose or, to the extent permitted by the Business Corporation Act, by the
written consent of a majority of the voting power of shares of stock issued and
outstanding.
Section 3. VACANCIES. Vacancies and newly created Directorships occurring on
the Board of Directors shall be filled in accordance with the Articles of
Incorporation and the Business Corporation Act.
Section 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such dates, times and places as may be designated by the
Chairman, and shall be held at least quarterly. Regular Meetings of the Board of
Directors (or committees thereof) may take place either within or without the
State of Washington.
Section 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman or any two Directors. The person
or persons calling a special meeting of the Board of Directors may fix a place
and time either within or without the State of Washington for holding such
meeting.
Section 6. NOTICE. Notice of any regular meeting or a special meeting shall
be given to each Director, either orally, by facsimile or by hand delivery,
addressed to each Director at his address as it appears on the records of the
Corporation. Notice of any meeting of the Board of Directors shall set out a
detailed agenda of the matters to be discussed, but any subject properly brought
before the meeting may be addressed.
If notice be by facsimile, such notice shall be deemed to be adequately
delivered when the notice is transmitted at least 72 hours before such meeting.
If by telephone or by hand delivery, the notice shall be given at least
72 hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting. A meeting may be
held at any time without notice if all the Directors are present or if those not
present waive notice of the meeting in accordance with Article X of these
Bylaws.
Section 7. QUORUM. At all meetings of the Board of Directors, a majority of
the total number of Directors then serving on the Board of Directors shall
constitute a quorum for the transaction of business. Unless otherwise provided
in the Articles of Incorporation or these Bylaws, the act of a majority of the
Directors present at any meeting at which there is a quorum shall be an act of
the Board of Directors. If a quorum is not present at any meeting of the Board
of Directors, the Directors present may adjourn the meeting from time to time,
without notice, until a quorum shall be present. The Directors present at a duly
organized meeting may continue to transact business until
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adjournment, notwithstanding the withdrawal of enough Directors to leave less
than a quorum. A Director present at a meeting shall be counted in determining
the presence of a quorum, regardless of whether a contract or transaction
between the Corporation and any other Corporation, partnership, association, or
other reorganization in which such Director is a Director or officer or has a
financial interest, is authorized or considered at such meeting.
Section 8. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing and such written
consent is filed with the minutes of proceedings of the Board of Directors or
committee.
Section 9. ACTION BY CONFERENCE TELEPHONE. Members of the Board of Directors
or any committee thereof may participate in a meeting of such Board of Directors
or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
Section 10. CHAIRMAN OF THE BOARD. The Chairman shall be chosen from among
the Directors. The Chairman shall preside at all meetings of the shareholders
and of the Board of Directors, except that, in his absence, he may designate
another member of the Board of Directors to so preside. Unless otherwise
provided by resolution of the Board of Directors, the Chairman shall not be an
officer of the Corporation. The Chairman shall perform all duties incidental to
his office which may be required by law and all such other duties properly
required of him by the Board of Directors. He shall make reports to the Board of
Directors and the shareholders and, together with the Chief Executive Officer of
the Corporation, shall see that all orders and resolutions of the Board of
Directors and any committee thereof are carried into effect.
Section 11. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the whole Board of Directors, may designate one (1) or more
committees, each committee to consist of two (2) or more Directors. The Board of
Directors may designate one (1) or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of any member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in such resolution, shall have and may exercise all of the powers of
the Board of Directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers that may require it, except that no committee shall have the power or
authority to amend the Articles of Incorporation, to amend, adopt or repeal the
bylaws, to authorize or approve a distribution except according to a general
formula or method prescribed by the Board of Directors, to approve or propose to
shareholders action that the Business Corporation Act requires to be approved by
shareholders, to fill vacancies on the Board of Directors or on any of its
committees, to approve a plan of merger not requiring shareholder approval, to
authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences, and limitations of a
class or series of shares, except that the Board of Directors may authorize a
committee, or senior executive officer of the Corporation to do so within limits
specifically prescribed by the Board of Directors.
Section 12. COMPENSATION OF DIRECTORS. The Directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving
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compensation therefor. Members of committees may be allowed like compensation
for attending committee meetings.
ARTICLE V
OFFICERS
Section 1. NUMBER AND SALARIES. The officers of the Corporation shall
consist of a Chief Executive Officer, a President, a Secretary, a Treasurer, and
such other officers and assistant officers and agents as may be deemed necessary
by the Board of Directors. Any two (2) or more offices may be held by the same
person.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be appointed by the Board of Directors at the first meeting of the Board
of Directors following the shareholders' annual meeting, and shall serve for a
term of one (1) year or until a successor is appointed by the Board of
Directors. Unless otherwise provided in the Articles of Incorporation or these
Bylaws, any officer appointed by the Board of Directors may be removed, with or
without cause, at any time by the Chief Executive Officer or by the Board of
Directors. Each officer shall hold his or her office until his successor is
appointed or until his earlier resignation, removal from office, or death. All
officers elected by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the specific
provisions of this Article V.
Such officers shall also have such powers and duties as from time to time
may be conferred by the Board of Directors or by any committee thereof. The
Board of Directors or any committee thereof may from time to time elect, or the
Chief Executive Officer may appoint, such other officers (including a President,
one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers, and
Assistant Controllers) and such agents, as may be necessary or desirable for the
conduct of the business of the Corporation. Such other officers and agents shall
have such duties and shall hold their offices for such terms as shall be
provided in these Bylaws or as may be prescribed by the Board of Directors or
such committee or by the Chief Executive Officer, as the case may be.
Section 3. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
responsible for the general management of the affairs of the Corporation and
shall perform all duties incidental to his office. The Chief Executive Officer
shall be empowered to sign all certificates, contracts and other instruments of
the Corporation, and to do all acts that are authorized by the Board of
Directors, and shall, in general, have such other duties and responsibilities as
are assigned consistent with the authority of a chief executive officer of a
corporation.
Section 4. PRESIDENT. The Board of Directors or the Chief Executive Officer
may appoint a President to have such duties and responsibilities as from time to
time may be assigned to him by the Chief Executive Officer or the Board of
Directors. The President shall be empowered to sign all certificates, contracts
and other instruments of the Corporation, and to do all acts which are
authorized by the Chief Executive Officer or the Board of Directors, and shall,
in general, have such other duties and responsibilities as are assigned
consistent with the authority of a president of a corporation.
Section 5. VICE PRESIDENTS. The Board of Directors or the Chief Executive
Officer may from time to time appoint one or more Vice Presidents that may
include the designation of Executive Vice Presidents and Senior Vice Presidents
all of whom shall perform such duties as from time to time may be assigned to
him by the Chief Executive Officer or the Board of Directors.
Section 6. SECRETARY. The Secretary shall keep the minutes of the
proceedings of the shareholders and the Board of Directors; the Secretary shall
give, or cause to be given, all notices in accordance with the provisions of
these Bylaws or as required by law, shall be custodian of the
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corporate records and of the seal of the Corporation, and, in general, shall
perform such other duties as may from time to time be assigned by the Chief
Executive Officer or the Board of Directors.
Section 7. TREASURER. The Treasurer or, if one is designated by the Board of
Directors, the Chief Financial Officer of the Corporation, shall act as the
chief financial officer of the Corporation, shall have the custody of the
corporate funds and securities, shall keep, or cause to be kept, correct and
complete books and records of account, including full and accurate accounts of
receipts and disbursements in books belonging to the Corporation, shall deposit
all monies and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors,
and in general shall perform all duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the Chief
Executive Officer or the Board of Directors.
Section 8. ASSISTANT SECRETARIES. The Assistant Secretaries, if any, in
general shall perform such duties as from time to time may be assigned to them
by the Secretary or by the Board of Directors, and shall, in the absence or
incapacity of the Secretary, perform his functions.
Section 9. ASSISTANT TREASURERS. The Assistant Treasurers, if any, in
general shall perform such duties as from time to time may be assigned to them
by the Treasurer or by the Board of Directors, and shall in the absence or
incapacity of the Treasurer, perform his functions.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. SIGNATURE BY OFFICERS. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chief Executive Officer, the Chairman or President, if any,
or any Vice President, and the Secretary (or an Assistant Secretary), certifying
the number of shares owned by the shareholder in the Corporation.
Section 2. FACSIMILE SIGNATURES. The signature of the Chief Executive
Officer, Chairman, President, Vice President, Treasurer or Assistant Treasurer,
Secretary or Assistant Secretary may be a facsimile. In case any officer or
officers who have signed, or whose facsimile signature or signatures have been
used on any such certificate or certificates shall cease to be such officer or
officers of the Corporation, whether because of death, resignation or otherwise,
before such certificate or certificates have been delivered by the Corporation,
such certificate or certificates may nevertheless be adopted by the Corporation
and be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate(s) to be issued by the Corporation to replace any certificate(s)
alleged to have been lost or destroyed, upon its receipt of an affidavit of that
fact by the person claiming the certificate(s) of stock to be lost or destroyed.
When authorizing such issue of a new certificate(s), the Board of Directors may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost or destroyed certificate(s), or such owner's legal
representative, to advertise the same in such manner as it shall require and/or
to give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate(s) alleged to have been lost or destroyed.
Section 4. TRANSFER OF STOCK. Upon surrender to the Corporation or its
transfer agent of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
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Section 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of
Directors may close the stock transfer books of the Corporation for a period of
not more than sixty (60) nor less than ten (10) days preceding the date of any
meeting of shareholders, or the date for payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect or for a period of not more than
sixty (60) nor less than ten (10) days in connection with obtaining the consent
of shareholders for any purpose. In lieu of closing the stock transfer books,
the Board of Directors may fix in advance a date of not more than sixty
(60) nor less than ten (10) days preceding the date of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent, as a record date for the determination of the
shareholders entitled to notice of, and to vote at, any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment of rights, or to exercise the rights in respect of any
change, conversion or exchange of capital stock, or to give such consent. In
such case and notwithstanding any transfer of any stock on the books of the
Corporation after any such record date, such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividend, or to receive such allotment of rights, or to exercise such
rights, or to give such consent, as the case may be.
Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner. Except as otherwise
provided by law, the Corporation shall not be bound to recognize any equitable
or other claim to or interest in such shares on the part of any other person
whether or not it shall have express or other notice thereof.
Section 7. SHARES OF ANOTHER CORPORATION. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the Chief Executive Officer, President or any other
appropriate officer of the Corporation.
ARTICLE VII
CONTRACT, LOANS, CHECKS, AND DEPOSITS
Section 1. CONTRACTS. When the execution of any contract or other instrument
has been authorized by the Board of Directors without specification of the
executing officers, the Chief Executive Officer, the President, any Vice
President, the Treasurer or Assistant Treasurer and the Secretary, or any
Assistant Secretary, may execute the same in the name of and on behalf of the
Corporation and may affix the corporate seal thereto.
Section 2. LOANS. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized by
a resolution of the Board of Directors.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. ACCOUNTS. Bank accounts of the Corporation shall be opened, and
deposits made thereto, by such officers or other persons as the Board of
Directors may from time to time designate.
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ARTICLE VIII
DIVIDENDS
Section 1. DECLARATION OF DIVIDENDS. Subject to the provisions, if any, of
the Articles of Incorporation and subject to the provisions of the Business
Corporation Act, dividends upon the capital stock of the Corporation may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property or contractual rights, or in
shares of the Corporation's capital stock.
Section 2. RESERVES. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the Board of Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interests of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be established by the Board of
Directors.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given by law, the Articles of
Incorporation or these Bylaws, a written waiver thereof, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting.
ARTICLE XI
SEAL
The corporate seal of the Corporation shall be in such form as shall be
determined by resolution of the Board of Directors. Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise imprinted upon the subject document or paper.
ARTICLE XII
AMENDMENTS
Section 1. GENERAL. Except as expressly provided otherwise by the Business
Corporation Act, the Articles of Incorporation, or other provisions of these
Bylaws, these Bylaws may be altered, amended or repealed and new Bylaws adopted
at any regular or special meeting of the Board of Directors by an affirmative
vote of a majority of all Directors.
Section 2. EMERGENCY BYLAWS. The Board of Directors may adopt emergency
Bylaws ("Emergency Bylaws") to the broadest extent permitted under RCW
23B.02.070 and related provisions of the Business Corporation Act. The Emergency
Bylaws shall be subject to repeal or amendment by action of the shareholders of
the Corporation.
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ARTICLE XIII
INDEMNIFICATION AND INSURANCE
Section 1. INDEMNIFICATION. The Corporation shall, to the fullest extent
authorized by the Business Corporation Act as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment),
indemnify and hold harmless any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit,
investigation or proceeding, whether civil, criminal or administrative by reason
of the fact that he or a person of whom he is the legal representative is or was
a Director or officer of the Corporation, or is or was a Director or officer of
the Corporation serving at the request of the Corporation as a Director, officer
or employee of another Corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise (whether the basis of such proceeding is
alleged action in an official capacity as a Director or officer or in any other
capacity while serving as a Director or officer) against all expenses, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by him in connection therewith; PROVIDED, HOWEVER, that except as
provided in this Bylaw, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this Bylaw shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition, such advances to be paid by the Corporation within twenty
(20) days after the receipt by the Corporation of a statement or statements from
the claimant requesting such advance or advances from time to time; PROVIDED,
HOWEVER, that if the Business Corporation Act requires, the payment of such
expenses incurred by a Director or officer in his capacity as a Director or
officer (and not in any other capacity in which service was or is rendered by
such person while a Director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking by or on behalf of such Director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such Director or officer is
not entitled to be indemnified under this Bylaw or otherwise.
To obtain indemnification under this Bylaw, a claimant shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to the claimant and is reasonably
necessary to determine whether and to what extent the claimant is entitled to
indemnification. Any indemnification (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the Director or officer is proper in the circumstances
because he has met the applicable standard of conduct. Upon written request by a
claimant for indemnification pursuant to the preceding sentence, a
determination, if required by applicable law, with respect to a claimant's
entitlement thereto shall be made as follows: (i) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to such
action, suit, investigation or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested Directors so
directs, or by independent legal counsel in a written opinion, or (iii) by the
shareholders of the Corporation. If it is so determined that the claimant is
entitled to indemnification, payment to the claimant shall be made within ten
(10) days after such determination.
If a claim under this Bylaw is not paid in full by the Corporation within
twenty (20) days after a written claim pursuant to this Bylaw has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting
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such claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standard of conduct which makes it permissible under the Business
Corporation Act for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors or
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Business
Corporation Act, nor an actual determination by the Corporation (including its
Board of Directors or shareholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
If a determination shall have been made pursuant to this Bylaw that the
claimant is entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding commenced pursuant to this Bylaw.
Furthermore, the Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to this Bylaw that the procedures and
presumptions of this Bylaw are not valid, binding and enforceable and shall
stipulate in such proceeding that the Corporation is bound by all the provisions
of this Bylaw.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Bylaw shall not be exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
provision of the Articles of Incorporation, Bylaws, agreement, contract, vote of
shareholders or disinterested Directors or pursuant to the direction (howsoever
embodied) of any court of competent jurisdiction or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification shall be
made to the fullest extent permitted by law. No repeal or modification of this
Bylaw shall in any way diminish or adversely affect the rights of any Director
or officer of the Corporation (or employee or agent of the Corporation to which
rights to indemnification have been granted) hereunder in respect of any
occurrence or matter arising prior to any such repeal or modification.
The indemnification and advancement of expenses shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a Director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification, and rights to be paid by the
Corporation the expenses incurred in defending any proceeding in advance of its
final disposition, to any employee or agent of the Corporation to the fullest
extent of the provisions of this Bylaw with respect to the indemnification and
advancement of expenses to Directors and officers of the Corporation.
If any provision or provisions of this Bylaw shall be held to be invalid,
illegal or unenforceable for any reason whatsoever: (1) the validity, legality
and enforceability of the remaining provisions of this Bylaw (including, without
limitation, each portion of any paragraph of this Bylaw containing any such
provision held to be invalid, illegal or unenforceable, that is not itself held
to be invalid, illegal or unenforceable) shall not in any way be affected or
impaired thereby; and (2) to the fullest extent possible, the provisions of this
Bylaw (including, without limitation, each such portion of any paragraph of this
Bylaw containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
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Any notice, request or other communication required or permitted to be given
to the Corporation under this Bylaw shall be in writing and either delivered in
person or sent by facsimile, overnight mail or courier service, or certified or
registered mail, postage prepaid, return receipt requested, to the Secretary and
shall be effective only upon receipt by the Secretary.
Section 2. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or will be a Director, officer, employee or agent of
the Corporation, or is or will be a Director or officer of the Corporation
serving at the request of the Corporation as a Director, officer, employee or
agent of another Corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the Business Corporation Act. To the
extent that the Corporation maintains any policy or policies providing such
insurance, each such Director or officer, and each such agent or employee to
which rights to indemnification have been granted, shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage thereunder for any such Director, officer, employee or agent.
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ANNEX D
MORGAN STANLEY DEAN WITTER
2725 SAND HILL ROAD
BUILDING C - SUITE 200
MENLO PARK, CALIFORNIA 94025
(650) 234-5500
July 15, 2001
Board of Directors
Expedia, Inc.
13810 SE Eastgate Way, Suite 400
Bellevue, WA 98008
Members of the Board:
We understand that Expedia, Inc. ("Expedia" or the "Company"), USA
Networks, Inc. ("USA"), Taipei, Inc, a wholly owned subsidiary of USA ("Merger
Sub"), and Microsoft Corporation ("Microsoft"), propose to enter into an
Agreement and Plan of Recapitalization and Merger, substantially in the form of
the draft dated July 15, 2001 (the "Agreement"), which provides for the
acquisition by USA of a majority of the outstanding stock of Expedia through a
series of transactions. Pursuant to the terms of the Agreement, Expedia will
take all actions necessary to effect a recapitalization (the "Expedia
Recapitalization") of the Company, in which holders of shares of common stock,
par value $.01 per share, of Expedia ("Expedia Common Stock") shall elect
whether or not to receive an equal number of shares of Class B common stock, par
value $.01 per share, of Expedia ("Expedia Class B Common Stock"), subject to a
maximum exchange of 37,500,000 shares of Expedia Common Stock for Expedia
Class B Common Stock.
Subsequent to the Expedia Recapitalization, Merger Sub will merge with and
into the Company (the "Merger"), pursuant to which, depending on such
shareholder's election in the Expedia Recapitalization, (a) each share of
Expedia Common Stock, other than shares held in treasury or held by USA or as to
which dissenters' rights have been perfected, shall be converted into a right to
receive a combination of (i) one share of Expedia Common Stock, and (ii) 0.1920
warrants to acquire Expedia Common Stock having the terms described in the
Agreement (the "Expedia Warrants") (collectively, the "Expedia Consideration"),
and (b) each share of Expedia Class B Common Stock, other than shares held in
treasury or held by USA, shall be converted into a right to receive a
combination of (i) a number of shares of common stock, par value $.01 per share,
of USA ("USA Common Stock") determined pursuant to a certain formula set forth
in the Agreement, (ii) a number of shares of Series A preferred stock, par value
$.01 per share, of USA having the designations, preferences and other rights
described in the Agreement ("USA Preferred Stock") determined pursuant to a
certain formula set forth in the Agreement, and (iii) a number of warrants to
acquire USA Common Stock having the terms described in the Agreement (the "USA
Warrants") determined pursuant to a certain formula set forth in the Agreement
(collectively, the "USA Consideration", and together with the Expedia
Consideration, the "Consideration").
We also note that the Agreement contemplates that USA will contribute (the
"Contribution") to Merger Sub certain assets specified in the Agreement which
will become assets of Expedia upon consummation of the Merger and that Microsoft
will enter into a Voting and Election Agreement pursuant to which it will vote
in favor of the Agreement and elect to exchange all of its shares of Expedia
Common Stock for Expedia Class B Common Stock. All capitalized undefined terms
shall have meanings ascribed to them in the Agreement. The terms and conditions
of the Expedia
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Recapitalization, the Merger and the Contribution are more fully set forth in
the Agreement. We further understand that approximately 67% of the outstanding
shares of Expedia Common Stock are owned by Microsoft.
You have asked for our opinion as to whether the Consideration to be
received by the holders of shares of Expedia Common Stock (other than Microsoft)
pursuant to the terms of the Agreement is fair from a financial point of view to
such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Expedia and USA;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Expedia prepared by the management of
Expedia;
(iii) reviewed certain financial projections prepared by the management of
Expedia;
(iv) discussed the past and current operations and financial condition and
the prospects of Expedia and USA with senior executives of Expedia and
USA, respectively;
(v) reviewed the reported prices and trading activity for the Expedia Common
Stock and USA Common Stock;
(vi) compared the financial performance of Expedia and USA and the prices
and trading activity of the Expedia Common Stock and USA Common Stock
with that of certain other comparable publicly-traded companies and
their securities;
(vii) participated in discussions and negotiations among representatives of
Expedia and USA and their financial and legal advisors;
(viii) reviewed the draft Agreement dated July 15, 2001 and certain related
documents;
(ix) reviewed the terms of the Expedia Warrants, USA Preferred Stock and USA
Warrants with the management of Expedia and the terms of other
comparable securities; and
(x) reviewed the terms of the Expedia Recapitalization, including governance
and voting rights associated with such Expedia Recapitalization; and
(xi) considered such other factors and performed such other analyses as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not been provided with financial projections for USA and have
instead relied upon publicly available projections of research analysts for USA.
In addition, we have assumed that the transactions contemplated by the Agreement
will be consummated in accordance with the terms set forth in the Agreement,
including, among other things, that the Merger will be treated as a tax-free
reorganization and/or exchange, each pursuant to the Internal Revenue Code of
1986. We have not made any independent valuation or appraisal of the assets or
liabilities of Expedia or USA, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
D-2
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Expedia and Microsoft and have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company in respect of the transaction with the
Securities and Exchange Commission. In addition, this opinion does not in any
manner address whether or the prices at which the USA Common Stock, USA
Preferred Stock, USA Warrants, Expedia Common Stock, Expedia Class B Common
Stock or Expedia Warrants may trade at any time and Morgan Stanley expresses no
opinion or recommendation as to how the shareholders of Expedia should vote or
make their elections with respect to their Expedia Common Stock at the
shareholders' meeting held in connection with the Expedia Recapitalization and
Merger.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of shares of Expedia
Common Stock (other than Microsoft) pursuant to the Agreement, is fair from a
financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ MICHAEL F. WYATT
-----------------------------------------
Michael F. Wyatt
Executive Director
D-3
ANNEX E
EXECUTION COPY
VOTING AND ELECTION AGREEMENT
This VOTING AND ELECTION AGREEMENT (this "AGREEMENT"), is dated as of
July 15, 2001, by and among USA Networks, Inc., a Delaware corporation ("USA"),
and Microsoft Corporation, a Washington corporation ("MICROSOFT") and Microsoft
E-Holdings, Inc., a Nevada corporation ("SUB") (Microsoft and Sub are
collectively referred to as "STOCKHOLDER").
W I T N E S S E T H:
WHEREAS, USA, Expedia, Inc., a Washington corporation (the "COMPANY"),
Taipei, Inc., a wholly owned subsidiary of USA ("MERGER SUB"), and Stockholder
have entered into the Agreement and Plan of Recapitalization and Merger, dated
as of the date hereof (the "MERGER AGREEMENT"), providing for, among other
things, the Transactions on the terms and subject to the conditions set forth
therein (capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Merger Agreement);
WHEREAS, as of the date hereof, Stockholder beneficially owns the number of
Voting Shares (as defined herein) set forth on ATTACHMENT A hereto (the "OWNED
SHARES");
WHEREAS, as a condition to USA's willingness to enter into and perform its
obligations under the Merger Agreement, USA has required that Stockholder agree,
and Stockholder has agreed, (i) to vote all of the Owned Shares, together with
any shares of Company Stock acquired after the date of this Agreement, whether
upon the exercise of options, conversion of convertible securities or otherwise,
and any other voting securities of the Company (whether acquired heretofore or
hereafter) that are beneficially owned by Stockholder or over which Stockholder
has, directly or indirectly, the right to vote (collectively, the "VOTING
SHARES"), in favor of (a) the Merger Agreement and the transactions contemplated
thereby, including the Recapitalization and the Merger, (b) the Articles
Amendment, (c) the termination of the Stockholders Agreement, and (d) any other
matters submitted to the holders of Company Stock in furtherance of the
Transactions, (ii) to elect to receive Class B Common Stock in respect of all of
its shares of Company Common Stock owned, directly or indirectly, immediately
prior to the Recapitalization (the "ELECTION SHARES") and (iii) to take the
other actions described herein; and
WHEREAS, Stockholder desires to express its support for the Transactions and
the transactions contemplated by the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO VOTE; IRREVOCABLE PROXY AND ELECT PARENT CONSIDERATION.
1.1 AGREEMENT TO VOTE. Stockholder hereby agrees that, during the time
this Agreement is in effect, at any meeting of the stockholders of the Company,
however called, or any adjournment thereof, or by written consent, Stockholder
shall be present (in person or by proxy) and vote (or cause to be voted) all of
its Voting Shares (a) in favor of approval of (1) the Merger Agreement and the
transactions contemplated thereby, including the Recapitalization and the
Merger, (2) the Articles Amendment, (3) the termination of the Stockholders
Agreement and, (4) any other matter that is required to facilitate the
transactions contemplated by the Merger Agreement; and (b) against any
Transaction Proposal and against any action or agreement that would result in a
breach in any material respect of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Merger Agreement or
that would otherwise be inconsistent with, prevent or
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materially delay the consummation of the Transactions or of the other
transactions contemplated by the Merger Agreement.
1.2 IRREVOCABLE PROXY. Solely with respect to the matters described in
Section 1.1, for so long as this Agreement has not been terminated pursuant to
its terms, Stockholder hereby irrevocably appoints USA as its proxy (which proxy
is irrevocable and which appointment is coupled with an interest, including for
purposes of Section 23B.07.220 of the Washington Business Corporation Law) to
vote solely on the matters described in Section 1.1, and in accordance
therewith. Stockholder agrees to execute any further agreement or form
reasonably necessary or appropriate to confirm and effectuate the grant of the
proxy contained herein.
1.3. AGREEMENT TO ELECT CLASS B COMMON STOCK. Stockholder hereby agrees
to and shall validly, irrevocably and unconditionally elect to receive Class B
Common Stock in the Recapitalization in respect of all of the Election Shares.
2. SHELF REGISTRATION STATEMENT.
2.1 FILING; EFFECTIVE PERIOD. USA shall prepare and file with the SEC as
soon as reasonably practicable a Registration Statement on Form S-3 (or other
appropriate form should Form S-3 be unavailable for USA) with respect to the
Registrable Securities (as defined below) received by Stockholder in the Merger
and shall use reasonable best efforts to cause such Registration Statement to
become effective within two (2) business days following the Closing Date and
remain effective until the earlier of (i) the date on which Stockholder no
longer owns any shares of Registrable Securities, and (ii) the one-year
anniversary of the Effective Time if Parent has filed all reports required to be
filed under the Securities Exchange Act of 1934 in the twelve months preceding
such date, and otherwise the two-year anniversary of the Closing Date; PROVIDED,
that Parent may suspend the effectiveness of such Registration Statement if and
only for so long as USA determines that such registration would require
premature disclosure of material information relating to a pending corporate
development; PROVIDED, FURTHER, that (i) any period of continuous suspension
shall not exceed twenty (20) business days, and (ii) the Registration Statement
shall not be suspended for an aggregate of greater than sixty (60) business days
in any calendar year. Parent's obligation under this Section 2 is subject to
Stockholder's timely cooperation in connection with preparation and filing of
the Registration Statement Nothing herein shall be interpreted as affecting the
right of Stockholder to sell shares of Registrable Securities in open market
transactions as permitted by Rule 145. Parent hereby agrees that it will not
take a position that Stockholder is an "affiliate" of Parent for purposes of
Rule 145. Subject to the effectiveness of the Registration Statement described
in this Section 2, the certificates representing shares of Registrable
Securities issued to Stockholder in the Merger shall be issued free of any
restrictive legends.
2.2 REGISTRABLE SECURITIES. For purposes of this Agreement "Registrable
Securities" shall mean shares of Parent Common Stock, Parent Preferred Stock and
Parent Warrants, received by Stockholder in the Merger and shares of Parent
Common Stock issuable upon the exercise of the Parent Warrants and the
conversion of Parent Preferred Stock.
2.3 REGISTRATION STATEMENT EXPENSES. All fees, disbursements and
out-of-pocket expenses and costs incurred by USA in connection with the
preparation of the Registration Statement under Section 2.1 and in complying
with applicable securities and blue sky laws (including, without limitation, all
attorneys' fees of USA) shall be borne by USA. Stockholder shall bear all
printing costs, listing fees, SEC filing fees, underwriting fees and/or
brokerage discounts, fees and commissions, if any, applicable to the Registrable
Securities being registered and the fees and expenses of its counsel.
2.4 STOCKHOLDER REVIEW OF REGISTRATION STATEMENT AND COMMENT LETTERS.
Stockholder and its counsel shall have a reasonable period, not to exceed ten
(10) business days, to review the proposed Registration Statement or any
amendment thereto, prior to filing with the SEC, and USA shall provide
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Shareholder with copies of any comment letters received from the SEC with
respect thereto within two (2) business days of receipt thereof.
2.5 INSPECTION OF RECORDS. USA shall make reasonably available for
inspection by Stockholder, any lead underwriter selected pursuant to
Section 2.7 participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by Stockholder
or any such underwriter all relevant financial and other records, and pertinent
corporate documents of USA, and supply all information reasonably requested by
Stockholder or any such underwriter, attorney, accountant or agent in connection
with the Registration Statement, in each case, as is customary for similar due
diligence examinations; provided, however, any party receiving such information
shall enter into a customary confidentiality agreement with USA to the effect
that all records, information and documents that are designated in writing by
USA, in good faith, as confidential, proprietary or containing any non-public
information shall be kept confidential by the Stockholder and any such
underwriter, attorney, accountant or agent, unless such disclosure is made
pursuant to judicial process in a court proceeding (after first giving USA an
opportunity promptly to seek a protective order or otherwise limit the scope of
the information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
provided further that the foregoing shall be conducted in a manner which does
not disrupt in any significant respect the conduct by USA of its business. Such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of Stockholder and the other parties entitled thereto by
one firm of counsel designated by and on behalf of Stockholder, which counsel
shall be reasonably satisfactory to USA.
2.6 QUALIFICATIONS. USA shall qualify any of the Registrable Securities
for sale in such states as Stockholder reasonably designates and shall furnish
indemnification in the manner provided in Section 5 hereof. However, USA shall
not be required to qualify in any state which will require an escrow or other
restriction relating to USA and/or the sellers, or which will require USA to
qualify to do business in such state or require USA to file therein any general
consent to service of process or otherwise subject USA or its subsidiaries to
any adverse business or financial consequences, including without limitation
being subject to state income or other state taxes.
2.7 MANNER OF SALE. In the event Stockholder desires to use an
underwriter in connection with any sale of Registrable Securities hereunder, USA
shall select such underwriter, which shall be reasonably acceptable to
Stockholder.
3. COOPERATION WITH USA; REPRESENTATION. Stockholder will cooperate with
USA in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by USA (which shall include all
information regarding Stockholder and the proposed manner of sale of the
Registrable Securities required to be disclosed in the Registration Statement)
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registrable Securities and entering into
and performing its obligations under any underwriting agreement, if the offering
is an underwritten offering, in usual and customary form, with the managing
underwriter or underwriters of such underwritten offering. Stockholder's
obligations under this Section shall include compliance by Stockholder with
respect to information to be provided by Stockholder in connection with the
Registration Statement, the Prospectus or any supplement or amendment thereto,
with the provisions of Sections 4(a), (e) and (f).
Stockholder represents and warrants to USA that any sale by Stockholder of
Registrable Securities, whether pursuant to a Registration Statement or
otherwise, shall be made in compliance with federal and applicable state
securities laws.
4. REGISTRATION PROCEDURES. If and whenever USA is required by any of the
provisions of this Agreement to effect the registration of any of the
Registrable Securities under the Securities Act, USA
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shall (except as otherwise provided in this Agreement), as expeditiously as
possible, subject to the Stockholder's assistance and cooperation as reasonably
required:
(a) (i) prepare and file with the SEC such amendments and supplements to
the Registration Statement and the Prospectus as may be necessary to keep
such registration statement effective and to comply with the provisions of
the Securities Act with respect to the sale or other disposition of all
securities covered by such registration statement whenever Stockholder shall
desire to sell or otherwise dispose of the Registrable Securities (including
prospectus supplements with respect to the sales of securities from time to
time in connection with a registration statement pursuant to Rule 415
promulgated under the Securities Act) and (ii) take all lawful action such
that each of (A) the Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and (B) the Prospectus, and any
amendment or supplement thereto, does not at any time during the Effective
Period include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, PROVIDED, HOWEVER, that the obligations of USA set
forth in this subparagraph shall not apply to the extent that such statement
or omission relates to information to be provided by Stockholder, so long as
USA has included such information as provided by Stockholder (or failed to
include it due to Stockholder's failure to provide);
(b) (i) prior to the filing with the SEC of any Registration Statement
(including any amendments thereto) and the distribution or delivery of the
Prospectus (including any supplements thereto), provide draft copies thereof
to Stockholder and reflect in such documents all such comments as
Stockholder (and its counsel) reasonably may propose and (ii) furnish to
Stockholder such numbers of copies of the Prospectus including a preliminary
prospectus or any amendment or supplement to the Prospectus, as applicable,
in conformity with the requirements of the Securities Act, and such other
documents, as Stockholder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities;
(c) comply with the blue sky laws with respect to the Registrable
Securities, and do any and all other acts and things which may be reasonably
necessary or advisable to enable Stockholder to consummate the public sale
or other disposition in such jurisdiction of the Registrable Securities,
except that USA shall not for any such purpose be required to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified or to file therein any general consent to service of process;
(d) list such Registrable Securities on each securities exchange or
quotation system on which similar securities issued by USA or the Company,
as applicable, are then listed, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or quotation
system or if the listing requirements are waived, or list such Registrable
Securities on a mutually agreeable securities exchange or quotation system
if the listing of such Registrable Securities is then permitted under the
rules of such exchange or quotation system or if the listing requirements
are waived. If listing on an exchange cannot be immediately effected, then
it shall be accomplished as soon as possible. If the initial listing is not
on Nasdaq, USA agrees to list any of the Registrable Securities on Nasdaq as
soon as such Registrable Securities become eligible for Nasdaq listing;
(e) (i) notify Stockholder at any time when the Prospectus is required
to be delivered under the Securities Act, of the happening of any event of
which it has knowledge as a result of which the Prospectus, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not
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misleading in the light of the circumstances then existing, and
(ii) prepare and file a curative amendment or curative supplement under
Section 4(a) as quickly as commercially possible;
(f) as promptly as practicable after becoming aware of such event,
notify Stockholder (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the SEC or any state authority of
any stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time and take all lawful action to effect
the withdrawal, rescission or removal of such stop order or other
suspension;
(g) in the event of an underwritten offering, promptly include or
incorporate in a prospectus supplement or post-effective amendment to the
Registration Statement such information as the managing underwriters
reasonably agree should be included therein and to which USA does not
reasonably object and make all required filings of such prospectus
supplement or post-effective amendment as soon as practicable after it is
notified of the matters to be included or incorporated in such prospectus
supplement or post-effective amendment; and
(h) maintain a transfer agent for its securities.
5. INDEMNIFICATION.
5.1 INDEMNIFICATION BY USA. USA agrees to indemnify and hold harmless
Stockholder and each person, if any, who controls Stockholder within the meaning
of the Securities Act (together with Stockholder, the "DISTRIBUTING
STOCKHOLDER") against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees), to which the Distributing Stockholder may become subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, or any related preliminary prospectus, the
Prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading; provided, however, that
USA will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, preliminary prospectus, the Prospectus or amendment or
supplement thereto in reliance upon, and in conformity with, written information
furnished to USA by the Distributing Stockholder specifically for use in the
preparation thereof. This Section 5.1 shall not inure to the benefit of any
Distributing Stockholder with respect to any person asserting such loss, claim,
damage or liability who purchased the Registrable Securities which are the
subject thereof if the Distributing Stockholder failed to send or give a copy of
the Prospectus, or any amendment or supplement thereto, to such person at or
prior to the written confirmation to such person of the sale of such Registrable
Securities, where the Distributing Stockholder was obligated to do so under the
Securities Act or the rules and regulations promulgated thereunder. This
indemnity agreement, together with the contribution agreement contained herein,
shall be the sole remedy of a Distributing Stockholder with respect to the
matters described herein.
5.2 INDEMNIFICATION BY STOCKHOLDER. Distributing Stockholder agrees that
it will, jointly and severally, indemnify and hold harmless USA, and each
officer, director of USA or person, if any, who controls USA within the meaning
of the Securities Act, against any losses, claims, damages or liabilities, joint
or several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees) to which USA or any such officer, director or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the
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Registration Statement, or any related preliminary prospectus, the Prospectus or
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of circumstances
under which they were made not misleading, but in each case only to the extent
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, preliminary prospectus, the
Prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to USA by such Distributing
Stockholder specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the Distributing
Stockholder may otherwise have.
5.3 NOTIFICATION. Promptly after receipt by an indemnified party under
this Section 5 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 5, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
the indemnifying party from any liability which it may have to any indemnified
party except to the extent of actual prejudice demonstrated by the indemnifying
party. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 5 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party (nor shall such party control the defense
thereof) if the indemnifying party has assumed the defense of the action with
counsel reasonably satisfactory to the indemnified party; provided, however,
that the fees and expenses of counsel to the indemnified party shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Stockholder and USA and the indemnified party shall have been
advised by such counsel in writing that there may be one or more legal defenses
available to the indemnifying party in conflict with any legal defenses which
may be available to the indemnified party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of the
indemnified party, it being understood, however, that the indemnifying party
shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party and be approved by the
indemnifying party). No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld, PROVIDED FURTHER, that a settlement
which does not include an admission of liability by the indemnified party nor
the payment of any monetary or other damages by such party shall not require
such consent.
5.4 INDEMNIFICATION EXPENSES. All fees and expenses of the indemnified
party (including reasonable costs of defense and investigation in a manner not
inconsistent with this Section and all reasonable attorneys' fees and expenses)
shall be promptly paid to the indemnified party, as incurred, within ten
(10) business days of written notice thereof (accompanied by customary
documentation detailing such expenses) to the indemnifying party; provided,
however, that the indemnifying party may require such indemnified party to
undertake to reimburse all such fees and expenses to the extent it is finally
judicially determined that such indemnified party is not entitled to
indemnification hereunder.
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6. CONTRIBUTION.
6.1 CONTRIBUTION GENERALLY. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 5 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 5 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then USA and the
applicable Distributing Stockholder shall contribute to the payment or
satisfaction of the aggregate losses, claims, damages or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees), in either such case (after contribution from
others) on the basis of relative fault as well as any other relevant equitable
considerations, which shall include both the relative fault of the parties and
the relative benefits to the parties. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by USA on the one hand or the applicable
Distributing Stockholder on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. USA and the Distributing Stockholder agree that it would
not be just and equitable if contribution pursuant to this Section 6 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section 6. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section 6 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7. TERMINATION.
7.1 TERMINATION OF THIS AGREEMENT. This Agreement shall (i) terminate
automatically on the termination of the Merger Agreement, in accordance with its
terms and (ii) shall be deemed satisfied in full and terminated upon the
consummation of all of the Transactions, PROVIDED, HOWEVER, that if the
Effective Time occurs, the provisions of Section 2 through and including
Section 6, Section 10.4, Section 12.5 and Section 12.6, shall survive in
accordance with their terms.
7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 7.1, this Agreement shall become void and of no
effect with no liability on the part of any party hereto; PROVIDED, HOWEVER, no
such termination shall relieve any party hereto from any liability for any
breach of this Agreement occurring prior to such termination; PROVIDED FURTHER,
that if the Effective Time occurs, Sections 2 through and including 6, 10.4,
12.5 and 12.6 shall not be void and the parties shall continue to be liable in
connection therewith.
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8. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder hereby
represents and warrants to USA as follows:
8.1 DUE ORGANIZATION. Microsoft has been duly organized, is validly
existing and is in good standing under the laws of the state of Washington and
Sub has been duly organized, is validly existing and is in good standing under
the laws of the state of Nevada.
8.2 POWER; DUE AUTHORIZATION; BINDING AGREEMENT. Stockholder has full
legal capacity, power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Stockholder and constitutes a valid and binding agreement of
Stockholder, enforceable against Stockholder in accordance with its terms,
except that enforceability may be subject to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors rights generally and to
general principles of equity.
8.3 OWNERSHIP OF SHARES. On the date hereof, the Owned Shares set
forth opposite Stockholder's (or Stockholder's controlled affiliate's) name on
ATTACHMENT A hereto are owned of record or beneficially by Stockholder or such
entity and constitute all of the Voting Shares owned of record or beneficially
by Stockholder, free and clear of any claims, liens, encumbrances and security
interests. As of the date hereof Stockholder (together with any controlled
affiliates of Stockholder listed on ATTACHMENT A) has, and as of the date of the
shareholder meeting of the Company (or action by written consent) in connection
with the Merger Agreement and the transactions contemplated thereby, Stockholder
(together with any such entity) will have (except as otherwise permitted by this
Agreement), sole voting power and sole dispositive power with respect to all of
the Owned Shares.
8.4 NO CONFLICTS. Subject to the filings being made pursuant to
Section 4.4 of the Merger Agreement and the effectiveness and/or receipt of
consents or approvals in connection with such filings, the execution and
delivery of this Agreement by Stockholder does not, and the performance of the
terms of this Agreement by Stockholder will not, (a) require Stockholder or any
of its affiliates to obtain the consent or approval of, or make any filing with
or notification to, any governmental or regulatory authority, domestic or
foreign, (b) require the consent or approval of any other person pursuant to any
material agreement, obligation or instrument binding on Stockholder or its
properties and assets, (c) conflict with or violate any organizational document
or law, rule, regulation, order, judgment or decree applicable to Stockholder or
pursuant to which any of its or its affiliates' respective properties or assets
are bound or (d) violate any other agreement to which Stockholder or any of its
affiliates is a party including, without limitation, any voting agreement,
stockholders agreement, irrevocable proxy or voting trust, except for any
consent, approval, filing or notification which has been obtained as of the date
hereof or the failure of which to obtain, make or give would not, or any
conflict or violation which would not, prevent, delay or materially adversely
affect the consummation of the transactions contemplated by this Agreement or
the Merger Agreement. For purposes of this section the term "affiliate" does not
include the Company.
8.5 ACKNOWLEDGMENT. Stockholder understands and acknowledges that USA
is entering into the Merger Agreement in reliance upon Stockholder's execution,
delivery and performance of this Agreement.
9. REPRESENTATIONS AND WARRANTIES OF USA. USA hereby represents and
warrants to Stockholder as follows: USA is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware. USA has
full corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by USA of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of USA, and no
other proceedings on the part of USA are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. This Agreement has been
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duly and validly executed and delivered by USA and constitutes a valid and
binding agreement of USA, except that enforceability may be subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting or relating to the enforcement of creditors rights
generally and to general principles of equity. In addition USA acknowledges that
Stockholder is entering into this Agreement and the Merger Agreement in reliance
on the material accuracy of the representations and warranties of USA made in
Article V of the Merger Agreement.
10. CERTAIN COVENANTS OF STOCKHOLDER. Stockholder hereby covenants and
agrees with USA as follows:
10.1 RESTRICTION ON TRANSFER, PROXIES AND
NON-INTERFERENCE. Stockholder hereby agrees, while this Agreement is in effect,
at any time prior to the Effective Time, not to (a) sell, transfer, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to the sale, transfer, pledge,
encumbrance, assignment or other disposition of, or limitation on the voting
rights of, any of the Voting Shares or Election Shares, (b) grant any proxies or
powers of attorney, deposit any Voting Shares or Election Shares into a voting
trust or enter into a voting agreement with respect to any Voting Shares or
Election Shares, (c) take any action that would cause any representation or
warranty of Stockholder contained herein to become untrue or incorrect or have
the effect of preventing or disabling Stockholder from performing its
obligations under this Agreement or (d) commit or agree to take any of the
foregoing actions. Any transfer of Voting Shares or Election Shares not
permitted hereby shall be null and void. Stockholder agrees that any such
prohibited transfer may and should be enjoined. If any involuntary transfer of
any of the Voting Shares or Election Shares shall occur (including, but not
limited to, a sale by Stockholder's trustee in any bankruptcy, or a sale to a
purchaser at any creditor's or court sale), the transferee (which term, as used
herein, shall include any and all transferees and subsequent transferees of the
initial transferee) shall take and hold such Voting Shares or Election Shares
subject to all of the restrictions, liabilities and rights under this Agreement,
which shall continue in full force and effect.
10.2 ADDITIONAL SHARES. Stockholder hereby agrees, while this
Agreement is in effect, to promptly notify USA of the number of any new Voting
Shares acquired by Stockholder, if any, after the date hereof. Any such shares
shall be subject to the terms of this Agreement.
10.3 NO LIMITATIONS ON ACTIONS. Stockholder signs this Agreement
solely in its capacity as the record and/or beneficial owner, as applicable, of
the Owned Shares and the Election Shares, and nothing herein shall limit or
affect the Company's rights in connection with the Merger Agreement.
10.4 FURTHER ASSURANCES. From time to time, at the request of USA or
Stockholder and without further consideration, Stockholder or USA, respectively,
shall execute and deliver such additional documents and take all such further
action as may be necessary or desirable to consummate and make effective the
transactions contemplated by Sections 1, 10 and 11 of this Agreement, in the
case of Stockholder, and Section 2, in the case of USA.
11. STOP TRANSFER ORDER. In furtherance of this Agreement, and
concurrently herewith, Stockholder shall and hereby does authorize the Company
or the Company's counsel to notify the Company's transfer agent that there is a
stop transfer order with respect to all of the Voting Shares and Election
Shares. At the request of USA, Stockholder shall cause to be provided to USA
evidence of such stop transfer order.
12. MISCELLANEOUS.
12.1 NON-SURVIVAL. The representations and warranties made herein
shall not survive the termination of this Agreement.
12.2 ENTIRE AGREEMENT; ASSIGNMENT; COMPANY AS THIRD PARTY
BENEFICIARY. This Agreement, together with the Merger Agreement and the
Non-Disclosure Agreement, by and between USA and
E-9
Stockholder, effective as of July 7, 2001, constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof. The Company shall be deemed
to be a third party beneficiary of this Agreement with respect to Section 1, 10
and 11. Except as set forth in the preceding sentence, nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement. This Agreement shall not be assigned by operation of law or
otherwise and shall be binding upon and inure solely to the benefit of each
party hereto.
12.3 AMENDMENTS. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written agreement
executed by each of the parties hereto. Sections 1, 10 and 11 shall not be
modified, amended, altered or supplemented without the prior written consent of
the Company.
12.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, by facsimile
transmission or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to Stockholder:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052
Attention: Deputy General Counsel, Finance and Operation
Facsimile: (425) 936-7329
with a copy to:
Preston Gates & Ellis LLP
701 Fifth Avenue, Suite 5000
Seattle, Washington 98104-7078
Attention: Richard B. Dodd, Esq.
Facsimile: (206) 623-7022
If to USA:
USA Networks, Inc.
152 West 52nd Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 314-7239
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon, Esq.
Andrew J. Nussbaum, Esq.
Facsimile: (212) 403-2000
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
E-10
12.5 GOVERNING LAW. (a) 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
laws thereof.
(b) Each party hereto irrevocably submits to the jurisdiction of any
Delaware state court or any federal court sitting in the State of Delaware
in any action arising out of or relating to this Agreement, and hereby
irrevocably agrees that all claims in respect of such action may be heard
and determined in such Delaware state or federal court. Each party hereto
hereby irrevocably waives, to the fullest extent it may effectively do so,
the defense of an inconvenient forum to the maintenance of such action or
proceeding. The parties hereto further agree, to the extent permitted by
law, that final and unappealable judgment against any of them in any action
or proceeding contemplated above shall be conclusive and may be enforced in
any other jurisdiction within or outside the United States by suit on the
judgment, a certified copy of which shall be conclusive evidence of the fact
and amount of such judgment.
(c) To the extent that any party hereto has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid
of execution, execution or otherwise) with respect to itself or its
property, each party hereto hereby irrevocably waives such immunity in
respect of its obligations with respect to this Agreement.
(d) Each party hereto waives, to the fullest extent permitted by
applicable laws, any right it may have to a trial by jury in respect of any
action, suit or proceeding arising out of or relating to this Agreement.
Each party hereto certifies that it has been induced to enter into this
Agreement by, among other things, the mutual waivers and certifications set
forth above in this Section.
12.6 REMEDIES. Each of Stockholder and USA recognize and acknowledge
that a breach by it of any covenants or agreements contained in this Agreement
will cause the other party to sustain irreparable injury and damages, for which
money damages would not provide an adequate remedy, and therefore each of
Stockholder and USA agrees that in the event of any such breach by the other,
Stockholder or USA, as the case may be, shall be entitled to the remedy of
specific performance of such covenants and agreements and injunctive and other
equitable relief.
12.7 COUNTERPARTS. This Agreement may be executed by facsimile and in
two or more counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same Agreement.
12.8 DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
12.9 SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
E-11
SIGNATURE PAGE--VOTING AND ELECTION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
USA NETWORKS, INC.
By: /s/ DARA KHOSROWSHAHI
-----------------------------------------
Name: Dara Khosrowshahi
Title: Executive Vice President,
Operations and Strategic Planning
MICROSOFT CORPORATION
By: /s/ RICK BELLUZZO
-----------------------------------------
Name: Rick Belluzzo
Title: President and Chief Operating
Officer
By: /s/ RICHARD EMERSON
-----------------------------------------
Name: Richard Emerson
Title: Senior Vice President, Corporate
Development and Strategy
MICROSOFT E-HOLDINGS, INC.
By: /s/ THOMAS A. BAUMBACH
-----------------------------------------
Name: Thomas A. Baumbach
Title: President and Treasurer
E-12
ANNEX F
USA WARRANT EXCHANGE RATIO
USA SHARE USA WARRANT
PRICE EXCHANGE RATIO
--------------------- --------------
BELOW
$25.75 0.4524
$25.75 0.4524
$25.76 0.4521
$25.77 0.4518
$25.78 0.4515
$25.79 0.4512
$25.80 0.4509
$25.81 0.4507
$25.82 0.4504
$25.83 0.4501
$25.84 0.4498
$25.85 0.4495
$25.86 0.4492
$25.87 0.4489
$25.88 0.4486
$25.89 0.4483
$25.90 0.4480
$25.91 0.4477
$25.92 0.4474
$25.93 0.4471
$25.94 0.4468
$25.95 0.4465
$25.96 0.4462
$25.97 0.4460
$25.98 0.4457
$25.99 0.4454
$26.00 0.4451
$26.01 0.4448
$26.02 0.4445
$26.03 0.4442
USA SHARE USA WARRANT
PRICE EXCHANGE RATIO
--------------------- --------------
$26.04 0.4439
$26.05 0.4436
$26.06 0.4433
$26.07 0.4431
$26.08 0.4428
$26.09 0.4425
$26.10 0.4422
$26.11 0.4419
$26.12 0.4416
$26.13 0.4413
$26.14 0.4410
$26.15 0.4408
$26.16 0.4405
$26.17 0.4402
$26.18 0.4399
$26.19 0.4396
$26.20 0.4393
$26.21 0.4391
$26.22 0.4388
$26.23 0.4385
$26.24 0.4382
$26.25 0.4379
$26.26 0.4376
$26.27 0.4374
$26.28 0.4371
$26.29 0.4368
$26.30 0.4365
$26.31 0.4362
$26.32 0.4360
$26.33 0.4357
USA SHARE USA WARRANT
PRICE EXCHANGE RATIO
--------------------- --------------
$26.34 0.4354
$26.35 0.4351
$26.36 0.4348
$26.37 0.4346
$26.38 0.4343
$26.39 0.4340
$26.40 0.4337
$26.41 0.4335
$26.42 0.4332
$26.43 0.4329
$26.44 0.4326
$26.45 0.4323
$26.46 0.4321
$26.47 0.4318
$26.48 0.4315
$26.49 0.4312
$26.50 0.4310
$26.51 0.4307
$26.52 0.4304
$26.53 0.4302
$26.54 0.4299
$26.55 0.4296
$26.56 0.4293
$26.57 0.4291
$26.58 0.4288
$26.59 0.4285
$26.60 0.4282
$26.61 0.4280
$26.62 0.4277
$26.63 0.4274
USA SHARE USA WARRANT
PRICE EXCHANGE RATIO
--------------------- --------------
$26.64 0.4272
$26.65 0.4269
$26.66 0.4266
$26.67 0.4264
$26.68 0.4261
$26.69 0.4258
$26.70 0.4255
$26.71 0.4253
$26.72 0.4250
$26.73 0.4247
$26.74 0.4245
$26.75 0.4242
$26.76 0.4239
$26.77 0.4237
$26.78 0.4234
$26.79 0.4231
$26.80 0.4229
$26.81 0.4226
$26.82 0.4224
$26.83 0.4221
$26.84 0.4218
$26.85 0.4216
$26.86 0.4213
$26.87 0.4210
$26.88 0.4208
$26.89 0.4205
$26.90 0.4202
$26.91 0.4200
$26.92 0.4197
$26.93 0.4195
F-1
USA SHARE USA WARRANT
PRICE EXCHANGE RATIO
--------------------- --------------
$26.94 0.4192
$26.95 0.4189
$26.96 0.4187
$26.97 0.4184
$26.98 0.4182
$26.99 0.4179
$27.00 0.4176
$27.01 0.4174
$27.02 0.4171
$27.03 0.4169
$27.04 0.4166
$27.05 0.4163
$27.06 0.4161
$27.07 0.4158
$27.08 0.4156
$27.09 0.4153
$27.10 0.4151
$27.11 0.4148
$27.12 0.4145
$27.13 0.4143
$27.14 0.4140
$27.15 0.4138
$27.16 0.4135
$27.17 0.4133
$27.18 0.4130
$27.19 0.4128
$27.20 0.4125
$27.21 0.4122
$27.22 0.4120
$27.23 0.4117
$27.24 0.4115
$27.25 0.4112
$27.26 0.4110
USA SHARE USA WARRANT
PRICE EXCHANGE RATIO
--------------------- --------------
$27.27 0.4107
$27.28 0.4105
$27.29 0.4102
$27.30 0.4100
$27.31 0.4097
$27.32 0.4095
$27.33 0.4092
$27.34 0.4090
$27.35 0.4087
$27.36 0.4085
$27.37 0.4082
$27.38 0.4080
$27.39 0.4077
$27.40 0.4075
$27.41 0.4072
$27.42 0.4070
$27.43 0.4067
$27.44 0.4065
$27.45 0.4062
$27.46 0.4060
$27.47 0.4057
$27.48 0.4055
$27.49 0.4052
$27.50 0.4050
$27.51 0.4048
$27.52 0.4045
$27.53 0.4043
$27.54 0.4040
$27.55 0.4038
$27.56 0.4035
$27.57 0.4033
$27.58 0.4030
$27.59 0.4028
USA SHARE USA WARRANT
PRICE EXCHANGE RATIO
--------------------- --------------
$27.60 0.4026
$27.61 0.4023
$27.62 0.4021
$27.63 0.4018
$27.64 0.4016
$27.65 0.4013
$27.66 0.4011
$27.67 0.4009
$27.68 0.4006
$27.69 0.4004
$27.70 0.4001
$27.71 0.3999
$27.72 0.3997
$27.73 0.3994
$27.74 0.3992
$27.75 0.3989
$27.76 0.3987
$27.77 0.3985
$27.78 0.3982
$27.79 0.3980
$27.80 0.3977
$27.81 0.3975
$27.82 0.3973
$27.83 0.3970
$27.84 0.3968
$27.85 0.3966
$27.86 0.3963
$27.87 0.3961
$27.88 0.3958
$27.89 0.3956
$27.90 0.3954
$27.91 0.3951
$27.92 0.3949
USA SHARE USA WARRANT
PRICE EXCHANGE RATIO
--------------------- --------------
$27.93 0.3947
$27.94 0.3944
$27.95 0.3942
$27.96 0.3940
$27.97 0.3937
$27.98 0.3935
$27.99 0.3933
$28.00 0.3930
$28.01 0.3928
$28.02 0.3926
$28.03 0.3923
$28.04 0.3921
$28.05 0.3919
$28.06 0.3916
$28.07 0.3914
$28.08 0.3912
$28.09 0.3909
$28.10 0.3907
$28.11 0.3905
$28.12 0.3902
$28.13 0.3900
$28.14 0.3898
$28.15 0.3896
$28.16 0.3893
$28.17 0.3891
$28.18 0.3889
$28.19 0.3886
$28.20 0.3884
$28.21 0.3882
$28.22 0.3880
$28.23 0.3877
$28.24 0.3875
$28.25 0.387275
OR ABOVE
F-2
ANNEX G
WASHINGTON BUSINESS CORPORATIONS ACT
CHAPTER 23B.13
DISSENTERS' RIGHTS
SECTIONS
23B.13.010 Definitions.
23B.13.020 Right to dissent.
23B.13.030 Dissent by nominees and beneficial owners.
23B.13.200 Notice of dissenters' rights.
23B.13.210 Notice of intent to demand payment.
23B.13.220 Dissenters' notice.
23B.13.230 Duty to demand payment.
23B.13.240 Share restrictions.
23B.13.250 Payment.
23B.13.260 Failure to take action.
23B.13.270 After-acquired shares.
23B.13.280 Procedure if shareholder dissatisfied with payment or offer.
23B.13.300 Court action.
23B.13.310 Court costs and counsel fees.
23B.13.010 Definitions.
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and
in the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effective date of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be
inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
G-1
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
1989 c 165 Section 140.
23B.13.020. Right to dissent.
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by
RCW 23B.11.030, 23B.11.080, or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the corporation
is a subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to
court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholder to a fraction of a share if
the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
1991 c 269 Section 37; 1989 c 165 Section 141.
23B.13.030. Dissent by nominees and beneficial owners.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this
G-2
subsection are determined as if the shares as to which the dissenter dissents
and the dissenter's other shares were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
1989 c 165 Section 142.
23B.13.200. Notice of dissenters' rights.
(1) If proposed corporate action creating dissenters' rights under
RCW 23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this chapter and be accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.
1989 c 165 Section 143.
23B.13.210. Notice of intent to demand payment.
(1) If proposed corporate action creating dissenters' rights under
RCW 23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights must (a) deliver to the corporation
before the vote is taken written notice of the shareholder's intent to demand
payment for the shareholder's shares if the proposed action is effected, and
(b) not vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) of this section is not entitled to payment for the shareholder's shares
under this chapter.
1989 c 165 Section 144.
23B.13.220. Dissenters' notice.
(1) If proposed corporate action creating dissenters' rights under
RCW 23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
G-3
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
1989 c 165 Section 145.
23B.13.230. Duty to demand payment.
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
stock certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
stock certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
1989 c 165 Section 146.
23B.13.240. Share restrictions.
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
1989 c 165 Section 147.
23B.13.250. Payment.
(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity
for that year, and the latest available interim financial statements, if
any;
(b) An explanation of how the corporation estimated the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
RCW 23B.13.280; and
(e) A copy of this chapter.
G-4
1989 c 165 Section 148.
23B.13.260. Failure to take action.
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing stock certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
1989 c 165 Section 149.
23B.13.270. After-acquired shares.
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
1989 c 165 Section 150.
23B.13.280. Procedure if shareholder dissatisfied with payment or offer.
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under
RCW 23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and
demand payment of the dissenter's estimate of the fair value of the dissenter's
shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within sixty
days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not return
the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
1989 c 165 Section 151.
23B.13.300. Court action.
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to
G-5
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.
1989 c 165 Section 152.
23B.13.310. Court costs and counsel fees.
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
1989 c 165 Section 153.
G-6
ANNEX H
AGREEMENT BETWEEN
MICROSOFT CORPORATION AND EXPEDIA, INC.
THIS AGREEMENT (this "Agreement") is entered into as of July 15, 2001 by and
between MICROSOFT CORPORATION, a corporation organized under the laws of the
State of Washington ("Microsoft"), and EXPEDIA, INC., a corporation organized
under the laws of the State of Washington ("Expedia"). Microsoft and Expedia are
hereinafter referred to as the "Parties."
WHEREAS, the Parties have entered into an Amended and Restated Services
Agreement dated as of January 1, 2001 (the "Services Agreement"); and
WHEREAS, the Parties have entered into a License Agreement dated as of
October 1, 2001 (the "License Agreement"); and
WHEREAS, the Parties have entered into a Map Server License Agreement dated
as of October 1, 2001 (the "Map Server License Agreement", and, collectively
with the Services Agreement and the License Agreement is hereinafter referred to
as the "Agreements"); and
WHEREAS, the Parties have entered into an Agreement and Plan of
Recapitalization and Merger dated as of the date of this Agreement (the "APRM").
NOW, THEREFORE, the Parties hereby agree as follows:
1. The Parties will enter into an agreement amending the Services Agreement
effective as of the Effective Date, as that term is defined in the APRM, to:
(a) extend the Services Agreement with respect to the Services being
provided to Expedia by Microsoft through as of the Effective Date through
September 30, 2002, provided, however that (i) in the event that
Microsoft determines, in good faith and after consultation with Expedia
and USA Networks, Inc., that provision of the Services would be
inappropriate to provide to an unaffiliated third party (e.g., provision
of Services which would pose a security risk to Microsoft's corporate
network, would cause Microsoft to be in breach of an existing agreement
with a third party, or would be unduly burdensome), Microsoft will not be
obligated to provide the inappropriate Services, but Microsoft and
Expedia will in good faith negotiate mutually agreeable accommodations
with respect to such Services, and (ii) Expedia will use its best efforts
to discontinue use of each of the Services at the earliest practicable
date; and
(b) either (i) extend the portion of the Services Agreement that provides
hosting services for Expedia for a reasonable time to be negotiated in
good faith by the parties (which Expedia has requested be until June 30,
2004), or (ii) enter into a separate agreement for the provision of the
same hosting services, on the same terms and conditions as currently
provided for under the Services Agreement, for a reasonable time to be
negotiated in good faith by the parties (which Expedia has requested be
until June 30, 2004).
2. The Parties will enter into an agreement amending the License Agreement
effective as of Effective Date to:
(a) Microsoft itself shall not, nor shall Microsoft grant to (i) any of the
EI Named Competitors as defined in the Amended and Restated MSN Carriage
and Cross Promotion Agreement between the parties, dated June 29, 2001,
or (ii) any CRS (Worldspan, Amadeus, Pegasus, Galileo and Sabre) the
right to use, license or grant a sublicense to the Microsoft Patents. For
purposes of clarity, the parties agree that Microsoft may license any
generally available Microsoft product that is based upon the Microsoft
Patents or provide services related to such
H-1
product, provided that such product or service is not targeted to the EI
Named Competitors or any CRS.
(b) Except for Third Party Software that Microsoft does not have a right to
sublicense or loses such right to sublicense and so long as Microsoft
does not incur any additional cost (administrative or otherwise),
Microsoft shall use reasonable efforts to provide a sublicense to the
Third Party Software for a period of two (2) years from the Effective
Date at the same price that Microsoft or its affiliates pay and shall
continue to pass through any warranties and/or indemnification provided
on the Third Party Software during that time. Expedia will use its best
efforts to obtain the Third Party Software from a source other than
Microsoft as soon as reasonably possible during that period. Microsoft
shall continue to provide Expedia with any and all Updates and Error
Corrections that Microsoft receives for the Third Party Software during
that period.
(c) Except for Third Party Content that Microsoft does not have a right to
sublicense or loses such right to sublicense and so long as Microsoft
does not incur any additional cost (administrative or otherwise),
Microsoft shall use reasonable efforts to provide Expedia with a
sublicense to the Third Party Content for a period of two (2) years from
the Effective Date at the same price that Microsoft or its affiliates
pay, and continue to pass through any warranties and/or indemnification
provided on the Third Party Content. Expedia will use its best efforts to
obtain the Third Party Content from a source other than Microsoft as soon
as reasonably possible during that period. Microsoft shall continue to
provide Expedia with any and all Updates and Error Corrections that
Microsoft receives for the Third Party Content during that period.
3. The Parties agree to use good faith efforts to negotiate and execute a
new Map Server License Agreement between the Effective Date and the Closing
Date, as that term is defined in the APRM.
4. From the date hereof through to and including the closing of the
transactions contemplated by the APRM, the parties shall not amend, waive or
adopt any provision inconsistent with any provision hereof, or terminate this
agreement, in each case, without the prior written consent of USA
Networks, Inc. ("USA"), such consent not to be unreasonably withheld or delayed.
USA shall be a third-party beneficiary of this Agreement solely for purposes of
this Section 4.
5. All capitalized terms not defined in this Agreement shall have the
meaning set forth in the applicable Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
MICROSOFT CORPORATION EXPEDIA, INC.
By By
--------------------------------------- ---------------------------------------
its authorized representative its authorized representative
USA NETWORKS, INC.
By
---------------------------------------
its authorized representative
H-2
ANNEX I
EXPEDIA, INC. 2001 STOCK PLAN
To be filed by pre-effective amendment.
I-1
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Restated Certificate of Incorporation limits, to the
maximum extent permitted by Delaware law, the personal liability of directors
for monetary damages for breach of their fiduciary duties as a director. The
Registrant's Amended and Restated Bylaws provide that the directors, officers
and certain other persons will be indemnified to the fullest extent authorized
by the Delaware General Corporation Law with respect to third-party actions,
suits, investigations or proceedings provided that any such person has met the
applicable standard of conduct set forth in the Delaware General Corporation Law
described below. The Registrant's Amended and Restated Bylaws further provide
that directors, officers and certain other persons will be indemnified with
respect to actions or suits initiated by such person only if such action was
first approved by the board of directors. The Registrant's Amended and Restated
Bylaws allow the Registrant to pay all expenses incurred by a director, officer,
employee or agent in defending any proceeding within the scope of the
indemnification provisions as such expenses are incurred in advance of its final
disposition, upon an undertaking by such party to repay such expenses, if it is
ultimately determined that such party was not entitled to indemnity by the
Registrant. From time to time, officers and directors may be provided with
indemnification agreements that are consistent with the foregoing provisions.
The Registrant believes that these agreements and arrangements are necessary to
attract and retain qualified persons as directors and officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent who was or is a
party, or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he was a director, officer, employee or agent of the corporation or was
serving at the request of the corporation against expenses (including attorney's
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
--- --------
2.1 Agreement and Plan of Recapitalization and Merger, dated as
of July 15, 2001, by and among the Registrant, Taipei, Inc.,
Expedia, Inc., Microsoft Corporation and Microsoft
E-Holdings, Inc. (included as Annex A to the joint
prospectus/proxy statement incorporated as part of this
registration statement).
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2000).
3.2 Amended and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3.1 to Registrant's Form 8-K, dated
January 9, 1998).
4.1 Form of Certificate of Designations, Preferences and Rights
of Series A Convertible Redeemable Preferred Stock.*
4.2 Form of Warrant Agreement.*
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the
legality of the shares being issued.*
II-1
(A) EXHIBITS
--- --------
8.1 Opinion of Shearman & Sterling as to certain U.S. federal
income tax matters.**
10.1 Form of Registration Rights Agreement by and between the
Registrant and Expedia, Inc.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5.1).
23.4 Consent of Shearman & Sterling (included in Exhibit 8.1).
23.5 Consent of Morgan Stanley & Co.
24 Powers of Attorney (set forth on the signature page of this
registration statement).
99.1 Form of Proxy Card of Expedia.*
99.2 Form of Election Form and Letter of Transmittal.*
99.3 Terms of NLG Call Option.
99.4 Terms of Travel Channel Call Option.
99.5 Terms of Media Arrangements in USA Media, LLC.
99.6 Voting and Election Agreement, dated July 15, 2001, between
the Registrant, Microsoft and Microsoft E-Holdings (included
as Annex E to the joint prospectus/proxy statement
incorporated as part of this registration statement).
------------------------
* To be filed by a pre-effective amendment.
** To be filed by a post-effective amendment upon consummation of the merger.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-2
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(e) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(f) That every prospectus: (i) that is filed pursuant to paragraph (e)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(g) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in the documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(h) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 22, 2001.
USA NETWORKS, INC.
By: /s/ BARRY DILLER
------------------------------------------
Barry Diller
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
We, the undersigned officers and directors of USA Networks, Inc., hereby
severally and individually constitute and appoint Julius Genachowski and Michael
Sileck, and each of them, the true and lawful attorneys and agents of each of us
to execute in the name, place and stead of each of us (individually and in any
capacity stated below) any and all amendments to this registration statement on
Form S-4 and all instruments necessary or advisable in connection therewith and
to file the same with the Securities and Exchange Commission, each of said
attorneys and agents to have the power to act with or without the others and to
have full power and authority to do and perform in the name and on behalf of
each of the undersigned every act whatsoever necessary or advisable to be done
in the premises as fully and to all intents and purposes as any of the
undersigned might or could do in person, and we hereby ratify and confirm our
signatures as they may be signed by our said attorneys and agents or each of
them to any and all such amendments and instruments.
* * * * *
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities as of
August 22, 2001.
SIGNATURE TITLE
--------- -----
/s/ BARRY DILLER Chairman of the Board, Chief Executive
-------------------------------------------- Officer and Director
Barry Diller
/s/ VICTOR A. KAUFMAN Vice Chairman and Director
--------------------------------------------
Victor A. Kaufman
/s/ WILLIAM J. SEVERANCE Vice President and Controller
-------------------------------------------- (Chief Accounting Officer)
William J. Severance
/s/ MICHAEL SILECK Senior Vice President and
-------------------------------------------- Chief Financial Officer
Michael Sileck
II-4
SIGNATURE TITLE
--------- -----
/s/ PAUL G. ALLEN Director
--------------------------------------------
Paul G. Allen
/s/ EDGAR BRONFMAN, JR. Director
--------------------------------------------
Edgar Bronfman, Jr.
/s/ ANNE M. BUSQUET Director
--------------------------------------------
Anne M. Busquet
/s/ PHILIPPE GERMOND Director
--------------------------------------------
Philippe Germond
/s/ DONALD R. KEOUGH Director
--------------------------------------------
Donald R. Keough
/s/ GEORG KOFLER Director
--------------------------------------------
Georg Kofler
/s/ MARIE-JOSEE KRAVIS Director
--------------------------------------------
Marie-Josee Kravis
/s/ PIERRE LESCURE Director
--------------------------------------------
Pierre Lescure
/s/ JEAN-MARIE MESSIER Director
--------------------------------------------
Jean-Marie Messier
/s/ WILLIAM D. SAVOY Director
--------------------------------------------
William D. Savoy
/s/ H. NORMAN SCHWARZKOPF Director
--------------------------------------------
Gen. H. Norman Schwarzkopf
/s/ DIANE VON FURSTENBERG Director
--------------------------------------------
Diane Von Furstenberg
II-5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
2.1 Agreement and Plan of Recapitalization and Merger, dated as
of July 15, 2001, by and among the Registrant, Taipei, Inc.,
Expedia, Inc., Microsoft Corporation and Microsoft
E-Holdings, Inc. (included as Annex A to the joint
prospectus/proxy statement incorporated as part of this
registration statement).
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2000).
3.2 Amended and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3.1 to Registrant's Form 8-K, dated
January 9, 1998).
4.1 Form of Certificate of Designations, Preferences and Rights
of Series A Convertible Redeemable Preferred Stock.*
4.2 Form of Warrant Agreement.*
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the
legality of the shares being issued.*
8.1 Opinion of Shearman & Sterling as to certain U.S. federal
income tax matters.**
10.1 Form of Registration Rights Agreement by and between the
Registrant and Expedia, Inc.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibits 5.1).
23.4 Consent of Shearman & Sterling (included in Exhibit 8.1).
23.5 Consent of Morgan Stanley & Co.
24 Powers of Attorney (set forth on the signature page of this
registration statement).
99.1 Form of Proxy Card of Expedia.*
99.2 Form of Election Form and Letter of Transmittal.*
99.3 Terms of NLG Call Option.
99.4 Terms of Travel Channel Call Option.
99.5 Terms of Media Arrangements in USA Media, LLC.
99.6 Voting and Election Agreement, dated July 15, 2001, between
the Registrant, Microsoft and Microsoft E-Holdings (included
as Annex E to the joint prospectus/proxy statement
incorporated as part of this registration statement).
------------------------
* To be filed by a pre-effective amendment.
** To be filed by a post-effective amendment upon consummation of the merger.